Can the Post get over silly name-calling. I am quite certain that the folks at Brookings rightly consider the place to be centrist. It certainly has its share of liberals, but it also boasts many conservatives on staff. The normal journalistic rule is defer to an organization's self-description, unless it has good reason to believe that it is inaccurate or misleading.

--Dean Baker

During the years when the housing bubble was growing to ever more dangerous levels the Washington Post could never find room for an oped piece warning of its dangers. There were so many more issues that were more important than an $8 trillion housing bubble.

However, just over three months ago the Post did find room for a piece telling readers that the economy was really just fine and that the people complaining were a bunch of whiners. In this proud tradition, the Post has an oped column today by Amity Schlaes that tells readers the best way to deal with the economic downturn is to cut the corporate income tax and virtually eliminate the capital gains tax.

--Dean Baker

The Washington Post completely missed the housing bubble on the way up. Its main expert on the housing market was David Lereah, the chief economist of the National Association of Realtors and the author of the 2005 bestseller, Why the Housing Boom Will Not Bust and How You Can Profit From It.

Remarkably, the Post still does not seem to have heard about the housing bubble. An article on the latest Case-Shiller data on house prices noted that the October index shows prices falling back to their 2004 level. The article blamed the decline on the recession. This would be like blaming the fall in the NASDAQ from its 5000 plus peak to its trough under 1200 on the recession in 2001.

Obviously the recession was a factor in the decline in the NASDAQ just as the current recession is accelerating the decline in house prices, but the main story is that the housing bubble is in the process of deflating. The inflation-adjusted level of the Case-Shiller index is still considerably higher than its mid-90s level, which implies that prices still have some way to fall before getting back in line with long-term trends.

--Dean Baker

The NYT was better than almost everyone else in occasionally noting the housing bubble on the way up, but it still is having difficulty coming to grips with the implications of its collapse. It told readers that the economy's prospects in 2009 will depend on the unlocking of credit.

Really? Do they expect consumption to rebound to its pre-crisis levels if credit is unfrozen? What theory of consumption do they have where spending is unaffected by the loss of $6 trillion in housing wealth and $8 trillion in stock market wealth. Every economic model I know predicts that this loss of wealth would lower annual consumption by between $480 billion and $740 billion (3.3 percent to 4.9 percent of GDP) even if the financial system was fully solvent.

If consumption would not return to its pre-crisis level, what would make up the gap? Does the NYT think that investment would soar if only the financial system were straightened out? The massive overbuilding in commercial real estate over the last few years makes such a boom especially unlikely. Furthermore investment is only 1/7th as large as consumption, which makes it almost impossible for higher investment to offset large declines in consumption.

Presumably, an end to the credit crunch will not cause foreigners to suddenly start buying our exports in huge quantities. Nor will it lead to a flood of spending by state and local governments.

In short, there is literally no coherent story that can be told under which ending the credit crunch will lead to a rebound in 2009. The economy will have to replace a huge amount of consumption spending (also lost spending on commercial construction) with spending by the federal government in the short-term and increased net exports in the longer term. The credit crunch is a side bar. In fact, given the destruction of wealth over the last two years, most economic models would predict that the economy is pretty much in its current state assuming no problems in the financial sector whatsoever.

--Dean Baker

The October data from the Case-Shiller index showed another sharp price decline, with prices in each of the 20 cities in the index falling from the prior month. However bad the picture appears, the current reality is likely somewhat worse.

It is important to remember that the index averages sale prices over the three months from September through November. Sales contracts are typically signed 6-8 weeks before sales are closed. This means that the contracts for the homes sold during this period were mostly written up in the months July through September. Most data show the economy turning sharply lower in September, which means that two of the three months in which the contracts in the October index were signed preceded the sharp downturn.

In other words, a more current picture of the housing market would likely show a much more rapid rate of decline. If the median contract in these data was signed in late August, then four months have since passed. If prices have dropped at a rate of 2-3 percent a month over this period, then house prices may already be 10 percent lower than indicated by the October data.

Btw, the WSJ deserves credit for calling attention to Boston and New York as over-valued markets where prices likely have a long way yet to fall.

--Dean Baker

The Knight Foundation, which focuses on improving the quality of journalism, is sponsoring a webinar next month that is supposed to bring reporters up to speed to deal with the economic crisis. The presenter at the webinar if Douglas Holtz-Eakin, formerly John McCain's top economic adviser.

Holtz-Eakin is a decent person and a good economist, but the fact is that he was caught completely by surprise by the crash of the housing bubble and the resulting financial and economic fallout. While he may be a good source for telling reporters how economists managed to get it wrong, it might be more helpful if the Knight Foundation could find an economist to lead its webinar who was not surprised by the greatest financial crisis since the Great Depression.

