It isn't a secret to those of us who read newspapers that President Obama wants to reform health care. So where does the NYT get off printing a comment from someone working for Peter G. Peterson saying about health care costs that: "he hasn’t addressed that issue yet?"

Peterson and his crew are apparently willing to say anything to advance their agenda of cutting Social Security and Medicare. That is their right. However, the NYT does a serious disservice when it reports blatantly untrue comments as though they are reasonable claims about the world.

--Dean Baker

Given the horrible news on unemployment claims and durable good orders, reporters can perhaps be forgiven for largely missing the most striking piece of economic data released yesterday. The Census Bureau reported that the median price of new homes fell by 10.0 percent in January from December.

This is a truly incredible rate of price decline. While the data is erratic, even if the decline was only half this large, a 5 percent single month decline in house prices is enormous. This suggests that house prices are in a free fall. (I remember all those brilliant economists -- first and foremost Alan Greenspan-- who assured us that house prices aren't volatile like stock prices, and would always decline slowly if they fell at all.)

One should be always careful about making too much of a single month's data, but it is worth noting that this is the most current series on housing prices. The new home sales reports prices that are contracted, not sales prices. Since there is typically a 6-8 week period between sales and closing, the series that are based on sales prices are reflecting contracted prices from almost two months earlier.

--Dean Baker

That may be understandable, given the country's current political make-up, but maybe they should have tried harder. NPR did manage to find Douglas Holtz-Eakin, John McCain's chief economic advisor, and Maya Macguineas, the president of Committee for a Responsible Federal Budget, but no Democrats. Maybe if they start looking now they can find a Democrat for the next budget story.

--Dean Baker

The government is handing even more money to Citigroup and the NYT is doing its best to cover up. The NYT reports on the fact that the government's preferred shares in Citigroup are being converted to common shares at a price of $5 per share, more than twice the market price.

The article describes this move as, "giving taxpayers more risk, but more potential for profit if the company recovers." This is extremely misleading. At the point of the transaction, the government is effectively losing half of its money, which had already been invested at a return that was far below market rates.

At one point the article notes that the government holds controlling stakes in Fannie Mae, Freddie Mac, and AIG. It then tells readers that "none of those deals have turned out well," implying that government control has caused the losses at these institutions to be larger than they would have been otherwise.

It is unlikely that they would find any economists who would make this claim. All of these institutions had enormous losses locked in at the point where the government took them over. It is true that the Bush administration underestimated the size of these losses, but if the government's control has increased the losses at these institutions, it is not clear how.

--Dean Baker

NPR helped a blackmail effort, as it was accurately described by MIT economist Simon Johnson, by telling us that we will have to pay huge amounts of money to rescue the banks. While it gave Johnson a brief chance to make his case, the piece concluded by telling listeners that "the problem is us," that we had borrowed too much and therefore we have to pay the cost in the form of big taxpayer bailouts.

Okay, this is wrong, wrong, and wrong. First, the excessive borrowing wasn't just shear frivolity, it was attributable to something that got very little notice from NPR at the time and unfortunately still gets very little notice from NPR: an $8 trillion housing bubble.

People borrowed against this bubble wealth because the experts that NPR and other media outlets present to the public all said that this run-up in house prices was real and would persist. Economists who warned about the housing bubble were almost completely excluded from NPR.

Because NPR and the media more generally led homeowners to believe that the run-up in house prices would persist, people acting in a way that was entirely reasonable given this view. If the price of their home had gone from $200,000 to $400,000, many homeowners opted to borrow some of this equity to take vacations, buy a car, pay for their children's education or engage in other spending. They may also have stopped contributing to retirement accounts because their home was saving for them.

The problem was not "us," the problem was the experts who run our economy were unable to see an $8 trillion housing bubble and the reporters who cover the economy largely refused to talk to any of the experts who could have pointed this out.

These reporters now want the taxpayers rather than the bankers, who profited from the bubble, to pay for this failure. This NPR piece is identified as being "Planet Money." That may be appropriate because most listeners probably would not think it belongs on Planet Earth.

--Dean Baker

The New York Times continues the media effort to discuss policy debates in ideological clothing that does not fit. When discussing President Obama's budget, the NYT tells readers that: "departing from the free market orthodoxy of his predecessor, George W. Bush, Mr. Obama would use the government’s powers of spending and taxation to push the private market in new directions."

George W. Bush put in a Medicare program that gave private insurers subsidies of approximately 11 percent per beneficiary to make them better able to compete with the publicly run program. He also created a prescription drug program within Medicare that allowed the pharmaceutical industry to further benefit from government patent monopolies by prohibiting Medicare from taking advantage of its market power to negotiate lower prices.

These policy moves, along with many others taken by President Bush, were not consistent with free market orthodoxy. They were consistent with an agenda of helping powerful corporate lobbies. It is understandable that President Bush might justify policies intended to help powerful special interests by an appeal to "free market" ideology, but reporters should not tell readers that this is the actual motivation for his actions, especially when his claim does not appear to be supported by the evidence.

--Dean Baker

In discussing President Obama's budget, the Washington Post (a.k.a. Fox on 15th Street) tells readers that: "some economists worry that even in 2011 the economy may be too fragile to absorb a tax increase." It then tells adds "some Democrats joined Republicans in complaining that the budget plan does not go far enough to narrow the yawning budget gap."

While no economists are identified with the view that President Obama's tax increases on the wealthy in 2011 will harm a fragile economy, the article does not discuss at all the economic impact of the cuts in spending that "some Democrats" and Republicans apparently favor. The multiplier for almost possible spending cuts would be considerably larger than the multiplier for the tax increases on the wealthy. Any economists who were concerned that tax increases in 2011 could harm a still weak economy would almost certainly be much more concerned about the prospect of spending cuts in that year.

--Dean Baker

The media have largely missed a fascinating story in the National Association of Realtors (NAR) existing home sales data. In the last two months, the inventory of existing homes for sale has fallen by 563,000 (13.5 percent) even as home sales have been near 20 year lows.

This would appear perverse. It implies that homes are being placed on the market at extraordinarily low rates. Given the sharp surge in job loss over the last four months, it seems unlikely that fewer people want to sell their homes.

