There is a cottage industry developing among political reporters trying to investigate whether the Obama administration’s claims on jobs created or “saved” by the stimulus are true. For example, ABC’s intrepid White House reporter Jack Tapper said on his blog:

“DeSeve and Bernstein [Obama administration spokespeople] were not able to say how many of the 640,329 jobs were saved and how many were created. How do they know that government officials asking for stimulus funds to help prevent layoffs were legitimate?”

The Washington Post also got into the act with its own piece commenting on the administration's jobs figures that: "Republicans and government watchdogs questioned the reliability of the figures."

This is an exercise in extreme silliness. It will be almost impossible to identify the vast majority of jobs that are created or saved by the stimulus because this would require a full knowledge of the flow of spending from tens of thousands of governmental units and the consumption decisions of 150 million households. However, there are fairly well-recognized economic relationships (outside of the University of Chicago) that allow the administration to produce reasonably good estimates of the number of jobs created or saved by the stimulus.

The administration is not using any hocus pocus in producing these job numbers. It is simply applying rules of thumbs that have been used by both Democratic and Republican administrations as well as impartial bodies like the Congressional Budget Office. If these reporters want to investigate the Obama administration's actions, their time would be much better spent looking at its ties to the financial industry where they could well be some substantive issues.

btw, any reporter who puts the word "saved" in quotes should be fired immediately. It reflects either ungodly stupidity or pathetic partisanship. Every month, 2 million workers are dismissed by their employer. If this number can be reduced by just one-tenth, then net job creation will be increased by 200,000 a month or 2.4 million a year. Anyone who implies that there is something peculiar about efforts to reduce the numbers of jobs lost by "saving" jobs is badly misleading readers.

--Dean Baker

The NYT headlines tells us that: "Day After Rally, Stocks Retreat on Consumer Weakness." The problem with this story is that anyone who carefully read the GDP report yesterday would not have been at all surprised by the data on consumer spending released today. It was already included in the third quarter GDP.

Those of us who passed third grade arithmetic would look at the number reported for third quarter consumption, then subtract out the numbers on monthly consumption that the Commerce Department had already released for July and August, and voila, we would know what number the Commerce Department was going to release for September consumption.

Any Wall Street traders who were surprised by the September consumption data should be looking for a new line of work.

-- Dean Baker

You would think that an industry that almost completely missed an $8 trillion housing bubble would be trying to do a better job in reporting on the housing market: But that does not appear to be the case. The Census Bureau reported that the number of vacant units hit a new record high yesterday and it appears that no one noticed.

--Dean Baker

The 3.5 percent GDP growth number reported for the third quarter was widely touted in the media. Some perspective would have been helpful. In the four quarters following the end of the 74-75 recession growth averaged 6.2 percent. In the four quarters following the 1981-82 recession the economy grew at a 7.5 percent annual rate. In short, given the severity of the downturn, the growth reported in the third quarter was quite weak. Most forecasts show growth being even weaker in future quarters.

There were a couple of other items that also were not reported accurately. Contrary to what the Washington Post told readers, businesses are not rebuilding their inventories. Inventories shrank at a $130.8 billion (in 2005 dollars) annual rate in the quarter. Inventories contributed to growth in the quarter because the rate of decline was slower than in the second quarter.

Also, the widely repeated claim that businesses increased spending on equipment and software is not entirely accurate. The Commerce Department reported that businesses bought equipment and software at a $895.3 billion annual rate in the quarter, that is down from the $897 billion annual rate in the second quarter. However, adjusting for inflation, it reported that spending measured in 2005 dollars increased from $876.5 billion to $879 billion. This is primarily a story of measured quality improvement in computers and software.

This point matters because the additional spending by this measure does not mean that more people are being employed producing equipment and software. If the quality adjustment is accurate, it means that businesses are getting better equipment and software, which will allow them to be more productive in the future, but this does not help employment today.

--Dean Baker

Folks may recall Rick Santelli, the commodities trader who sparked outrage when he went into a diatribe on CNBC about not wanting to pay his neighbor's mortgage. The context was the mortgage modification program proposed by President Obama, which uses government money to provide lenders and servicers with an incentive to modify mortgages. (The money actually goes to banks, not homeowners, but we'll ignore that for now.) This complaint resonated among at least some segment of the population, who were given considerable attention in the media.

Congress subsequently passed a stimulus bill which included an $8,000 first-time homebuyers tax credit. This tax credit is about to be renewed and expanded to apply to some current homeowners who buy a new house.

Given the anger over the mortgage modification program and the attention that this anger received, it would be reasonable for the media to be investigating the anger (or lack thereof) over this tax credit. After all, if Rick Santelli is angry about paying for his neighbor's mortgage, isn't he also angry about paying for his house?

--Dean Baker

One reason that there is relatively little public support for stimulus is that the public often confuses it with the $700 billion TARP. While the stimulus was about boosting the economy, the TARP was about keeping banks from sinking due to their own incompetence. It is understandable that the public would not feel warmly about the TARP.

The general public can be excused for confusing the stimulus and the TARP. Reporters, who are paid to know the distinction between these two massive programs, have difficulty keeping them separate also. This morning, Marketplace Radio introduced a segment on the jobs created by the stimulus by referring to as "the $787 federal bailout fund."

--Dean Baker

NPR told listeners that the government would be unlikely to get all its investment in GM back. The logic is that we are owed close to $50 billion. This gives the government claim to 61 percent of the company's stock. However, the piece tells us that even at GM's peak, its stock was only worth $57 billion, so GM's stock price would have to go even higher than its previous peak in order for the government to get back its money.

It sounds like someone here forget to adjust for inflation. A more serious analysis would have calculated a reasonable earnings target (the piece refers to $10 billion a year -- a reasonable target) and then took a price to earnings ratio of say 15 to 1. At that level of earnings and with a 15 to 1 PE, GM stock would be worth $150 billion. The government's share would be worth $92 billion.

Is that the best guess of what will happen, perhaps not. It requires some serious analysis of GM's ability to reclaim market share. But, the prospect that the government will recover its money is not absurd.

byw, this piece was prefaced with the ridiculous assertion that the government had already made money on the bailout of banks. This is nonsense.

Some banks have repaid their TARP money, including interest, and the government has cashed out options. This gives us a profit on those loans. But, this does not mean that on net the government has made a profit.

There are many banks that will almost certainly not repay their loans in full including giants like Citigroup and Bank of America. Claiming a profit based on the paybacks to date would be like a clothing store boasting about the profit on the 20 shirts it sold, ignoring the 180 that are sitting unsold on its shelf. We won't know whether we have made a profit on the TARP until we know the payback on all the loans. The paybacks to date tell us almost nothing.

--Dean Baker

You probably heard it here first, but you shouldn't have. The rental vacancy rate jumped 0.5 percentage points in the third quarter, while the vacancy rate for ownership units edged up 0.1 percentage point. The long and short is that we have never had such a large glut of housing.

The folks in Congress are giving people $8,000 to increase the rental vacancy rate (i.e. buy a home). Of course this will lead to lower rents, which could cause other potential homeowners to rent rather than own. It may also cause some landlords to convert their rental units into condos. In other words, this is really silly housing market policy.

But hey, it's just $8,000 and it's not like we're giving it to families to pay for their kids' health care or food or anything.

--Dean Baker

USA Today tells us that the economy grew at a "torrid 3.5% rate." In the four quarters following the 1974-75 recession the economy grew at a 6.2 percent annual rate. In the four quarters following the 1981-82 recession the economy grew at a 7.5 percent annual rate.

--Dean Baker

Casey Mulligan at the NYT's Economix really pulls out all the stops. I'll let my colleague John Schmitt make the case:

Casey Mulligan Swings and Misses

University of Chicago economist Casey Mulligan has a post today at the New York Times Economix blog where he seems to argue that the current push for statutory paid sick days in the United States is ignoring the role of economic incentives. According to Mulligan, workers in countries with generous paid sick day policies stay home because of "incentives, and not the flu".

I don't think Mulligan has been following the U.S. debate on paid sick days very closely. The U.S. debate is very serious about incentives. The current system --which does not require employers to provide paid sick days and leaves upwards of 50 million workers without paid sick days-- gives strong incentives to workers to go to work sick, lowering productivity and potentially spreading illness.

Of course, offering paid sick days also gives workers incentives to take time off when they are not sick. But, there is nothing in Mulligan's post that says where we should set the optimal level. He doesn't even make a case that the most generous systems in Europe are too generous, just that they lead to more sickness absences in some cases. For all we know, after we factor in the cost of contagious diseases, the most generous European systems might still be too stingy.

To make his point about the effect of incentives, Mulligan features the following graph from a recent IMF paper:
Casey Mulligan graph on sickness absences

Mulligan, however, has made very selective use of the original IMF graph:
IMF graph on sickness absences

In the original, Denmark, Germany, and seven other countries with more generous statutory paid sick days policies all have lower sickness absence rates than the United States. A really interesting question is: how is it that these countries are able to provide both guaranteed paid sick days and lower sickness absence rates? (And why didn't Mulligan include these countries in his graph?)

Archived: October 28, 2009.

Folks who took econ 101 know that currency fluctuations are the mechanism through which trade imbalances adjust. Countries with trade deficits expect to see their currencies fall in value. This makes imports more expensive thereby reducing the amount it imports. A lower valued currency makes its exports cheaper in other countries, thereby increasing its exports. With lower imports and higher exports, the size of the trade deficit is reduced.

