It is amazing how much utter nonsense otherwise respectable news outlets will repeat about Social Security. The country is suffering the worst downturn in 70 years because the geniuses who run the Fed and Treasury could not see an $8 trillion housing bubble and let the Wall Street crew run wild with fraudulent loans and complex derivative instruments.

What do we do by way of response? Go after Social Security. As a result of the incompetence of the people running the economy, unemployment has soared and tax collections of fallen. Now Social Security must draw on the bonds in its trust fund (which MoneyWatch perversely calls "IOUs) to pay current benefits.

Of course the reason for accumulating the bonds was to deal with periods in which benefit payments would exceed tax revenue, so there is no obvious reason that anyone should be alarmed about that event occurring now. We have great reason to be concerned about the 9.7 percent unemployment that is the cause of Social Security's current shortfall, but the fact that Social Security is providing a secure income to tens of millions who would otherwise be in poverty -- this is about as much as you could ask for from a government program.

--Dean Baker

The Washington Post reported that House Speaker Nancy Pelosi wants to raise the income at which a surtax would to finance health care spending would kick in from the $350,000 in bills passed by House committees. She reportedly said the tax should only apply to millionaires. Almost everyone with an income of more than $350,000 a year would have more than $1 million in assets, therefore they would be millionaires.

--Dean Baker

Listeners to Morning Edition might have been asking that question when they heard a segment debating whether a commitment to lower drug prices to seniors by $80 billion was an adequate concession. It would have been almost impossible for any listener to assess the significance of this concession, since they do not know how much the country spends on drugs, nor the time period over which this $80 billion in lower drug prices is supposed to occur.

The $80 billion in savings is supposed to occur over the next decade. Over this period the country is projected to spend more than $3.5 trillion on prescription drugs. This makes the $80 billion a bit more than 2 percent of projected spending.

--Dean Baker

That would be a reasonable question since they seem to be possessed with irrational fears. According to the NYT, Senator John Ensign said that he voted against a public plan because it will eventually take over the insurance market: "Once it’s started, you will never get rid of it. Congress will subsidize it more and more, allow it to grow and grow.”

There is no precedent for Congress providing the enormous subsides that would be needed to allow a bad public plan to displace better private insurance plans. This would almost certainly run into hundreds of billions a year or multiple trillions over a 10-year horizon. This means that Mr. Ensign either is concerned that the public plan will actually be a good plan or he alternatively he fears an event that is about as likely as invasion from Mars. The NYT could have made this point more clearly.

--Dean Baker

The Post helped to promote completely baseless fears about health care rationing today, at one point telling readers the views of "medical professionals" that: "the question, they say, is not whether there will be rationing, but rather what will be rationed, and when and how."

This is of course not true. No one is currently proposing that the government prohibit people from purchasing whatever health care services they want to pay for. This is what rationing means. There certainly are, and will continue to be, limits on what insurance, either public or private, will pay for. However, this has nothing to do with rationing and the Post badly misleads its reader in implying that these limits are rationing.

It also would have been worth noting in an article like this that many of expensive drugs and procedures are not inherently expensive, but are only costly because of patent protection. The Post refuses to ever discuss more efficient mechanisms for financing medical research, such as the prize system promoted by Nobel prize winning economist Joe Stiglitz.

--Dean Baker

If you're wondering where the money you give to charities goes, USA Today has the answer for you: outlandish CEO pay. The article reports that many CEOs of non-profits take home multiple millions every year. As the article notes, it's likely that many of the people who contribute to these organizations had no idea how much the CEO raked off. Good piece.

--Dean Baker

The NYT presented this assertion from a Columbia University professor in an article on the future of socialist political parties in Europe. It provides no background or context.

On its face, the assertion seems obviously wrong. Countries like Denmark and Sweden with very strong welfare states have maintained healthy rates of growth and low rates of unemployment, until the current crisis. By comparison, the United States, the wealthy country with the least developed welfare state, has an unsustainable trade deficit and a health care system that is threatening to bankrupt the country.

--Dean Baker

Yes, it is cruel to dredge up past mistakes, but this one is so utterly off the wall that it deserves another go around. Here's what the Washington Post Outlook section had to say about the economy the day before Lehman collapsed. I would feel bad, except I know what they would do if the shoe were on the other foot.

--Dean Baker

That might be the agenda after presenting the views of professional global warming trivializer Bjorn Lomborg on today's oped page. Lomborg warns readers not only about the cost of curtailing global warming, relying on an outlier among economists in his estimates of the cost of curtailing emissions and the benefits from doing so, he also warns that the world may suffer from ............ protectionism!

Lomborg tells readers that the world stands to lose $50 trillion (is that in one year, over a decade, a century, a millennium? This is the Post, who cares?) from protectionism related to global warming. The point is that not only will curtailing warming pose its direct costs, but it will also pose additional costs through protectionism.

Apart from the loon tune numbers this is the granddaddy of all double-counting. Let's think about this for a second. The idea is that we will tax carbon in the U.S./Europe/Japan, raising the price of goods with high carbon content. For example, suppose that our carbon taxes raise the price of steel produced in these countries by $10 a ton. In order to accomplish our goal of actually reducing greenhouse gas emissions and not just shifting production to countries without carbon taxes, suppose we tax steel imports from countries
without a carbon tax by $10 a ton.

This will raise the price of imported steel by $10 (ignore questions of incidence for a moment), but our calculations of the cost of curtailing global warming already assumed that the price of steel would rise by $10 a ton. So, we already got this one in our calculation, but Lomborg and the Post just think it sounds more scary if we can say that the cost is coming from hoary old-fashioned protectionism, rather than green taxes. Are you scared yet?

We should get Joe Wilson to tell these false free traders what they are. I can hardly wait to see the Post's oped on the origin of species and the shape of the earth.

--Dean Baker

USA Today reports on the efforts by Sheila Bair, the head of the FDIC, to restrict bank overdraft fees. It then presents the views of economists who say that such restrictions would be a bad idea. Including the remarkable comment: "other analysts say that onerous restrictions could also make it harder for the troubled industry to recover."

Of course, if bank executives were raising money by robbing people at gunpoint it would be true that restricting these armed robberies "could also make it harder for the troubled industry to recover."

Restrictions on overdraft fees reduce the incentive for banks to use their brilliant minds to find deceptive ways to gouge consumers. If the government gives them free rein to tack on fees with little or no notification, then basic economic theory suggests that banks will devote considerable resources to this effort. This results in waste from the standpoint of the economy as a whole and a redistribution from bank customers to stockholders and top executives.

If he didn't, he should have, because it is not journalism. Let's start with the real world. The economy is in horrible shape. The Congressional Budget Office projects that unemployment will continue to rise through the rest of the year and will average 10.2 percent in 2010. This is higher than at any time since the Great Depression. We are seeing foreclosures at a rate of more than 2 million a year.