There are two possible explanations. First, many foreclosed homes don't appear in the realtors' data. It is possible that we are seeing more bank owned properties that are being sold at auction, but are not listed as inventory. In that case, the NAR data is becoming a less accurate measure of inventory.

The other possibility is that many would be home sellers are holding back in the expectation that the market will improve. This would imply that the market may be flooded with homes at some point in the future, as soon as it shows any sign of an uptick. That is also not a terribly good story for those hoping for prices to stabilize any time soon. It likely also means a rather unhappy story for those opting to wait. They may be looking at much lower prices when they do eventually put their homes on the market.

--Dean Baker

Read it and weep. The NYT tells us that the baseline scenario for the stress tests is that the unemployment rates rises to 8.4 percent and home prices fall 14 percent. The worst case scenario is that unemployment rises to 8.9 percent and house prices fall 22 percent.

Okay, unemployment will almost certainly reach 8.0 percent and possibly 8.1 percent in February. It might cross 8.5 percent in March. The worst case scenario is that it hits 8.9 percent by the rest of the year?

Remember, this is the same crew that told us that there was no housing bubble. When it became clear that there were serious problems, they assured us that they would be contained in the subprime market. After Bears Stearn collapsed they told us that they didn't see another Bear Stearns out there.

These stress tests indicate that our economic policy makers are still in a serious state of denial. Why isn't the media ridiculing them and telling the public that the folks making economic policy still don't understand the economy.

--Dean Baker

In this first clip, Dean argues that it is the Federal Reserve's responsibility to prevent bubbles -- even if it happens to make the job of a central banker more difficult:

He also comes to the defense of job creation programs:

Watch the whole thing here.

--The Editors

The NYT piece on bailout III for Citigroup looks like it was written by Citi's lobbyists. The piece never once points out that the government has handed tens of billions to Citigroup for almost nothing. Let me say that about six more times: the NYT article on the latest Citi bailout never once points out that the government has handed tens of billions to Citigroup for almost nothing. The NYT article on the latest Citi bailout never once points out that the government has handed tens of billions to Citigroup for almost nothing. The NYT article on the latest Citi bailout never once points out that the government has handed tens of billions to Citigroup for almost nothing.I suppose tens of billions for Citi doesn't deserve as much attention as $50 million for the National Endowment for the Arts or $25 million for the Smithsonian.

The article even includes a bizarre statement to discourage those who oppose welfare for the super-rich: "Nationalizing Citigroup outright would be a huge challenge, given the company’s size and international sweep. In countries like Mexico, for instance, a state-controlled bank might run afoul of local ownership regulations."

This could almost be a line in a comedy routine -- Mexico is going to keep the United States from putting a bankrupt bank in receivership. It's too bad that the NYT didn't identify anyone who made such a statement, we all could ridicule this person until they faded from public life.

It's time that the media stopped covering up for Wall Street. The issue is not "nationalization," the issue is a bankruptcy type receivership for insolvent banks. It is absurd to pretend that this is prevented by trade agreements or anything other than the power of the shareholders and executives who run these banks.

--Dean Baker

The coverage of the negotiations over switching the government's preferred shares in Citigroup to common shares has been awful. It treats this issue as a purely technical question. It isn't. It is a question about handing taxpayer dollars to Citigroup's shareholders and top executives.

The government originally lent $25 billion to Citigroup at below market interest rates in the first wave of TARP lending. In December, it lent another $20 billion and guaranteed $300 billion in bad assets. (The guarantee was almost certainly worth more than $30 billion annually, given the quality of the assets.) On that day, $20 billion would have been sufficient to buy Citi in its entirety on the stock market.

So the question is, how can the taxpayers own anything less than 100 percent of Citi, if its preferred shares (the form of the loans) are converted to common shares? Why is this anything other than a huge gift to Citi's shareholders and top executives?

I was just at a White House conference listening to a lot of people talking about cutting Social Security and Medicare benefits for retirees. How can the same government that hands tens of billions of dollars to Citi's shareholders and top executives cut key benefits for the retirees? Why aren't the news reports calling attention to this massive give away to some of the nation's richest people?

--Dean Baker

That's the word according to AP. According to the article, Clinton encouraged the Chinese government to keep buying U.S. Treasury bonds. This is the mechanism through which the Chinese government keeps down the value of the currency or "manipulates" its currency, in the words of some commentators. Buying U.S. government bonds keeps up the value of the dollar and depresses the value of China's currency.

--Dean Baker

That is about the only thing that readers can learn from an article on Japan in the business section today. The article includes a variety of complaints about Japan's economy, many of which are contradictory. For example, the chart accompanying the article complains that consumers are "neither spending nor saving."

This is bizarre, because saving simply means not spending, so, if consumers are not spending, then by definition they are saving. In fact, this chart shows a big increase in consumption over the last twenty years with the saving rate having fallen from more than 15 percent in 1985 to about 4 percent in 2005. The article later complains that consumers are not spending because they don't have confidence in the country's pension system (which it tells us is a warning to the United States), but it is not clear how much lower they would want the saving rate to go. (The chart shows that nominal consumption has fallen by more than household income, which implies that either taxes have increased or the data in the chart is inaccurate.)

The article also repeats the standard line about people not spending because deflation means that goods will be cheaper in the future if they wait. It is questionable how much of a factor this dynamic really is. Japan's deflation was generally less than 1.0 percent. This means that a consumer who was considering buying a $600 television would save approximately 50 cents by delaying the purchase a month. They could save $6 if they delay it a full year.

It seems unlikely that many people would delay purchases of big ticket items for such modest savings (computer prices in the United States have been falling more than 15 percent annually for two decades), and the savings on smaller items would be virtually undetectable.

--Dean Baker

As a result of its cost-saving merger of the editorial and news section, the Post continued to hype its push for cutting Social Security and Medicare in the news section. Among other things, it described the Peter G. Peterson Foundation as an organization which "advocates for federal fiscal responsibility."

It is so nice that the Post likes the Peterson G. Foundation, but serious newspapers keep their words of praise in the editorial section. (For the record, the Center for Economic and Policy Research is an organization exists to "promote democratic debate on the most important economic and social issues that affect people's lives." We have never once been described that way in a news article.)

