The Post tells us that:

"McCain's belief in the power of the free market to meet the nation's health-care needs sets up a stark choice for voters this fall in terms of the care they could receive, the role the government would play and the importance they place on the issue."

Well, we all know the nature of the health care program that Senator McCain has put forward, but how do we know that this has anything to with his "belief in the power of the free market?" I know that Senator McCain might say that his health care program is based on his beliefs, but sometimes politicians are not truthful (maybe someone should let the Post's reporters in on this secret).

If Senator McCain really had a strong belief in the power of the free market he would be yelling about the enormous distortions created by patent protection for prescription drugs, which allows drugs to sell for hundreds of times their competitive market price. He would also be yelling about the professional and licensing barriers that allow doctors in the United States to get paid almost twice as much as their counterparts in West Europe. He also would be upset the barriers that make it difficult for people in the United States to seek cheaper care overseas through their insurers.

Since Senator McCain has never raised any objections about these obstacles to the operation of a free market in health care (or about the billions being given to billionaires by Bernanke), his commitment to a free market seems questionable.

Let me suggest an alternative hypothesis. Senator McCain and the Republicans receive large contributions from people connected with the insurance and pharmaceutical industries, both of which might see their profits slashed by serious health care reform. Since it is difficult for a politician to say that they oppose health care reform because they want to defend the interests of their powerful friends, Senator McCain finds it much easier to say that he is motivated by his belief in a free market.

I don't know that my alternative hypothesis is true, but the Post's reporters do not know that it isn't true. Rather than make assertions that they cannot support, the Post should simply report on what Senator McCain says and does. They don't know what he thinks, and they mislead the Post's readers when they imply that they do.

--Dean Baker

I would say that Senator Clinton is mostly speaking nonsense, but the more important point is that NPR listeners would have heard this reported as an effort to help Indiana workers, along with cutting the gas tax over the summer. They never raised any question as to whether this was a serious policy proposal.

My reason for saying that the tax code is largely irrelevant to firms' decisions to move jobs overseas is that any tax preferences tend to be a very small factor in location decisions. Firms ship jobs overseas because they can pay workers $1 an hour, instead of $20 an hour in the U.S. They are some quirks here and there in the tax code that can provide frosting for firms that ship jobs overseas, but there are also quirks that encourage them to keep jobs here.

If President Clinton devotes a whole 8-year term to eliminating the quirks, it would probably make less difference to jobs in Indiana than a 1 percent decline in the value of the dollar. Of course the value of the dollar soared by close to 30 percent during the Clinton presidency, leading to millions of jobs being shipped overseas.

Let's hypothesize that changing the tax code has little or no effect on jobs being shipped overseas, just as cutting the gas tax will have little or no effect on the price of gas this summer. What does that mean about what Senator Clinton was telling working people in Indiana yesterday? Would NPR listeners have any idea of what Senator Clinton was doing with working people in Indiana? Probably not, NPR had to devote much of its air time to Reverend Wright.

--Dean Baker

That's what NPR told listeners this morning. Actually, NPR just told us that the experts expect the recession to be brief, they didn't tell us that their experts didn't have a clue as far as seeing the recession coming. Given the track record of NPR's records maybe they could better used their air time talking about something else.

For the record, non-surprised economists noticed the data from the Case-Shiller indexes that was released yesterday. These indexes showed that house prices were falling at close to a 25 percent annual rate over the last quarter. If this rate of price decline continues, it will imply a lose of close to $6 trillion in real housing wealth over the course of the year. This will lead to large cutbacks in consumption, millions of additional foreclosures, much more turmoil in financial markets, and many more surprised economists.

The good news is that economists don't have to worry about losing their jobs or even getting a pay cut when they mess up.

--Dean Baker

That is what the NYT says, although it's not clear what they meant. Job growth has actually been pretty bad through most of President Bush's time in office, so what does it mean that he was riding high on claims of solid job growth?

Here's the rate of job growth for the administrations since 1960:

Kennedy-Johnson 3.27%
Nixon-Ford 4.93%
Carter 3.06%
Reagan 2.06%
Bush I 0.60%
Clinton 2.38%
Bush II 0.59%

So President Bush comes in dead last in job creation, even falling behind his dad's dismal record. So, is the NYT pulling our leg when they say he was riding high? Are they making reference to the use of illicit substances? Or is this just a really badly informed article?

--Dean Baker

Senator Clinton joined Senator McCain in calling for the temporary elimination of the 18.4 cent a gallon gas tax over the summer. While the article notes that, "environmentalists and many independent energy analysts" share Senator Obama's view that the elimination of the tax would save consumers little, it still asserts that, "his position allowed Mrs. Clinton to draw a contrast with her opponent in appealing to the hard-hit middle-class families and older Americans who have proven to be the bedrock of her support."

Actually, almost all economists would agree that the tax cut proposed by Senators Clinton and McCain would save consumers nothing. With the supply of gas largely fixed by the capacity of the oil industry (they claim to be running their refineries at full capacity), the price will not change in response to the elimination of the tax. The only difference will be that money that used to go to the government in tax revenues will instead go to the oil industry as higher profits.

If Senator Clinton is able to use this proposal to draw a contrast with Senator Obama in expressing concern for middle-class families it could only be attributable to the extraordinary incompetence of the reporters who are covering the campaign. While typical middle-class families may not have the time and background to realize that Senator Clinton's proposal would not save them any money, reporters do.

The fact that Senator Clinton, like Senator McCain, sought to deceive them with a bogus tax cut should have been the main theme of today's election reporting.

[Addendum: The Post does what newspapers are supposed to do.]

--Dean Baker

This one is in the preemptive strike category. Reporters should pay attention to the new Census Bureau data on vacancy rates and homeownership.

In the first quarter, the vacancy rate on ownership units hit 2.9 percent. Before the recent crash, the vacancy rate on ownership units had never exceeded 1.9 percent. The rental vacancy rate also rose, although at 10.1 percent it is still slightly below the record of 10.4 percent set in the first quarter of 2004. Not surprisingly, the West showed the biggest increase in vacant ownership units, with the rate rising from 2.6 percent last year to 3.2 percent this year.

The seasonally adjusted ownership rate stood at 67.9 percent, 1.2 percentage points below the peak of 69.2 percent in the first quarter of 2005. For blacks the picture looks considerably worse. The homeownership rate fell to 47.1 percent, 1.7 percentage points below the peak of 48.8 percent reached in the first quarter of 2005. This is the lowest rate of homeownership for blacks since 1999, which is of course well before the surge in subprime lending.

The data in this report are big news and deserve attention.

--Dean Baker

The NYT really really likes trade deals like NAFTA, CAFTA, and the deal with Colombia currently being pushed by President Bush. This is the only thing that readers can conclude based on a largely incoherent editorial devoted to trade.

Among the comments that could leave readers wondering is the dismissal of an estimate that trade with poor countries increased the gap between college and non-college educated workers by 7 percent in the last quarter century, because "but the wage gap has widened by more than six times that amount over that period." Assuming half on each side, this estimate implies that trade with poor countries lowered compensation for a typical full-time non-college educated workers by more than $1,400 a year (3.5 percent of $40,000). Does the NYT have a policy that would give every non-college educated worker another $1,400 per year? If so, I'm sure that many readers would be anxious to see it. (It is also important to note that the estimate cited from Josh Biven does not include the impact of trade with rich countries, nor secondary effects like the impact of trade on unionization rates.)