Prior to last fall, it would have been difficult to imagine a worse situation. It is true, that this is not the Great Depression, but that is about all that the Geithner-Summers team can claim for their economic track record. Yet, the NYT is singing Geithner's praises as though he won the New York marathon.

At one point it refers to Geithner's plan for buying bad assets for banks, which involved large taxpayer subsidies for some of the richest people in the country. It tells readers that: "As it happened, the toxic asset plan’s signal contribution was the announcement itself; the increase in market confidence it engendered all but obviated the need for financial institutions to use it."

That's a fascinating view. it would be interesting to know the basis for this assertion or if anyone other than the NYT shares this view.

This piece of Geithner worship has no place in a serious newspaper.

--Dean Baker

Nice piece of investigative reporting. It must have slipped by the editors.

--Dean Baker

Contrary to what the Associated Press wants the American public to believe, Social Security's finances are not "stressed" by the downturn. It is true that it is now paying out more money in benefits than it takes in from taxes, but this means zero, nada, nothing in terms of the finances of the program.

Under the law that governs Social Security's operations, it can pay full benefits as long as it maintains a minimum balance in its trust fund. At present, it has more than $2 trillion in the trust fund, far more than the minimum balance. In fact, because SS collects interest on the bonds in the trust fund it actually is projected to continue to run surpluses even through the crisis.

The article notes that the fund is projected face a shortfall after 2037. While there will probably have to be some adjustments made to the program at some point, this has been true in prior decades as well. It is striking how much attention the media devote to comparatively minor problem.

--Dean Baker

The Post had a major article front section article on the Steelworkers Union's efforts to get the U.S. government to adopt a trade policy that is more supportive of manufacturing. At the one point the article told readers that: "In the critics' [of the Steelworkers] view, the steelworkers campaign is a form of protectionism that risks provoking a broader trade war, which in turn could endanger the global economy.

A trade war could, the argument goes, backfire on the union by making manufacturing in the United States more difficult because it would become more difficult for companies to acquire cheap imported supplies. It would also raise prices for consumers."

Actually, the fact that prices will rise for consumers is not an argument that protectionism will backfire on the union. If higher prices reduce demand by a small percentage, but a much larger share of that demand is domestically produced, then U.S. workers will almost certainly benefit. This is almost always the case with most of the trade measures that have been put forward in recent years. Also, in many cases, the items (like tires) are directly sold to consumers, so there is no risk that they would boost the cost of producing goods here.

The real argument that economists would make is that China and other exporters would retaliate by putting up their own trade barriers. This would reduce U.S. exports, destroying jobs in export industries. The end result of this story would economies that are more self-reliant, but benefit less from the efficiencies of a global division of labor. In that world, any specific group (e.g. manufacturing workers) may end up better off, but the economy as a whole would be worse off.

Maybe if the Post had relied on critics with names, it could have found someone who could correctly present the standard economic argument. It is worth noting that the most distortionary protectionist barriers protect people like doctors and lawyers and Washington Post reporters. It is not legal for the Post to fire its reporting staff and hire 400 Indian reporters at one-third the current staff's wages. This type of protectionism helps to sustain high salaries for the most educated workers, but it imposes costs to consumers and the U.S. economy that are several orders of magnitude greater than the tariffs on Chinese tires.

--Dean Baker

That should not be surprising in Washington Post coverage. Again, the point is simple. The United States committed itself to reducing its budget deficit and to increasing private saving. This is supposed to be offset by a commitment by China and other surplus countries to increase domestic consumption. However, there was no mention of any adjustment of currency values.

In the absence of any change in currency values, increased domestic demand from China will have a trivial impact on the trade deficit and the U.S. economy. Last year, China imported $70 billion of goods and services from the United States. If China could quickly boost domestic demand by 20 percent (a huge increase), we should expect its imports from the U.S. to rise by about 20 percent, or $14 billion.

This increase in exports to China is equal to less than 0.1 percent of GDP. It would have a trivial impact on the U.S. economy. If the G-20 did not talk about currency values, then they did not have a serious discussion of economic issues. This should have been the headline of any article reporting on the meetings.

--Dean Baker

According to the NYT, it seems that this is exactly what he agreed to at the G-20, unless he got a commitment to get the value of the dollar against the Chinese yuan and other currencies. According to the article, President Obama pledged to raise the U.S. private saving rate and reduce the budget deficit. While the saving rate has already risen due to the loss of $6-$8 trillion in housing bubble wealth, if the budget deficit is substantially reduced without a reduction in the value of the dollar, then it will lead to a rise in the unemployment rate.

If the dollar falls, then increased exports and reduce imports can make up for the loss of demand that would be the result of a lower budget deficit. However, if the value of the dollar does not change appreciably, then there will be no source of demand to offset the contractionary impact of a smaller budget deficit.

The NYT should have better explained to readers the extraordinary nature of the commitment that it claims President Obama made at the G-20.

--Dean Baker

If economists cared as much about inefficiency when it benefited higher income people as when it benefits more moderate income people, they would spend 2000 times as much effort talking flexible spending accounts as tariffs on tire imports. The ratio of administrative waste to tax savings on flexible spending cuts is probably very close to 1.

The accounts impose administrative costs on the employer, the insurers and the provider, as well as requiring time from the beneficiary. They also encourage people to waste money on little needed expenditures near the end of the year in order to avoid losing the money in the account.

The arithmetic on this is straightforward. Suppose someone puts $2,000 a year into an account (more than the median contribution). If they are in the 15 percent tax bracket, then their tax saving is $300 a year. The administrative cost to the employer alone could easily exceed $50 a year, which would immediately consume more than 15 percent of the tax savings. If the worker spends 2 hours dealing with the paperwork over the course of the year, this would come to $60 at the median compensation level. These two items alone would consume more than one-third of the tax savings.

If the worker rushes to spend 20 percent of their money ($400) at the end of the year on little needed items like glasses or aspirin (assume half value of this spending), then this could easily take up the equivalent of two-thirds of the tax savings. In short, it is easy to come up with scenarios in which beneficiaries and their employers end up being losers from these accounts.

However, economists will spend much less time yelling about the waste associated with flexible saving accounts than they do about the waste associated with tire tariffs. The first form of waste benefits health care providers and higher income workers (who do get larger benefits from flexible saving accounts). Tire tariffs are likely to benefit unionized workers.

The NYT could have given readers a better sense of the enormous inefficiency of this method of providing health care benefits to workers.

--Dean Baker.

A new NYT poll found that the overwhelming majority of the public support giving people the option to be into a Medicare-type plan. The margin was 65 percent in favor and just 26 percent opposed. This was by far the strongest positive result related to President Obama's health care reform proposal.

Many readers might have missed this striking poll result. It was only mentioned halfway through the second web page in a single paragraph.