The Post also tells readers that:

"Absent dramatic action or an economic miracle, trillion-dollar deficits are projected to persist throughout the coming decade, by some estimates, and the bills are forecast to run headlong into the skyrocketing costs of caring for the retiring baby boom generation."

Did everyone catch that? This statement is based on "some estimates." Well, we all should take some estimates very seriously.

Finally, this article never once notes that the baby boom cohorts have just lost trillions of dollars in housing and stock wealth with the collapse of the housing bubble and the stock market plunge. This is to the enormous benefit of younger generations who will be able to buy homes and stock at huge discounts compared to the prices they were looking at just two years ago.

It is astounding that a newspaper could have a piece devoted to questions of generational equity and never even note this enormous transfer of wealth from older generations to younger ones.

--Dean Baker

The Facts:

The week that Lehman Brothers went under and AIG collapsed, Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben Bernacke wne to Congress and told the leadership that the financial system was collapsing and that Congress had to take immediate action to avert economic collapse. That weekend, Secretary Paulson put in a request for $700 billion for a bailout program with no strings attached.

Over the next two weeks Congress debated the bill, adding some provisions that were ostensibly designed to constrain Treasury for example by limiting executive compensation at the banks getting public funds and also limiting the extent to which banks could profit off these funds. Many members of Congress, and millions of people across the country, objected that the restrictions were inadequate. Congress ended up approving the bill, based on the claim that the need for the money was urgent and there was insufficient time to produce a better bill.

One of the important factors behind the urgency was the claim that even healthy non-financial companies (e.g. Verizon or Boeing) could not borrow in commercial paper markets to get the credit they needed to meet their payrolls and pay their other bills. Ben Bernanke contributed to this view when he answered a question at a press conference:

"I see the financial markets as already quite fragile. The credit markets aren't working. Corporations aren't able to finance themselves through commercial paper."

The weekend after Congress passed the TARP, Bernanke announced that the Fed would begin to directly buy the commercial paper of non-financial corporations.

The Conspiracy Theory:

Bernanke was working with Paulson and the Bush administration to promote a climate of panic. This climate was necessary in order to push Congress to hastily pass the TARP without serious restrictions on executive compensation, dividends, or measures that would ensure a fair return for the public's investment.

Bernanke did not start buying commercial paper until after the TARP was approved by Congress because he did not want to take the pressure off, thereby leading Congress to believe that it had time to develop a better rescue package.

New Evidence for the Conspiracy Theory.

At a speech at the Press Club this week, Bernanke was asked why he waited until after the TARP was approved before he began buying up commercial paper of non-financial corporations. He responded:

"Well, look at the calendar. The financial crisis intensified in mid-September and got worse to the point where there was a huge global financial crisis in early October. During that interim, Congress passed the Emergency Economic Stabilization Act, which includes the TARP. And that TARP, the money there was very useful in helping to stabilize the banking system in early October. There was this critical moment. I think it was about the 14th of October, following a G7 meeting here in Washington, where not The United States but countries around the world took very strong actions in terms of capital, in terms of guarantees and other actions to try to stabilize the world banking
system.

It was during this period that the commercial paper market and the money markets, money market mutual funds showed the worst stress. It was in those 18 weeks that that stress appeared and those markets began to dysfunction. And we can't set these programs up immediately. It takes a bit of time to get them structured legally and to arrange for the market terms and to work with market participants and so on. But we got it going actually quite quickly. It's been now more than three months since the commercial paper facility has been functioning. And it seems to have had notable impact on both commercial paper rates and on the terms of finance available."

This statement, that the commercial paper market first seized up in October would seem to contradict Mr. Bernanke's statement of September 24th: "Corporations aren't able to finance themselves through commercial paper."

The question here: why aren't any reporters asking questions about this?

--Dean Baker

At a time when the unemployment rate is about to shoot past 8 percent, the Washington Post tells us that the deficit projections are "ugly" in the first sentence of a news article. Since budget deficits are the only tool available to fight mass unemployment, some might people might view these deficits, and in fact even larger deficits, as quite beautiful.

More important than the choice of adjectives was the Post's assertion in the last paragraph that the deficit may make it more difficult for President Obama to follow through on his campaign promises, and specifically lists extending health care coverage. Of course Obama had always proposed extending coverage as part of a larger process of health care reform. The purpose of this reform was to get U.S. costs more in line with costs elsewhere in the world. If the reform succeeded then the government would be spending less on health care, not more.

--Dean Baker

Most people probably missed the incredibly bad news on industrial production that the Fed released on Wednesday because the media gave it very little attention. The Fed reported that output in manufacturing fell 2.5 in January. It revised the December decline downward by 0.6 percentage points to 2.9 percent.

This puts that annual rate of decline over the last three months at an incredible 26.7 percent. The rate of capacity utilization in manufacturing is now 68.0 percent, far lower than at any point since 1987, when the current series began. This rate of utilization is almost certainly lower than the troughs of 1981-82 recession, and will certainly fall lower in the months ahead.

This is seriously bad news, but most people probably did not hear about it, perhaps because the media were reporting on people whining about the entitlement crisis.

--Dean Baker

Morning Edition had a piece on the long-term budget problem and never once referred to health care. That's sort of like discussing the rise in death rates in the the early 1940s without mentioning World War II. As everyone who knows anything about the budget knows, the long-term deficit story is health care, health care, health care. If the economists and policy makers were not such hard core protectionists, this problem would go away tomorrow.

--Dean Baker

The Post might have asked House Minority Leader John A. Boehner that question when he complained about the Obama administration's plans to raise the amount of capital put into the mortgage giants from $200 billion to $400 billion. Since these companies are currently in government conservatorship, with the shareholders having lost almost all their ownership stake, and the executives replaced by the government, it is not clear who Mr. Boehner thinks is being inappropriately rewarded by this action.

It would have been helpful to Post readers if he had been asked this question.

--Dean Baker

NPR presented an expert asserting that the taxpayers would be liable for all bank debt when it takes over bankrupt banks. This is not true. The government has no legal liability for the bad debt of bankrupt banks. It has generally honored not only the deposits but also the bonds of banks that were taken over by the FDIC, but it has no obligation to do so. If the current crisis leaves such a large volume of bad bank debt, it would be under no legal obligation to repay all of this debt at 100 cents on the dollar (presumably it would make owners of subordinated debt take the first hit).