--Dean Baker

Addendum: I wrongly identified the Knight Foundation as the sponsor of this webinar. In fact, the sponsor is the Knight Center for Specialized Journalism, which is funded by the Knight Foundation.

The NYT told readers that "Mexico's Fiscal Prudence" is not protecting it from the world recession. The article repeatedly applauded Mexico's government for adhering to tight standards of fiscal discipline.

Economists usually don't view fiscal discipline as an end in itself. Such policies are supposed to lead to dividends in the form of more rapid growth. It is not evident that Mexico's policies have had this effect. In the fifteen years from 1993 to 2008 (using projections for 2008), the IMF's data show that Mexico's per capita GDP increased at average annual rate of 1.7 percent. By comparison, per capita growth in spendthrift Argentina over the same period averaged 2.2 percent.

While the policies of fiscal discipline advocated by proponents of the conventional wisdom may not have much positive impact on growth, they can get a country's growth reported in a far more positive way. For example, the Washington Post reported that Mexico's GDP increased nearly seven-fold from 1993 to 2005 (eventually corrected after much haranguing). Last December, in an editorial, the Post scaled the GDP growth claim back slightly to a still absurd "nearly quadrupled."

In short, the evidence suggests that following the conventional wisdom's view of "prudent" economic policies does not necessarily help growth, but it can have a very dramatic effect on the way a country's growth is reported, at least in news outlets like the Washington Post.

--Dean Baker

USA Today is worried that the economic slowdown may cause countries to impose higher tariff barriers on merchandise trade. But will it also lead professionals like doctors and lawyers to make it more difficult for foreign professionals from entering these fields. If so, this can cost the consumers tens of billions of dollars in higher prices for professional services and the economy tens of billions of dollars in lost output.

Will the downturn cause the government to devote increased resources towards cracking down on unauthorized copies of copyrighted material or unauthorized imports of prescription drugs? These protectionist policies can also raises costs to consumers by tens of billions of dollars.

USA Today is silent on these costly forms of protectionism, focusing only on the narrow category of merchandise trade.

--Dean Baker

Robert Samuelson devotes his column today to telling readers all the ways in which the conventional wisdom about the economy was wrong. As Samuelson puts it, "our ignorance is humbling." Yes, the experts' ignorance was striking.

But, it is also worth noting that some of us recognized that it was wrong five years ago. It should have been easy to see that it was wrong. It is great for people like Samuelson to document all the ways in which the experts did not have a clue, but the more important question is why the experts could not see what should have been very evident, most importantly an enormous housing bubble?

There are important sociological issues that must be addressed. How could "experts" get paid very high salaries for doing nothing more than unthinkingly repeating the conventional wisdom? Are these experts facing any consequences for their extraordinary and costly oversights?

Unfortunately, the answer to the latter question will almost always be "no." There is no cost to an expert for being wrong because he followed the conventional wisdom.

As every good economist knows, people, including economists, respond to incentives. If there is no cost to following the conventional wisdom and being wrong, then we should expect that economists and other experts will continue to follow the conventional wisdom rather than think for themselves.

This is a far more interesting and important concern than yet another restatement of the facts about how the experts did not have a clue in their area of supposed expertise.

--Dean Baker

The NYT, like many politicians around Washington, seems intent on scaring people about the prospect of the dollar falling. It has an article today on the potential harm from the government printing money and borrowing, which warns that the dollar could fall in the future as a result.

This article (which relies exclusively on economists who were somehow unable to recognize the $8 trillion housing bubble) wrongly asserts that the dollar could fall because the government is printing too much money. This is simply wrong.

The dollar is at risk of falling because the United States has a large trade deficit. This trade deficit in turn is the result of the fact that the dollar is high. A high dollar makes imports cheap for people in the United States and makes U.S. exports expensive for people living in other countries. Because the country cannot run trade deficits of 5-6 percent of GDP indefinitely ($750 billion to $900 billion annually, at current output levels), the dollar will be falling sharply at some point in the future as part of the correction process to this bloated deficit.

The exact mechanism is that foreign investors will be unwilling to buy the dollars that the trade deficit is supplying to the world, which will cause the price of the dollar to decline. This drop in the dollar is a necessary and desirable correction for our trade deficit and would take place whether the country was printing $10 trillion or whether it was printing no money.

By contrast, if the country had a large trade surplus and was printing huge amounts of money, then there is no reason that the dollar would fall. The trade surplus would mean that there was large demand for our goods and services at the current price of the dollar. In this context, the fact that we had printed huge amounts of money would not matter.

The NYT could have avoided this gigantic error if it had been familiar with the experiences of a small island nation in the Pacific called "Japan." Japan has printed vast amounts of money in an effort to boost its economy since the collapse of its stock and real estate bubbles in 1990. Japan's main concern has been about the value of its currency appreciating and its government has often taken steps to bring down the value of the yen.

