David Brooks pronounces the government's bailout of Wall Street a huge success. This is an interesting assessment. It is true that the financial sector profits are at a record high as a share of all corporate profits and the financial sector has reached a new record share of private sector income, and the industry stands to pay record bonuses this year, but these may not be the best measures of success to people other than Mr. Brooks.

There is little doubt that if the government gives enough money to the Wall Street banks that they can stay afloat and prosper, as they have shown. However most taxpayers might have preferred some benefit from the trillions of dollars lent or given to the Wall Streeters other than being able to read about their high lifestyles in the gossip magazines or Goldman Sachs $500 million (@ 2 percent of its FDIC loan guarantee) contribution to charity.

Brooks also wrongly characterizes Treasury Secretary Timothy Geithner's view of government: "you’d probably say that he starts with a set of fairly conservative instincts about the role of government." His actions during the crisis suggest otherwise. He seems to believe that the government is obligated to play a very large role in protecting large financial institutions and their executives from the consequences of their actions. This makes him a classic nanny state conservative.

--Dean Baker

Arghhhhhhh! TARP is a loan program, not a spending program. Let's explain the difference so that even a Washington Post editor can understand it.

A loan is expected to be paid back. When Congress appropriates money for a loan, it does not add to the deficit. The government lends out money, but it owns a loan that it expects to be paid back. The only cost to the government is either any subsidy implicit in the loan or the losses on loans that are not repaid.

The Congressional Budget Office expected the bulk of the TARP money to be repaid, therefore it was never scored as spending. Only the expected losses were scored as spending. Therefore, the Obama administration cannot use unallocated or repaid TARP funds to pay down the debt -- that is what CBO always assumed would be done with the TARP money.

It's a nice trick to claim this, but serious news outlets should not let them the Obama administration get away with such silliness.

--Dean Baker

You can see the hearings live on Thursday, 9:30-11:30 EST. (Yes, I will be testifying).

http://cop.senate.gov/hearings/library/hearing-111909-economists.cfm

That is what readers of Bloomberg's discussion of the debate over auditing the Fed must think. After all, Bloomberg refers to a "Republican" bill with more than 300 co-sponsors. In the 435 seat House, the 300 co-sponsors of this bill would give the Republicans a comfortable majority.

In real world land the Democrats still have a comfortable majority of the house. In fact, the bill to audit the Fed is not a Republican bill. One of the two leads sponsors is Alan Grayson, one of the most progressive Democrats in the House. It was co-sponsored by more than 100 Democrats.

Perhaps Bloomberg can find a reporter who is a bit more familiar with the House to give a serious discussion of this effort to make the Fed accountable to Congress, just like any other government agency

--Dean Baker

An NYT article does a nice job of simply reporting what politicians say as their reason for opposing a public option, instead of doing the mind-reading exercise of telling readers what they think:

"Senator Thomas R. Carper, Democrat of Delaware, said he was trying to devise such an alternative to meet 'centrist concerns about the public option.' Over and over, Mr. Carper said, the centrists have made clear that they do not want to create an insurance plan that is 'government-run or government-funded.'"

The point is that these politicians may oppose a public plan because they have done a careful assessment of its merits and decided that it requires too much government involvement in health care or they may oppose it because they get lots of campaign contributions from the insurance industry (other explanations exist as well). The reporter does not know their true motives, he/she can only know what the politician claims as their motives. This is what they should pass on to readers.

--Dean Baker

The special inspector general found that the New York Fed, then under the leadership of current Treasury Secretary Timothy Geithner, badly botched the bailout of AIG. Its mishandling likely cost taxpayers tens of billions of dollars to the benefit of folks like Goldman Sachs.

This story belonged on the front page. The NYT and WSJ both put in the front page, while Market Place radio made it the lead story. It got page 24 coverage in the Post. The Post is very concerned that increased Congressional oversight will interfere with the Fed's independence.

[Correction: I have been told that this was a page C1 article in the WSJ, not A1.]

--Dean Baker

The Washington Post tells us that the decline in the dollar in recent months: "has raised fears that what has been an orderly decline could become a rout." Really? Who has these fears, what would a dollar rout look like?