--Dean Baker

We know that the people who run Citigroup, J.P. Morgan, Wells, and other major financial institutions may not be the sharpest knives in the drawer, but how much do taxpayers have to cough up to make up for their ineptitude? David Leonhardt's discussion of housing bailout plans never seems to consider the possibility that we would just let large numbers of foreclosures occur and let the banks eat their losses.

Yes, many, if not most, of the banks will go under. So what? Why should taxpayers support convoluted schemes to protect these bank executives and their shareholders from their own ineptitude. We can protect homeowners by simply giving them the right to stay in their home as renters following foreclosure. It's a simple, costless and bureaucracy-free solution, but it screws the banks. So, the folks in Washington and the media apparently are not interested.

--Dean Baker

Washington Post columnist Anne Appelbaum used her column today to whine about the growth of protectionism. Remarkably, she managed to overlook some of the most obvious and costly forms of protectionism.

For example, she complained that German banks, which are partly owned by the government, are giving subsidized loans to German firms. However, she somehow failed to notice that the United States is giving $700 billion in government subsidized loans to its banks from the Treasury and trillions more through the Fed. These loans are supporting the jobs of highly paid bankers who might be unemployed if the situation was left to the market.

The government is also maintaining its protection for the pharmaceutical industry, by providing patent monopolies. It is a continuing thrust of trade policy to increase the extent of this protection in other countries.

Of course higher-paid workers continue to enjoy protection in the form of licensing and professional barriers that prevent them from having to compete directly with their counterparts in the developing world.

Economic models do not care about the class of the person enjoying protection. Protection for bankers, doctors, and lawyers affects the economy in the same way as protection for autoworkers. The graphs used to model the impact are exactly the same. The difference is that the cost of protection for highly paid workers is almost certainly much greater and the "free traders" never talk about it.

--Dean Baker

In an article discussing the concern of many liberals that the stimulus package was not large enough, the Post describes the output gap as $2 trillion. Actually many economists have put the gap in GDP over the next two years at more than $2.5 trillion. In fact, this figure is consistent with the Congressional Budget Office's projections as well.

--Dean Baker

USA Today had an article telling readers that even small banks will be affected by the provision limiting executive salaries to $500k for banks that get federal bailout money.

The gist of the article is that this is a bad thing. It gives the example of Old National Bancorp CEO Robert Jones, who was paid $1.5 million in 2007 and will get up to $6 million if his job is terminated. The article goes on to describe Old National Bancorp as a "tiny bank," with assets of just $8 billion.

Old National Bancorp is indeed a small bank compared with giants like Citigroup or J.P. Morgan. If the pay and golden parachutes of the top executives at these institutions were the same proportion of their assets, their top executives would be earning more than $300 million a year and could expect a golden parachute of more than $1 billion if they were terminated.

If the pay caps discourage Old National Bancorp and other small banks with overpaid executives from seeking capital from the federal government, then it will impede their growth. This will allow banks with more market oriented compensation packages for top executives to grow at the expense of the banks with highly paid executives.

This would be an unexpected dividend from Senator Dodd's pay provision.

--Dean Baker

Okay folks, this is 2-year stimulus, not a 1-year package. (Actually, as the Republicans were fond of pointing out, much of the spending will not take place until 2011, year 3 of the package.) That means that there is a word to describe the Post's claim that the package is more than 5 percent of GDP: "wrong."

Of course, if the Post was interested in accurate reporting it might also have noticed that the package saved the government $140 billion by reversing a change in the tax code put in place by Treasury Secretary Henry Paulson that allowed banks to write off the bad debts of banks that they acquire. That would substantially reduce the long-term cost of the stimulus.

If might also have been helpful to put some of the items highlighted by Republicans in context so that their importance would be clearer to readers. The $198 million for Filipino World War II veterans comes to 0.024 percent of the stimulus package. The $50 million for the National Endowment of the Arts is 0.006 percent and the $25 million for the Smithsonian is equal to 0.003 percent of the stimulus.

--Dean Baker

Probably not, since it has no interest in health care reform that could jeopardize the incomes of the insurance industry, the health care industry and highly paid medical professionals. Therefore, the Post would never use a word like "whopping" or its derivatives in a headline about the health care system.

On the other hand, since it the editors have no qualms about using the news section to push its crusade for balanced budgets, it has no qualms about using "whopping" in a headline for an article about the budget deficit.

In addition to the unusual adjectival choice for a news headline, it's also worth noting that the other half of the headline is wrong. The stimulus did not grow, it shrank. President Obama originally proposed a bill that was just under $800 billion. He got a bill that was less than $800 billion, including a $70 billion fix to the Alternative Minimum Tax that everyone had anticipated whether or not there was a stimulus. This means that the final bill had less real stimulus than the original one.

When it comes to providing information, the first paragraph does no better than the headline. What does it mean to tell readers: "But one thing is certain: It will blast another big hole in an already tattered federal budget."

What is "big?" What is a "hole in the budget?" The only information readers get from this paragraph is that the Post is unhappy with the size of the deficit. That's fine for the opinion page, but it doesn't belong in the news section.

To round out its analysis, the Post tells us, among things, that among the issues that President Obama wants to tackle is "assuring that Social Security will survive for future generations." It would be interesting to learn whether President Obama used this phrase or whether it originated with the Post, because it makes as much sense as saying that he will ensure that Ohio survives for future generations. It's theoretically possible that both Social Security and the state of Ohio will cease to exist, but on what basis would any reasonable person expect either event.

The article concludes by presenting analysis from two budget hawks to balance out the piece.

--Dean Baker

Simon Johnson is the former chief economist of the International Monetary Fund. I don't know him personally, but from his writings and his past positions, I would guess him to be very much a centrist economist. He presented a very clear and carefully thought account of the nation's financial crisis on Bill Moyers' Journal last night. This is well worth everyone's time.

--Dean Baker

The NYT seeks to find lessons for the United States in Japan's efforts to recover from the collapse of its stock and housing bubbles in 1990. It argues that Japan's economy did not finally recover until it cleaned up the books of its major banks, which led several to be nationalized or go out of business.