As the experience of Japan clearly demonstrates, it is ridiculous to assert that a currency will fall in value simply because a country has printed lots of money. The value of the currency can fall without printing money and the value can rise even if it prints enormous amounts of money.

--Dean Baker

Apparently the edit board still has not heard about it. It has an editorial today about the failure of the "Hope for Homeowners" housing bailout.

At one point it argues that the main cause of foreclosure has shifted from mortgage resets to job loss. This is wrong, wrong, and wrong. The main cause of foreclosures is that people owe more than the value of their home because their home has fallen in value. If house prices had continued rising then neither a mortgage reset nor job loss would lead to foreclosure, since people could borrow against the equity in their home to meet their mortgage payments. With close to 20 percent of all mortgages underwater, it is virtually certain that there will be a large number of foreclosures over the next two years.

--Dean Baker

NPR presented an account of the growing economic crisis over the last year on Morning Edition. The account was presented entirely from a "who could have known" perspective that focused almost exclusively on the major financial crisis of the year.

Of course the downturn was entirely predictable based on the collapse of the housing bubble, even if the timing and the specific financial crises were not. The real economic story of 2008 was that almost the entire economic and political establishment were caught by surprise by events that should have been widely expected.

If economists were held accountable in their job performance in the same way as administrative assistants or dishwashers, they would be fired.

--Dean Baker

The NYT has an article today explaining how China's high dollar policy helped drive the housing bubble by keeping down mortgage interests in the United States. At several points the article says or implies the consequences of this policy could not be foreseen.

In fact, it was easy to see exactly what was going on and that this pattern of growth would end badly. However, the economists who were issuing such warnings were largely ignored by the media and political leaders. Rather than telling readers that nobody expected the sort of crisis the economy is now experiencing, the NYT should be examining why people in positions of responsibility could not see a problem that should have been obvious, even when it was brought to their attention.

It is also important to note that, contrary to assertions in this article, the United States does not have to persuade China to change its currency policy to get a lower value of the dollar against the yuan. The United States could unilaterally set an official exchange rate of the dollar against the yuan that is lower than the Chinese rate. For example, it could announce a policy that it will accept 5 yuan to the dollar, as opposed to the current rate of 6.84 yuan to the dollar supported by the Chinese government. This would lead to an immediate upward valuation of China's currency in world markets.

Also contrary to the assertion in the article, the United States has no need whatsoever for China to buy U.S. debt. It can have the Federal Reserve Board purchase the debt. In normal times this practice would raise the risk of inflation, but there is no risk of inflation in the current economic environment.

Furthermore, insofar as China's purchases of debt reduce the need for the Fed to effectively print money, these purchases are simply pushing the risks of inflation into the future. At some point, China will presumably not feel the need to subsidize U.S. consumption. At that point, it will stop buying U.S. Treasury bonds and might even sell its holdings. This would push down the value of the dollar, leading to higher import prices and higher inflation.

--Dean Baker

It's good work if you can get it. The Washington Post reports that Fannie Mae announced its new 10-person board of directors today. The article reports the members will get $160,000 each, with the chairperson getting $250,000. Heading a committee can get you an additional $25,000.

The remarkable part of this story is that the Washington Post reporter could not find a single person who thought that paying part-time workers $160,000 a year was a bad idea. There is absolutely no one cited in this piece who raised a question about the compensation levels for the board.

Keep in mind that this is a newspaper that is absolutely apoplectic over autoworkers getting $27 an hour. If we assume that the board members on average will devote 500 hours a year to their board duties, this puts their pay rate at $320 an hour.

If this board kept the mortgage giant from doing really stupid things, like taking on risky real estate loans in the middle of a housing bubble, then perhaps they would be worth this pay. But none of the new members were especially visible among those warning of the housing bubble, and several board members are carryovers from the prior board, which apparently slept through the housing bubble and Fannie's collapse.

Given the amount of ink that the Post has devoted to the question of whether autoworkers at the Big Three are overpaid, it is incredible that this issue was never even raised in this piece.

--Dean Baker

The data being reported for the holiday shopping season all show it to be one of the worst on record. I hate to throw in a sour note on Christmas, but the actual situation is probably somewhat worse than the data show.

Gift cards have become an increasing popular item in recent years. This is noteworthy because the gift cards themselves do not appear in standard reports of sales. The purchases show up when the gift cards are used, presumably mostly in January or February, or possibly even the end of this month.

By all reports, gift card purchases are down by double-digit amounts from last year's levels. That means fewer goods will be purchased in the immediate post-holiday period. So, there is more bad news on the horizon in the retail story.

--Dean Baker

Nicholas Kristof has a soft spot for people who want to get rich while helping the poor. He devoted his column to the question of whether people running charities should be very highly paid.

Part of his story is that such salaries are necessary to get good people. While I'm sure that there are good people who earn high salaries, I've never been fortunate enough to meet such a person.