The article also trivializes the 400,000 jobs a year lost to trade over the last decade by pointing out that the economy loses 15 million jobs a year. Okay, the 400,000 jobs lost is a NET number. This is the total jobs lost to trade after netting out the total number of jobs created due to increased exports. The 15 million job loss figure is a GROSS number. The NYT editorial writers must know the difference between the two and they must know that the comparison is completely bogus. If they want a net number to which to compare the jobs lost to trade, the NYT can use total job creation. This has averaged just under 1.3 million annually. In other words, the jobs lost to trade are equal to more than 30 percent of job creation over the last decade. Does that seem trivial?

To really top matters off, the NYT tells us that: "According to economists at the Peterson Institute for International Economics, increased trade since World War II has added about 10 percent to American national income." It is not clear what this estimate has to do with the issues at hand. No one is advocating that the United States not trade. The vast majority of the gains in this estimate are attributable to patterns of trade that have nothing to do with NAFTA, CAFTA, and other recent trade deals, so why does the NYT drag it into this debate.

The NYT seems to support these trade agreements much more as a matter of religion rather than based on any serious assessment of their economic impact. It is true that many people have exaggerated the impact of these deals; the over-valued dollar has probably done more to depress the wages of non-college educated workers than 100 NAFTAs. But the basic story, that the pattern of trade promoted by recent presidents has had a negative impact on the living standards of large segments of the U.S. population, is undoubtedly true. The only real question is the size of the impact.

This doesn't mean that simply reversing these trade deals is the best route to pursue, although a continued decline in the value of the dollar would be extremely helpful. I have argued that the best path going forward is to remove the barriers that protect highly educated workers like doctors, lawyers, and journalists from international competition. This would lead to both more economic growth and greater equality in the distribution of income.

Unfortunately, the NYT refuses even to discuss free trade in highly paid professional services. Like the last three administrations, the NYT supports selective protectionism, not free trade. Basically, the current trade agenda is about favoring the people who hire nannies (and construction workers, painters, gardeners etc.) against the people who work at those jobs. We could easily construct trade agreements, even "free trade" agreements, that favored less educated workers. But the folks calling the shots, including the NYT editors, want to preserve their protection.

--Dean Baker

That is what he claims, according to the NYT. The NYT reports that Rubin claims that he was considering imposing stricter margin requirements on futures trading when he was leaving Goldman Sachs to take a top position in the Clinton administration. According to the article, Rubin claims he abandoned the plans when the Chicago Board of Trade told him “we will make sure Goldman Sachs never trades another future on the C.B.O.T. if this went ahead.”

A spokesperson for the company that now owns the C.B.O.T. denies that any such threat was ever made, but this is an incredibly important news story. The implication is that a top official in the Clinton administration, who subsequently became Treasury Secretary, altered regulatory policy based on a threat made against his former firm.

If such a threat was actually made, then it should have been reported to the F.B.I. and some people connected with the C.B.O.T. should be sitting in jail right now. If Mr. Rubin was actually prepared to alter regulatory policy to serve his former firm, then he clearly had conflicts of interest that made him unqualified to hold a top government position.

This issue merits investigation not only to determine whether Robert Rubin acted improperly, but also to determine whether it is common practice for government officials to alter policy to serve the interests of their former employers. The fact that Robert Rubin would have no qualms claiming to the NYT that he dropped a regulatory proposal to protect Goldman Sachs, suggests that such behavior is common.

--Dean Baker

The U.S. debt was much larger in 1975 than in 1945, at the end of World War II, yet the country was much less burdened by debt. The U.S government debt is more than 200 times as large as Zimbabwe's government debt, yet Zimbabwe is far more heavily burdened by debt.

If these statements seem paradoxical, they shouldn't. To assess the indebtedness of a nation (or a person or corporation), you must know their income. A debt figure in itself will provide little information. One million in debt would be a very big deal to most of us. It would be virtually invisible to Bill Gates.

In assessing the presidential candidates' various commitments, the NYT reports that they would add at least $5.7 trillion to the national debt over the next decade. This implies an increase of a bit more than 60 percent over the current level of indebtedness, which is a bit over $9 trillion. Since the economy is projected to grow by approximately 55 percent over this period, the growth in debt implies an increase in the ratio of debt to GDP of about 3 percentage points.

That is more debt than I would like to see, but not exactly a disaster. More importantly, since the NYT gives no data on GDP, the article provides little basis for assessing the potential damage posed by running deficits of the magnitude projected.

It is a very simple matter to include debt to GDP ratios in stories such as this. They should be there.

--Dean Baker

The NYT editorialized against textbook companies charging outrageous prices for their texts, but it failed to get to the roots of the problem.

Textbooks are expensive because of the way in which the government finances their production, it grants copyright monopolies. Copyrights were undoubtedly great policy for the 16th century when they when they first came into existence, but they are not very well suited for the Internet Age.

Suppose that the government instead contracted with textbook publishers to produce textbooks, with the condition that everything they produce is in the public domain and can be freely copied or transmitted over the Internet. In this case, the cost of a textbook would be reduced to the printing cost. Professors could freely select chapters from different texts, where they felt it was appropriate, without requiring students to buy multiple texts. And, there would be no incentive to make pointless changes just to create a new edition.

Of course publishers would still be free to operate under the current copyright system and charge $200 for their their textbooks, they just might find it a bit harder to compete with books that are as good or better that can be downloaded for free off the web.

This would take some additional tax money, but we can just pull out of the subsidies that we give to college students to allow them to pay for textbooks. It's time for a little bit of serious economic thinking at the NYT.

(Thanks to a BTP regular for calling this one to my attention.)

--Dean Baker

In the middle of an informative piece explaining how President Bush's effort to privatize many government functions did not save money, the Post tells readers that "Bush entered office with a deep skepticism of government. He saw competitive sourcing as a way to improve agencies' performance."

Is that right? How does the Post know that President Bush had a "deep skepticism" of government? How does it know that he thought outsourcing jobs to the private sector would really improve performance?

Yes, President Bush said these things, but does the Post think that politicians really believe everything they say? Would a president who has a deep skepticism of government be so anxious to invade and occupy two different countries in his first two years in office?

Maybe President Bush really does have a deep skepticism of government, but let me suggest an alternative explanation. President Bush received considerable political support from companies that hoped to make lots of money from government contracts.

I don't know if my alternative explanation is right, but the Post doesn't know that their explanation is right either, unless they are mind readers and can know President Bush's true thoughts. How about if they just told their readers what President Bush said and who profited from his actions and let their readers make their own judgments about his motives?

--Dean Baker

NPR reported on the battle in Congress over the reauthorization of the farm bill. They told us that it will cost $280 billion over 5 years.

Okay, they did their job -- the fraternity handshake. I know that NPR has a very well-educated audience, but not one in a hundred of their listeners could make any sense of this number. As they brush their teeth and drink their morning coffee, would they think anything different about this bill if NPR had said the bill would cost $28 billion or $2.8 trillion over five years?