This logic is pretty basic and not really disputed among economists. That is why it is striking to see a Washington Post piece on the fall in the value of the dollar that never once mentions the trade deficit. In keeping with the Post's editorial policy, the article attributes the decline in the dollar to the fact that the U.S. has: "a rising budget deficit and few ways to bring it under control that investors see as viable."

Of course, there is no direct relationship between concerns over the deficit and the value of the dollar, but if investors were really losing confidence in the U.S. government, as claimed in the article, then we should expect to see a sharp rise in long-term interest rates on U.S. government bonds. We don't. The interest rate on 10-year Treasury bonds is hovering near 3.5 percent, far lower than in the golden age of big budget surpluses. But hey, editorials aren't expected to include all the evidence on the other side.

The article also presents another fallacious horror story: "The risk remains of a full-blown run on the dollar that could force the Federal Reserve to suddenly raise interest rates, dealing a potentially severe blow to the U.S. recovery. That could happen if major holders of dollars, such as China and Japan, begin to sell off their holdings."

People who read the rest of the article know immediately why this story is absurd on its face. The rest of the article reports on how our trading partners are being hurt by the falling dollar.

What would happen to Europe, Japan, and other countries if the dollar were to suddenly plunge by another 40 percent against their currencies? Their exports to the U.S. would collapse and their imports from the United States would soar, devastating their economies. Does anyone think these countries would allow this to happen? If the dollar started to plunge, it is the foreign central banks that would have to take the lead to stop the slide, not the Fed.

Those of us who are concerned about the well-being of future generations are happy to see the dollar slide since this will reduce the trade deficit and therefore our level of indebtedness to other countries. The Post apparently is not in this group.

--Dean Baker

David Leonhardt is upset that people on Social Security will get a $250 check from the government next year and denounces President Obama for pandering to the elderly. There is a lot of serious confusion in this piece.

First, he argues that the elderly have suffered less from the downturn from other groups be comparing declines in income and employment. This is actually a much tougher question that Leonhardt implies. The elderly have accumulated assets over their working lifetime. These assets plunged in value with the collapse of the housing bubble and the plunge in stock prices. This plunge has hit the elderly far more than other groups because they were in a position to have assets. So, if we took a wealth-based measure of impact, we would find that the wealthy were hit hardest by the downturn. (Asset prices were propped up by the bubble, but we can hardly blame the elderly for not being any better in recognizing the bubble than Alan Greenspan and the reporters at major media outlets.)

Second, in terms of government assistance, the making work pay tax credit is giving money to the vast majority of the under 65 population. The $250 boost to Social Security beneficiaries can be seen as an effort to provide comparable help to those who are no longer working. It's not obvious how this creates an injustice.

The third point is that Leonhardt seems to misunderstand the point of stimulus. We need people to spend money. Given the enormous idle capacity in the economy, we would benefit from handing checks to anyone who will agree to spend it. (Contrary to Leonhadt's assertion, this does not create a burden on children and grandchildren -- if anything the growth created by the stimulus is likely to mean we hand them a wealthier country.) The elderly will spend a high share of their checks, which makes this a good form of stimulus.

In fact, we really need larger deficits at this point to boost the economy, but politically this is not acceptable. We should thank the elderly for making some additional stimulus politically acceptable.

It is almost bizarre that Leonhardt would seize on this $250 check as an item to attack when there are so many larger, more pointless boondoggles. (I got an $8,000 check because I bought a home -- that didn't help anyone but my wife and me and our two dogs.) We gave close to 1 million people a $4,500 check for buying a car. The Wall Street crew pockets $6 billion a year, with many individuals personally pocketing tens of millions, through the fund managers' tax subsidy. How upset can we get about $250 checks to a group that is mostly not very wealthy.

Lastly, we get a line about protecting Medicare benefiting the elderly at the expense of our grandchildren. Actually, we could substantially reduce costs for Medicare and fully protect the quality of care. However, this would require attacking the interests of the health care industry. This is an interest group that the politicians (and the media) really pander to.

--Dean Baker

This obvious question is going almost completely unasked in reporting on the financial reform. For example, if we had the large banks pay policy in place last fall, does anyone think that we would have imposed special assessments on Citigroup, Bank of America and the rest to cover the cost of bailouts of AIG and Lehman? And, if it wouldn't have helped in the last crisis, why does anyone think this approach will help in the next one?

Dean Baker

The answer is apparently not. The New York Times reported on the recent uptick in house prices and speculated about their future direction once government aid, like the $8,000 first-time buyers' tax credit, are removed. The article never once noted the extraordinary departure of house prices during the bubble years from their long-term trend.

Almost all of the discussion of regulatory reform also completely ignores the experience of the crisis. If the reforms being proposed had been in place during the crisis, but the regulators approached the economy in the same way (i.e. they saw nothing wrong with an $8 trillion increase in house prices), then they would have been worthless in preventing the economic collapse.

--Dean Baker

Morning Edition introduced a piece that reported on the House Financial Services Committee plans to deal with too big to fail banks by telling listeners that we had a choice last fall between allowing huge financial institutions to fail, with substantial risks to the economy, or give them hundreds of billions of dollars to keep them afloat.

This is not true, we could have given them money and totally transformed them by slashing pay for their executives (push into the six figures, from seven and eight figures) and change the way they do business. We could have ended many of the speculative practices of these firms and make them more boring. This option was generally ignored by the media at the time and it is still largely being ignored.

The piece itself forget to mention that the regulators failed to see the housing bubble. In making plans for new and complex regulatory structures, it is important to remember that our team of regulators all claimed to believe that nationwide house prices could not fall. If this was actually true, then banks were not taking excessive risks and the regulators acted properly. The problem was not the lack of the right regulatory agencies, the problem was the failure of regulators to correctly understand the economy.

NPR did not discuss the housing bubble at the time and it is still not accurately presenting the crisis caused by its collapse to its listeners.

--Dean Baker

Okay, I'm not on vacation, but this is a BTP flashback. My original write-up of this NYT news article was way too positive. This article was essentially a diatribe against Germany's welfare state. To make its case, it turned an incredible success story -- Germany's relatively low unemployment rate -- into a failure.

The basic deal is that Germany adopted an explicit policy of encouraging employers to shorten work hours rather than lay off workers. The government allows unemployment benefits to be used to pay workers to cover most of the loss in wages due to the shorter workweek.

As a result, Germany's unemployment rate has barely changed in the downturn. Its unemployment rate at present is 7.7 percent. This is down from 7.8 percent earlier in the year. Germany's unemployment rate in 2007 was 8.4 percent, 0.7 percentage points higher than the current level.

This is an incredible success story. Imagine Barack Obama's approval rating if the unemployment rate today was anywhere close to its 4.7 percent average for 2007. Think of the millions of unemployed workers who would not be struggling to pay their rent or mortgages or meet other bills if only our leaders were as smart as Germany's leaders. We could do something along the same lines in the U.S.

But NYT readers will be spared such thoughts because the article described the policy as a complete failure. To make its case, the NYT even used the German government's measurement of unemployment (which counts part-time workers as being unemployed) rather than the harmonized OECD measure that is directly comparable to the unemployment data in the United States.

This was not news reporting.

--Dean Baker

When GM sold off its Delphi parts division, it made a series of commitments to its unions, including that it would stand behind its pension obligations. The fact that these commitments are being honored has angered the NYT. It featured an article pointing out that union workers, who had these commitments, are doing better than non-union workers who did not have these commitments.

This is similar to the situation in which executives, who were promised large pensions, tend to collect more money in retirement than ordinary workers, who did not contract for large pensions. That may not be fair, but that is the way that contracts work. It should not be news to the NYT.

--Dean Baker

That is the prospect raised by a NYT article reporting that many of the top execs at AIG are being lured away to a company established by Hank Greenberg, the former CEO of AIG. It would have helpful to note that many of the people leaving the company likely played some role in either carry through to allowing the issuance of the credit default swaps that led to the company's bankruptcy. It is not clear that losing these people would pose a problem.

--Dean Baker

The NYT reported on the prospects of a public insurance plan being included in a health care package and tells readers that a public plan faced opposition from conservatives "to what they considered an attack on insurance industry profits."

Okay, that is not what the article actually said. Instead it told readers that conservatives' opposition is due the fact that they consider a public plan an: "excessive government role in the economy."

The reality is that the NYT does not know the reason why most conservative politicians oppose the public plan. Certainly their close ties to the insurance industry is a plausible explanation and possibly a more plausibly one than their philosophy of government. After all, these are politicians, not political philosophers.

Rather than attributing motives where they cannot be known, the NYT would best serve its readers if it just reported what people say.

--Dean Baker

That is the implication of his complaints about the government setting salaries for the corporations that got big government bailouts. Undoubtedly the government will not get the pay scales exactly right, but it has no choice. By bailing out the likes of AIG and Citigroup the government over-rode the market determination that the correct salary for the bosses at these bankrupt institutions is zero. Since it had over-ridden the market judgment it had to develop some basis for deciding salaries even if that means paying David Brooks' friends less money.

--Dean Baker

One of the Post's basic journalistic principles in covering the health care debate is to ignore proposals for a single-payer, Medicare for all type system. The Post almost never mentions these proposals, even though there is far more grass roots support for a universal Medicare plan than for any other proposal on the table.