But that point aside, there is a basic logical problem in Kristof's discussion. Let's assume that the population is prepared to commit a more or less fixed percentage of its income to charity. While in principle, this can be expanded, it is unlikely that even the most charismatic salesperson will have too much impact.

This means that the heroes of Kristof's world, the folks who get half million dollar salaries to run their charities, are not really increasing the take for the poor of the world in total. Rather, they are diverting money away from other charities to their own. While this is no doubt good for their pocketbook in the short-term and their resume in the longer term, it is not necessarily good for the poor.

If Kristof's heroes take a larger portion of their contributions in salary than their competitors, and use a larger portion for advertising than their competitors, then their main impact on the charitable world will be to divert money that might have otherwise gone to helping the poor to salaries and advertising. That's not a pretty picture in my book.

Of course if Kristof's stars really do increase the total take that goes to charity, then it would be a different story, but does he have any evidence that this is the case?

My guess is that the six-figure charity boys have pretty much the same impact as the seven, eight, and nine figure Wall Street boys. They are very effective at making themselves rich while destroying everything around them.

--Dean Baker

Well, you don't have to suppose. In the last three months, real wages did in fact rise at a 14.8 percent annual rate, and no one in the media noticed, or if they did, they didn't bother mentioning it.

The basic story is simple. Nominal wages have continued to grow at a modest 3.2 percent annual rate. Meanwhile prices have plunged, mostly importantly the price of oil. This implies rapidly rising real wages. That is very good news for the folks who still have a job.

Reporters should have been talking about the surge in real wages, but they seem to have largely missed it. Here's a column I wrote on the topic.

--Dean Baker

While the Washington Post's reporters apparently have many sources who believe that bailing out the auto industry is a bad idea and that autoworkers earning $57,000 a year are overpaid, none of their sources seem to think that handing taxpayer dollars to bankers earning tens of millions annually is a bad idea.

As it turns out, the same incompetent bankers who made loans in a bubble-inflated residential real estate market also made loans in a bubble-inflated commercial real estate market. And, the Post tells us that the bankers want the government's help with these loans also.

The Post found space to allow Lisa Pendergast, the managing director of commercial real estate finance at RBS Greenwich Capital Markets, to tell readers that: "It won't help the economy if commercial real estate continues to fall like residential. ....Then ultimately it will cause the recession to lengthen and deepen."

The Post did not find the space to allow an economist not connected with the financial industry to inform readers that it would be a good thing if bubble-inflated commercial real estate markets deflated, just as is the case with bubble-inflated residential real estate markets. There is no public interest in perpetuating these bubbles. It will simply prolong the adjustment process and cause more people to lose money on bubble-inflated properties.

The Post also did not find the space to allow any economists or political figures to complain about using taxpayer dollars to aid bank executives, some of the richest people in the country.

--Dean Baker

The Washington Post had a front page article decrying the growth of protectionism today, but somehow managed to overlook the huge subsidies to the U.S. financial industry recently given by Congress and the Fed. The $700 billion in below market loans are a huge subsidy to the U.S. financial industry in the same way that government loans at below market rates would be a subsidy to the U.S. auto or steel industry. In addition, the government is granting guarantees of bank and money market deposits at no cost to the financial institutions who are benefiting.

These massive subsidies both help to sustain a bloated and inefficient financial sector in the United States and drain funds away from countries that don't provide subsidies of similar value to their own financial sector. (Most developing countries lack the ability to provide similar subsidies.)

Any article reporting on growing protectionism should have prominently mentioned the bank bailout since it is the most blatant example on the world stage at the moment. In addition to overlooking the bank bailout, the article also used the term "free trade" to describe the recent trade agenda of selective protectionism in which workers without college degrees are subjected to foreign competition, while the most highly educated professionals remain largely protected.

--Dean Baker

A lengthy business section article in the Washington Post noted the failure of past efforts to restrict executive compensation. It then implied that it is inherently impossible to effectively restrict executive compensation.

An important piece of evidence (not mentioned in the article) suggesting otherwise is that companies outside of the United States seem to have no difficulty attracting highly qualified executives even though their pay is generally an order of magnitude lower than in the United States. This fact suggests that the problem is unique to the institutions of the United States, rather than anything that is intrinsic to the market for top executives.

While it is possible that efforts to limit executive compensation failed because it is intrinsically difficult to limit executive compensation, it is also possible that these efforts failed because the politicians who designed them did not really want to crack down on executive compensation. While high CEO pay packages are very unpopular politically, top executives are important sources of campaign contributions and political support for politicians.

Therefore, it would be very reasonable for politicians to design measures that have no actual impact on executive compensation, even though this is their stated purpose. This strategy is especially attractive if the media don't point out that the measures will be ineffective, so that the public is unaware of the charade.