Would it have been so difficult to tell listeners that the bill is projected to cost about 1.9 percent of projected spending over the next five years, or approximately $190 per person per year? Was there really no time top include information that could have informed listeners as to the importance of this program to the total budget and/or people's tax bills?

--Dean Baker

David Leonhardt tells readers that the long-term budget problem facing the country is spending, not taxes, based on the projected costs of Medicare and Medicaid. Of course, the reason why the costs of these programs are projected to explode is that health care costs in the United States are projected to explode.

This would seem to suggest that the problem is health care, not spending. The country has to fix its health care system. Or, if the government is too incompetent or corrupt to fix the health care system we could simply outsource much of our health care to countries that have more efficient health care systems.

Unfortunately, the protectionists in Washington and in the media are doing their best to prevent the idea of free trade in health care services from even being discussed.

--Dean Baker

This is another one in the "who could have known?" category. The WSJ reports that stock analysts were apparently surprised that the profits of Bank of America and other banks would be hurt by the need to replenish loan loss reserves.

If the stock analysts were really surprised on this one, then you have to wonder what these folks do for a living.

--Dean Baker

In its Sunday Outlook section, the Washington Post sought to clarify some of the competing claims about the costs of curbing greenhouse gas (GHG) emissions. The piece did not accomplish its goal.

When setting out the case that curbs on greenhouse gas emissions can do great harm to the economy, the paper quoted John Engler, who is currently president of the National Association of Manufacturers, on one of the leading bills to curb GHG emissions: "it would be like every month having a press conference announcing that you were closing another 1,000-person plant."

That is intended to sound very scary. However, in normal times the economy will create close to 170,000 jobs a month. The threat of a 1000 jobs lost every month is equivalent to the number of jobs the economy typically creates in 4 hours. That is not altogether trivial, but this sort of economic impact would usually not be seen as grounds for obstructing policies that would otherwise be viewed as important. (The job loss because of the Iraq War was far greater.)

The article also wrongly claims that in the long-run jobs would be lost because industry would move to countries that did not adopt limits on GHG emissions. Actually, the reason that economic models show job loss in the long-run is that by raising the cost of production, restrictions on GHG will lower the real wage. At a lower real wage, fewer people are willing to work. Insofar as industry moves overseas to evade emission restrictions, the job impact would be lessened in these models because the decline in the real wage would be smaller.

--Dean Baker

According to a NYT review, a new book by Louis Lowenstein criticizes the mutual fund industry for failing to produce good returns, and specifically for setting its measurement standard as the S&P 500 average.

Okay, if this review is accurate, then it is telling readers everything they need to know about this book. Mutual funds control close to $10 trillion in assets. The market value of corporate equities in the United States is less than $20 trillion. In other words, mutual funds control close to half of all outstanding shares of stock.

If mutual funds control half of all stock, how can they, on average, beat the market? This would be possible if the folks who controlled the other half agreed to be very stupid, but otherwise I doubt that they would consent to accept below average returns.

The basic point is very simple, if mutual funds control half the market, then their return will on average be equal to the market return. An investor may get very lucky and find a fund managed by a Warren Buffet type, but most investors cannot possibly be so lucky. If you can assume that your fund will get the same return on its holdings as the market as a whole, then the best way to maximize returns is to find a fund with low administrative expenses. If the book doesn't make this point clearly, then wise investors will save their money by not buying it.

--Dean Baker

The New York Times reports on the loss of good paying manufacturing jobs, pointing out that fewer workers are able to earn enough to support a middle class lifestyle. The article correctly notes that offshoring has been an important factor depressing the wages of manufacturing workers, since these workers now have to compete with workers in the developing world who earn close to $1 an hour.

However the article mistakenly lists the offshoring of high-paying jobs like radiology as part of the story explaining the loss of middle class security. In fact, radiologists would typically be in the top 1 percent of wage earners. They have been beneficiaries of the lower wages received by manufacturing workers. These lower wages have been largely passed on in lower prices.

There has been little change in the profit share of national income over the last decade, which means that the loss of wages by middle class workers has primarily led to higher real wages for high-end workers like radiologists.

Those who are upset about the wage losses of middle class workers should applaud the outsourcing of high-end jobs, like those of radiologists. This outsourcing will put downward pressure on the wages of these high-end workers, leading to lower prices, which will increase the real wages of autoworkers, retail clerks, custodians and other low and middle income workers.

--Dean Baker

Senator McCain likes to say that he supports free market health care, but it is not true and it is time that the media stop letting him get away with this deception. (That is after they get to the bottom of the Obama flag-pin lapel matter.)

How does McCain not support a free market? Well, he is a big supporter of patent protection for prescription drugs and medical devices. As a result of the intervention that McCain supports, drugs that would sell for $4 a prescription at Wal-Mart instead sell for hundreds or even thousands of dollars per prescription. (Yes, patents support innovation -- but they ARE a government intervention, they are not the free market, no matter how much drug companies like them. And, we have far more efficient mechanisms to finance research.)

McCain has never raised any objections to all the professional licensing and immigration barriers that keep doctors' salaries much higher in the United States than in other wealthy countries. Anyone who really supported free market health care would be screaming over these barriers. And, McCain has never supported measures that would make it easier for people in the United States to take advantage of the much lower cost health care available in other countries. This would also be a top agenda item for anyone who really believed in a free market in health care.

In short, it is very clear that Senator McCain does not in fact support a free market in health care. He supports the government interventions that keep the cost of health care in the United States high, and incidentally allow drug companies, insurance companies, and highly paid medical specialists to prosper.

Senator McCain's distortions on health care are far more important than Senator Clinton's distortions on sniper fire in Bosnia. How about some serious reporting on the issue?

--Dean Baker

The NYT says they are, but I don't think the data support the case, at least not yet. The article reports that the average workweek was 33.8 hours for March 2008, down from 33.9 in March of 2007. But before we make too much of this decline, it's worth noting that the average workweek was reported as 33.7 hours in February of 2007 and 33.8 hours in April of 2007. So the number reported for March of last year may have just been an aberration.

Hours typically fall in a downturn, but I don't think that there is much evidence of this decline in the data yet. In fact, there has been a small uptick in hours worked in manufacturing, where hours are best measured. Actually, the real story is that hours worked never recovered from the falloff in the 2001 recession. Prior to the recession, the average workweek was 34.3 hours. It has never gotten close to this level in this upturn.

Anyhow, it's good to see that the NYT is following hours worked -- it can be an important measure of labor market slack -- but I think they got this one wrong.

--Dean Baker

At last night’s Democratic debate, ABC’s co-anchor Charlie Gibson was intent on arguing with the Senators Clinton and Obama that a capital gains tax cut raises revenue. As others have pointed out, the evidence that a capital gains tax cut raises revenue is rather dubious, since most of the apparent increase is likely due to timing: investors delay selling stock when they know a tax cut is imminent. After the cut takes effect, they then declare their gains and pay taxes at the lower rate.

But this is only part of the story. As President Reagan noted when he signed the 1986 tax reform, taxing capital gains at a lower rate than other income gives people enormous incentive to game the tax code. If the tax rate on ordinary income for high-income taxpayers is 35 percent, and the tax rate on capital gains is 15 percent, then these folks can get a 20 percent return if they can make wage, interest, rent or dividend income appear as capital gains income. This can fuel a lot of creative tax shelters. This gap will also lead to an increase in capital gains tax collection – at the expense of ordinary income tax collections.