Given its journalistic principles, it is understandable that the Post would be outraged that supporters of a public plan -- which could lead to a single payer type system -- had the audacity to advocate a public option, rather than an explicit single-payer system. By taking this position, the Post was forced to take them seriously and violate its journalistic principles.

Fred Hiatt, the Post's editorial page editor, complained that: "the plan [the public option] uses government power to demand lower prices from hospitals and drug companies, those providers may lower quality or seek to make up the difference from private payers. Private companies would have to raise their rates, so more people would choose the public plan, so private rates would rise further -- and we could end up with only the public option and no competition at all. Single-payer national health insurance may be the best outcome, but we should get there after an honest debate, not through the back door."

Long time Post columnist Robert Samuelson had almost the identical complaint:

"a favored public plan would probably doom today's private insurance. ... Private insurance might become a specialty product.

Many would say: Whoopee! Get rid of the sinister insurers. Bring on a single-payer system. But if that's the agenda, why not debate it directly? It's not insurers that cause high health costs; they're simply the middlemen. It's the fragmented delivery system and open-ended reimbursement. Would strict regulation of doctors, hospitals and patients under a single-payer system provide control? Or would genuine competition among health plans over price and quality work better?

That's the debate we need."

If we can ignore the suspicions of plagiarism, we can all sympathize with the Post's outrage. Imagine slipping a discussion of a system that could end up with universal Medicare into the pages of the Washington Post.

[Thanks to FAIR for catching this.]

--Dean Baker

Imagine not being able to collect on a mortgage just because you can't prove that you actually own it. That's the situation that PHH Mortgage found itself in last week when a judge refused to enforce its claim because it could not establish clear ownership.

For years courts have been very lax in allowing banks to play fast and loose when it came to establishing ownership rights to pooled mortgages. Such leniency would almost never be extended to borrowers. It now appears as though some judges are prepared to insist that the banks will actually have to follow the law if they want to collect their money. Good article by Gretchen Morgenson calling attention to this case.

--Dean Baker

The NYT reported that the Medicare drug plan has cost less than expected. This is true, however this is not necessarily due to the effective design of the program.

The biggest reason that the program costs less than projected is that drug prices rose much less quickly in the years subsequent to the bills passage than was projected at the time. In 2004, CBO projected that per person drug costs would rise by 9.0 percent annually. In fact, they rose at slightly less than a 5.0 percent annual rate in the years from 2004-2008. As a results, drugs cost about 20 percent less on average now than they would have if prices had followed the path predicted by CBO at the time the plan was approved.

It is unlikely that the drug plan had much to do with the slower increase in drug expenditures since the slowdown began in 2004, two years before the plan went into effect. The most obvious explanation for the slower increase in drug expenditures is the failure of the industry to develop new blockbuster drugs to replace the ones that have gone off patent. This failure is presumably not the result of Medicare prescription drug plan.

--Dean Baker

Tyler Cowen issues dire warnings about the dangers of extending health care coverage without first controlling costs. He argued that other countries went the opposite path of controlling costs before extending coverage.

Of course he misses the obvious point that the United States could directly take advantage of the success of other countries in controlling costs by allowing Medicare beneficiaries to buy into their systems. This would seem an obvious case where there is potential for enormous gains from trade, but for some reason the "free traders" don't want to talk about it.

--Dean Baker

The Post told readers that critics of proposals to limit greenhouse gas emissions: "say that curbing greenhouse gas emissions linked to climate change could lead to higher energy prices." Actually, proponents claim that curbs on emissions will lead to higher energy prices also. That is how you get people to use less energy.

The critics and proponents differ in what they claim about the impact of higher energy prices. The critics assert that higher energy prices will have a devastating impact on the economy. The proponents argue that the impact would be relatively minor (much smaller than the impact of the Iraq War). Furthermore, rebating much of the revenue raised through a cap and trade system can help to ensure that most families feel little impact from higher energy prices.

This article badly misrepresented the real issues that are being debated.

--Dean Baker

An article about the limited ability of underwater homeowners to refinance makes repeated references to past housing booms and busts. The problem is that no prior post-depression boom and bust bears any similarity to this one.

We are in the worst downturn since the Great Depression because the Greenspan-Bernanke crew allowed an $8 trillion housing bubble to grow. The wreckage from this bubble dwarfs the troubles caused by the end of prior housing booms.

It is bad enough that the Post could not see the bubble on the way up. It is astounding that it still has not noticed the bubble even now.

--Dean Baker

For readers who didn't get enough information about the housing market from David Lereah, the widely cited former chief economist of the National Association of Realtors (NAR) and author of the Why the Real Estate Boom Will Not Bust and How You Can Profit from It, the WSJ is again presenting unchallenged assertions from the NAR.

Today's wisdom from the NAR is that raising the homebuyers tax credit to $15,000 and applying it to all homebuyers (not just first-time buyers) "could be crucial for permanently righting the housing market again."

Okay, the problem in the housing market is a huge excess supply of housing that has led to a record inventory of vacant housing units. How will a tax credit that encourages people to flip homes do anything to absorb an excess supply of housing?

It is certainly possible that the extension of the credit will slow and possibly temporarily reverse the decline in house prices (that may have happened in the last few months), but this would just delay the inevitable adjustment process. Once the tax credit is removed, prices will resume their fall. The delay in the adjustment will have led some new homebuyers to purchase homes at bubble-inflated prices. It may also prevent some homeowners from realizing how much equity they have lost. As a result, they may put off plans to adjust their consumption and saving patterns to make up for their lost wealth.

Given its counterproductive impact on the housing market, it is not clear that a homebuyers tax credit is the best use of $15-$30 billion. It would have been useful if the WSJ had not allowed the NAR view to appear unchallenged.

--Dean Baker

The media insist on imposing a framing on policy issues that often has little to do with reality. For example, they have repeatedly insisted that the debate over creating a public Medicare-type plan is about ideology -- the role of government in the economy -- as opposed to a debate driven by on the one hand a desire to contain costs and provide quality care and on the other hand a desire to protect insurance industry profits. There is no need for the media to insert the latter framing, but it is just plain bad journalism to insist on the former framing.

The same applies to the treatment of the homebuyers tax credit (which may no longer be restricted to new homebuyers). This is a big government handout. In the current form, the government hands first-time buyers a check for $8,000 (thank you very much -- I took advantage of this credit). In some versions the handout would increase to $15,000.

Many of the proponents of this bill like to call themselves conservatives who favor small government. However, this is objectively big government and big government intervention. The fact that the people who propose it might self-identify as conservatives doesn't change the reality, it just calls into question their honesty.

--Dean Baker

Back in the spring, the Obama administration had no problem insisting that union autoworkers give up some of the health care benefits that they were entitled to in their contract. In some cases, workers had already put in more than 30 years earning these benefits. Note that this was before any of the manufacturers went into bankruptcy.

While these workers were forced to make large concessions on contractually promised benefits, we are told yet again that AIG, an effectively bankrupt company, has a contractual obligation to pay big bonuses to its top executives and traders. It would be interesting to hear why this would be the case and if it is legally committed, why shouldn't the company just go into bankruptcy now that the immediate post-Lehman panic is over.

--Dean Baker

The Washington Post editorial board once again missed the boat in trying to argue the case against an audit of the Fed, getting both the facts and the logic wrong. Starting with the facts, the Post confidently told readers that: "it's uncontroversial to keep Fed decisions about setting interest rates and other traditional functions confidential."

Umm, actually no. It's uncontroversial that they should be made available to the public. Since the early 90s the Fed has made the transcripts of its open market committee meetings available to the public with a 5-year lag. They may be some dispute about whether the time lag should be longer or shorter, but there is no big push to reverse the policy of making the transcripts available.

In terms of the logic, a major concern of many proponents of the Paul-Grayson bill to audit the Fed is to try to insert democratic control as a check on the financial sector's influence on the Fed. The banks actually appoint most of the members of the open market committee that decides monetary policy. This should be unacceptable in a democracy.

While in the Post's pretend land the Fed is an independent actor, making decisions that are best for everyone, in the real world, the Fed is overly responsive to the interests of the financial sector. This is a main motivation behind the support for the Paul-Grayson bill -- a motivation that went completely unmentioned in the Post editorial.

--Dean Baker

Thomas Friedman is pushing his education line again. He tells readers that in today's global economy only the movers and shakers with real initiative can get ahead. Everyone else will lose out to the low-paid competition in India and China.

It must be comforting to those who draw large paychecks to believe that it is due to their creativity and initiative. However, it ain't true. Living in DC, I know plenty of people who draw good six figure salaries. Almost none of them are movers and shakers with real initiative. The key to their success is that these people enjoy protection from the low-paid competition in India and China that less powerful groups in society do not enjoy.

What does this protection look like? Suppose that Wal-Mart realizes that it can buy clothes more cheaply from a Chinese producer than a domestic producer. Wal-Mart signs a contract with the Chinese producer and voila -- the domestic producer has lost a ton of business and laid off most or all of their work force. U.S. textile workers lose their jobs because they cannot compete with Chinese textile workers making $1 an hour.

Now suppose that I am sent by the New York Times, Mr. Friedman's employer, to India to find smart reporters and columnists who are willing to work for much lower wages than the current staff of the newspaper. Suppose that I round up a thousand really bright and energetic Indian journalists who would be willing to work for an average pay of $50k a year. This would be great by Indian standards, but far below the average pay at the NYT.