This is exactly what happened with the restrictions on executive compensation that were put into the recent bank bailout bill. As is now widely acknowledged, the restrictions on executive pay will likely have no impact whatsoever. While some economists did point this out before the bill passed, this fact received almost no attention in the media.

If Congress actually wanted to limit executive pay, there are some simple methods to do it. For example, it could require that the pay packages for the five highest paid executives be subject to a binding vote by shareholders at regular intervals, in an election where ballots that are not returned are not counted. By changing the rules of corporate governance in a way that gives more power to shareholders, Congress can make it far more difficult for top executives to pillage the companies they work for.

In the context of the current bailouts, Congress could make demands that executives have pay parity with their foreign competitors, just as President Bush just demanded of the auto workers.

It is actually very easy to find effective ways to limit executive compensation. The problem is simply one of political will. The Post is badly misleading its readers with this article that implies otherwise.

--Dean Baker

That is the only possible explanation for this strong assertion in an unsigned front page piece:

"The boldness of the economic rescue is already straining the government's finances."

The piece never presents any evidence for the claim that the government's finances are being strained. Economists would usually look for high interest rates on government bonds as evidence for such strain, the argument being that excessive borrowing is causing lenders to view the U.S. government as a questionable credit risk.

In fact, the evidence here suggests the opposite. The short-term rates on Treasury debt are near zero. The 10-year Treasury rate is just over 2.0 percent, the lowest in more than fifty years. So, there is no obvious real world support for the Post's claim.

Of course the Post has editorialized against deficits for decades and its ed board has been on a near religious crusade to cut Social Security, so it would not be surprising to see them oppose a large stimulus package no matter how urgent the economic need. It is however somewhat surprising to see them editorializing on the front page in this way.

--Dean Baker

That's right, the headline of an NYT article tells us that, "White House Philosophy Stoked Mortgage Bonfire." Was it their philosophy? How about as an alternative hypothesis that many Republican contributors in the financial sector were making a fortune on garbage mortgages?

The article is actually reasonably good in making this point, but the headline writer certainly deserves some grief. The point, for the 946,326th time is that people get elected to office by currying the favor of powerful interest groups. They don't get elected for their excellence as political philosophers. Reporters and headline writers should know this.

The article also includes the remarkable revelation that people in the Bush administration first noted the soaring sale price to rent ratio in March of 2007 (okay, some did note it sooner). While this discovery is attributed to someone who is described as a 29 year-old "whiz kid," this is about the most basic statistic that one can use to examine house prices. Any analyst of house prices who was not familiar with this ratio should have been fired instantly for an ungodly level of incompetence.

--Dean Baker

The Washington Post is very happy that conditions of the auto bailout are forcing the United Auto Workers to make further concessions. They devoted two news articles (one on the front page, the other on the front of the business section) and the lead editorial to the topic.

The front page article carried the headline: "UAW's Sacrifices Look to Some Like Surrender." The article included numerous comments touting the pact as a historic defeat for the union.

It also asserted that by eliminating the difference in compensation between union and non-union plants, the bailout "would render moot the union's fundamental purpose, some industry analysts and labor experts said." Actually, none of the labor experts cited in this article were identified as saying this.

Labor experts would know that non-union workers can be fired at any time the employer chooses to fire them. By contrast, the union protects workers from arbitrary dismissals. Labor experts know that job security is very important for people who depend on their job for their income, so it is unlikely that any labor expert would have said that there was no reason for a union to exist if it could not produce gains in compensation.

The business section article also touted the impact that the bailout conditions would have on the UAW, as demonstrated most clearly by the headline of the page 3 jump "With bailout, Downsizing Could Hasten the Demise of the UAW."

The Post editorial, after deploring the fact that bailout money was diverted from Wall Street to the real economy, celebrated the pay cuts that the bailout would impose on UAW workers. For some reason, the Post attaches enormous importance to reducing the pay of auto workers who earn $28 an hour. It shows no comparable concern for reducing the pay of auto industry executives to parity with their foreign competitors. (The top executives at Toyota, Honda, and other successful companies get paid in the neighborhood of $1-2 million a year. Unlike their U.S. counterparts, they don't get paychecks in the tens of millions of dollars even in the best years.) The Post has allso never felt the need to insist on large pay cuts for Wall Street executives even though their banks are now wards of the state.

--Dean Baker

Addendum: I neglected to check the Post's arithmetic in this editorial: big mistake. The Post told readers that pushing UAW workers to parity with workers at the transplants would save $800 a car.

Let's check that one. GM has around 80,000 UAW workers. (It may actually be closer to 75,000 these days.) These workers get average compensation of roughly $100k a year, for a total UAW wage bill of $8 billion. GM is currently selling 3 million cars a year, which translates into a UAW wage bill of $2,700 per car. Bringing UAW workers to parity with the transplants implies a cut of 10 percent, which comes to $270 a car. So, the WAPO's $800 number is off by a factor of close to 3.