While there are undoubtedly many lessons for the United States from the Japanese experience, it is important to note that banks play a much less central role in providing capital in the U.S. economy. For example, most mortgages are financed through securitized mortgage pools. The same is true of car loans and other types of consumer debt. Large corporations typically obtain short-term capital by selling commercial paper on the market.

The Fed and Treasury have taken steps to ensure that this route of obtaining capital is open, which means that the problems of the banks will have less consequence for the U.S. economy than was the case for Japan. While it would still be desirable to repair the banking system as quickly as possible, the need is not as urgent as this article implies.

--Dean Baker

When USA Today wanted to speak to a housing market expert on the rise in the housing vacancy rate, it turned to Nicolas Retsinas, the head of Harvard University's Joint Center for Housing Studies. This was an interesting choice since Mr. Retsinas is perhaps best known as one of the people who denied the existence of a housing bubble in 2003 and encouraged low and moderate income families to buy homes.

Some of the assertions that can be found in this publications are:

"More importantly, it takes concentrated job losses - the likes of which have not been seen during this business cycle - to drive down home prices;" and

"Moreover, when house prices deflate, they do so slowly."

--Dean Baker

Somehow this question never appears in an otherwise informative article that considers the possibility that the banking system is insolvent. The article concludes by suggesting that the most efficient solution may require that government take possession of the banks' bad assets.

While this is true, the key question is whether this is done after the shareholders are wiped out, which would effectively be allowing the market to run its course, or whether the government buys the bad assets at above market prices. This is effectively a huge taxpayer subsidy to the banks' shareholders and their managers. This question is never discussed in the article.

--Dean Baker

Unfortunately, I am not kidding. In an incredibly poorly informed piece on the foreclosure crisis (they apparently still haven't heard of the housing bubble), NPR concluded with a quote telling listeners that, "We're really just trying to figure out who bears the loss. Do we want the government to bear it all, or do we want some of it to be pushed onto investors?"

Of course, that's the question. Investors can't be expected to know what they are doing, the little boys and girls need the government to help them out. After all, that is why we have the government. No one would want to leave wealthy investors' fate to the market. The only question is whether we bail them out completely, or maybe force them to suffer some loss due to their bad investments.

It's great that NPR framed the range of views that it will present on this issue so clearly. Of course there are people who think that the government should focus on helping homeowners rather than wealthy investors who are too dumb to know how to invest their money.

Some of us have advocated just temporarily changing the rules so that homeowners facing foreclosure would have the option to remain in their homes as renters for long periods of time. This would both give homeowners security in their home and give the banks real incentive to negotiate terms that allow homeowners to stay in their house as owners, since banks will not want to become landlords.

This proposal has the advantage of requiring no tax dollars, no new bureaucracy, and could take full effect the day that Congress passes it. But, it would not help the investors make up their losses which NPR tells is the real purpose of government, so you won't hear about it on Morning Edition.

--Dean Baker

If you're the world's largest oil company, it probably makes more sense to tell the public that you don't believe in global warming than to say that you intend to obstruct preventative measures in order to protect your profits, even if means destroying the planet. So, when the NYT tells readers that Exxon Mobil "had long been skeptical of global warming," how does it know that this is true?

--Dean Baker

That's the question that the NYT should have asked when Morgan Stanley's spokesperson told reporters that the money for bonuses would come from operating expenses rather than the bailout money. Since money is fungible, this comment doesn't make any sense.

--Dean Baker

NPR had a piece on Morning Edition discussing the problems of the first round of the TARP. The piece concealed the fact that many, if not most, of the major banks are effectively bankrupt.

This fact would have answered riddles like their reluctance to make new loans. Given the large volume of bad loans that they will have to write down in the months ahead, it is not surprising that the banks would be hesitant to make new loans.

In a discussion of policies being proposed, WSJ economics reporter David Wessel told listeners that some people want to take over the banks and run them like the Agriculture department. Actually, the motive for taking over the banks is that they are bankrupt. The better analogy would have been to say that people want the government to take over the banks and run them like IndyMac.

[The NYT is no better].

--Dean Baker

David Leonhardt notes the rise in the household saving rate that is one of the main causes of the current downturn. While he notes the excessive flow of credit prior to the downturn, it would have been helpful to describe the mechanism more clearly.

The Federal Reserve Board either could not see, or chose to ignore, an $8 trillion housing bubble. Economists know that people spend based in part on their housing wealth. The usual estimates of the wealth effect are between 5-7 cents on the dollar. This means that the bubble led to $400 billion to $560 billion a year in additional annual consumption. This was not the result of spendthrift consumers, it was the predicted response to the bubble.

The graph that Leonhardt includes actually understates the increase in the saving rate in recent months. There was an extraordinary rise in income relative to output measures of GDP in 2006 and 2007. This was almost certainly attributable to capital gains in the stock market showing up in the income measure. If we assume that the output side measure of GDP is more accurate than the input side (a generally held view among economists), then income and the savings rate were actually lower in 2007 and the first half of this year than saving data show. This means that the savings rate has jumped by a larger amount in the last six months than the standard show.

--Dean Baker

The NYT contrasted a "populist" demand for transparency on bank finances and what they do with government money with regulators' concerns as a "clash of values." It describes the regulators as being "primarily concerned with preserving the overall stability and liquidity of the financial system."

While regulators are no doubt concerned about the stability of the banking system, it is also possible that they are concerned about protecting the interests of bank shareholders and top executives. There are solutions that would protect the stability and the liquidity of the banking system that would displace most of the top management of insolvent banks. The regulators insistence on secrecy obstruct this path.

--Dean Baker

During President Obama's press conference she asked him how we can get Republican support on entitlement reform which will require painful sacrifice. Apparently, Ms. Liasson wants painful cuts in Medicare and/or Social Security, but there is no reason that such cuts are necessary.

According to the Congressional Budget Office, Social Security is fully funded through the year 2049 with no changes whatsoever. Medicare is projected to face serious shortfalls, but only because private sector health care costs are projected to grow explosively over the next four decades. Since Medicare pays for a large portion of private sector health care costs, the projected explosion in costs will have a devastating impact on Medicare and the budget as a whole.

If the United States can fix its health care system to bring costs more in line with health care costs in other wealthy countries (all of whom have longer life expectancies), then there is no reason for painful cuts in Medicare. The problem is the power of interest groups like the insurance industry and the pharmaceutical industry, not the generosity of Medicare.