Would the NYT just be able to hire them on to their staff? No way. The NYT would have to certify that it had first tried to hire workers at the prevailing wage. It would then have to say that it is paying these workers the prevailing wage. Employers lie on these points all the time, but it is usually to hire a relatively small number of foreign employees, not to replace their whole staff.

Furthermore, even the fact that they would have to lie would provide some disincentive to hire the low-paid Indian journalists. Maybe no one enforces the law today, but there is no guarantee that it won't be enforced tomorrow. Maybe the NYT will have to face serious legal consequences at some future date if it told wholesale lies to hire foreign journalists at low pay.

The story of the elites doing well in the global economy is not one about their education and savvy, it's about protectionism. They just aren't smart enough to recognize it.

--Dean Baker

Not to be outdone by the NYT's anti-Japan tirade, the Washington Post lectured its readers on why the country will just have to learn to enjoy double-digit unemployment rather than run higher deficits. Needless to say it misrepresents a few facts to advance its agenda.

The main point is that the country should not get the idea that we can endure high levels of debt, just because we have endured high levels of debt. It tells readers that it was easy to turn the high deficits from World War II into a surplus because most public spending was on defense. It notes that the plunge in defense spending following the war allowed the budget to swing from a deficit of 22 percent of GDP in 1945 to a surplus of 1.2 percent of GDP in 1947. Yes, there was a large swing, but defense spending soon swung back upwards because of the Cold War and the hot Korean War, which put the government in deficit through most of the rest of the next three decades.

More importantly, it contrasts the war driven deficit with spending driven by government social programs. It tells readers that social programs "are not only hard to cut quickly; they also have a way of growing unexpectedly." Really? Are there examples of spending on social programs growing unexpectedly? CBO's projections for spending on Social Security and Medicare have been pretty accurate and in fact it overestimated the growth of Medicare expenses back in the 90s.

The Post then warns us that:

"The government met its World War II borrowing needs out of U.S. domestic resources, including the sale of $185 billion in low-interest war bonds. ... Today, foreigners hold nearly half the $7.5 trillion U.S. public debt. As a result, the politics of deficit reduction are not only extremely difficult, they are extremely difficult and international. Inflation could trigger a global run on the dollar and a nasty interest rate spike."

Are you scared yet? If so, you need to learn a bit more economics.

First, the reason that much of the borrowing is from foreigners is because the United States is running a large trade deficit. The reason that it has a large trade deficit is that the dollar is over-valued. With the dollar at its current level, the trade deficit would be the same size, assuming the same level of GDP, even if the budget were balanced. If the Post actually had the concern about the well-being of future generations that it often claims, then it would be determined to get the trade deficit down, reducing the drain that future flows of capital income to foreigners will pose to the country.

In fact, the Post has never once run an editorial calling for a decline in the dollar and actually warns against allowing the dollar to drop, the only plausible mechanism for correcting the trade deficit. The run on the dollar that it shrilly hypothesizes is absurd on its face. If the dollar were to a fall a large amount (e.g. 50 percent) against other major currencies, the rest of the world would see its markets in the U.S. evaporate and U.S. exports become hyper-competitive. (imagine the screaming over the "buy American" policy in the stimulus multiplied by a hundred thousand.) They would have no choice but to intervene to prevent a plunge in the dollar.

As far as the risk of inflation, foreigners who hold U.S. debt understand the risks of inflation (if not, maybe we can send them Post editorials), so there is no obvious complication if inflation reaches modest levels. Investors are used to losing money on their dollar holdings. The dollar has been falling against the euro and most other major currencies for most of this decade, so it's not clear why they would suddenly be concerned about losses associated with domestic inflation.

In short, the Post can't really present much of a case to support its concern about deficits. But hey, that's no reason not to support cuts in Social Security and Medicare and tax increases for the middle class.

btw, it is also worth noting that we would not be facing these huge deficits if the WaPo and its friends in policy positions had not insisted on ignoring an $8 trillion housing bubble. It would be helpful if they could tell readers when they stopped being wrong about the economy.

--Dean Baker

Most of the elite definitely want the public to be scared about the deficit. They are constantly filling the newspapers and airwaves with the horrors of the huge debt. (Never mind that the reason we are running up huge deficits is entirely because these elites were too incompetent to see an $8 trillion housing bubble.)

The elites want to cut Medicare and Social Security. They also want a national sales tax. These measures will lead to serious declines in the living standards for middle class people, a group that has seen its wages stagnate for the last three decades.

Everything goes to push the anti-deficit agenda, including just making things up. In this category, the NYT has an article today telling readers how Japan is strangling under its enormous debt burden. At one point the article tells readers that: "Just paying the interest on its debt consumed a fifth of Japan’s budget for 2008, compared with debt payments that compose about a tenth of the United States budget."

That would be news for the folks in Japan. They think that they only spend 11.2 percent of their budget on interest (page 4). (The interest burden peak in the U.S. at 16 percent in 1991.)

The article is full of shrill warnings about the dangers of Japan's deficit, but it includes almost no facts to support these warnings. For example, it quotes Carl Weinberg, chief economist at High Frequency Economics: "public sector finances are spinning out of control — fast,... We believe a fiscal crisis is imminent.”

The article tells readers that: "The fall in public and private savings could eventually reverse Japan’s current account surplus, possibly driving up interest rates as the public and private sectors compete for funds. Higher interest rates would increase the cost of servicing the debt, and raise Japan’s risk of default."

It continues: "In a worst case, Japan’s currency could suffer as more investors switch away from Japan to other assets. And if Japan were to print more money and set off inflation to reduce its debt burden, the supply of yen would shoot up, lowering the currency’s value further."

Of course the markets refuse to be as worried about Japan's collapse as the NYT wants them to be. The people who actually are putting their money on the line are willing to hold 10-year bonds issued by the Japanese government at interest rates just over 1.0 percent. As the article notes, the yen has been rising, not falling. And, Japan's main concern for over a decade has been deflation (price are again falling in Japan), not inflation.

The article even raises the terrifying prospect that Japan's current account surplus will turn into a deficit as its population ages. Actually, this is what would be expected. That was the point of running a current account surplus. This surplus allowed Japan to build up a huge supply of foreign assets that it can draw upon as its population ages.

In short, there is no story here. The NYT apparently doesn't want the U.S. to run deficits and it is prepared to fabricate stories about Japan to help push its agenda for the U.S.

--Dean Baker

USA Today gives credence to the silly view that moderate rates of deflation pose some special problem for the economy. If prices fell at a moderate rate (e.g. less than 1.0 percent annually), it would be a negative factor for the economy, but the drop in the inflation rate from a positive 0.5 percent to a negative 0.5 percent is no more harmful than a reduction in the inflation rate from 1.5 percent to 0.5 percent.

Given the high level of indebtedness of consumers, a moderate rate of inflation (e.g. 3.0-4.0 percent) would be highly beneficial for the next several years. However, zero holds no particular magic and modest rates of deflation are not qualitatively different than low rates of inflation in their impact on the economy.

--Dean Baker

The NYT reported that Medicare premiums are projected to increase by 15 percent this year. Medicare costs are projected to substantially outpace inflation in the decades ahead due to the fact that U.S. health care costs are projected to continue to rise more rapidly than costs in other countries.

This means that the United States could gain a large and growing amount of money by allowing beneficiaries to buy into the more efficient health care systems in other countries. For some reason, the media refuse to ever mention this option, talking exclusively to protectionists on this issue.

--Dean Baker

The Post knows how to use attention grabbing headlines, unfortunately this one is not supported by the substance of the article. The big banks were surely unhappy about allowing states to set regulatory standards that exceed national standards, but given all the other victories that they have been scoring in the battle over regulatory reform, it is a bit of leap to tell readers that they are "losing power."

--Dean Baker

It seems they still haven't gotten the word. The paper had a front page piece on how some consumers are returning to shopping again after staying away for the last six months. While the article includes some comments on consumer psychology, there is no discussion of the fact that consumers have lost close to $6 trillion in housing wealth over the last three years. This would be the primary cause of the falloff in consumption/ rise in saving rates.

At one point, the article refers to the rebound of the stock market as one reason that people might be returning to spending. It is unlikely that this would be a major factor for many consumers. According to the Federal Reserve Board, three quarters of families had less than $35k in the stock market (including retirement accounts) in 2007. Given the relatively small amount that most families have in the market it is unlikely that even large fluctuations in prices would have much impact on the consumption of most families.

--Dean Baker

In his monthly column, Princeton economist Alan Blinder gave President Obama an "A-" for his financial rescue plan, commending him for "wisely resisted the siren songs coming from both the left (“nationalize the banks”)."

Of course, Professor Blinder does not have a clue about what would have happened if we tried some path of nationalization. (This guy couldn't even see an $8 trillion housing bubble.) We do know what has happened in the absence of nationalization. The banks share of corporate profits now exceeds even the peaks reached in the bubble years. The executives at banks like Goldman Sachs stand to earn higher bonuses than ever before. Nothing has been done to prevent a comparable collapse in the future and there is every reason to believe that the financial sector will siphon off an even larger share of GDP in the future than it did in the past.

If this merits an "A-," then Professor Blinder is a very easy grader.