In an NYT article discussing the latest data on weekly unemployment claims, Ian Shepherdson, United States economist of High Frequency Economics, is quoting as pointing out that the near record level of unemployment claims are actually not near records when taken as a percentage of the workforce.

While this is true, it is also important to note that a much smaller share of the unemployed now qualify for benefits than in the 70s or early 80s. Back then, more than 40 percent of the unemployed typically qualified for benefits. Currently, it is close to 35 percent. This does not offset the 40-50 percent increase in the workforce from this period, but declining rates of eligibility must be noted in such comparisons.

--Dean Baker

The Wall Street Journal is anxious to tell readers that Ron Kirk, President Obama's pick for trade representative, is a "free trader." That is not true.

Mr. Kirk has never gone on record attacking the professional and licensing barriers that keep the pay of doctors, lawyers, and other highly educated professionals far above world levels. The excess fees that people in the United States pay because of this protectionism cost consumers hundreds of billions of dollars a year.

While Mr. Kirk has been an advocate of reducing barriers that protect less-educated workers, he has no objections to protectionist barriers that protect the most highly paid workers. It is inaccurate to call him a free trader.

--Dean Baker

The Fed doesn't like to ever say that it is deliberately throwing people out of work, nor do economists who support the Fed's actions when it deliberately throws people out of work. Therefore they talk about a trade-off between "growth" and inflation, not unemployment and inflation.

The Washington Post is helping to conceal the Fed's actions today in an article where it refers to the view of Greenspan and other Fed members in the 90s that the economy could grow more rapidly without triggering inflation. In fact, the debate was over how low the unemployment rate could fall before inflation began to accelerate. The conventional view at the time was that "non-accelerating inflation rate of unemployment" or NAIRU was near 6.0 percent. The unemployment rate eventually fell to a year-round average of 4.0 percent without any substantial uptick in the inflation rate.

It is important to note that the conventional economic theory is called the non-accelerating inflation rate of "unemployment," not the non-accelerating inflation rate of "growth."

--Dean Baker

The NYT reports that Chrysler dealers complain that they lose 20 to 25 percent of their customers because potential buyers can't get car loans. How many customers does Chrysler lose because people don't have enough money to buy a new car?

It would be helpful if the NYT tried to explore what this claim means. Tens of millions of people are far less creditworthy today than they were a year ago because they have no equity in their home or other financial asset of obvious value. Banks will rationally charge much higher interest rates on loans to people without home equity or other financial assets, therefore it is not clear whether Chrysler's problem stems from issues with the financial system or is simply a result of the fact that the country is much poorer today than it was a year ago.

--Dean Baker

I hate to be rude, but after seeing endless new stories repeat the inaccurate claim that the compensation of UAW members is $70 an hour, it is striking that a news story on the closing of Washington news bureaus never discusses reporters' pay. If workers are losing their job, wouldn't the normal assumption be that their pay is higher than the market will bear? That is certainly how the loss of jobs in the auto industry and other manufacturing sectors is treated. Why is it different for journalists?

--Dean Baker

I don't want to get too technical, but what exactly does the Post mean when it tells readers about Congressional plans to help "distressed borrowers facing foreclosures, which are at the root of the financial meltdown."

Of course banks have taken large losses on foreclosures, but they would also take large losses under almost any conceivable plan to slow foreclosures. Some of the proposals would have the government pick up a portion of their losses, but I don't know anyone other than John McCain who thinks that the taxpayers have an obligation to protect the banks from their incompetence and make up their losses.

The root of the financial meltdown is the collapse of the housing bubble which has led to a situation in which tens of millions of homes are now, or soon will be, worth considerably less than the amount owed on mortgages. The resulting losses to banks can come from foreclosures, but it can also come through partial write-down or short sales.

This article also tells readers that the rules in the bill approved by Congress last summer are preventing re-negotiations in markets with rapidly falling prices, because the government will only guarantee 96.5 percent of a new loan, not 100 percent. It's not clear why this should be a problem.

Why would the government want to use taxpayer dollars to guarantee a new mortgage in markets where house prices are falling. This will lead to a situation in which the homeowner will again find themselves underwater. They will likely make a short sale when they move, getting a strike on their credit record and ending up with no money in their pocket. In addition, during the years that these homeowners are in their homes, they would almost certainly be paying far more on their mortgages than they would have to rent a comparable unit.

In other words, if the government's policy on mortgage is preventing homeowners from taking out new loans in markets with rapidly falling prices, then it is probably a good policy. It is avoiding a waste of taxpayer dollars that would only aid banks, not homeowners.

--Dean Baker

Okay, someone has to take responsibility for educating the Washington Post’s columnists. Mr. Samuelson is making the case that the rich don’t have excessive power in the United States, because if they did, they would pay lower taxes.