There is one other important point worth noting about the capital gains leads to more taxes story. Presumably the greater collections are supposed to come from people selling their stock or other assets more frequently. This means more fees for the financial industry, but is this what we really want to promote. The fees from these trades are a drain on people’s investments. There is a lot of research showing that active traders typically lose money. Is it good policy to promote more active trading (that is, if you don’t work on Wall Street)?

--Dean Baker

That is how most media accounts treated the March data for the consumer price index. It is not clear that this view is accurate.

The overall inflation rate for the month was 0.3 percent, while the core showed just a 0.2 percent rise. While this is in fact a very moderate pace, there were a number of anomalies in the data which held the rate down.

The most obvious were a 1.3 percent decline in apparel prices and a 0.6 percent drop in hotel prices. Both components are very erratic and are likely to be reversed in future months. In addition, medical costs reportedly rose at just a 0.1 percent rate, well below its recent trend. Even tobacco prices reportedly fell (albeit by just 0.1 percent), a decline that is unlikely to be repeated given policy efforts to raise tobacco prices.

There were no obvious anomalies on the other side. Furthermore, prices at earlier stages of production are rising rapidly. The overall finished goods index rose 1.1 percent in March. It has risen at a 10.2 percent rate over the last year. The core index rose just 0.2 percent in March, but this followed two months of more rapid increases. Over the quarter, the core finished goods index has risen at a 5.0 percent annual rate while the core finished consumer goods index rose at a 5.5 percent rate. The overall intermediate goods index rose 2.3 percent in March, while the core index rose 1.1 percent.

The price increases stem largely from rising import prices and rising commodity prices world-wide. It seems unlikely that these price increases will not eventually show up in the consumer price index, given the slowdown in productivity growth in recent years. Over the last three and a half years productivity growth has averaged less than 1.7 percent annually, almost the same rate as during the slow growth years from 1973-1995.

As always, you can get the real inflation story in CEPR's price byte.

--Dean Baker

That is what the headlines on Senator McCain's proposal to remove the gas tax for the summer driving season should have read, since that would be the predicted effect of his plan.

According to the oil industry, they have their refineries running flat out, producing all the gas they can. This means that the price is determined on the demand side.

We have a fixed amount of gas entering the market, the question is simply what price clears the market. In this context, if we reduce or eliminate the gas tax, the price doesn't change, the lower tax will simply allow Exxon and other oil companies to keep more profits (unless of course they were lying about running their refineries at capacity).

Since most people do not have much familiarity with economics, the media should be informing the public about the impact of Senator McCain's proposal.

--Dean Baker

That's what their news story on the prospect of a recovery tells readers. The headline, which accurately reflects the article's content, tells readers, "Economy's Fate Hinges on Shoppers' Stamina."

Well, it ain't necessarily so. The alternative path to a recovery, which is almost certainly far superior from the standpoint of the economy's long-run health, is to have the growth in net exports lift the economy out of recession. This would slow the rate at which the country accumulates foreign debt. (Given the Post's obsession with the budget deficit, it is remarkable that no one there seems to have heard of the foreign debt. It's basically the same argument, except the trade deficit is almost twice the size of the budget deficit.)

If people begin saving more for retirement, which they will have to do if they are to have any wealth other than Social Security, given the loss of home equity, then we will have to look to net exports, rather than higher consumption to boost the economy. The Post should be making this fact clear to readers. It should also point out that the only realistic way to reduce the trade deficit is to lower the value of the dollar.

--Dean Baker

NPR had a report on China's one-child policy this morning. While there have been many abuses associated with this policy, it has probably been the most successful environmental policy in the history of the world. Imagine if China had 1.7 billion people today rather than 1.3 billion. Add 30 percent to their annual emission of greenhouse gases, wouldn't that be great?

This point apparently never occurred to NPR's reporter. Neither did the fact that China's economy has grown. Yes, China has a higher ratio of retirees to workers. Each worker is also massively more productive today than they were 30 years ago.

In fact, China's output has been rising at an average annual rate of almost 10 percent for the last decade. Most of this increase is due to higher output per worker, not increased employment. Suppose we assume that output per worker increases at just 7 percent annually, a considerably more modest pace than China's recent growth.

At this growth rate, output per worker will quadruple In a twenty year time span. Suppose that the ratio of worker halves in a 20 year period, falling from 4 to 1 to just 2 to 1. This is a hugely more rapid decline than China is actually seeing. With output per worker having quadrupled, we could reduce the tax per worker by 30 percent and still have the elderly receive pensions that are 40 percent higher than they did when the ratio of workers to retirees was 4 to 1.

This is extremely simple arithmetic, but NPR's reporter could not be bothered to do it. Instead she told listeners that China's is too late in relaxing its one-child policy. The real issue here is that China has to rebuild its Social Security system to ensure that the elderly get adequate pensions. (Maybe they could better afford these pensions if they wasted less money holding dollar reserves.) The problem is not too few children as NPR told its listeners.

--Dean Baker

In an article on the cost of the Iraq War, the NYT presents a quote from James R. Horney, director of federal fiscal policy at the Center on Budget and Policy Priorities in Washington, asserting that, "we’re in a situation where we have to reduce spending and reduce the rate of growth of Medicare and Medicaid and, to a lesser extent, Social Security."

The projections of rising health care costs in the United States imply that if the health care system is not fixed, Medicare and Medicaid will impose an enormous burden on the federal budget. However, the projected growth in Social Security system is relatively modest. Furthermore, the Congressional Budget Office projects the program to be fully funded by its designated taxes through the year 2046, with no changes whatsoever. The program can be fully funded through its 75-year planning horizon with tax increases that are no larger than were put in place in each of the decades from the 50s through the 80s.

In his quote, Mr. Horney was expressing his own desire to see Social Security spending reduced, not reflecting the actual realities of the budget. This fact should have been made clear in the article.

--Dean Baker

The NYT reports on a new practice among insurers to charge patients one third of the cost of the most expensive drugs. Since drug companies can charge more than $100,000 for some drugs, this means that patients with insurance can still end up paying tens of thousands of dollars a year for these drugs.

In the context of this discussion, it would have been appropriate to note that these drugs only cost a few dollars to produce. In most cases, they could be profitably manufactured and sold for less than ten dollars a prescription, just like hundreds of generic drugs.

The reason that these drugs sell for such high prices is that the government grants the drug companies a patent monopoly on drugs that essential for people's lives and health. The justification for this government imposed monopoly is that it is needed to provide incentives for research. However, with such incredible gaps between price and cost, and the resulting economic distortions, it would be reasonable to discuss more efficient mechanisms for financing drug research.

--Dean Baker

As in not surprised. alongside the war in Iraq and supply-side tax cuts, the Clean Development Mechanism (CDM) was one of the most predictable failures in the last quarter century, for exactly the reasons noted in this WSJ article.

The basic point, as Jim Barrett and I wrote in a paper almost a decade ago, is that it is almost impossible to determine what measures in the developing countries are genuine reductions in emissions, as opposed to measures that would have taken place in any case. For example, if an 80-year old coal burning power plant is shut down, is that a reduction in emissions? It likely would be scored as one under the CDM, so a company could get money for shutting down the plant that they would have shut in any case and then build a new one that may be just as polluting across the street. Meanwhile, the rich country that coughed up the dough gets credit towards its emissions targets. What a great way to save the planet.