--Dean Baker

Okay, it's not the Washington Post literally, but a commission headed by Leonard Downie Jr., the Post's former executive editor, wants taxpayers to subsidize the Washington Post and other comparable papers. There is an argument that the media perform a public service by informing the public exposing corruption, and therefore deserve public support, but it would be hard to make this case for many existing news outlets.

It would be a simple matter to construct a system that involved taxpayer subsidies in which the taxpayers themselves decided where their money goes, instead of that choice being made by "smart" people like Mr. Downie. Unfortunately, the people currently in control of the media in the United States have little interest in publicizing more democratically based alternatives.

--Dean Baker

The NYT reported on the decline in the dollar against other major currencies. The articles notes the positive effect the decline in the dollar has had on many export industries. It then tells readers: "over the long term, a weaker dollar could narrow the long-running United States trade deficit, helping close the gap between exports and imports, as American products become more affordable overseas."

Actually, a weaker dollar is the only plausible mechanism, other than a prolonged recession, to lower the trade deficit. This means that those advocating for a stronger dollar, like David Malpass, a Wall Street economist cited in the article, are arguing that the United States should run a large trade deficit.

Malpass correctly claims that a lower valued dollar will reduce U.S. purchasing power, but it would have been worth adding additional context. A lower valued dollar will mean that the United States does not run as large a trade deficit. In this sense the reduction in purchasing power is a reduction in borrowing. If two families have identical incomes, but one borrows $1,000 a month on its credit card, then the one borrowing $1,000 a month on its credit card has more purchasing power than the family that is not borrowing. The high dollar increases purchasing power in the same way as borrowing on a credit card.

The article also notes the complaints about the falling dollar from prominent Republicans, such as former vice-presidential candidate Sarah Palin and Senator John Kyl, the second ranking Republican. It would have been worth mentioning that the trade weighted value of the dollar is still 7 percent higher than the low point reached in 2008 under President Bush. In other words, if these Republican leaders are actually concerned about the current value of the dollar being too low, then they should have really alarmed during the last year of the Bush presidency when its value was even lower. If these leaders did complain about the low dollar during the Bush presidency their complaints did not garner much attention.

--Dean Baker

George Will claims that the stimulus packages passed in 2008 and in February of this year did not work. How does he know this? Well, because the unemployment rate is still very high.

That is an interesting logical leap. Suppose a person has been diagnosed with cancer and is treated with chemotherapy. Three years later the person is still alive and reasonably healthy, but the tumor has not gone away. By Dr. Will's logic, the chemotherapy did not work.

The reality is that we are facing an enormous economic downturn because Will and the other people who occupy center ground in the nation's policy debates were unable to see an $8 trillion housing bubble. The inevitable collapse of this bubble virtually guaranteed a steep recession.

The stimulus passed in 2008 helped to keep consumption higher than it would have been in the absence of the collapse. The same is true of the stimulus passed this year. Both kept employment higher than it would have been in the absence of the stimulus.

Economists can test for the effect of the stimulus by using models that project what would happen in the absence of stimulus and compare this scenario with what actually happened. These models generally show that both the 2008 and 2009 stimulus strengthened the economy.

Will is either profoundly ignorant of economics, or being disingenuous, when he implies that the Obama administration is somehow making things up when it claims that is has "saved" [italics in original] jobs. Any effort to boost the economy will create some number of new jobs, but it will also prevent many existing jobs from being lost. This is a very basic concept, and contrary to Will's assertion, we can measure the extent to which this is true.

Will thinks it is "awkward " that the unemployment rate continued to rise after the stimulus was passed. Actually, this is exactly what the Obama administration, as well as independent forecasters, had projected. No one thought that the stimulus could immediately halt the economy's downward slide. The slide was faster than the administration had projected, and for this they deserve blame, although most independent forecasters made the same mistake. (This is not an excuse -- they get paid for getting the numbers right, not making the same mistakes as everyone else.)

Will also fails badly in describing the spendout rate on the stimulus. He concludes his column by telling readers that:
"But one-quarter of Stimulus II will be spent this year. Another quarter will be spent in 2011. Half will be spent in 2010, an election year. Which suggests that Stimulus II is, and Stimulus III would be, primarily designed to save a few dozen jobs -- those of Democratic members of the House and Senate."

That's a cute story, but the problem is that Will's number refers to fiscal years. The 2009 fiscal year ended September 30th. The spending for calendar year 2009 will be roughly 36 percent of the stimulus, with another 50 percent to come in calendar 2010.

Rather than being timed for the 2010 election year, the stimulus was designed to get money out the door as quickly as possible. That is what we want stimulus to do. Since the bill did not get signed into law until March, it should not be surprising that the spending for 2009 is somewhat less than 2010. It does take some time to spend money and given that the bill did not become law until three months into 2009, it certainly looks like the Obama administration is spending the money rapidly.

One final point worth noting -- Will seems to be appealing to nationalist and/or racist sentiment in asserting that health care reform will be paid for by "by borrowing from China." The reason that the United States as a country borrows from China is because of the trade deficit, which is the result of an over-valued dollar. If the dollar stood at the same value, and the U.S. had the same level of GDP, but the budget was balanced, then the country would be borrowing the same amount of money from China, but it would largely take the form of Chinese purchases of private assets.

Of course, if China opted to sell its private assets and purchase government debt, it could do so any day of the week. If someone is really concerned about U.S. borrowing from China, then their focus should be on over-valued dollar, not the budget deficit. It will be interesting to see Mr. Will's future columns on the over-valued dollar.

--Dean Baker

"I'm for cutting costs where it makes sense. ... If the net effect is destroying thousands of good-paying jobs, then that's a different story. Cut the fat, yes, but when it gets to the bone, that's something else." Those were the words of Indiana Senator Evan Bayh in the context of arguing against placing any sort of tax on the medical device industry.

Of course this statement is absurd. The most extreme forms of waste often involve good-paying jobs. For example, the pharmaceutical industry, the defense industry, and the financial industry all offer good-paying jobs to many people. They can do this because they take large amounts of money from the rest of the population. The fact that an industry has good-paying jobs is hardly evidence that it is not wasteful.

Rather than ending the article this way, the Post should have presented the comments of anyone familiar with economics, who could have ridiculed Bayh, a senator who pretends to be a fiscal conservative.

--Dean Baker

That's right, the old-fashioned way. They get the money from Washington.

--Dean Baker

That's what millions of readers of this front page NYT article, headlined "Deficit Hits $1.4 Trillion, Complicating Stimulus Plans," are asking. As the article itself notes, the recent numbers on the deficit are $200 billion below the August projection from the Congressional Budget Office (CBO) and $400 billion below the projection from the Office of Management and Budget.

Given the new information about the deficit, a more reasonable headline would have been, "Lower Than Expected Deficit Leaves Room for Stimulus," since the government can now spend $200-$400 billion and still have a lower debt than what was projected just two months ago.

In an article that explicitly balances the cost of the deficit with the cost of foregoing stimulus it would have been appropriate to include some discussion of projected unemployment rates. CBO projects that unemployment will average 10.2 percent next year and even in 2012 it will average 7.3 percent. This number is higher than in any year since 1992, on an age-adjusted basis the unemployment rate would be higher than in any year since 1983.

The Post seems to have the same problem with its own front page article. Remember the good old days when newspapers put their editorials on the editorial page and saved the front page for news?

--Dean Baker

The headline writer apparently didn't read a good article on wages very closely. Wages are not about to fall to an 18 year low, as the headline asserts. The point was that real wages are likely to see their sharpest drop in 18 years. That's different.

--Dean Baker

Why do reporters feel the need to editorialize? They should be given oped columns so that they can tell readers how much they like a trade pact, but their affections can't make a trade deal that increases patent and copyright protections and leaves most protection for highly-paid professionals unchanged a "free trade" agreement.

--Dean Baker

NPR may have misled readers with a report on the jobs created by the stimulus. The report followed a White House report documenting the jobs created through the government contracts in the stimulus. While the report mentioned that this spending is just a small portion of the stimulus, it gave credence to Republican claims that the stimulus has had relatively little effect on employment.

While these are jobs that can easily documented, the vast majority of the jobs created by the stimulus came as a result of increased unemployment benefits (including subsidies for health insurance), budget aid for state and local governments, and the tax cuts in the plan. There is no way to document the individual jobs created or saved through these channels, but it would be in the range of 500,000 to 1,000,000.

--Dean Baker

The New York Times told readers that offering people the option to buy into a Medicare type public plan: "has become a proxy for a larger debate over where Mr. Obama is taking the country."

Is that so? Many people might have just thought it was a way to ensure that people had the option to buy affordable health insurance. But, the NYT decided to frame the issue this way based on the authority of Ken Duberstein, a chief of staff in the Reagan White House. Duberstein is quoted as saying: “what’s going on here is not simply health care and the public option... In light of the auto bailout, the bank bailout, the stimulus package, the public option fight is a surrogate for how much government is too much.”

The NYT might try not just accepting at face value the framing of an important issue given by a former Reagan administration chief of staff.

The article also presents a comment from Senator Jim Cooper, who asserted that if a public plan offered Medicare reimbursement levels that few doctors would sign up for it. The potential validity of this assertion depends both on the size of the plan and the ability of doctors to maintain their protection from foreign competition. If large numbers of people signed up for the public plan then doctors would either have to accept its reimbursement rates or consider becoming shoe salespeople. They would not be able to support themselves as doctors staying outside of the plan. This would be especially the case if they are unable to continue to prevent qualified foreign physicians from working in the United States.