--Dean Baker

That is what readers can glean from an article on Germany's elections next weekend. The article asserts that: "many economists see Germany as settling into a phase of slow growth or stagnation in the coming months and years." It then complains that there has been a lack of debate "over possible corrective measures — revamping the German welfare state, changing tax policies or deregulation."

It might have been useful if the NYT relied on economists with names. Not all economists agree with this assessment of Germany's economy. It is likely that these unnamed economists failed to see the onset of the current economic crisis, which may be a factor that readers would want to consider in assessing the merits of their arguments.

The article also complains that Germany's government has used "a combination of government programs and retraining" to mask an increasingly idle workforce. In fact, redistributing work, as Germany has done, is a very effective and economically sound way of addressing unemployment. Instead of having people being completely unemployed, Germany's policy has been to try to reduce work time -- in effect giving workers more leisure time.

The NYT may not like this approach, but there is no obvious economic argument as to why this is less desirable than having more unemployment.

--Dean Baker

The NYT told readers that labor unions in the United States are opposed to "trade-opening agreements." This is not accurate. Unions tend to be opposed to agreements that put their workers in more direct competition with low-paid workers in the developing world, however they have supported other forms of trade opening. For example, the AFL-CIO has generally been supportive of measures that would lessen the strength of patent protection on life-saving drugs in the developing world.

--Dean Baker

Morning Edition had a Planet Money segment that looked back at some of the people who were struggling to pay their mortgages last year. It concluded by telling listeners that the whole problem began simply with banks lending people more money than they could pay back.

Actually, the problem began with a housing bubble, which eventually grew to $8 trillion. If house prices had not become hugely out of line with fundamentals then neither individual borrowers nor the economy as a whole would have faced the disastrous situation we now see.

If house prices had remained in line with fundamentals, then borrowers in most cases would be able to either rely on equity in their home to meet payments, at least in the short term, or sell their home and cover the mortgage. The problems came when houses lost much of their value and were worth much less the mortgage. This would not have happened in the absence of a bubble.

This plunge in house prices not only led to a collapse of construction, which had exploded as a result of bubble-inflated prices, but it also led to a collapse of consumption, which was driven by bubble wealth.

It is bad enough that NPR missed the bubble on the way up. It is incredible that it still doesn't understand the bubble even after its collapse has wrecked the economy.

--Dean Baker

The NYT had a piece on Adair Turner, the head of the UK's Financial Service Commission, and his advocacy of a tax on currency trades. Near the end, the article quotes an assertion from Richard Portes, a professor of economics at the London Business School: "It wouldn’t curb speculation, and it would have no effect on the size of the banking sector."

It's not clear what Mr. Portes could possibly mean. Other financial transactions have been very successfully taxed over recent decades. In fact, the UK collects more than $8 billion a year on a tax on stock trades. Unless Mr. Portes attaches some magical quality to currency trades compared to trades of other financial assets, it is hard to understand why these trades would uniquely escape taxation.

Also, the assertion that the tax would "have no effect on the size of the banking sector" is ridiculous on its face. A tax will reduce trading volume -- economists know that. Less trading volume means less revenue, which means a smaller financial sector.

The NYT should have pointed out the fundamental illogic of Mr. Portes' comment, since it may not have been immediately apparent to many readers. It is of course very interesting that serious economists respond this way to the proposal of taxes on currency trades.

--Dean Baker

The NYT reported on efforts to reform the international financial system. It noted the need to correct major global imbalances. In this context, it told readers: "For the United States, that would mean increasing investment and savings while slowing the growth of consumption."

Actually, the most important change for the United States would be a reduction in the value of the dollar, which would allow the country to reduce its trade deficit. As long as the United States has an over-valued dollar, it will run large trade deficits when its economy is near full employment. This trade deficit implies that it will either have very high budget deficits or very low public saving.

--Dean Baker

Both the NYT and NPR forget to mention this fact in their discussion of efforts to restrict greenhouse gas emissions. This is important because NPR told listeners that China did not have to agree to just limit emissions, but to actually reduce them. This implies that the Chinese must be forever bound to emitting less greenhouse gas per person than people living in the United States.

The reason why NPR thinks that they should be restricted in this way is that China did not contribute as much to the problem of global warming as the United States. It would have been helpful if NPR explained its position more clearly to listeners.

NPR also featured a brief mention of one of the low-lying Pacific islands that could be flooded by a modest rise in ocean levels. While this would be one projected result of global warming, the destruction of these sparsely populated islands would be a less serious human tragedy than the impact of increased flooding in densely populated low-lying coastal areas of Asia. The latter might have been a better focus for noting the harm from global warming.

--Dean Baker

The NYT decided that people who support all sorts of protection for highly educated professionals, as well as patent and copyright protections, are "free traders" just because they oppose tariff on Chinese tires. The decision to oppose tariffs that could have the benefit of benefiting workers without college makes these people selective protectionists, not free traders.

It also would have been helpful if the NYT had presented the views of some of the economists who support tariffs of imports from countries that don't agree to restrictions on carbon emissions, instead of just the views of a union president. While it is good to see a union president's views presented in the New York Times, it would have been helpful to inform readers that his view on this issue is shared by many prominent economists, such as Nobel Prize winner Paul Krugman.

--Dean Baker

Based on his Sunday column on health care, he would probably buy it. Mankiw touts the benefits of modern medicine, specifically noting how statins may allow him to control the heart disease that took the life of his father. He notes that statins cost a great deal to develop and then asks whether the government would prevent him or some other fortunate person from spending their money to benefit from statins and other great medical breakthroughs.

Mankiw has turned the problem on its head. Once statins have been developed, they are very cheap to produce. The question is not an abstract one of whether anyone would have the government prevent Greg Mankiw or Bill Gates from spending their money on statins, the question is more concrete -- why does the government prevent many low and moderate income people from buying statins in a free market?

In fact, the government has granted patent monopolies to developers of statins. This means that it will arrest anyone who produces and sells statins at their cost of production without the permission of the patent holders.

In the current system patents provide an incentive to undertake research into the development of new drugs, but that doesn't mean that patents are the only mechanism to support this research. The federal government spends $30 billion a year on biomedical research through the National Institutes of Health (NIH). Virtually everyone, including the pharmaceutical industry, agrees that this research is enormously valuables.

The government could increase its funding and support the development of drugs (most of the NIH research is basic scientific research) and then allow all new drugs to be sold at their free market price. In this case, we would not have the sort of tough problems about denying care to people that Mankiw describes.

In other sectors of the economy, like computers and cell phones, technology has brought the price of goods down. It is only health care where it has caused prices to explode.

--Dean Baker

The NYT has an article on the proposal to tax higher cost health care plans in Senator Max Baucus' health care proposal. One of the main points is that rising insurance premiums could eventually make most policies subject to the tax, which has a cutoff indexed to the overall inflation rate.