Why doesn't this article name names? Where is the accountability? The policy people and "environmentalists" who pushed the CDM should be clearly identified as fools and hacks and never allowed to hold any position of responsibility again in their lifetime.

This is yet another instance, where the people in power get to mess up, again and again and again, and never get held accountable. It is only people who clean toilets and drive trucks for a living who are held responsible for the quality of their work. The elite have a lifetime license for incompetence.

--Dean Baker

The Washington Post has a front page article on Alphonso Jackson's reign as secretary of the Department of Housing and Urban Development. The article begins "in late 2006, as economists warned of an imminent housing market collapse..."

Yes, I and a few other economists were warning of the collapse of the housing bubble, but we were the exceptions, and our views rarely appeared in media outlets like the Washington Post. The vast majority of economists, including people with names like Bernanke and Greenspan, were still saying that everything was just fine in the housing market, even as late as the fall of 2006.

Secretary Jackson's tenure as HUD secretary was a disaster and he deserves to be held accountable for his performance, but it is ridiculous to single him out for ignoring the housing bubble and the fallout from its inevitable collapse. This blame is better directed at the Fed, the economics profession as a whole, and the economic reporters who lacked the ability to independently assess arguments about the existence of a housing bubble.

--Dean Baker

For some bizarre reason Brazil is routinely placed on the list of rapidly growing economies, along side China and India. The Washington Post commits this sin in today's paper.

According to the IMF, Brazil's economy grew at 4.1 percent annual rate over the last three years and a 3.8 percent annual rate over the last five years. This is not especially fast for a developing country. By comparison, India's growth has averaged almost 9 percent over the last five years and China's growth has averaged more than 10 percent.

--Dean Baker

That is in effect what Federal Reserve Board Chairman Ben Bernanke and Treasury Secretary Henry Paulson said when they announced they will intervene in currency markets to keep the dollar from falling further. When the dollar falls, it benefits workers who work in industries subject to international competition (e.g. manufacturing workers) at the expense of workers who are employed in largely protected sectors (e.g. doctors, lawyers, accountants, and economists).

Since the workers in sectors subject to competition are disproportionately non-college educated, and the workers in the protected sectors are disproportionately workers with advanced degrees, the commitment to keep the dollar from falling can effectively be taken as a declaration of class war by the two highest ranking economic officials in the U.S. government.

The distributional implications of this action have been completely absent from the media coverage of this move.

--Dean Baker

The unemployment rate for prime age men (ages 25-54) is still relatively low, despite the recent upswing,. However, the percentage of non-employment (people who are either officially unemployed or not employed, but also not actively seeking work) among this group is near its post-war high, as Floyd Norris shows in his column today.

For some reason, large numbers of prime age workers have simply dropped out of the labor force, presumably because of poor employment prospects. The situation is actually probably somewhat worse than the official data imply.

There has been a big increase in the number of people who are not picked up in the Current Population Survey (CPS), the survey used to measure unemployment and employment rates. The people who are not picked up by this survey are from demographic groups, such as young African American men, that face higher rates of unemployment and lower rates of employment than the population as a whole.

My colleague, John Schmitt, compared the CPS data with data on employment from the 2000 Census and found that the CPS may be overstating employment rates by about 1 percentage point for the population as a whole, and as much as 8 percentage points for young black men.

--Dean Baker

I remember back in the old days when people used to think about ways that we could make housing more affordable for low and moderate income people. Well, that isn't what they talk about at the Washington Post.

The Post wants to sustain bubble-inflated house prices and they want the government to intervene to keep prices high:

"But, just as the Bear Stearns bailout can ultimately be justified only if it helps restore lasting confidence in financial institutions, so must the various housing plans stem the decline in home prices."

Wow, if the Post has its way, a middle class home will always cost 6 or 7 times a middle class family's income in large parts of California and Florida and major cities on the East Coast. If such families want to become homeowners, they can look to spend 50 percent, or more, of their income on housing costs.

I can understand looking at this situation and seeing it as an unfortunate outcome of market prices, but why would we want the government to intervene to deliberately bring about this result?

--Dean Baker

The U.S. farm price support program is a total mess. It gives the wrong incentives in all sorts of situations and it gives money to many of the wrong people. It would be great if it could be restructured. In fact, it would probably be a net gain if it were just eliminated.

I said this just to be clear that I am not a defender or admirer of the farm program as it now exists. Nonetheless Bill Moyers segment on the farm bill being debated in Congress was a serious waste of PBS viewers' time. The piece followed Washington Post reporters who spent years tracking down wasteful payments.

Why is this a problem? Many of the wasteful payments they tracked were numbers in the hundreds of thousands of dollars. That might sound big to many people, but anyone who reports on the federal budget should know these are trivial sums. $1 million is equal to 0.00003 percent of federal spending. In some cases, the sums were accumulated over five or ten years, so divide that number by 5 or 10.

It's great to crack down on wasteful federal spending, but viewers were being badly misinformed if they think that farm programs explain the budget deficit or that we can't afford to expand the food stamp program because of all the money we give to rich farmers, as the segment implied.

Furthermore, there is so much corruption that the Washington Post (and probably Moyers) does not touch, which is so much larger and more pernicious. I'll just mention my two favorites. The pharmaceutical industry charges the public $240 billion a year for drugs that would probably sell for less than one-fifth as much if the drug industry didn't benefit from government imposed patent monopolies. Where are the stories that discuss the inefficiency and corruption of the archaic patent system of financing drug research?

My other favorite for this occasion is the fund manager tax break, which allows hedge and equity fund managers to pay taxes at just the 15 percent capital gains rate, instead of the 35 percent rate for ordinary income. This allows many of the richest people in the country to pay taxes at a lower rate than teachers or firefighters.

Mr. Moyers had one of these fund managers, Peter Peterson, on his show a few years back to tell PBS viewers that we have to cut Social Security and Medicare. Mr. Peterson has, by himself, probably gained several hundred million dollars from the fund managers' tax break. His personal take is probably more than the farm program abuses that the Washington Post reporters documented over the course of a year.

If Moyers was really concerned about government waste and abuse, instead of giving Mr. Peterson a platform to make unanswered attacks on the country's most important social programs, he might have tried interrogating Mr. Peterson about whether it is the best use of public money to give multi-million dollar tax breaks to some of the very richest people in the country.

I'm waiting for this show.

--Dean Baker

This is what the headline of a Washington Post article discussing the meetings of the G-7 finance ministers, the Internation Monetary Fund, and the World Bank should have said. Instead, the Post decided to turn reality on its head with the Orwellian headline, "A Weekend to Start Fixing the World."

This is really one of those moments that leaves one wondering whether laughing or crying is more appropriate. I mean, let's be serious, why is the world broken? The alleged fixers are precisely the people who designed the financial policies that led to the current crisis.

The Post headline is written as though the economic crisis descending on us was an invasion from another galaxy that our brave leaders are now determined to combat. The real story is that the financial wizards meeting in Washington repeatedly ignored all the warnings that there were large imbalances (like the housing bubble) and that the financial system was overly leveraged and under-regulated. These are the people that missed the boat, that stifled dissent, the know-it-alls that got it wrong.