--Dean Baker

The media continue to do more to misinform the public than to inform them when it comes to plans for fixing the financial system. Following the absolute worst in journalistic practices, a front page Washington Post article explains the Obama administration's policy by telling readers that the "approach reflects Treasury Secretary Timothy F. Geithner's philosophy of how governments should respond to financial crises."

Trees had to die for this garbage? The reality is that the reporters have no clue as to what Timothy F. Geithner's philosophy of how governments should respond to financial crises. The reporter knows what Timothy F. Geithner told them, so why don't they just stick to passing this information along to readers instead of speculating about his innermost thoughts?

The excursion into philosophy deflects readers from the real issue. Mr. Geithner wants to use taxpayer dollars to keep bankrupt banks in business. In effect, he wants to tax teachers, fire fighters, and Joe the Plumber to protect the wealth of the banks' shareholders and to pay high salaries to their top executives. No readers of this piece would understand that this is the process being described.

The Post editorial page carried on with this deception. An editorial on saving the banks dismissed nationalization because it would involve the government in running the banks. Then it discusses the idea of buying bad assets and warns, "but there is a huge risk that the government would badly overpay in the first place."

Actually, this is not a risk, this is the point. If the government paid the market price for these assets the banks would be bankrupt and we would be back to step 1, nationalization. The point of buying the bad assets is to pay too much, so that the banks can get enough money to stay solvent. (In is worth noting that deciding how much the government will overpay, and to whom, also involves the government in running the banks in a really big way.)

It would be nice if the Post and the rest of the media would report honestly on the bank bailout and stop trying to conceal plans for a massive redistribution of wealth to the bank shareholders and their top executives.

--Dean Baker

The NYT refers to the Isakson amendment that would allow a tax credit for a home purchase of 10 percent of the purchase price or $15,000 (whichever is less) as "more generous" than the current credit of $7,500 for first time homebuyers.

The Isakson amendment will actually not be more generous to many homebuyers. Unlike the current credit, it is not refundable. This means that a family with little income tax liability, who could have received the full $7,500 under current law, may only be eligible for a small credit under the Isakson amendment.

The article also describes this as a proposal to stabilize house prices. It is not clear that this is the intent. The existing law provides a credit to new home buyers, who are a net addition to demand in the market. This credit would go to any homebuyer, the vast majority of whom will be people who already own a home. If a person buys a home, but sells their current home, it has no net effect on the market.

--Dean Baker

One of the experts that the Washington Post quoted in an article on the Fed's expanded role in providing credit was former Federal Reserve Board governor Fredrick Mishkin. The Post neglected to mention that one of Mr. Mishkin's greatest claim to fame is having authored a report in 2006 proclaiming Iceland's economy a great success story, in spite of a current account deficit equal to 15 percent of GDP.

Unlike dishwashers and custodians and workers in most other occupations, the professional standing of economists is not affected by their past failings. Therefore, reporters should try to inform readers of the track record of their sources.

--Dean Baker

That may be hard to believe, but the economy almost certainly lost more jobs in January than the 597,000 job loss reported by the Bureau of Labor Statistics (BLS). The reason is that BLS imputes jobs for new firms that are not included in its sample.

The formula used for calculating this imputation is backward looking, meaning that it depends on growth in prior quarters. When the economy takes a sharp turn in either direction, as it did last fall, the imputation is likely to be too high or too low, depending on the direction of change.

The chart below compares the imputed job gain/loss in new firms in last four months with the imputation for the corresponding month one year earlier. (These data are not seasonally adjusted.) It is simply not plausible that more jobs have been generated in new firms in the last four months than in the same months of last year. The true rate of job growth is likely 40,000 to 60,000 less per month than current data indicate.

--Dean Baker

The Washington Post tells readers that senate Republicans believe that school construction and Head Start are "both viewed as worthy programs but not ones that would provide a sufficient boost to the economy." Actually, spending on Head Start would provide an immediate boost to the economy as would school construction, insofar as it is undertaken quickly.

If the Republicans referred to in the article really don't believe that this spending provides a boost to the economy then it is equivalent to saying that they do not believe that 2+3 = 5. The paper should point out to readers the extraordinary ignorance of these Senators.

--Dean Baker

That's the question that NYT readers should be asking themselves. In a front page article the NYT told readers that much of Japan's efforts at stimulus following the collapse of its stock and real estate bubble was ineffective. (To give some sense of scale, Japan's main stock index is currently at about 20 percent of its 1989 peak.) The article reports that critics of its efforts at stimulus claim that "that spending did little more than sink Japan deeply into debt, leaving an enormous tax burden for future generations."

Well, this is a claim that can be very easily verified. How large is the tax burden being imposed on future generations? While Japan does have a debt that is much larger than its GDP, because the interest rate on its debt is extremely low (largely due to the fact that its central bank prints lots of money) the interest burden of the debt is actually quite limited.

In fact, measured as a share of GDP, Japan faces a somewhat smaller interest burden than the United States. Given the importance of this point to the article, the reporter should have taken the time to determine the actual interest burden that Japan faces.

--Dean Baker

The NYT substantially understated the cost of a $15,000 tax credit that the Senate approved for anyone who sells their home to buy another home in 2009. (Actually, the credit is for buying a home, but the vast majority of buyers will also be sellers.) The NYT told readers that the cost of this credit, combined with a $1,000 credit for buying cars, would be $30 billion.

Actually, the Joint Tax Committee puts the cost of the house flipper tax credit alone at $35 billion. The combined cost of the two measures would be close to $45 billion.

--Dean Baker

That would explain its repeated use of the word "piracy" and its derivatives in an article about the increased availability of unauthorized copies of movies over the web. If it wanted to avoid editorializing in its news stories, a more neutral term like "unauthorized copies" would be more appropriate. In some cases, the host website may be located in an area where the material is not copyrighted, which would mean that the material is not in any way "pirated."

It would also be useful if the NYT would occasionally present some economic analysis of the issues involved, noting for example the economic waste associated with copyright protection.

--Dean Baker

The reporters covering the stimulus have been so busy editorializing against it that they haven't had time to pay attention to what Congress is doing. Tonight Congress approved the Isakson amendment which gives $15,000 (or 10 percent of the purchase price, whichever is lower) to every person who buys a home in 2009.