While many rich people are in fact working quite hard to lower their tax burden (with considerable success), most of their benefits from government actually come on the before tax side of the equation. This should be especially obvious now, when the government is backing up trillions of dollars of questionable debt incurred by the wizards of Wall Street.

This is the story whereby Henry Paulson (in his Goldman Sachs days), Robert Rubin and other Wall Street luminaries made hundreds of millions of dollars trading on a free government insurance policy known as “too big to fail.” These brave wizards of finance were able to get others to risk money with their banks because their investors rightly believed that the government would step in if the banks messed up too badly.

The financial shenanigans, that made so many of our richest people rich, would not have been possible without this free insurance policy from the government. Anyone doubting this should ask how many people would have invested with Goldman Sachs and Citigroup if they were told that there was an ironclad commitment from the government to let these institutions fail if they got into trouble?

Of course even wealthy people outside of the financial sector generally can trace their fortune to the hand of government. Bill Gates is one of the richest people in the world because the government gives him a monopoly on Windows. It will arrest anyone who sells the product without his permission. The patent protection that makes the pharmaceutical companies hugely profitable is also a gift from the government.

Copyrights and patents do serve a useful purpose beyond just making some people very rich, but where is the analysis that shows that these government granted monopolies are the most efficient mechanisms for supporting creative work and innovation? In fact, such analysis does not exist.

There are many other ways in which the government structures the market to redistribute income upward. Read my non-copyright protected book, The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer to get more of the picture.

The basic story is that the government’s tax and spending policy is just a small part of the distributional picture. Samuelson is wasting his readers’ time when he implies that they are the whole story.

--Dean Baker

Contrary to the headline of the USA Today article, industrial production did not really fall "less than expected." There are two rules that must always be remembered when looking at the Fed's monthly data on industrial production.

First, skip the overall number and go directly to manufacturing production. Changes in the overall number are often driven largely by utilities. Output at utilities primarily provides information about the weather, not the state of the economy.

The second rule is to look at the revisions. There are often large revisions to prior months' data. A large fall from an upward revision can leave us in a much better place than a small fall from a downward revision. If the new information in the report is that things were much worse last month than we had thought, we have limited grounds to celebrate when we say that they have not worsened too much further in the current month.

The data show that November's manufacturing output is down 1.4 percent from October's level, which was in turn revised down by 0.5 percent from the previously reported level. Over the last three months, manufacturing output has fallen at a 17.8 percent annual rate. That is not good news.

--Dean Baker

Post readers may ask that question given that the Post told them that: "Congress wanted to guarantee that the $700 billion financial bailout would limit the eye-popping pay of Wall Street executives."

The rest of the article explains how the bailout legislation, as approved by Congress, is not likely to impose any serious limits on executive pay. So, Congress was apparently unable to do what it wanted.

This is striking because most members of Congress are not morons. Congress is usually capable of passing legislation that does what it wants. For example, when they have wanted to fund the war in Iraq, they have been able to pass legislation that actually funds the war in Iraq. When they wanted to cut taxes for the wealthy, Congress was able to pass legislation that actually cut taxes on the wealthy. Why did Congress find it so difficult to pass legislation to limit executive compensation on Wall Street, if that is what it really wanted to do?

Let me suggest an alternative hypothesis. Perhaps Congress really did not want to cut executive compensation on Wall Street. After all, word has it that members of Congress gets lots of campaign contributions from very high paid Wall Street executives.

Of course, giving taxpayer dollars to the richest people in the country is not very popular with ordinary taxpayers. So, it might be in the interest of members of Congress to appear to be trying to rein in executive compensation on Wall Street, even if this is not their real intention. In other words, the restrictions of executive compensation put in the bailout bill were just a charade for the kids.

Is my explanation correct? I have no idea, but of course the Post has no idea either of what Congress really "wanted," so why is it trying to tell readers what Congress wanted in the very first sentence of a front page news article.

--Dean Baker

The NYT is bothered by the fact that the explanation for the decision not to bail out Lehman Brothers has changed over time. Originally the story was that the Fed thought the markets could withstand a Lehman failure. More recently the story is that the Fed lacked the legal authority to bail out Lehman. These are different explanations.

It's nice to see them bring attention to this point.

--Dean Baker

The Washington Post Outlook section, which just three months ago told us the economy was doing great, features another gem today. James P. Moore Jr. gives us five "myths" about the U.S. economy.

Among the myths that Mr. Moore refutes is the claim that the U.S. is about to be eclipsed by China. He tells us that China's GDP is just a bit more than $3 trillion, while U.S. GDP is over $14 trillion. While this is an exchange rate measure, a purchasing power parity (PPP) measure, which applies the same set of prices to the output of both countries, puts China's GDP at $7.1 trillion.