Let's stop the airbrushing of history.

That's what the NYT says. The NYT tells us that the Bush administration is warming to the idea of a housing bailout but "big differences remain between Mr. Frank’s proposal and the administration’s plan, reflecting a wider philosophical divide over how best to address problems in the housing market."

It's of course possible that the issue between Mr. Frank [Representative Barney Frank, the chair of the House Financial Services Committee] and President Bush is their philosophy of the government's role in the housing market, but it is also possible that the differences are attributable to the fact that they answer to different interest groups. Both Mr. Frank and President are known primarily as politicians. Neither is known widely for their contributions to political philosophy.

Why can't the NYT leave such speculation to readers and just tell readers what happened.

--Dean Baker

Let's see, if there's too much supply, then prices fall. And, if there's a shortage, then prices fall. Or at least that's what the NYT tells us about pilot's wages. To be exact, it tells readers that "poor pay and fewer big-airline jobs to move up to have led to fewer applicants, creating a pilot shortage."

It looks like the basic story is that one of the places the airlines are looking to cut back is on pilots' pay. At lower wages, few people want the job. That's not quite a shortage in the normal sense of the term.

--Dean Baker

For those who actually want to read more of my writing, I now have a weekly column on economics at the American Prospect's website.

Well, they didn't actually acknowledge that they had been wrong, but the NYT today complained that high food prices (partly the result of biofuel subsidies) are having a devastating impact on the developing world. The NYT used to run editorials on a regular basis that complained that farm subsidies "harvest poverty" in the developing world.

Okay, here's the problem. Subsides lower prices. Let's say that again (I know it seems simple, but many highly credentialed people get it wrong), subsidies lower prices. The farm subsidies that the NYT harshly condemns lead to lower worldwide food prices.

The NYT can complain about high food prices leading to hunger for people who can't afford food. It can also complain about low food prices stifling agricultural development in poor countries. But, it cannot complain about both high and low food prices and expect anyone to take its views seriously.

The reality is that rich country agricultural subsidies have a mixed impact on the developing world. Their elimination would benefit producers and provide a net benefit to some countries, but this would not be the boon the NYT, along with the World Bank and some NGOs, implied. It would be a great step forward if this issue could be discussed more seriously in the future.

[Dani Rodrick made this point in reference to the World Bank last week.]

--Dean Baker

The NYT reports on the battle over the Colombia trade deal between President Bush and the Democratic leadership in Congress. The article implies that the two sides disagree on the impact of trade on the U.S. economy, while the claims presented are not in fact inconsistent.

For example, the article reports that opponents of recent trade pacts "say that trade has cost American jobs and led to wage stagnation." It contrasts this with assertions from Republicans that "whatever the losses from trade, the gains outweigh them."

These two claims can be entirely consistent. Specifically, economic theory and much evidence suggests that non-college educated workers have seen their wages decline as a result of the growth of trade in recent decades. However, most research also suggests that the economy has grown somewhat more rapidly as a result of increased trade. The gains have gone to highly educated workers and corporate profits.

It is easy to see how this can work. Suppose that our trade negotiators contacted the publishers of the NYT, WSJ, and other major newspapers and asked them why they don't hire reporters from Colombia, since they get much lower wages than their U.S. counterparts.

Presumably the publishers would first point out that, under current immigration law, it is in general not legal to hire someone explicitly because they will work for lower wages. If anyone in politics was committed to free trade, this barrier would of course be eliminated. (Lesson # 1, no one is advocating free trade.)

Then the publishers would explain that Colombian reporters generally don't speak fluent English and that they are not trained in the same way as U.S. journalists. If the government were as committed to eliminating barriers to trade in journalists' services as it is in manufactured goods, it would send consultants down to Colombia to improve the training process in their journalism schools. This would ensure that Colombian reporters were proficient in English and trained to meet U.S. journalistic standards.

With the legal obstacles to hiring low-paid foreign journalists removed, and Colombian journalism schools training their graduates to U.S. standards, Columbian journalists would soon be flooding the staffs of U.S. newspapers and driving down wages for their U.S. born counterparts. This would be good news for the economy, since we would be getting our newspapers at lower prices and the cost of advertising would be reduced. However, it would be bad news for U.S. born journalists who would be receiving much lower wages.

This more or less describes the situation with recent trade deals, although the losers have been workers without college degrees (70 percent of the workforce), not journalists. There is actually not much disagreement about the impact of trade deals, the main difference is between politicians who think that the upward redistribution that has resulted from recent trade deals is good and those who think it is bad. It would be helpful if reporters would clarify this point for readers rather than obscure it.

--Dean Baker

Yeah, they all do it. The headline is "Business, Labor Groups
Gird for Free-Trade Battle." Why couldn't they just call it a "trade battle?" I thought that headline writers tried to save words.

The point is that the deal is not actually about "free trade." Many barriers to trade will still exist after the deal is in place, most importantly restrictions on trade in highly paid professional services that continue to make it difficult for Colombians in highly paid professions, like doctors and lawyers, from competing with their counterparts in the United States on an even footing. The deal also increases some forms of protection, most importantly by imposing stronger patent and copyright protection.

So why is it so hard to drop the word "free" from the discussion of trade agreements? Are the reporters worried that we wouldn't know what they are talking about if they said the "Colombia Trade Agreement?"
If the papers want to tell us how much they really like the trade agreement they have their editorials. They could even take out ads, but how about leaving the loaded words out of the reporting.

--Dean Baker

The WSJ has an interview with Greenspan in which he defends himself against his critics, many of whom were former acolytes. The WSJ discussion focuses on the views of the critics who only recognized Greenspan's failings in retrospect.

Critics who saw Greenspan's errors at the time felt it was a serious problem to allow the stock bubble to grow unchecked to dangerous levels. The "savings glut" that Greenspan complained about in 2002-2004 did not fall from the sky, but rather was a direct outgrowth of the stock crash which both cut into investment and consumption through its destruction of wealth. (The over-valued dollar also contributed to the problem.)

It was apparent that a housing bubble was growing in these years. Greenspan fostered the growth of this bubble not only with low interest rates but also with his repeated denials that there was any problem with prices in the housing market.

If Greenspan had explicitly warned of the bubble, explaining carefully with charts and graphs how the run-up in house prices was inconsistent with longstanding trends in house prices, and could not be explained by the fundamentals in the housing market, it is likely that it would have taken the air out of the bubble years ago. He also could have warned explicitly of the sort of financial meltdown that we are now seeing, which would lead to hundreds of billions of dollars of debt write-downs by banks and other financial institutions.

Such explicit warnings from the nation's central banker likely would have persuaded major actors in financial markets to act differently. This is the course of action that was advocated by some of us who recognized the housing bubble at the time.

It is difficult to see any negative consequences that could have resulted from Greenspan providing accurate analysis to the public and financial markets. It is unfortunate that the pages of the WSJ and most of the rest of the business media were not open to this view years ago. It is remarkable that these views are still excluded from the debate.