Somehow, Isakson has this thing costing just $19 billion. Let's break the Washington rules and try a little arithmetic. Even with weakness in the housing market, it is still virtually certain that we will sell close to 5 million homes in 2009. The overwhelming majority would qualify for the full credit. So, we get 5 million times $15,000. That sounds a
lot like $75 billion.

And this is before we get to any gaming. It's hard to see why tens of millions of people wouldn't figure out a way to buy a house from a friend or relative and get their $15k. If we can get one-third of the country's homes to change hands (lots of jobs for realtors) that would be good for $375 billion.

It would have been helpful if reporters had talked to an analyst who could have explained these points for readers.

--Dean Baker

In reference to the junk assets held by banks, the Post told readers that "If the government buys the assets at prices that banks consider fair, the Treasury would take a huge loss when it ultimately sells the assets for much less." It then points out that if Treasury paid the market price, then many banks would probably be bankrupt.

The problem with the Post's assertion is that it has no idea what price the banks "consider" to be fair. They know what price the banks want for their assets, but that has nothing to do with what price they consider fair.

It is worth noting that the article never discusses the possibility of simply having the government take over insolvent banks, a policy which gets around the problems discussed in this article and which has been advocated by economists across the political spectrum.

--Dean Baker

One of the reasons that some of us recognized the housing bubble is that vacancy rates were skyrocketing. The rise occurred first in rental housing and then among ownership units. In advanced economics we learn about something called "supply and demand." The implication of the excess supply implied by the jump in vacancies was that prices would fall.

For some reason, almost no one in the media (or apparently at the banks) paid attention: hence the unofficial motto of the housing crash and resulting crisis, "who could have known?"

Anyhow, it seems that even now almost no in the media is paying attention to the vacancy data. The fourth quarter release from the Census Bureau shows the vacancy rate in ownership units rising to 2.9 percent, a new record that is more than 50 percent higher than any pre-bubble rate. The vacancy rate for rental units edged higher also to 10.1 percent. This is far higher than prior peaks, but a bit lower than the 10.4 percent vacancy rate in the first quarter of 2004.

Homeownership rates continued to slip lower. At 67.5 percent, we're back to the 2000 rate. 1.5 percentage points below the peak rates in 2005 and 2006.

--Dean Baker

We go on the road to Ohio today, not because it is necessary to go to the Midwest to find economic reporting in need of correction, but rather because we have such a beautiful example.

The Columbus Dispatch tells readers, "the $300 billion targeted for social programs, many of them Democratic favorites, would not generate much immediate economic activity. Improving teacher quality, providing additional cash for Head Start and promoting wellness, for example, are standard government social-spending items that have little to do with stimulating instantaneous economic activity."

In fact, this spending, unlike the highway spending of which the paper approves, will provide an immediate boost to the economy. Paying someone to teach kids or provide health care creates jobs as surely as paying them to pave a highway. The former is better stimulus because we can typically get a teacher on the job more quickly than we can get work for a new highway contracted out and underway.

The Dispatch goes to tell readers that:

"More fundamentally, government spending is a zero-sum game. The only way the government can spend a dollar to stimulate the private sector is by taking a dollar out of the private sector. That can be a good idea only if one believes that politicians and bureaucrats know better how to invest that money than do consumers, businesses and entrepreneurs."

This is exactly wrong. The whole point is that the economy has a vast amount of idle labor and capital right now. If the government doesn't spend the money no one will spend it. We will simply have higher unemployment. This is the thinking that Keynes and Roosevelt had to combat to get the economy out of the Great Depression.

I had been telling people that we need not fear a depression, but if views like those expressed by the Columbus Dispatch are common, then we might. The economy is in a free fall right now. If the government is not prepared to spend lots of money (ideally on useful projects) then we can see a very deep and long downturn.

--Dean Baker

In a front page article about efforts by certain senators to cut back the size of the stimulus, the Post told readers that:

"The stimulus package has now tripled from its post-election estimate of about $300 billion, and in recent days lawmakers in both parties have grown wary of the swelling cost."

That's not the way I remember it. As I recall from those distant days, most discussions of the stimulus seemed to center on numbers between 2-3 percent of GDP. This comes to $300 billion to $450 billion a year, or $700 billion to $900 billion for a two-year package.

Let's see what we can find in the Post from the early days following the election. Here we go:

"Many members of Congress have speculated that the spending package could reach $500 billion or more, while some economists have predicted the government might spend as much as $1 trillion to restart the job-producing economic activity that has withered in the last year."

That was December 6th. In other words, discussions of stimulus from the time around the election already put it a size close to what is being debated by Congress. The idea of a package that keeps expanding in size is an invention of the Post.

--Dean Baker

That is the logical implication of their plan to push mortgage interest rates down to 4.0 percent to boost home prices.If extraordinarily low interest rates can boost house prices then the implication would be that house prices will plunge again in 2-3 years if the economy gets back on its feet and interest rates return to more normal levels.

It would be helpful if the reporters would seek out an analyst who understands housing markets in discussing such policies.

--Dean Baker

Unlike dishwashers or custodians, top economists need not fear losing their positions when they mess up on the job. This might be one reason why President Obama seems to be having difficulty designing a stimulus that is large enough to boost the economy back towards full employment in the near future.

David Leonhardt recaps some of the issues in his column this week. (Leonhardt misrepresented Paul Krugman;s post-election stimulus target. Krugman argued for a stimulus of $600 billion a year, not $600 billion in total. Hence, the $800 billion two-year package is only a bit more than half as large as the target recommended by Krugman.)

Actually, it is not difficult to design a stimulus package that could provide a larger boost to the economy. For example, if Congress offered a generous tax credit for firms to provide health care insurance to workers who are not currently covered (and opened up Medicare to everyone) it could easily raise the stimulus package to the size advocated by Krugman and others. Alternatively, Congress could provide tax breaks to support substantial reductions in the work week or work year, while leaving pay unchanged.

Either mechanism could productively add $200 to $300 billion to the size of an annual stimulus package. Of course, economists who could not recognize an $8 trillion housing bubble may not be creative enough to understand these policies.