While this is true, it will likely have little consequence for most plans since the tax is only applied to the increment above the cutoff, not the whole plan. This means that the tax on a plan that only slightly exceeds the cutoff (originally proposed as $21,000 for a family plan) would only apply to the portion above the cutoff. If a plan exceeded the cutoff by $200 (costing $21,200), then the tax would be $70 a year.

If the divergence between health insurance costs and inflation persists long into the future, then all plans will be subject to the tax and everyone will therefore have a higher tax bill. Of course, in this case, rising health care costs will have wrecked the economy, so no one will care about whether their health insurance is being taxed.

The article also argues that small businesses are more likely to have insurance subject to the tax because insurance companies charge them higher rates. This is true at present, but it should not be true if the system of insurance reform works.

--Dean Baker

The Washington Post beats up on a book on globalization by Jon Jeter, a former WAPO reporter. The book is largely critical of the recent course of globalization, the reviewer clearly less so.

In the last paragraph the reviewer takes Jeter to task for praising Chile's globalization with a human face, without mentioning, among other things, that Chile was the first country to privatize its Social Security system. While this may have been an unfortunate omission, it is worth noting that Chile recently partially reversed this privatization, increasing the guaranteed benefit in the system.

The reform of the privatized system was a central theme in the last presidential campaign (Chile is now a democracy, the privatization took place under a dictatorship), with both major candidates supporting reform, including Sebastian Pinero, the brother of the labor minister who had overseen the initial privatization.

--Dean Baker

In an editorial condemning the temporary tariffs on Chinese tires, the NYT comments that China: "maintains its currency at suspiciously low values against the dollar, artificially cheapening the cost of its exports to the United States." What is "suspicious" in this story?

China maintains a managed exchange rate which is far below market levels. As a result of keeping down the value of its currency, its exports to the United States are far cheaper than what they would be if the Chinese government did not intervene to keep down the value of its currency.

This is all pretty much accounting identity stuff. It is true by definition. China does keep down the value of its currency by buying massive amounts of dollars (which the media tell us we desperately need them to do). A lower-valued currency means Chinese imports are cheaper for people in the U.S.

We know exactly what is going on in this picture. It is bizarre that the NYT feels the need to use a term like "suspicious" or that others refer to "manipulation" of China's currency. We know the situation -- the Chinese are not being sneaky -- the only question is how we choose to respond.

In this case, the NYT feels superior in telling the steelworkers (who pushed for the tariffs) that any relief from the tariffs would be temporary. The steelworkers no doubt understood that the relief from a tariff which phases out over 3 years is temporary.

Sometimes temporary relief is exactly what is needed. For example, Goldman Sachs and the rest of the big banks benefited enormously from temporary access to loan guarantees from the FDIC and low-cost loans from the Fed. In this case, three years of tariffs may allow thousands of workers the opportunity to finish their working careers and retire with a decent pension and health care. Yes, consumers will pay a bit more for tires, but next to how much we get soaked on health care, who would even notice?

--Dean Baker

The NYT reports on efforts to limit the corruption of medical research by preventing articles ghost authored by drug companies from appearing in medical research. It would have been worth noting that this problem would not exist in the absence of the enormous rents that drug companies earn from patent monopolies. These rents give the drug companies incentives to mislead the public about the effectiveness of their drugs.

--Dean Baker

The NYT felt the need to present at length the unanswered complaints from Representative John Kline about a bill eliminating federal subsidies for private lenders in the college student loan program. The article concludes with Mr. Kline calling the bill "job-killing legislation,"

Of course legislation that eliminates waste will kill some jobs. Suppose we had 10,000 government bureaucrats who did absolutely nothing but pass sheets of paper back and forth among themselves. If Congress passed a bill eliminating these jobs, then it would be job-killing legislation. However, this would generally be seen as good for the economy since it would free up these resources for productive uses. The same logic applies to waste in the financial sector supported by government subsidies. The NYT should have made this point.

--Dean Baker

Contrary to the assertion that the NYT presented to readers in reference to flash trading on stock, more trading does not necessarily increase a market's efficiency (defined in terms of getting the price right). There is a body of research on "noise trading," that shows that increased trading can be associated with movements away from fundamentals, if traders are acting based on rumors and gossip. (Larry Summers was one of the leaders in this literature.) Insofar as noise traders are dominating financial markets, less trading might be associated with an increase in efficiency.

--Dean Baker

NPR assures listeners that we don't have to worry about the tariffs on Chinese tires starting a trade war in large part because President Obama's economic team are committed free traders. Of course this is not true, they are committed to placing non-college educated workers in direct competition with low-paid workers in the developing world, but they are entirely comfortable with the professional and licensing restrictions that protect doctors and other highly educated professionals from international competition. They also have been big proponents of increasing patent and copyright protection. So, it is not accurate to describe them as free traders.

--Dean Baker

NPR told listeners yesterday (caught me traveling) that the world will have to take bitter medicine to eliminate global imbalances. The only problem is that their analysis makes no sense.

It tells listeners that the U.S. trade deficit is the result of high budget deficits, which pushed up interest rates, therefore leading to a high dollar (YES, they got that one right!), and therefore a high trade deficit. As BTP readers know, the high dollar leads to high trade deficits because it makes imports cheap for people in the U.S. and makes our exports expensive for people living in foreign countries.

The problem with this simple story is that the over-valuation of the dollar has no relationship whatsoever to our budget deficit. The dollar begin to rise in the late 90s, when bubble Bob Rubin touted the strong dollar policy. This led to a rapid rise in our trade deficit, even as the budget shifted from deficits to a large surplus. The dollar actually fell from its 2000 peaks in this decade, even as the budget deficit expanded.

It is very hard to tell a story today that the dollar is being held up by high interest rates in the U.S..It is quite obviously being held up by deliberate government policy of China and other countries, who are openly buying dollars with their foreign exchange earnings. They are not rushing into dollars because they think high interest rates make them a great investment.

Finally, the pain crew at NPR insist that the adjustment to a lower dollar will mean great pain in the form of unemployment in both the U.S. and our trading partners. Let's try a "why?" here. In the U.S. they tell us the unemployment will come from lower budget deficits. Lower deficits will produce unemployment, other things equal, but we should be seeing increased employment from an improved trade balance. What are they talking about.

NPR tells us that China and Germany will have to live with higher unemployment because of reduced exports to the U.S. Why? They can offset this lost demand with increased government stimulus, as China is doing right now.

So, if NPR likes unemployment so much, maybe we should give them some.

--Dean Baker

The WSJ cited a bond trader, David Ader, as saying the real interest rate on Treasury bonds is the highest since the 80s. Determining the real interest rate depends on expectations of inflation, which are difficult to know. However, the interest rate on 10-year inflation indexed Treasury bonds is just 2.15 percent, well below its late 90s levels.