--Dean Baker

Italy's economy clearly has trouble, but it's problems don't seem obviously worse than in the United States. After all, it is not looking at the collapse of a housing bubble, and the size of its current account deficit relative to GDP is about half of that in the United States. Its unemployment rate is about a percentage point higher, but when we adjust for the people who are missed by the Labor Department's survey, the unemployment rate in Italy is probably pretty close to our rate.

So why is the BBC predicting disaster? It seems to be because the businesses are whining. Of course businesses always whine, that doesn't mean the economy is in trouble.

--Dean Baker

The NYT had a useful article on increasing inflation in East Asia and its impact on the U.S.. However, the article wrongly implies that it matters to these countries that oil is priced in dollars. It doesn't. If oil were priced in potatoes, the number of bushels of potatoes it took to buy a barrel of oil would be increasing. The cost of a bushel of potatoes would in turn be rising measured in dollar terms, because the value of the dollar is falling. However, for people in East Asia, ti doesn't matter whether oil is priced in potatoes or dollars.

--Dean Baker

Remarkably, the Post editorial writers seem to be the only ones who have noticed that the Senate "Foreclosure Prevention" bill will give banks an incentive to carry through foreclosures. The bill would give a $7,000 tax credit to buyers of foreclosed properties.

While there could be some rationale to having a credit like this for homes that had already been foreclosed and been allowed to deteriorate, it makes no sense to allow the credit to apply to homes where the process has not yet been completed. This effectively gives banks an incentive to carry through the foreclosure instead of trying to work out new terms with the homeowner.

Give the Post credit for catching this one, almost no one else did.

--Dean Baker

Apparently not, given the discussion of plans to have the government buy up or guarantee large amounts of home mortgages. I hate to be picky, but you cannot -- repeat CANNOT-- have a serious analysis of these proposals without discussing the housing bubble.

The reason is simple. In bubble inflated markets, the ratio of house prices to rents is still very high. This means two things.

First, homeowners are likely to pay far more in ownership costs than they would to rent a comparable unit. This is real simple, you can figure it out for yourself with a calculator, or even a pencil and paper.

Assume that the ratio of the sale price to annual rent is 20 to 1. Now, let's assume that we get our homeowner a 6 percent 30-year fixed rate mortgage. With the equity payment, the mortgage payment will be about 6.85 percent of the sale price. Now add in 1.0 percentage points for property taxes, a conservative estimate. Throw in another 1 percentage point for insurance and maintenance costs (also conservative) and we get total ownership costs of 8.85 percent of the sale price. [Yes, I am ignoring the mortgage interest tax deduction, the vast majority of these folks will not itemize -- it doesn't pay.]

By contrast, rent is just 5.0 percent of the sales price. Then means that our congressional heroes of moderate-income homeowners will have them paying 75 percent more (8.85 percent/ 5.0 percent = 1.77) each year in housing costs than if they were to rent the same unit. Those additional housing costs come at the expense of money available for health care and quality child care.

In many of the bubble markets, houses actually sell for more than 20 times annual rent. CEPR just did a short paper on this one with the Low Income Housing Coalition.

The second reason why a high sale price to rent ratio is important is that it is not likely to persist, just as stocks don't maintain very high price to earnings ratios forever. Prices in the bubble-inflated markets are falling rapidly. This means that our congressional heroes of moderate-income homeowners are getting them into houses in which they will almost certainly never have any equity.

So there you have it, huge excess housing costs and zero equity at the end of the day. That is what happens in bubble markets like San Diego, Miami, New York and Washington. In the non-bubble markets, places like Detroit, Cleveland, Atlanta and many other parts of the country facing high foreclosure rates, these mortgage buyout plans may make more sense. (Of course, my preferred solution is still own to rent. Give homeowners facing foreclosure the right to stay on as long-term renters. This both provides housing security and gives banks a real incentive to negotiate terms that allow them to remain as homeowners. And it costs taxpayers nothing.)

Anyhow, it is impossible to have a serious discussion of the merits of these plans without discussing the housing bubble and the extent to which prices are still inflated in various markets. It was incredible incompetence that led so many economists to miss the bubble as it was inflating. If they and the housing experts who listen to them still don't see the housing bubble, they need to find a new line of work.

--Dean Baker

Reporters should be asking this question, or perhaps more accurately, is the Labor Department understating job loss. The issue here is the imputation of jobs for new firms not included in the survey.

Since firms are constantly coming into or going out of existence, the Bureau of Labor Statistics (BLS) must incorporate changes in employment in these firms in its estimate of job growth. However, since these firms are not answering its survey of employers, it has to guess how many jobs they are creating. Of course, BLS does not literally guess, they use a model to predict job gains/losses in these firms.

The model generally does a respectable job when the economy is moving along at an even pace, but it tends to miss turning points. When the economy speeds up, it understates job growth. When the economy slows, it overstates job growth.

Last year, it overstated job growth by 300,000 jobs, an average of 25,000 month. This year, the problem might be even worse. For February and March, the model imputed a total of 31,000 more jobs into the BLS estimate than in the same months last year (it imputed far less for January of 2008 than January of 2007). This could mean that the true job decline in the last two months is even larger than the data imply.

My candidate for the location of these phantom jobs is the restaurant sector. Including the imputed jobs, the restaurant sector added 48,000 jobs over the last three months, an increase of 0.5 percent. But, if we check the latest data from the Commerce Department, we find that nominal spending in restaurants was down by 0.6 percent from December to February. When we adjust this figure for inflation, we get that real sales in restaurants were down by 1.4 percent for these two months.

Okay, so let's assume all these numbers are accurate. We have employment growing at a 2.0 percent annual rate for the first three months of 2008, while output in restaurants is declining at an 8.5 percent annual rate for the first two months of the year. This implies that productivity in the restaurant industry is falling at more than a 10 percent annual rate.

Therefore, we can either believe the job growth reported for the restaurant sector, and that productivity is now plummeting, or we can believe that BLS' imputation is overstating job growth and that productivity in the restaurant sector is following a more normal pattern. It's your call.

--Dean Baker

Bloomberg does some solid reporting that deserves a wide audience.

--Dean Baker

It's right there on page 3 of the Washington Post. Are the rivers running upstream?

--Dean Baker

The prospect of investment banks moving overseas in response to more stringent regulation has been raised repeatedly by opponents of such regulation. This raises an obvious question: why should we care?

We buy shoes, toys, car and steel from abroad; why should anyone be bothered by the prospect that we would be getting our investment banking services from other countries. I can imagine some knuckle scraping Neanderthal raising such concerns, but surely no one with even the most rudimentary understanding of economics would care where we buy our banking services.

Let's see some discussion of this one in the media.

--Dean Baker

The WSJ discusses the Fed's bailout of Bear Stearns. It reports that the Fed wanted to keep the purchase price down as a way of preventing a problem of moral hazard, in which the Fed would be rewarding the company's stockholders and managers for taking big risks and losing.

The Fed was only partially successful in this effort, since Bear Stearns managed to push up the original price by a factor of five. This money was paid to Bear stockholders in exchange for a $30 billion guarantee from the Fed, not for the value of Bear's assets.

But the direct payment is actually the less important aspect of moral hazard in this story. The far more important aspect, which was totally missing from the WSJ article, is the guarantee to Bear Stearn's customers. The Fed assured all of Bear Stearn's creditors that it would insure Bear's obligations, even though Bear lacked the capital to meet its commitments. It also explicitly made the same guarantee to the customers of the other major investment banks.