--Dean Baker

This piece should have been ridicule. Spending that is not stimulus is like cash that is not money. Spending is stimulus, spending is stimulus. Any spending will generate jobs. It is that simple. There is a question of whether the spending will go to areas that will provide benefits, long-term or short-term, to the economy, but there is no question that money that is spent will create jobs and therefore is stimulus.

Any reporter who does not understand this fact has no business reporting on the economy.

--Dean Baker

The NYT reported this morning that national welfare rolls have changed little as a result of the downturn. While the number of recipients is up in many states, in some states, including some of the hardest hit ones like Michigan, the number of beneficiaries ha declined. For the country as a whole, the increase is less than 0.3 percent.

This contradicts a recent article in the Washington Post that implied that welfare rolls were rising sharply.

(Thanks to Shawn Fremstad.)

--Dean Baker

The Washington Post continued its practice of placing editorials on the front page, telling readers today about the need to defuse "the spending time bomb for health and retirement programs." Of course this time bomb is entirely an invention of the Post.

There is nothing that resembles a time bomb in the case of Social Security. The Congressional Budget Office (CBO) projects that the program can pay all scheduled benefits for the next 40 years with no changes whatsoever. Even after the program is first projected to face a shortfall in 2049, CBO projects that it would always be able to pay retirees a higher benefit than current retirees receive. (The downward redistribution of income, which may be an outcome of the current crisis, will improve the funding of the program.)

Medicare is projected to face serious shortfalls, but this is due to the projected explosion of health care costs in the United States. If the United States can repair its health care system, as President Obama has pledged to do, then Medicare costs would also be manageable.

The article also includes a chart of projected deficits, measured in the hundreds of billions of dollars. This is presumably intended to scare readers into supporting the Post's position on the budget deficit. If the deficits were expressed as a share of GDP, there would be close to 3 percent of GDP by the end of the 10-year budget horizon. If the Bush tax cuts for high income earners are allowed to expire, as President Obama has proposed, the deficits would be under 3 percent of GDP. Deficits of this size are probably somewhat higher than most analysts would considerable desirable, but they are far from disastrous.

--Dean Baker

In its top of the news brief for Morning Edition NPR told listeners that New Hampshire Senator Judd Gregg, who President Obama is considering for Commerce Secretary, "supports responsible federal spending." If this is a distinguishing feature for Mr. Gregg then implicitly there must be senators who it believes support irresponsible federal spending.

It might be helpful if NPR told listeners who those senators are, which spending is irresponsible, and how it has made this determination.

--Dean Baker

Apparently Senator Charles Schumer and many Republicans think so according to the NYT. Couldn't the NYT find someone who does not think it is a good idea to hand someone a $15,000 check from the government just because they have bought a new home?

For purposes of comparison, this equal to roughly 5 years worth of a kid's health care under the State Children's Health Insurance Program and three years of TANF checks. It is difficult to see how someone is doing us any favors by buying a house. In many markets, there is still a bubble that has not yet fully deflated.

I suppose Schumer wants and the Republicans are hoping to keep these bubbles from deflating so that housing will be unaffordable for new families moving into these areas. Current home buyers can also expect to take a big hit when they sell their house a few years from now when we no longer are giving out $15k checks to home buyers and mortgage rates at back at 7 percent. However desirable these outcomes might be, it would be good if the NYT could weigh them against other potential uses of this money or find an analyst who could.

--Dean Baker

If the Washington Post had a science section it would be filled with accounts of creationism and the latest thoughts from the Flat Earth Society. This is the only conclusion that one can get from reading its treatment of economics in the Outlook section.

Readers may recall the memorable Donald Luskin piece of September 14th telling readers that the economy was just fine. In keeping with this proud tradition, the Outlook section has a front page piece from Amity Shlaes telling readers that the New Deal didn't work. According to this story, the economy would have quickly recovered from the depression, if only Roosevelt had the good sense to do nothing.

While the basic argument has the form of a no evidence counter-factual assertion (e.g. the good fairy of the market would have set things right, if only Roosevelt didn't get in the way), the discussion is contradicted by the known facts of the era. Roosevelt's New Deal Agenda lowered the unemployment rate from 25 percent in 1933 to 10 percent in 1937. None of us would be happy with 10 percent unemployment, but it is difficult to complain about policies that reduced the unemployment rate by an average of almost 4 percentage points a year. The annual growth rate over these four years averaged 13.0 percent. It is always possible that the magic of the market would have done better, but there is no reason that we should believe so.

Schlaes is correct in pointing out that things turned bad again in 1937. The Blue Dogs of the Roosevelt era won sway and got Roosevelt to cut spending and raise taxes. This threw the economy back into a serious recession, just as any good Keynesian would have predicted.

When it comes to writings on economics, the Post's Outlook section is probably best viewed as a jobs program rather than a source for serious ideas.

[For folks who think that the growth in federal spending under Roosevelt and the recovery were just coincidence, here is the annual growth in federal government spending, alongside the following year's GDP growth:

growth in federal gov spending GDP Growth

1932 2.2% 1933 1.3%
1933 23.7% 1934 10.8%
1934 34.2% 1935 8.9%
1935 1.7% 1936 13.0%
1936 51.0% 1937 5.7%
1937 -10.0% 1938 -3.4%
1938 10.4% 1939 8.1%
1939 7.2% 1940 8.8%
1940 12.0% 1941 17.1%

This is annual data (obviously quarterly would be better) and clearly monetary policy and other factors played a role, but it is pretty hard to look at this data (available at www.bea.gov) and not see a relationship between government spending and GDP growth.]

--Dean Baker

The Washington Post again tells us that the stimulus is "staggering." Just a few days ago they told readers that it was "breathtaking in size and scope."

It might be helpful to tell readers that the collapse of the housing industry has lead to a $450 billion falloff in the pace of annual residential construction, the loss of $8 trillion in housing wealth will reduce annual consumption by around $450 billion, with the loss of $8 trillion in stock wealth leading to a further decline in annual consumption of $250 billion. In addition, the collapse of the non-residential real estate bubble will likely reduce annual demand by another $200 billion. This gives us a total decline in annual demand of around $1350 billion or $2,700 billion over two years.

Next to a demand loss of $2,700 billion, an $825 billion stimulus package seems rather small. The Post might try to look for reporters who are better at arithmetic and more sure in their footing.

--Dean Baker