--Dean Baker

Retail sales came in higher than generally expected in August, with non-car sales rising 1.1 percent from July. This statistic is less impressive than it seems. If gas sales are taken out of the picture, then the increase in August was just half as large. If we look over the last two months, the rise in non-auto sales, excluding gas, has been less than 0.2 percent. This is not the road to recovery.

--Dean Baker

Real wages have followed an unusual pattern in this downturn, but NYT columnist David Leonhardt misses much of the picture in his column today. Leonhardt tells readers that most workers are seeing their real wages rise in this downturn. That is not quite right.

The real story of real wages is that hourly wages were falling sharply in the spring/summer of 2008, largely as the result of the rising price of oil and other commodities. Nominal hourly wages were rising at close to a 3.5 percent annual rate, with inflation rising at a rate of 5-6 percent. However, as readers of BTP know, real hourly wages reversed course and rose sharply after the Lehman crisis turned the recession into a free fall. While nominal wage growth continued on its path through the fall, prices fell at a double-digit annual pace in the last three months of 2008.

The story then reversed in 2009. Inflation has advanced at close to a 3.5 percent annual rate thus far this year. Nominal wage growth has fallen sharply. The nominal hourly wage is now rising at an annual rate of between 1-2 percent. (Monthly numbers are erratic, which makes it difficult to pin down the growth rate more precisely.) For 2009, real wages have unambiguously been falling and are likely to continue to fall as modest increases in commodity prices are not offset by nominal wage growth.

So how does Leonhardt get the story so wrong? Most importantly he uses year over year data. This includes the large fall in prices at the end of last year, which still outweighs the impact of falling real wages through 2009. Using year over year data, we can say that real wages have risen in the last year. We will not be able to say that four months from now.

Leonhardt also uses weekly rather than hourly data. This adds to the error in the measurement, since hours are also erratic month to month, and the random movements in reported hours can easily swamp the actual movement in the hourly wage. Finally, he misreads a recent data release, the June employment cost index. This release showed an insignificant rise in the rate of compensation growth between the first and second quarter. The increase is completely driven by a modest rise in the rate of reported compensation growth in the public sector, with the private sector showing no increase at all.

In short, there is no good wage story for most workers at this point. There was good news last fall when gas prices were tumbling, but that's history now.

--Dean Baker

The headline of a front page article on the tariff on Chinese tires told readers that: "threat of trade war with China sparks worries in debtor U.S." The article found some economists who expressed concern that China would buy fewer bonds from the U.S. government.

If it looked further, the Post could have also found economists who would appreciate the fact that China was no longer buying dollar assets to hold down the value of its currency against the dollar. The decision of China to buy fewer U.S. bonds would lead to a higher valued yuan and an improvement in the U.S. trade balance with China. In fact, this is exactly what the Obama administration has been officially requesting from China.

The third paragraph of the article cites economists without names who: "argued that it would all be for nothing; they said tariffs on Chinese tires would probably boost U.S. imports from countries like Poland and Mexico and do little to help the American steelworkers whose union brought the trade action in the first place."

Economists with names would have told the Post that the tariffs would slow the shift in production of tires from the United States to other countries. The access to very low cost tires in China has hastened this shift. By limiting the availability of low-cost tires with the tariff, jobs will be lost at a slower rate. Therefore the tariff was not "for nothing."

It is also worth noting that Clinton administration made a big point of touting the import surge provision in the deal that allowed for China to enter the WTO. If the United States is never prepared to use such a provision, then it implies that President Clinton was being dishonest when he included it in the trade package and used it in the promotion of the deal.

--Dean Baker

We know this because the subhead of a front page article told readers that: "more support if public option dropped." This was based on a new poll that showed that opposition to health care reform fell modestly if the public option was dropped from the plan.

The Post could have also opted to highlight another poll finding: 55 percent of those polled support the public option. By comparison, only 46 percent of those polled supported the package as a whole. A real newspaper might have headlined this article: "public continues to have highly favorable view of public option," but this is the Washington Post.

--Dean Baker

It would be good if at least some of the news stories on the tire tariffs gave a bit of background. When China was admitted to the WTO it agreed to allow the United States to impose tariffs to temporarily counteract the disruptive effects of an import surge. The agreement did not require the United States to show that China had in any way acted unfairly, simply that the growth of imports had seriously disrupted the domestic market.

This clause was an important factor in selling China's entry to the WTO to interest groups in the United States. Therefore, it should not be surprising that the government would occasionally take advantage of a clause that it had demanded.

--Dean Baker

President Obama told a group of people at a health care rally yesterday about a Treasury study that:

“found that nearly half of all Americans under 65 will lose their health coverage at some point over the next 10 years ... and that more than one-third will go without coverage for longer than one year.”

Fortunately the NYT was there to set the record straight:

"In fact, that is not precisely what the department found. ...... The survey found that 47.7 percent had lost coverage at some point during those 10 years for one month or more, and that 36 percent lacked coverage for at least one year during that time, though not necessarily 12 months consecutively. Mr. Obama extrapolated those statistics to predict what might happen in the future."

There you have it. Joe Wilson was right. President Obama was making extrapolations about the future based on the past. Next thing he'll be telling us that black is white and night is day. This is why we need an independent media.

--Dean Baker

Yet another WSJ editorial finding its way into the news section. The Federal Reserve Board could easily replace China as the buyer of the bonds. Furthermore, if China opted not to buy U.S. government bonds, the dollar would fall against the yuan, which would reduce our trade deficit. This would increase employment and reduce the budget deficit.

Bad editorial, really bad news article.

--Dean Baker

The Washington Post reports on how Washington is playing an increasing role in regulating Wall Street as a result of the bailout. This is only part of the picture. Wall Street has long run to Washington for help in increasing its profits.

The most notable recent case was in 2005 when Wall Street got Congress to change the bankruptcy law, making it more difficult for borrowers to escape their debts. Ignoring the sanctity of contracts, Congress chose to apply the new bankruptcy laws retroactively, so that they would apply even to debts incurred under the former set of bankruptcy laws.

In the late 90s, Wall Street went to Congress to repeal the Glass Steagall Act which separated commercial and investment banking. This separation prevented banks from speculating with government insured deposits. Now, banks like Goldman Sachs openly speculate with money borrowed with an FDIC guarantee.

Wall Street also has to go to Washington to ensure its ability to manipulate contracts to the disadvantage of its customers. Banks now make much of their profits on fees that they charge to their credit card customers and account holders. The banks routinely press the bounds of legality in concealing these fees in fine print and confusing language. With their increased dependence on these fees, the banks desperately need Washington's support for actions that could otherwise land them in jail.

So, even without the bailouts we can anticipate that the banks presence on Wall Street will grow. Wall Street has proven to be far more effective at making profits through manipulating government than through the market.