--Dean Baker

Actually they are considering something much stupider. Congress is proposing to extend the $8,000 tax credit for buying a home and to have it apply to all homebuyers, not just first-time buyers.

From an economic standpoint, there is no more reason to want people to buy homes than to want them to buy pizzas. In fact, since the bubble in the housing market was the cause of the current economic crash and the first-time buyers' credit slowed the process of adjustment in many markets, we should much prefer to give people money to buy pizzas than houses.

Fortunately, extending the credit to all homebuyers, not just first buyers, will have less of a distortionary impact since current homeowners will also be selling homes, meaning that it will have no net change in the demand for homes.

Of course, this broader credit would offer more opportunities for gaming, but who cares? If a person gets the $8,000 credit for "buying" their brother's home and vice-versa this scam has at least as much economic value as if they actually did buy a home.

It would have been useful if USA Today could have found some economists who could have explained how this proposal from Senators Isakson and Dodd is hare-brained even by Washington standards.

--Dean Baker

The WSJ headlined a piece "Geithner Says Stimulus Still Needed." Given that the unemployment rate is 9.8 percent and still rising (higher than in any post-World War recession except the 1981-82 recession), why would anyone think that stimulus is not still needed? This is not really a serious issue.

--Dean Baker

Somehow the world got turned upside in a Vanity Fair excerpt of a book on the financial crisis by NYT reporter Andrew Ross Sorkin. Sorkin, in outlining the dimensions of the financial breakdown following the collapse of Lehman, tells readers: "Treasury bills were trading for less than 1 percent interest, as if they were no better than cash, as if the full faith of the government had suddenly become meaningless."

Actually, the full faith of the government suddenly was a really big deal. Interest rates of less than 1 percent meant that investors were willing to sacrifice interest payments precisely to take advantage of the full faith of the government. Investors were looking for security, not returns, and at that time, they considered government bonds to be very secure.

Thanks to Ken Broomfield for the tip.

--Dean Baker

The over-valued dollar is causing the United States to run large trade deficits. The huge trade imbalance was one of the main factors that led to the bubble driven growth of the late 90s and this decade.

This is why people who know economics everywhere see it as crucial to have the value of the dollar decline. That will make imports more expensive and U.S. exports cheaper, thereby moving trade closer to balance. But, Roger Altman is desperately afraid about this sort of correction. He wants to keep the dollar over-valued and is willing to raise taxes and cut important social programs in this hope. A lower dollar might be good for the economy, but it is not good news for Wall Street, hence Mr. Altman's concern.

--Dean Baker

The Washington Post's lead article this morning reported on the results of a study funded by the health insurance industry. Not surprisingly, the study shows substantial increases in health insurance costs.

The study, done by the accounting firm Price Waterhouse Cooper, uses some assumptions that run counter to those of other analysts. For example, it assumes that companies continue to buy "Cadillac" plans
at the same rate even though these plans will subject to a substantial tax. Other analysts have assumed that most employees would shift away from these high priced plans. The study also assumes that cut in Medicare/Medicaid reimbursement rates will all be passed on to private insurers rather than absorbed in part by providers.

Both of these assumptions have the effect of substantially raising the projected cost of health insurance. For these reasons, the results of the study are quite suspect. It is reasonable for the Post to report on a study paid for by an interested party, but it does not belong as the lead article in the newspaper. It is inconceivable that the Post would ever give the same prominence to a study funded by the AFL-CIO or SEIU even if the methodology was beyond reproach. A labor-funded study that is as obviously biased as this one would probably not even be mentioned.

--Dean Baker

The Post attacks the excessive subsidies for home ownership. This time, they are right.

--Dean Baker

Yes, Washington Post columnist Robert Samuelson does sometimes get it right and he is on the mark today in talking about the need to constrain health care cost growth. As the projections cited in his column show, rising health care costs will pose an increasing threat to living standards in the decades ahead.

Changing the course will require some serious restructuring of the health care system. It does not appear as though the current reform package will bring that about. Of course, if economists and the rest of our policy elite were not such ardent protectionists, trade would offer an obvious solution, but these people just can't seem to understand the benefits of international trade.

--Dean Baker

Given the quality of the economics reporting, parents would be well-advised to prohibit their children from reading the Washington Post so that they don't get confused on basic arithmetic concepts. The Post doesn't want more stimulus and is willing to say anything to push its case.

The lead editorial tells readers that: "government has managed to blunt the recession, but at a cost -- a higher national debt burden, which future Americans must pay off by working harder and saving more than they otherwise would have." Actually, future Americans will own the debt that will be paid off. This is not a generational issue, it can be a distributional one.

There is a point that some of the debt is held by foreigners. This will be a burden on the country, but the issue here is the trade deficit, not the budget deficit. If we had no government debt, but foreigners bought up $4 trillion of private capital in the United States, it would pose the same burden on future generations as if foreigners bought up $4 trillion of government debt. Remarkably, the Post is not concerned about the trade deficit and the burden it poses on future generations and actually does not want the cause of the deficit -- the over-valued dollar-- to be fixed.

The Post also gives the bizarre argument that:we should wait on further stimulus because "the government still hasn't run through half of the $787 billion in tax cuts and spending increases enacted this year." Of course, for those of us who passed our third grade arithmetic class this argument is just plain silly.

The stimulus is already being disbursed at its maximum rate and therefore having its full impact on the economy. The additional spending will provide no further boost.

To see this point, imagine my rich uncle promises to give me $2,400 over two years in installments of $100 a month. I may originally be slow to change my consumption, but after 3 or 4 months I will likely have fully adjusted my spending in accordance with this monthly gift of $100. Once I have reached the 8th month, I will almost certainly be at my maximum spending rate, even though two thirds of the gift is yet to come.

This is where we stand right now. We have spent close to 40 percent of the stimulus with more than 60 percent yet to come, however the rate of spending will not be increasing from this point forward. Therefore, it will provide no further net boost to the economy. People who write editorials for major newspapers should understand this fact.

It is worth noting that the Congressional Budget Office (CBO) projections showing a 10.2 percent unemployment rate for 2010 and a 9.1 percent rate for 2011 include the impact of the stimulus. Perhaps the Post's editors know something that CBO doesn't, in which case they should share this information with their readers.

--Dean Baker

The Washington Post had a front page story reporting on the fact that most public and private pension funds are now hugely underfunded as a result of the plunge in the stock market. It reports that they had just assumed that their funds maintain the same rate of return as they had over the prior two decades.

The failure of the funds to maintain the same rate of return was not just bad luck. It was virtually inevitable that return would flounder as people who knew arithmetic tried to explain. The high returns of the 80s and 90s were the result of a run-up in price to earnings ratios. Given the high price to earnings ratios of this decade, it was not plausible that the markets could provide comparable returns going forward.

The shortfalls in these pension funds was entirely predictable. Unfortunately, the people who got 6 and 7 figure salaries to manage these funds are unfamiliar with 3rd grade arithmetic. As a result, workers are likely to see lower pensions. Because the Post and other media outlets cover up for the incompetence of pension fund managers, most still hold their jobs.

--Dean Baker

A piece discussing the reduced access to credit for low and moderate income households is headlined: "The Democratization of Credit is Over." The article is a reasonable discussion of the issues involved although it never mentions the fact that the loss of home equity from the collapse of the housing bubble is a major factor reducing access to credit among moderate income households.

--Dean Baker

The Washington Post told readers that: "congressional budget analysts said Friday that lawmakers could save as much as $54 billion over the next decade by imposing an array of new limits on medical malpractice lawsuits -- 10 times more than previously estimated."

The Los Angeles Times headlined a piece on the same report:"medical malpractice reform savings would be small, report says."

The report found that limiting malpractice suits would reduce annual spending on health care about 0.5 percent the equivalent of reducing spending on prescription drugs by 3 percent. The United States pays almost twice as much for prescription drugs as other healthy countries. At no point in the health care debate has the Washington Post had an article on the potential for reducing health care costs and government spending by reducing expenditures on prescription drugs.

(The Post never identified the earlier study that it suggests implied that malpractice reform had no effect [0.05 percent of health care spending] on spending.)

Thanks to Shelley Powers and Joel Norvell for the tip.

--Dean Baker

The Wall Street Journal reported on the growing interest of many Democrats in Congress in using a financial transactions tax (FTT) to both raise revenue and reduce the amount of speculative trading in financial markets. The article refers to the tax hypothetically as though it is something that does not actually exist in the world. It also includes a statement by Representative Barney Frank, the head of the House Financial Services Committee, that the tax would be difficult to enforce if put in place "country by country."

Actually, the UK has had an FTT in place for decades. Relative to the size of its economy, the tax raises the equivalent of almost $40 billion a year in the United States. It raises this amount even though it is only applied to stock trades, not trades in options, futures, credit default swaps and other derivative instruments. Until the early 90s, Japan also had an FTT that raised more than 4 percent (@ $120 billion in the U.S.) of its government revenue. There clearly is no problem with imposing an FTT country by country, although it obviously would be desirable to have international cooperation in enforcement.

--Dean Baker

The New York Times is unhappy because it doesn’t seem likely that Europe’s governments will dismantle their welfare state. The problem is that people in Europe like the welfare state and democratically elected governments seem intent on putting the wishes of their electorate over the desire of the New York Times and the experts it chose to consult for this article.