I remember reading in the Washington Post and elsewhere how the "Buy American" provisions in the stimulus package were devastating to our trading partners. Of course, these provisions just applied to a few billion dollars of steel and other goods that would be purchased with stimulus money.

Imagine that all imports soared in price by 40-50 percent due to a rout of the dollar. Suppose also that all the goods that everything the U.S. exports (roughly $1.5 trillion a year) were suddenly available in Japan, Germany, Canada and everywhere else at half of its current price, due to a rout of the dollar. No doubt our trading partners would just sit there dumbfounded as their trade surpluses turned into huge deficits, right?

In reality, the story of a dollar rout is absurd. U.S. trading partners would intervene to keep the dollar falling below levels that they considered acceptable to their economies. The dollar rout is simply a scare story that Wall Street people like to circulate for their own ends. The Post should not be repeating this nonsense.

--Dean Baker

Too bad they didn't run things like this during the bubble years. They should also have mentioned rent-based appraisals, but this is pretty good coming from the Post.

--Dean Baker

The NYT has an article reporting on how test results on Zetia, a new cholesterol lowering drug, were hidden or misrepresented. It never mentions the incentives given by patent protection for this sort of corruption. There are alternatives to patent protection for financing drug research. It is remarkable that this never gets mentioned in news reporting. The distortions created by patent protection for prescription drugs dwarf the distortions created by the protectionist measures that "free traders" focus their sights on.

--Dean Baker

The NYT decided to hype the story of China as lender to the U.S. government and told readers that China is going to monitor the government's fiscal situation. It quoted a nameless U.S. government official engaged in talks with the nameless Chinese officials: "they wanted to know, in painstaking detail, how the health care plan would affect the deficit," explaining that: "Chinese officials expect that they will help finance whatever [health care plan] Congress and the White House settle on, mostly through buying Treasury debt, and like any banker, they wanted evidence that the United States had a plan to pay them back."

If China is concerned about being paid back, then they should be asking first and foremost about the U.S. trade deficit. This will be far more important in determining the value of the dollars that China receives back on the money it lends to the Treasury. If the U.S. government had budget surpluses for decades into the future, but it continued to run trade deficits that were comparable to their pre-recession level (6 percent of GDP), then China would be repaid in dollars that are worth far less than the ones it had lent to the government, since the trade deficit would depress the value of the dollar over time.

If China is really concerned about the return on its investment in U.S. Treasury bonds it would be asking about the U.S. trade deficit, not the budget deficit. It would be truly incredible if high level Chinese officials did not recognize this fact.

More likely, the nameless U.S. official has an agenda to push to the public and therefore he/she made assertions about the Chinese that may not be true in order to advance this agenda. Good reporters recognize that political figures have agendas and therefore do not always present information accurately. That is why they do not let them speak off the record unless there is a very good reason.

--Dean Baker

The reason for repeating the obvious is that David Ignatius in the Washington Post is trying to rewrite history on this topic. He belittles people who hold the Fed responsible for the economic downturn:

"With unemployment above 10 percent, the public is angry about last year's financial crunch -- and looking for people to blame. The Fed is just elitist enough, and Bernanke is just enough of a professorial egghead, to make them targets for popular anger."

This absurd condescending comment has no place in a serious newspaper. It would be like writing that "the public is angry about the September 11th attacks and Al Queda and Osama Bin Laden are just Muslim enough to make them proper targets for popular anger."

There may well be an anti-elitist strain to the anger against the Fed and Bernanke, but serious people do not dispute their responsibility for the economic crisis. There was an enormous housing bubble that was easy for competent economists to recognize. It was inevitable that it would collapse and that its collapse would lead to a serious downturn. Bernanke and the Fed allowed the bubble to just continue to expand until it collapsed of its own weight instead of using the powers of the Fed to rein it in before it grew to dangerous levels. All of this is entirely clear to those who know the history, even if the facts may be confused in the minds of the Post's columnists.

(Just to be clear, the Fed did not plan the collapse of the bubble and the downturn in the way Al Queda planned for thousands of people to die in the September 11th attacks.)

Dean Baker

It seems that this could be the case. Even in an article that discusses ways in which M.I.T. is trying to make the patent system less inefficient there is no mention of any alternative to patent support for financing drug research.