--Dean Baker

USA Today told readers that: "private economists worry the country could face the grim prospect of seeing interest rates soar in future years and the dollar weaken as foreigners dump their U.S. holdings."

Actually, private economists who understand economics are pleased by the prospect of the dollar declining. If this is brought about by the decision of China and foreign investors to stop buying up U.S. bonds that would be just great.

Private economists who know economics know that the trade deficit is the fundamental imbalance in the U.S. economy. The trade deficit in fact leads to the budget deficit that USA Today is hyping.

This is an accounting identity. If the country has a trade deficit, then its national saving must be negative. That means either very low private savings, very low public savings (e.g. a budget deficit), or some combination.

The only mechanism for getting the trade deficit is a lower dollar. Only an economist who could not see an $8 trillion housing bubble would be troubled by the prospect of a lower dollar.

It also would have been worth some ridicule of House Republican Leader John Boehner for blaming President Obama for the deficit. The Bush administration's policies and its failure to prevent the housing bubble are by far the main contributors to the current deficit.

--Dean Baker

The NYT noted the large age-divide over support for President Obama's health care program. While this is real, and has shown up in many polls, it is not clear whether this is based on real concerns or the fact that many seniors now believe in death panels. The piece then suggested that the divide is likely to reappear in debates over Social Security.

Actually, that seems unlikely unless President Obama proposes a plan that is much harsher than the plan put forward by President Bush. President Bush's proposal had not cuts in benefits for anyone over age 55. The cuts would have been phased in at the rate of approximately 1.0 percent a year for upper middle income earners. This means that an upper middle income worker who was age 45 at the time of passage would have seen a cut of approximately 10 percent and an upper middle income worker who was age 35 at the time of passage would have seen a cut of approximately 20 percent. (This ignores the effects of compounding.)

The elderly had the least reason, at least from direct interest, in opposing the this sort of program. If President Obama puts forward a similar plan, it would be younger workers who stand the most to lose.

--Dean Baker

Republicans may give this as their reason for opposing a public option, but politicians do not always say what they mean. This is certainly a more politically appealing line then saying that they oppose a public option because of their close ties to the insurance industry.

Since the NYT does not know the real reason that Republican members of Congress oppose a public option, it should refrain from making assertions about their reasons, and simply report what they say.

It is also worth noting that the Republicans' alleged fear, that a public plan would drive private insurers from the market, would only be realized if it provided better care for the money than private plans. Most constituents are probably not worried about being given the option of getting a better health care plan.

--Dean baker

This is the case where people who believe in democracy and markets should agree. The bailout of the banks was an exercise in corruption and favoritism. The Obama administration's deals with the pharmaceutical industry, doctors, and hospitals look the same.

I'm completely with Tyler on this one.

--Dean Baker

The Washington DC Fox affiliate reported on a new device that a Burger King outlet in New Jersey is now testing. According to the news segment, the outlet has a metal sheet that cars drive over as they go into the drive-through window. The metal sheet has wheels that the car turns, which generate electricity. Burger King uses the energy to power its stop light for the drive-through, but they hope to get more electricity in the future by setting up longer strips.

If anyone has not figured out the problem in this story, Burger King has not gone green at all. Burger King has found a way to siphon energy from their customers. Their customers will have to use more gas to get through the drive-through window so that Burger King has free electricity to power their outlet. This may be a clever way for Burger king to tax its customers, but it is not green at all.

--Dean Baker

The Post presents the Obama administration's claims about the impact of its stimulus package on employment and the turnaround in the economy and then presents the claims of the Republicans that it did not help the economy. It would have been helpful to tell readers that the vast majority of economic analysts support the administration's assessment and that the economy is almost certainly now growing, contrary to the assertion of the Republicans.

On the other hand, the piece could have also usefully included some response to President Obama's plans to officially make the Fed the country's "systemic risk regulator." It is absurd to imagine that Alan Greenspan would have conducted himself any differently as the housing bubble grew to ever more dangerous levels if he had a hat that said "systemic risk regulator."

--Dean Baker

The NYT has a good article pointing out how the financial collapse has led to surprisingly little change on Wall Street. Toward the end of the piece it notes efforts to require that derivative instruments be traded through clearinghouses. It later uses the term "exchange" as though it is identical to clearinghouse.

This is not the case. An exchange implies that there is a market maker with an explicit bid-ask spread that can be known at any point in time. By contrast, on a clearinghouse, there is no market maker. This allows for much greater spreads and therefore much larger profits for the banks that deal in derivatives.

--Dean Baker

The Post again pushed the line that the United States needs China to keep buying up dollars to hold down the value of the yuan. This is the exactly the policy that the Obama administration and the Bush administration had publicly been pushing China to stop under the guise that it was "manipulating" its currency.

The issue is that China is buying up U.S. dollars in the form of U.S. government debt. The Post tells readers that the country is dependent on these purchases of debt. This is the Post's invention. If China stopped buying debt, the dollar would fall relative to the yuan (and other currencies) making imports more expensive and our exports cheaper to other countries. The result would be a boost to U.S. exports and growth.

While there could be some rise in interest rates, the Fed could opt to offset this by buying more bonds directly, if it chose. Of course, since the rise in import prices would lead to somewhat higher inflation, this could offset the impact of any increase in interest rates, possibly leaving the real interest rate unchanged. In addition, as Greg Mankiw and other economists have argued, modest inflation will help to relieve that huge debt burdens of consumers and homeowners.

So, if the Post's bad scenario came true, and China stopped buying up U.S. government debt, it would likely be very good news for the economy, although a lower dollar may diminish Wall Street's role in the world.

--Dean Baker

The Post wants us to root for the rich to get richer so that they will spend money and get the economy back on a healthy growth path. Actually, the poor spend a much higher share of their income, so if we just need spending then we should hope that the rich take a beating and the poor get more money.

--Dean Baker

The Washington Post cited a report from the Center on Budget and Policy Priorities that claimed that a proposal by Senator Max Baucus would cost the jobs of low-wage workers, who are disproportionately women and minorities. The report claimed that a requirement, that large employers (more than 50 workers) reimburse the government for any health care subsidies received by their workers, would lead to job loss among lower wage workers.

In fact, economists generally assume that benefits, including health care benefits, come out of wages. In this case, the reimbursement would presumably mostly come out of workers' wages, at least after the markets have had time to adjust. It is also worth noting that the vast majority of large employers already provide health care coverage to their workers, so the employers in question would still be paying less for the health care of their workers than most large employers, even if they were required to reimburse the government for its subsidies.

--Dean Baker

If the Post applied the same standard to the statements from Democrats as it does to Republicans, it would do a he said, she said, where it reported Democrats complaining that the invasion had not removed Saddam Hussein as president of Iraq, while the Republicans would be insisting that he had been removed, tried, and executed.