The article begins by telling readers that: "two years ago, Europe was growing more rapidly than the United States, and the Old Continent finally seemed prepared to tackle longstanding economic challenges like rigid labor markets, runaway government spending and a rapidly aging population."

In fact, these "longstanding challenges" do not really exist. Europe did not suffer from "runaway government spending," most countries had relatively modest budget deficits prior to the economic crisis. Over the long-term, the United States is projected to face far worse budget problems than Europe because of its out of control health care spending.

Its "rigid labor markets" did not prevent Europe from experiencing labor productivity growth that was comparable to that of the United States. It also managed to run current account surpluses, instead of unsustainable deficits, like the United States.

Europe's population is aging more rapidly than the United States, in part because its people enjoy longer life expectancies. It is not clear why the NYT views this as a problem.

The article is full of complaints that Europe's governments are not following the NYT's agenda. For example , without any substantiation the NYT tells readers that: "just when it is needed most, the political will to address Europe’s bigger economic problems seems absent, according to many experts across the region and around the world." It's not clear what "just when it is needed most" could possibly mean in this context.

The article later complains that: "In Germany, Angela Merkel, who was elected last month to a second term as chancellor, has also avoided taking on the country’s powerful unions and its regional banks. She has embraced the “social market economy” and has insisted there is no alternative to relying on exports rather than consumers to drive growth."

It's not clear what the problem is. Economists view exports as a form of investment. Rich countries, like Germany, are supposed to run trade surpluses, lending money to poor countries to finance their development. The NYT apparently wants Germany to siphon money away from poor countries, as the United States does, leaving them with fewer resources to finance their development.

It would have been useful if the article had included the views of someone associated with Europe's labor unions or an economist more familiar with recent research on European labor markets.

--Dean Baker

The WSJ eagerly touted the good news on September retail sales with the headline: "Clouds Break as September Retail Sales Rise." The good news touted in the article is that an index of same store sales for 30 major retail chains came in 0.9 percent higher in September of 2009 than September of 2008. (The index excludes Wal-Mart, which accounts for almost as much sales volume as the other 30 chains combined.)

There are two reasons why this increase is less promising than it may appear. First, September 2008 was the month of the financial panic following the collapse of Lehman. Sales fell sharply that month. It is much easier to show a year over year gain measured against a very weak month than against one of the months that predated the September falloff.

The second reason why this gain is less positive than it may initially appear is that the chains opened few new stores in the last year and may have even closed some stores. In addition, many smaller retail outlets also went out of business in the last year. This means that the stores open at least one-year that comprise this index are likely to be a larger share of the total retail market in September of 2009 than in September of 2008.

For these reasons, the modest uptick in year over year same store sales should not be taken as evidence that recovery is on the way.

--Dean Baker

The headline of a WSJ article on new budget estimates and proposals for boosting the economy told readers that: "deficit complicates push on jobs." It is not clear why. The main reason that the country has a large deficit is that we are suffering a severe recession.

If we didn't have a severe recession, then we would not have a need for a "push on jobs." Saying that the deficit complicates the push on jobs is like saying that because of the heat, firefighters should not attempt to put out a fire. it makes no sense.

The article also includes a quote from a spokesperson for House Minority Leader John Boehner accusing the Democrats of supporting a second (actually a third) stimulus. A stimulus is a measure that will boost the economy. It would have been helpful to note that the tax cut supported by the Republicans that is mentioned in the article is also stimulus, albeit not very effective stimulus.

--Dean Baker

Keeping with the fraternity ritual of presenting readers with meaningless numbers the Washington Post told readers that President Obama's proposed expansion of the Pell Grant program will increase spending by $40 billion over the next decade. This number is completely meaningless to virtually all readers of the Washington Post -- if you added or removed a zero, most would not notice the difference -- yet the Post refuses to make the simple comparison that would give the number some meaning to its readers.

--Dean Baker

How many NYT readers know how much the government is projected to spend over the next decade? How many know how large the economy is projected to be?

The paper has a well-educated readership, but my guess is that the answer to both questions would be less than 1.0 percent. This raises the question of why the NYT gives a set of spending figures on Baucus health care bill that will be virtually meaningless to nearly everyone who reads it. It would be very simple to make these numbers meaningful by either expressing them as share of the budget or as per person expenditures. ($800 billion over the course of a decade comes to about $350 per person per year.)

--Dean Baker

The Congressional Budget Office (CBO) presented its year-end estimate of the fiscal year 2009 deficit yesterday. NPR told listeners: "the Congressional Budget Office estimate, while expected, is bad news for the White House and its allies in Congress as they press ahead with health care overhaul legislation that could cost $900 billion over the next decade."

Let's see, back in August, CBO projected that the deficit would be $1,587 billion, yesterday CBO estimates that the 2009 deficit will actually be $190 billion less that they had believed, and this is "bad news for the White House and its allies in Congress" and a setback for health care reform? Those of us who are not professional reporters for a major national news outlet may miss the logic here.

It is clear that NPR is unhappy with the deficit, calling it "unprecedented flood of red ink," which it compares to: "the previous record deficit was $459 billion and was set just last year." Serious reporters would have told listeners that the 2009 deficit was approximately equal to 10 percent of GDP. The previous post-World War II record was 6.0 percent of GDP in 1982. The actual records were more than 20 percent of GDP set during the war years.

The piece goes on to tell listeners: "the huge deficits have raised worries about the willingness of foreigners to keep purchasing Treasury debt." Yes, people worry about all sorts of things. Millions of people are worried that President Obama was not born in the United States. While some people no doubt have the worried that NPR notes, it might have been more informative to tell listeners that in spite of the large deficits, foreigners are willing to hold U.S. debt at historically low interest rates. This is very strong evidence that the foreigners are not worried.

It might also have been worth noting that if foreigners (notably China) stopped purchasing Treasury debt, then their currency would rise against the dollar. This would increase our exports to these countries and reduce our imports from them. In the case of China, this has been exactly the policy shift that both the Bush and Obama administration have been publicly demanding. It might have been worth providing readers with this information.

--Dean Baker

The NYT told readers that the investments needed to curtail global warming would cost the world $10 trillion over the years from 2010 to 2030. It would have been helpful to also note that global GDP will be around $1500 trillion over this period, so that the estimated cost of these measures would be equal to approximately 0.7 percent of GDP. This means that they would impose approximately one sixth as much of a burden on the world economy as the defense department budget does on the u.S. economy.

--Dean Baker

That's the question millions of NYT readers will be asking after seeing this article. The article raises concerns about the declining importance of the dollar as an international currency and in particular the possibility that commodities like oil will no longer be traded in dollars.

While the fear that oil exporters will no longer demand dollars appears repeatedly in the media, it actually will have very little impact on the demand for the dollar. The amount of oil traded internationally is currently around $4 billion a day. By comparison, China holds more than $1 trillion of dollar reserves. This means that if China reduced its holdings of dollar reserves by 0.5 percent it would have more impact on the demand for dollars than if all the oil exporters immediately abandoned the dollar as the instrument of payment for their oil.

--Dean Baker

The NYT warns readers that the credit markets are still facing "paralysis." It notes the decline in loans and especially securitized loans, for residential mortgages, commercial mortgages, and consumer debt.

While the numbers are accurate, the article completely ignores the demand side of the equation. There has been enormous overbuilding in both the residential and commercial real estate market over the last 4 years. This has led to a plunge in property values in both sectors. It is not surprising that lending would plummet given this decline in prices. In fact, we would expect lending to plummet even if the banks were all completely healthy.

There will be an ongoing issue with private securitization (as opposed to securitization by government run companies like Fannie Mae and Freddie Mac) due to the market's concern about the integrity of the banks and credit rating agencies. The willingness of the banks to pass along junk assets and the credit rating agencies to give them investment grade ratings will impede securitization for some time to come. Unless the structure is changed and/or the perpetrators are punished, investors will have little confidence that they are buying good assets.

--Dean Baker

The NYT reported on discussions in the Obama administration to implement a tax credit of $3,000 for companies that hire additional workers. The hope of course is that this will be a spur to job growth.

Most studies show that labor demand is highly inelastic (this is why increases in the minimum wage have little effect on employment), so a tax credit that modestly decreases the cost of labor is unlikely to have much effect on employment. On the other hand, there would be many opportunities for employers to game this tax credit.

The most obvious is simply bringing some jobs on payroll that are currently contracted out. For example, if a company currently contracts out its custodial services it can instead hire people on its payroll to do this work and get the $3,000 tax credit. This would lead to no net gain in jobs. It would have been helpful if this piece had included some analysis of this tax proposal.

The article also discusses the possible extension of the $8,000 first-time homebuyers tax credit. It would have been worth noting that this tax credit is likely to temporarily inflate house prices ($8,000 is approximately 4.7 percent of the median house price). That means that people who buy homes when the credit is in effect can expect to sell them at a lower price (inflation adjusted) assuming that the credit does not remain in place indefinitely.

There was an enormous amount of misinformation about home prices distributed by the housing industry and the media during the bubble years. It would be helpful if the media tried to do a better job informing the public about predictable movements in house prices now.

--Dean Baker

An NYT piece discussing the Obama's administration's plans to provide further stimulus to the economy implies that the economy is somehow doing better than expected. At one point commenting that: "the $787 billion recovery plan was intended to stretch over two years, partly in anticipation that the downturn would be prolonged." This sentence appeared after it told readers: "Democrats in Congress generally agree with the White House that a second full-blown stimulus package is not needed, barring an economic relapse."