This commitment creates an enormous moral hazard problem. Ordinarily, creditors would be very cautious dealing with investment banks of questionable solvency. However, if the loans come backed up by a Fed guarantee, then there is no reason to be concerned about the solvency of the bank.

In such circumstances, investment banks have an incentive to take large risks. Effectively, the Fed has created a "heads I win, tails you lose" situation for the banks and their customers. If they take a big risk and win, they gain make large gains. If they lose, then the Fed covers the losses for the customers, although not for the bank. Nonetheless the opportunity for the creditors to make large one-sided bets is very valuable, so creditors will be willing to share part of this windfall with the banks in the form of large fees.

(If this sounds far-fetched, it shouldn't. It happens all the time. A big bank goes to a state or local government or pension fund or anyone else with a pool of money and promises them a better return with their new swap/derivative whatever. They then tell them their investment is guaranteed by big bank. While a guarantee from Bears Stearn in February should have been seen as completely worthless, when Ben Bernanke stands behind it, such a guarantee is gold.)

This is the situation that led to the huge losses for Savings and Loan institutions in the 80s. If the Fed cannot find a way to impose much more stringent oversight of the investment banks than had been in place, the moral hazard problem it has created virtually guarantees large losses for taxpayers in the future.

--Dean Baker

That's what USA Today told readers. It would be interesting if the article explained to readers how it made this determination.

In fact it seems rather evident that the over-valued dollar was a main cause of the country's economic ills. The high dollar is the main cause of a trade deficit that approached $800 billion, or 6 percent of GDP, in 2006. It has cost the country millions of relatively high paying manufacturing jobs, putting downward pressure on the wages of workers without high school degrees.

The trade deficits of recent years were not sustainable. (They were two to three times the size of the budget deficit over the last three years.) The only way to bring the trade deficit down on a sustained basis is by reducing the value of the dollar. This is a necessary adjustment, not a "symptom of U.S. economic ills."

--Dean Baker

That's what economist Mark Zandi is quoted as saying in an article discussing the extent to which the housing crash is reducing mobility, because people can't sell their homes. The problem is that the chart that accompanies the article (produced by Mr. Zandi's firm, Moody's Economy.com) indicates the opposite.

The chart shows that interstate mobility fell as the unemployment dropped throughout the 90s. It remained relatively low in this decade before rising rapidly in 2004. If this rise in mobility is a response to the economic growth, then the economy is displaying the exact opposite reaction from the 90s, when a stronger economy was associated with less mobility.

--Dean Baker

Of course, he didn't anticipate the last Bear Stearns either. It might be worth pointing this out to readers.
This isn't a question of being rude, it's just a question of putting Mr. Bernanke's opinions in context.

The simple fact is that Bernanke has been continually surprised by every aspect of this crisis. When he was first nominated to be Fed chairman in 2005 he assured the public that there was no housing bubble and he continued to make such assurances in his first year as Fed chair. When problems in the subprime mortgage market began to shake world financial markets early last year, Bernanke expressed confidence that these problems would be contained in the subprime sector. As credit problems continued to build through the fall, he told Congress that he didn't expect these problems to lead to a recession.

This article does actually later tell readers that the Bear Stearns meltdown did surprise Bernanke: "Mr. Bernanke said he and his colleagues at the Fed did not know until March 13 that Bear Stearns faced bankruptcy and that they quickly realized a failure to act would create a global crisis." However, the article never suggests that his failure to anticipate Bear Stearns' difficulties is relevant in assessing Bernanke's statements about the likelihood of another meltdown elsewhere.

There is a general tendency among reporters to treat people in positions of power as being extraordinarily insightful. Sometimes this is not true. It is certainly appropriate to provide information of experts' track records when presenting their views to readers.

--Dean Baker

The NYT argued this morning that immigration, and especially illegal immigration, "saved" Social Security. The argument is that immigrants increase the size of the working population relative to the retired population, thereby increasing revenue relative to payouts. With illegal immigrants we get the added bonus that most never collect the benefits that they paid for.

Well, this is a really bizarre way to view immigration. Certainly immigration can have a marginally positive effect on Social Security's solvency, but given that the latest projections from President Bush's trustees show the program to be fully solvent for more thirty years and the projections from the non-partisan Congressional Budget Office show it to be fully solvent for almost forty years, it just doesn't seem that we need worry about the marginal impact of immigration on the program's finances.

Immigration has much larger effects on labor markets and pollution and congestion. These issues should dominate concerns about immigration, as well as the impact that immigration has on the countries of origin. The impact on Social Security is so trivial by comparison, that it is hardly worth mentioning in a debate over immigration -- and we certainly should not be trying to keep the program solvent by stealing benefits from workers who are not in the country legally.

--Dean Baker

The Washington Post reports that Robert Litan, an economist at the Brookings Institution and a Clinton administration official, is an "unlikely defender" of Phil Gramm, a former senator and top economic adviser to John McCain. It's not clear why anyone would view Litan's defense as surprising.

Litan has been a vocal advocate of deregulation in many industries. In fact, he headed up a major project with the conservative American Enterprise Institute on deregulation that published papers and books. It would have been surprising if Mr. Litan was not sympathetic to Mr. Gramm's efforts to reduce regulation in the financial sector.

--Dean Baker

That is a question that reporters might try asking proponents of Congressional plans to prop up housing prices in bubble inflated markets. There is no obvious public interest that i can see in sustaining above market house prices. The housing bubble has prevented millions of young families or people moving into places like New York, Boston, Los Angeles from being able to afford to buy a house or alternatively forced them to stretch their budgets hugely and take on dangerous debt levels.

It might be reasonable to think that Congress would want these prices to return to trend levels as soon as possible. Instead it seems determined to use taxpayer dollars to sustain inflated prices. Someone should as them why.

--Dean Baker

The NYT reports on the battle of the status of the H1-B program that allows highly skilled foreign workers in the United States for a period of time. The article describes the debate as being between opponents of the visas, who argue that it lowers the wages in the most affected occupations and the supporters who claim that they cannot find enough skilled workers in the United States.

It would have been helpful to include some economic analysis. By increasing the supply of highly skilled workers, the H1-B program undoubtedly reduces the wages for the most affected occupations. According to standard trade theory, this is precisely the point of the program. Allowing firms to get lower paid workers will reduce their cost and increase the economy's potential output. It is the same argument that is used for the gains from getting cheap textiles or steel from foreign producers.

The argument from high-tech employers, that they simply can't get enough high tech workers in the United States is ridiculous on its face. If these jobs paid millions of dollars per year (like jobs at Wall Street investment banks), then highly skilled workers would leave other occupations and develop the skills necessary to work in high tech occupations. Obviously, Bill Gates and the other high tech employers cited in this article want to be able to employ high tech workers at lower wages. The issue is wages, not a shortage.

--Dean Baker

The NYT has an article on two whistleblower lawsuits directed against insurers for requiring beneficiaries to apply for Social Security disability, even when they would not qualify, as a condition of being paid benefits. This can both mean unnecessary harassment for beneficiaries and also excessive paperwork demands on Social Security. This is the sort of reporting that newspapers are supposed to do.

--Dean Baker