That is the only thing that one can conclude after reading the Post report on the Labor Day statement of House Minority Leader John Boehner complain that the stimulus bill has not created any jobs. Estimates of job gains from economists range from 500,000 to 1,000,000. If Mr. Boehner is unaware of this fact, then this level of ignorance of a person in an important position would be an appropriate topic for a news story.

--Dean Baker

It must be hard to get news about finance and economics in New York. That is the only thing that one can conclude when they see David Brooks tell readers that: "the nation has made a series of lavishly unaffordable promises. The legacy costs are piling up. By the end of 2019, the nation’s debt will soar to 82 percent of G.D.P."

As those who follow the economy know, the reason for the big run-up in debt was the recession caused by the collapse of the housing bubble. Had the bubble not collapsed, the ratio of public debt to GDP would be approximately half of this size in 2019. The big problem here is not lavish problems, rather it is incredibly inept economic management.

Going forward, our broken health care system does pose enormous problems for the economy and the budget. It could be easily dealt with by opening the economy to trade, but protectionists like Brooks would rather see people go without health care than allow free trade.

--Dean Baker

The Washington Post gets to the bottom of Japan's health care system quoting a professor of health policy that: "more than one-third of the workers' premiums are used to transfer wealth from the young, healthy and rich to the old, unhealthy and poor."

That's a striking statement. Fire insurance transfers wealth from people who don't have house fires to people who do. Car insurance transfers money from people who don't have car accidents to people who do. This is the basic concept of insurance. It protects people from bad events, transferring money from people who don't have bad events to those who do. In other words, this quote is telling us that Japan's health insurance system is operating like a health insurance system.

The article is also quick to tell readers that Japan's system may be unsustainable. Its subhead is: "aging population could strain system." It is worth noting that Japan's population is already far older than the U.S. population. If the United States had the same age distribution as Japan, its health care costs would almost certainly already be above 20 percent of GDP, compared to the current 17 percent.

--Dean Baker

Alan Blinder is a very good economist, but that does not keep him from occasionally saying very silly things. He has been a big advocate of creating a "systemic risk regulator" and making it the Federal Reserve Board. This systemic risk regulator would have the responsibility for preventing the sort of explosive growth of risk that we saw during the housing bubble and manifest most directly in AIG's issuance of credit default swaps reaching well into the trillions of dollars.

Of course it would be great to have some government agency, or even a private one, that could provide the early warning signs when things were getting out of control. But calling an agency the "systemic risk regulator," doesn't change anything by itself.

To see this point, let's run history backward. Suppose Alan Greenspan had been the official "systemic risk regulator" in the years from 2002-2006, as the housing bubble was growing out of control. Instead of saying that there is no housing bubble and that there is nothing to worry about, would systemic risk regulator Alan Greenspan have said: "oh my god, there is a huge housing bubble and when it crashes it will sink the economy"?

That doesn't seem very plausible. We could have given Greenspan any title we wanted, but it is unlikely that it would have affected his conduct. If we want regulators to prevent something like the disaster we are now experiencing it is necessary to sanction them when they fail, for example by firing them. However, no regulator was fired for failing to prevent the most massive economic crisis since the Great Depression. In fact, Ben Bernanke, the person most responsible for this disaster, after Alan Greenspan, was just reappointed as Fed chairman to near universal praise.

If regulators suffer no career consequence for even the most massive failure, then they have no incentive to ever buck the financial industry, since they will face career risks from challenging powerful actors in the financial industry. This failure to hold regulators accountable virtually guarantees future crises. People who understand economics know this.

--Dean Baker

Morning Edition had a Planet Money segment this morning that discussed the high price of health care. The piece focused on the high cost of medical devices. It noted the high price for many items used in medical operations, but never once mentioned that the high prices are largely due to the fact that these products enjoy patent monopolies.

This is a really central part of the story. The piece tells listeners that we constantly want better technology, which is why we are prepared to pay high prices for new devices. In fact, the structure of the patent system gives device makers an incentive to lie about the usefulness of their products and to spend large amounts of money developing items that provide little new medical benefit.

Any report on the cost of medical technology that does not mention the patent system and the perverse incentives it creates is simply a waste of time.

--Dean Baker

Strange but true, NPR featured a discussion of the economy this morning, including the foreclosure crisis, without ever once mentioning the housing bubble. It's sort of like reporting on the sinking of the Titanic and not mentioning the iceberg.

--Dean Baker

A Washington Post article discussed the various estimates of the impact of the stimulus. It notes two private forecasts that put the number of jobs generated at between 2.0 -2.5 million, compared to a forecast by the Obama administration of between 3.0-3.5 million. It is worth noting that much of this difference is due to the fact that the stimulus package passed by Congress was about 15 percent smaller (after pulling out the alternative minimum tax adjustment, which created no jobs) than the package proposed by President Obama. Of course a smaller stimulus would be expected to have less impact.

--Dean Baker

Last week the number of new unemployment claims was reported as 570,000. This week, the number of new unemployment claims was reported as 570,000. Naturally, the headline is "jobless claims dip. ...."

Actually, the headline is literally true, because jobless claims for the previous week were revised up to 574,000. Still, the slight fall against an upwardly revised number was probably not the key news in this release. While weekly claims are below the peaks of 670,000 plus reached in April, the rate of new claims filing is the same as it was last fall when the economy was losing close to 700,000 jobs a month.

--Dean Baker

The Washington Post is very excited because President Obama proposes to extend a tax break for moderate-income workers through 2019. The cost is projected to be less than $9 billion a year. This is equivalent to less than one month of spending on the Iraq War. The cost of over the 10-year forecasting horizon is equal to approximately 0.04 percent of projected GDP over this period.

--Dean Baker

The NYT wrongly referred to the new round of WTO negotiations and other recent trade pacts as "free-trade deals." This is not accurate. These agreements actually increase many forms of protectionism, most notably they strengthen copyright and patent protections. While these deals have generally lowered barriers to trade in manufactured goods, thereby lowering the wages of manufacturing workers and non-college educated workers more generally, are not designed to eliminate barriers to trade more generally.

Newspapers could increase accuracy and save words by eliminating the adjective "free" from such discussions.

--Dean Baker

NYT columnist Nicholas Kristof told readers that: "health care reform may be defeated this year in part because so many Americans believe the government can’t do anything right and fear that a doctor will come to resemble an I.R.S." Kristof probably wasn't paying attention, but there were a series of protests at ton hall meetings across the country against President Obama's health care plan.

These protests, many of which were not very large, received considerable coverage from the media. The protests focused on issues like "death panels," the prospect that Medicare will not be as good as it is currently if President Obama's plan passed, and the possibility that people who are not in the country legally will receive health care under the plan. Very few people who spoke at these protests raised issues about whether the government is capable of providing health care.