It's good to see that M.I.T. is devoting its resources to reducing the inefficiency of the patent system, but its efforts would probably be better directed towards developing alternative mechanisms, that assumes that M.I.T. is not also prohibited from discussing alternatives.

--Dean Baker

It is at USA Today, unfortunately. Brings back memories of the National Association of Realtors' former chief economist, David Lereah.

--Dean Baker

People reading the NYT article on European economic growth saw that GDP in France grew by just 0.3 percent in third quarter, by 0.7 percent in Germany, and by 0.4 percent for the euro zone countries taken as a whole. If that sounds very weak, it is because these numbers are expressed as quarterly growth rates, which is the standard practice in Europe.

However, in the United States, the standard practice is to express GDP growth numbers at annual rates. No one ever reports GDP as a quarterly growth rate. Since the point of the news story is to provide accurate information to readers, why not just report the European growth numbers as annual rates? Multiplying by four will do the trick. (Actually, we should take the growth number to the fourth power, but for these numbers the result will be the same.) There is no excuse for not reporting data in the way that makes it most understandable to readers.

--Dean Baker

NYT reporters should know that Germany counts workers who have part-time employment, but desire full-time employment, as being unemployed. This is different from the U.S. (and international) methodology, which counts these people as being employed.

This means that when the NYT tells readers that Germany had an unemployment rate in the 3rd quarter of 8.2 percent, it is misinforming them. The NYT could have reported the internationally comparable 7.6 percent unemployment rate for Germany with a quick trip to the OECD website.

--Dean Baker

The NYT had a piece discussing congressional actions to determine whether fees being tacked on by airlines are actually just concealed fare increases. If this is the case, then they may be allowing airlines to circumvent taxes that are based on air fares.

According to the article, such an effort to conceal fee hikes could be depriving airports of as much as $225 million a year in tax revenue. However, the article passes on the airlines' warning that if these fees were also subject to taxes, then this would be passed on to consumers.

How worried should consumers be about this prospect? Last year, consumers spent more than $50 billion on air travel, according to the Bureau of Economic Analysis. (This doesn't include business travel.) This means that if taxes on the fees were fully passed on to consumers, then it would raise fares by about 0.4 percent. Assuming business travelers shared the burden, the increase would be considerably less.

--Dean Baker

Gravity causes objects to fall. However, some items will fall faster than other because something called "friction."

This would no doubt leave the WSJ hugely confused. It tells readers today that: "Recent academic research has raised questions about just how exchange rates affect trade. Suffice it to say the relationship is complex."

Yeah, the rate at which import prices rise and the resulting falloff in demand will vary by country and company. The same applies to exports. But the relationship between the price of the dollar and the trade balance is sort of like the relationship between wealth and consumption, the relationship between investment and productivity growth, the relationship between education and income. It is not always the same everywhere, but serious people don't doubt its existance.

Btw, the WSJ's comment that: "But exports grew in the 1990s, even as the dollar strengthened, notes Brown Brothers Harriman currency strategist Marc Chandler" is too silly to appear in a serious newspaper. The trade deficit exploded during this period, as people who understand economics would have expected. The fact that exports also expanded is almost completely irrelevant to anything. One of the big reasons that exports expanded is that when U.S. firms outsource production, this often means exporting intermediate goods to be assembled in other countries.

For example, U.S. exports of car parts to Mexico soared following NAFTA. The parts did not go for Mexico's domestic consumption, they were used to assemble cars that were exported back to the United States. The WSJ should understand this relationship.

--Dean Baker

That's right folks. Alan Greenspan and Ben Bernanke somehow couldn't see a housing bubble over the years 2002-2006 even as it grew to $8 trillion, threatening the U.S. and world economy. But, NPR goes them one better. It still hasn't noticed the housing bubble.

Morning Edition had a segment on consumer spending which never once mentioned the generation of $8 trillion in housing wealth by the bubble and the subsequent loss of close to $6 trillion in wealth as the bubble collapsed. This matters because of the housing wealth effect. This is usually estimated at between 5-7 cents on the dollar, meaning that homeowners will increase their annual consumption by between 5 and 7 percent of their housing wealth.