In fact, the economy is performing considerably worse than CBO and most other analysts had projected when the stimulus package was designed last winter. They had expected unemployment to peak at a bit over 9.0 without stimulus. Instead, unemployment is virtually certain to peak at a level well over 10.0 percent even with the benefit of the stimulus package.

If the Democrats in Congress agree that a full-blown stimulus package is not needed then they believe that it is okay that unemployment averages 10.2 percent next year, 9.1 percent in 2011 and 7.7 percent in 2012, at least if they accept CBO's projections. It might have been worth pointing out that the baseline projection shows the unemployment rate will be above the peak of the last year recession for close to four years.

It would have been helpful to include some longer term economic projections in this discussion. No one could make any sense of a decision to support further stimulus without a knowledge of these projections. It is unlikely that most NYT readers are aware of these projections.

--Dean Baker

The bar for economic policymakers has gotten incredibly low lately. The fact that we are not facing another Great Depression is now a mark of success.

While it is certainly good that we are not in a depression, the evidence that we were going there, some of it mustered by Robert Samuelson in his column today, is not compelling. Samuelson contrasts the period of panic in the six month following the collapse of Lehman with the present where things have settled down. Supposedly firms were not willing to invest and consumers were not willing to spend in the panic period, whereas now everything is okay.

The data don't quite support this story. If we look at orders for non-defense capital goods (excluding aircraft), August orders were up 5.5 percent from the absolute lows hit January, but August orders were less than 1.0 percent above the February levels and they are actually down 1.1 percent from the March level. There is not much of a story of renewed investor confidence here.

The consumption data look even worse from this perspective. The saving rate in the panic-stricken first quarter was 3.7 percent. In spite of the calming effect of the financial rescue program the saving rate had risen to 4.9 percent by August.

Samuelson also cites the turnaround of house prices as more evidence of increased confidence. Perhaps, but the government is now tossing in an $8,000 subsidy for first time home-buyers, an amount that is equal 4.7 percent of the median house price. It would be surprising if this government subsidy didn't have some positive impact on house prices.

In short, the case that we faced another Great Depression was always a bit strained. There was panic in financial markets, but that mattered much more for the bankers and friends than the rest of us. The banks are doing very well right now (financial sector profits hit a new record as a share of corporate profits), however the rest of the economy looks very bleak -- but it is not the Great Depression.

--Dean Baker

The Washington Post wants readers to think the $30 billion in additional Medicaid spending required of state governments under some of the health care reform plans is a really huge burden. Is it?

It might have helped if the Post had at least once given the time-frame over which these expenses would be incurred. It is over the 10-year budget window from 2011 to 2020. It might also have been useful to give us a basis of comparison, like total state spending. State governments are collectively projected to spend close to $30 trillion over this period. That means that the $30 billion Medicaid burden is equal to approximately 0.1 percent of projected state spending.

--Dean Baker

People following the financial meltdown would be surprised to read in the New Yorker's profile of National Economic Council Chairman Larry Summers that: "the banks with combined commercial and investment operations fared the best." Yeah, Citigroup is doing just great.

There are other striking sins of omission/commission in this piece. We get no mention of the stock bubble when the piece extols the wonders of the economy in the Clinton years. Nor do we get any mention of the over-valued dollar, a direct outcome of the Rubin-Summers management of the East Asian financial crisis. The collapse of the stock bubble in 2000-2002, coupled with the over-valuation of the dollar, created the serious downturn from which the housing bubble arose. Summers role in ignoring financial bubbles and touting financial deregulation gives him a good share of the credit for the current crisis.

Finally, we are told in conclusion that: "So far, none of the worst fears of those who believed that the stimulus was too small or that nationalization was the only option or that taking over car companies would destroy the fabric of capitalism have materialized."

Sorry, but this is wrong, big time. The worst fears of some of us who said that the stimulus was too small were that we would be sitting around with 10 percent unemployment for a long period of time and that stimulus would be discredited. That pretty well describes the world we live in, even that may not be the case in New Yorker land.

In terms of the bank bailout, some of us were worried that we were effectively taxing the whole country to support the rich bastards that put the economy in the toilet. Bank profits now stand at a record share of GDP and the bonuses at Goldman are as big as ever. What did the critics get wrong?

--Dean Baker

Nice piece from the NYT about how private equity took Simmons Bedding Company down.

--Dean Baker

Unfortunately, Alan Greenspan is almost certainly right this time. But given his incredibly bad track record, is there any reason that his forecasts should be news at this point?

--Dean Baker

If the Washington Post starts regularly running pieces like this one, people might start taking it seriously.

--Dean Baker

It is if we believe the assertion in an NYT article that it has an underground economy equal to 30 percent of GDP. The CIA Factbook puts it per capita income at $32,000 a year on a purchasing power parity basis. If its underground economy is equal to 30 percent of GDP, then its true per capita income would be $41,600. This would put it about 6 percent above the $39,100 income reported for Canada.

--Dean Baker

The Washington Post did some serious editorializing in a piece on the prospects for a public health insurance plan being included in the health reform bill. It described the battle over a public option as "an ideological storm for Democrats."

How does the paper know that this is an issue of ideology? There are good reasons for believing that a public plan will reduce health care costs, including an analysis from the Congressional Budget Office and a report from Lewin Associates that was widely circulated by the Republicans.

If one group of representatives wants to go with a lower cost defense contractor than the one favored by another group of representatives would the Post describe this as "ideological storm?" There could be an issue of ideology here or could be the case that some people want lower cost health care while others want to support the insurance industry. The Post does not know which is the case and therefore should not be editorializing.

It goes beyond editorializing later in the article when it asserts that Republicans: "remain almost universally opposed to the proposal as a high-tax, government-run insurance plan." Is that so? What taxes are projected to be increased as a result of a public plan? The proposals all call for the plan to be paid for by the premiums paid by its beneficiaries. The Republicans might denounce the plan as being a "high-tax" plan just as they accuse President Obama of establishing death panels, but that does not mean it is the real reason that they oppose it.

This should have been reported by saying what the Republicans claim while providing readers with the additional information that the proposals for a public plan currently being debated do not call for tax increases to subsidize a public plan.

--Dean Baker

The folks at everyone's favorite politically connected basket case bank must be feeling left out after seeing a Washington Post piece noting the concentration of the banking industry and only mentioning the big three rather than the big four. As of March 2009, Citigroup had just under $1 trillion in risk adjusted assets according to data reported in the Federal Reserve Board's stress tests. This figure put it about 8 percent behind #3 Wells Fargo, but with more than twice the assets of Goldman Sachs, the fifth largest bank holding company by assets. For this reason, most measures of concentration usually focus on the big four, not just the three largest banks.

--Dean Baker

One of the big pieces of news in the September jobs report released by the Labor Department yesterday was that the Bureau of Labor Statistics' (BLS) preliminary benchmark revisions showed that job loss had been 824,000 greater through March of 2009 than had been previously reported. This is a really big deal. It means that job loss averaged almost 70,000 more than originally reported each month over the year from March 2008 to March 2009.

The monthly jobs numbers are based on a survey of 160,000 businesses and governmental agencies. While this is a large sample, it necessarily excludes newly created firms that cannot be included in the sample. This would lead the sample to have a downward bias in measuring job creation.

On the other side, there are a large number of firms that go out business each month. Many of them may not feel the need to send back their survey to the BLS as they clean out their office. The non-response by firms shutting down could lead to an upward bias in measuring job growth.

To correct for both these problems, the BLS includes an imputation every month for jobs created in new firms and jobs lost in firms that have gone out business. This imputation is based on a "birth/death" model that estimates the number of jobs missed by the survey based on recent economic growth and other variables. While the model produces reasonably reliable estimates in normal times, it has been notoriously bad in missing turning points, underestimating job growth during upturns and overestimating job growth during downturns.

Economists who follow the data closely noted that the monthly imputations from this model had been running at about the same level or even slightly higher during this downturn than in the corresponding months of the prior year. (The imputations are not seasonally adjusted so it is necessary to measure January against January, etc.) Since it was absurd to imagine that new firms were creating as many jobs in the six months when the economy was in a free fall (October, 2008-March, 2009) as in the corresponding months of the prior year, it was virtually certain that the imputation was leading to a substantial overstatement of job growth.

This suspicion has now been confirmed with the BLS benchmark revision. This revision is based on data from state unemployment insurance records. These data are almost a complete census of payroll employment since more than 99 percent of employees are covered by state unemployment insurance. As a result of the release of preliminary data on this benchmark revision, we now know that the job loss in this downturn has been far more severe than initially reported, unless of course we rely on the Washington Post for our news. (The final data, which will be incorporated into the establishment numbers in the January jobs report, always are close to the preliminary data.)

--Dean Baker

The Post reported on the rise in consumption spending in August and noted the rise in purchases of non-durable goods. It qualified the 1.0 percent reported increase, saying: "still, August is the peak of the back-to-school shopping season, and many states held sales-tax holidays to encourage consumers to spend -- another temporary government stimulus."

States have sales tax holidays every August. This would be factored into the seasonal adjustment that the Bureau of Economic Analysis applies to the data. The August sales data would only be boosted by these tax holidays if there were more this year or they were more generous than usual.

--Dean Baker