Basically, Kristof has zero evidence for his claim that the opposition to health care reform has anything to do with questions about the competence of government. This seems to be his invention.

[Addendum: In response to some comments below, my statement was overly strong. Clearly some people oppose the Obama plan because they think the government cannot do anything. However, I would argue that this has not been the core of the opposition and certainly not what has been expressed at the townhalls or by Sarah Palin's death panel rant, or Michael Steele, the Republican Party Chairman in his pledge to protect Medicare. There is a worldview of liberals supporting big government versus conservatives who support markets that intellectuals like to use to frame public debate. I would argue that this framing has little relevance to the health care debate or most political debates.]

--Dean Baker

Allan Meltzer has a WSJ column complaining that people have exaggerated the severity of the recession. Anyone wanting to evaluate his assessment should look at the Congressional Budget's Office unemployment projections for the next four years.

We will find out soon enough how bad this downturn ends up being, but on one item Mr. Meltzer is clearly wrong. He attributes the talk of the Great Depression to President Obama's efforts to push his stimulus package. Actually, the talk of the Great Depression first gained currency when President Bush spoke to nation to push the TARP to bailout the banks.

He warned of another Great Depression in his address and the media dutifully filled news shows and newspapers with accounts of the Depression. The comparison was well-established in public discourse more than 3 months before President Obama took office.

--Dean Baker

It was a remarkable failure of the economics profession and economics reporters not to see the housing bubble before it burst. It is truly incredible that so many can't see it even after the fact.

Yes, it is strange but true. The WSJ has a discussion of the future of Fannie Mae and Freddie Mac and there is no mention whatsoever of their failure to see the housing bubble in discussing the causes of their collapse. If anyone at these institutions had been smarter than Barney Frank's dining room table, they would not have been buying and guaranteeing mortgages used to purchase homes at bubble-inflated prices. This simple act is what doomed these companies. But the WSJ and its "experts" can't even discuss it.

--Dean Baker

After telling listeners at the beginning of a piece on changing medical malpractice laws that Democrats get money from lawyers, NPR did a piece on Henry Paulson's efforts to deal with the financial crisis and never once mentioned that he personally made hundreds of millions of dollars off the practices that helped to to fuel the housing bubble.

While Paulson is described as a hard-working straight shooter who lives in a modest home, the piece does not tell listeners that Paulson earned hundreds of millions of dollars as head of Goldman Sachs. Goldman was one of the investment banks that packaged mortgaged back securities and sold them around the world. Paulson personally lobbied the Securities and Exchange Commission to huge increase the leverage limits that applied to investment banks like Goldman Sachs.

This increased their profits, but made them hugely more vulnerable to a downturn. As a result of this move, Bear Stearns and Lehman Brothers both collapsed, Merrill Lynch had to be saved by Bank of America, and Goldman Sachs and Morgan Stanley, the other two major investment banks, had to beg to change their status to bank holding companies on an emergency basis so that they could enjoy the protection of the Fed and the FDIC.

Paulson's personal profit and involvement in the actions that caused the crisis is an important piece of information that should have been mentioned in this piece.

--Dean Baker

NPR framed a story on changing malpractice laws this way on Morning Edition. It is certainly relevant information, but it is not standard practice to tell listeners or readers upfront about who pays the bills for the political figures they discuss. After all, they don't usually point out that Republicans generally get more money from the insurance industry, the pharmaceutical industry, the defense industry etc. It would be a good practice if they did, but this comment stood out because it is not standard practice.

It is also worth noting that this piece never gave the downside of what it termed malpractice "reform." Doctors are rarely sanctioned by medical boards for negligence. (Doctors usually control the licensing boards.) If they don't face serious civil penalties for negligence, then we are likely to see more incompetent doctors remaining in practice.

--Dean Baker

Actually the NYT told readers that: "U.S. officials appear wary of doing anything that could cause an exodus of executives and further damage fragile companies — and add to the taxpayers’ burden." Of course the point is that the NYT does not know why U.S. officials (i.e.. top officials in the Obama administration and powerful members of Congress) are not interested in serious measures to limit compensation of bank executives. All it knows is what these officials say publicly. However, it is engaging in journalistic malpractice by presenting this as truth.

Frankly, it is difficult to believe that these officials could be that worried that limits of pay for top executives would "damage fragile companies and add to the taxpayers burden." Any moron can figure out how to make money by borrowing from the Fed at almost no cost and then buying government bonds or government insured bonds that pay 3.5 percent to 4.5 percent. It really shouldn't be necessary to pay someone millions of dollars, or even tens of millions of dollars to pull that one off.

Also, the correlation between pay and the quality of performance is not that strong. The top executives at the Wall Street banks, who were pulling in tens of millions of dollars a year in pay and bonuses, drove these banks to the edge of bankruptcy or beyond. There is no obvious reason to believe that this clique has become a better judge of "talent" in the last year.

Given the known evidence, it seems far more likely that the "U.S. officials" are motivated by deference to large campaign contributors than any concerns for the public good.

--Dean Baker

Readers of the Post probably thought that a new study in Health Affairs undermined the case for preventative measures leading to cost savings. After all the headline of the article on the study is: "study raises questions about cost savings from preventive care."

In fact, the article actually found that, with Type 2 diabetes, preventative measures are more cost-effective than some analysts have realized, if a 25 year window is used rather than the standard 10-year budget window used by the Congressional Budget Office. Evaluating the effect of moving to a 25-year horizon the study notes: "the cost offsets in the ten-year window are proportionately smaller than those in the twenty-five year window."

While the Post highlights that the fact that for all but one age group, the net cost of preventive measures is still positive, it fails to mentions that the study is quite explicitly focused only on direct health care spending. It does not consider the impact of preventive measures on Social Security disability payments or on tax collections. Since the study finds that the vast majority of the cost of preventative measures are recovered through direct savings on health care spending, it would require only modest effects on disability and employment to make the net impact of these measures on the budget positive.

--Dean Baker

Trying to keep up with his fellow columnist Paul Krugman, David Brooks made a daring effort to earn himself the Nobel prize for non sequiturs today. In the context of warning President Obama to back off health care reform Brooks told readers: "This is a country that has always been suspicious of centralized government. This is a country that has just lived through an economic trauma caused by excessive spending and debt."

Let's grant that there is a suspicion of centralized government. What does this have to do with the "economic trauma caused by excessive spending and debt." The excessive spending and debt was done by the private sector, as private bank credit fueled a speculative run-up in house prices. This led to booms in construction and consumption, both of which collapsed with the end of the housing bubble.

Did Brooks somehow miss this one. It wasn't excessive government spending and debt that got us here. It was Robert Rubin, Angelo Mozilo, and the Wall Street crew that did it. If David Brooks really has so little understanding of the economic crisis maybe he should talk with Barney Frank's dining room table.

--Dean Baker