That implies that the bubble generated between $400 billion and $560 billion of annual consumption. With the loss of housing bubble wealth, we should expect consumption to fall back by roughly this amount. (The loss of $6 trillion in stock wealth would amplify this effect.)

But, that's not what they say at NPR. At NPR it is just a matter of consumer attitudes. This piece is a serious entry for the Pulitzer for bad reporting.

--Dean Baker

Not according to the Washington Post. The Washington Post raises the concern that Congress may exert may oversight of the fed in response to the economic crisis and therefore that there will be political interference in the Fed's conduct. While Congress is obviously a political institution, the Fed was arguably over-responsive to the interests of the financial sector in prior years, acting in their best interest rather than in the interest of the economy as a whole.

This is most obvious in the case of the housing bubble, where the Fed allowed it to grow to levels that imposed an enormous danger to the economy. It is possible that Alan Greenspan, Ben Bernanke and other top Fed officials were so incompetent that they did not recognize the housing bubble and the dangers it posed. However, it is likely that it was easier to ignore the risks posed due to the fact Wall Street financial firms were making enormous amounts of money on securitization, derivative issuance and trading, and other transactions that fed the bubble.

Prior to the bubble, the Fed arguably was far more concerned about inflation than would have been warranted by a realistic assessment of the evidence of the risks posed by inflation. While even modest increases in the inflation rate can be very bad news for the financial sector (it reduces the value of their long-term loans), they have little consequence for the economy as a whole. The excessive influence of the financial industry on the Fed may have caused it to focus too much on keeping inflation low and insufficient attention to its other explicit goal, reaching 4.0 percent unemployment.

In this context, increased congressional oversight is not politicization. It is simply replacing the Fed's excessive concern with the interests of the financial sector with the requirement that it respond to a larger group of economic interests. This possibility is never mentioned in the discussion in the Post.

--Dean Baker

The NYT told readers that wages in the United States are out of line with the rest of the world. The basis for this assertion is that the U.S. has a large trade deficit.

The deficit does provide evidence that prices in the U.S. are out of line, but it doesn't necessarily tell us anything about wages. First and most immediately, it suggests that the dollar is over-valued (a point noted in the column). The real value of the dollar is still up from its levels in the mid-90s. A lower valued dollar will reduce wages in the U.S. relative to our competitors, but it will have only a limited impact on real wages in the U.S. (Import prices will rise, which will lead to a limited drop in real wages. For example, if import prices rise by an average of 15 percent, this will lead to a fall in real wages of 2.4 percent.)

It is also possible that U.S. goods are not competitive because profits are too high. The profit share of income had risen over the last three decades, so one could plausibly argue that excess profits are making U.S. goods less competitive. We could also argue that the inefficiency of the sectors of the economy that are protected from foreign competition -- most notably health care -- is driving up the price of U.S. goods and making them uncompetitive. In that story, the problem is not the wages of auto and textile workers, but of doctors and hospital administrators.

--Dean Baker

Yes folks, according to the Washington Post, if the banks don't get to call the shots, then it's politicization. This is not a joke, that is exactly what the Washington Post said in an editorial about Senator Dodd's plan to have the Fed's district bank presidents approved by Congress rather than the banks in the district.

In Washington Post land if we let Pfizer and Merck appoint the directors of the Food and Drug Administration, then we can depoliticize the FDA. We can let Disney and Time-Warner appoint the directors of the Federal Communications Commission to depoliticize the FCC. It's an interesting conception of government.

--Dean Baker

Presumably because someone at the NYT doesn't like it. Obviously, there are pragmatic reasons for not including a public plan -- like the power of the insurance industry to block reform, but it is not clear why the NYT decided that supporting a mechanism that is widely recognized as controlling costs is ideology.

--Dean Baker

It is truly remarkably that in a country where the political elite is so completely committed to "free trade" that discussions of health care never include any mention of trade as a way to reduce health care costs. It would be hard to imagine more blatant class bias. With millions of seniors already retiring to other countries, this number can be expanded enormously, with trillions of dollars of savings to the U.S. government, by allowing seniors to get a voucher for their Medicare that lets them to buy into the health care systems of other countries and split the savings with the government. (Trade is used to depress the wages of textile workers and auto workers, never doctors and hospital administrators.)

--Dean Baker

I've pointed out many occasion in which Washington Post columnist Robert Samuelson has gotten things wrong, so I will give him credit for getting one right. He took issue yesterday with Nouriel Roubini's claims that the economy is facing renewed bubbles in stocks and commodities.

Samuelson looks to the fundamentals (what an extraordinary idea) and points out that stock and commodity prices don't seem especially high. He is right.

I should qualify this comment by noting that the recent run-up in the stock market may have been driven by some irrational exuberance about the strength of the recovery. That doesn't mean that stock prices are over-valued; the plunge earlier this year was driven by irrational pessimism, but there could well be some serious dips when Wall Street investors learn about the real strength of the economy.

--Dean Baker

The WSJ is shooting for a Pulitzer for journalistic incompetence. It ran a piece discussing the Obama administration's efforts to boost the economy with increased exports and never once mentioned the value of the dollar. The value of the dollar is the main determinant of the price of U.S. exports in other countries. If the dollar falls in value, the price of U.S. exports declines measured in the currency of other countries.

It is hard to understand how the WSJ could run a piece discussing exports without ever mentioning currency values. This would be like General Electric planning its model line without ever considering the prices it charges for its products.

Perhaps this analogy is not too far from reality. The article concludes with an exhortation for increasing exports from GE CEO Jeffrey Immelt. Immelt is cited as saying that exports constitute 7 percent of U.S. GDP. Actually, the U.S. exports almost 11 percent of its GDP, a figure that is 50 percent higher.

--Dean Baker

The NYT told readers that: "currency is usually regarded as a barometer of a country’s economic conditions. The stronger the currency, the thinking goes, the stronger the economy, and visa versa."

Is that so? Do people view China's economy as weak? Was the U.S. economy seen as weak in the years 1993-1995 as the recovery took off and the dollar fell in response to Bill Clinton's deficit reduction package? This link between the value of a currency and the strength of the economy is the invention of the NYT. It has no basis in economics. There are many pathetically weak economies with over-valued currencies. This fact is well-known.

--Dean Baker

Bloomberg has a nice piece documenting a number of instances in which drug companies have promoted their drugs for uses not approved by the Food and Drug Administration and it harmed or killed patients. The part missing from this discussion is any discussion of the perverse incentives that patent monopolies create for promoting off-label uses. This is a strong argument for using alternative methods for financing research. By contrast, the article indicates that we have to hope that: "that drug companies actually honor the promises they keep making."

--Dean Baker

The Post endlessly pushes the line that the only way that the government affects the distribution of income is with its tax and spending policy. Of course, these are probably the least important influences. The Fed's emergency loans and the TARP loans (which did not count as spending) ensured that the Goldman Sachs folks and the rest of the Wall Street crew are still incredibly rich. The government's patent and copyright protections make the drug companies and Bill Gates rich. The government's protection for doctors, lawyers and other highly educated professions ensure that they will enjoy relatively high pay at the expense of more moderate income families.

The Post might not like the public to think about all the ways that the government affects economic outcomes, but the reality is that tax and spending policy is only one factor.

--Dean Baker

The Post misinformed readers this morning by telling them that the 10.2 percent unemployment rate reported for October was a: "was a reminder of how far off they were in their early predictions about the impact of the stimulus bill passed earlier this year."

Actually, the Obama administration, like CBO and most private forecasters, underestimated the severity of the downturn. There is no credible evidence that overestimated the effectiveness of the stimulus. In other words, there is no evidence (or even a credible story) that the unemployment rate would be lower if without the stimulus. There is also no reason to question the fact that the stimulus did in fact lower the unemployment rate by roughly the amount predicted by the Obama administration.

--Dean Baker

It would have been wrong for the NYT to make this sort of assertion about the basis of Senator Lieberman's opposition to a public pan, even though it make be accurate. However, it is equally wrong for it to assert, as it did, that Lieberman was opposed to plan with a state op-out because: "even that is too much government involvement for moderates like Senator Joseph I. Lieberman."

The NYT can report what Lieberman says. It does not know the actual basis for his actions. The reason as given by politicians are often not the true reasons and it is wrong to tell readers that they are.

--Dean Baker