Even this measure could be an understatement. The World Bank's old PPP measure would put China's GDP at more than $10 trillion presently. One reason to be suspicious of the new measure is that if apply the IMF's growth figures to the current measure, it implies that China was poorer than almost every country in Sub Saharan Africa in 1980. That one seems unlikely.

Mr. Moore also tells us that the U.S. still leads the world in manufacturing in part because of its dominance in pharmaceutical manufacturing. The U.S. is arguably the world leader in pharmaceutical research, but there is not much value added in the process of manufacturing pharmaceuticals.

Mr. Moore also told readers that "the United States attracted more than $2 trillion worth of foreign direct investment last year." You could probably only get this fact in the Washington Post, since the Bureau of Economic Analysis puts the amount of foreign direct investment last year at $237.5 billion. So what if they're off by an order of magnitude.

Finally, Mr. Moore tells readers that the United States is still the engine of world growth because of its enormous trade deficit. Yes, and Iceland was pulling far more than its weight until recently because of its trade deficit. I'm not sure that this should make anyone feel good.

--Dean Baker

Steven Pearlstein raised this question in his column last week. He argued that if one of the top executives of a major bank had warned that things were getting crazy in financial markets back in 2004-2006 then it could have brought the madness to an early end. This is certainly possible. I have long argued that if Greenspan had been doing his job, he would followed the course suggested by Pearlstein, using the even bigger pulpit offered by the Federal Reserve Board.

Like Pearlstein, I would have liked to see the Wall Street execs do something for their paychecks, but I am less confident than him about the responses that an exec blowing the whistle would have received. I can say for certain that almost without exception, business journalists did not want to hear such arguments in these years nor did powerful members of Congress. The oped pages of publications like the Washington Post were not open to these arguments and the editorial boards of these papers did not want to discuss the possibility that we had a huge housing bubble.

Now, it is certainly possible that if these arguments came from a Robert Rubin or Henry Paulson (in his Goldman Sachs CEO incarnation) they would have been more willing to listen than when they were just presented by a random economist. However, there was a huge prejudice in these institutions against questioning the conventional wisdom.

One of the key lessons of this economic crisis should be that there is a remarkable lack of capacity for independent thinking in our most important institutions: government (both the executive and legislative branches), business, the media, and academia. It is possible that an important authority figure could force a re-examination of deeply held views of the world, but we all must recognize that there is a huge amount of dogma to overcome.

--Dean Baker

Anyone was wondering why the bank bailouts seem more designed to help Wall Street than the economy should read this piece.

--Dean Baker

Yes, it can be done. The NYT headline read, "Goldman, Once Warning Of $200 Oil, Sees $45 In 2009."

This is exactly what the media should be doing when they present forecasts from various experts. For example, when they share the views of people like Alan Greenspan on the economy, they can preface them with a comment like, "Alan Greenspan, who insisted there was no housing bubble." In fact, the media should preface the predictions of almost all their economic experts with this comment.

With some experts this assertion would be especially important information. For example, predictions from Frederick Mishkin, a New York University professor and a former governor of the Federal Reserve Board, should carry the preface "who recently praised Iceland's economy for its effective inflation targeting." Statements from Frank Nodthrift, the former chief economist with Freddie Mac, should include the phrase, "who asserted that house prices never fall."

Reporters should be familiar with the track record of the experts they rely upon and they should share this information with the public.

--Dean Baker

Yet again the NYT repeated misinformation about an effort by Congress to hand more money to rich people. Under current law, people must withdraw money from retirement accounts at a set rate after they reach the age of 70. The idea is that this money will be taxed before they die.

Wealthy people, who don't need this money to maintain their living standard, would rather leave the money in their account, and never have it taxed before it is passed on to their heirs. In order to increase the money that they can pass on to their heirs, they invented a story about how current rules will create a great injustice given the plunge in the market.

The argument goes that retirees will be required to sell their stock at a loss in order to meet the withdrawal requirements. This claim is not true for the overwhelming majority of retirees, and in fact may not be true for a single retiree. The reason is that no one keeps all their money in stock. That means that almost anyone being forced to make a withdrawal by this rule could do it by relying on the portion of their account held in money market market funds or bonds.

In short, this is just a lobbyist's invention to reduce the tax burden on the wealthy even further. The media should be exposing this misrepresentation not repeating it.

--Dean Baker

USA Today tells us that James Lockhart, the head of the agency that oversees Fannie Mae and Freddie Mac, thinks that the Fed could push mortgage interest rates below 4.0 percent in order to boost home sales.

Wow, what a fantastic idea!!!! Maybe, the Fed can even push mortgage rates down to 3.0 percent, that should really provide a boost to the housing market.

If USA Today had talked to anyone who knows any economics, this person would have told them how ungodly stupid this plan is. We will not have 3.0 percent or even 4.0 percent mortgage rates forever. At some point, the economy will recover and we will see mortgage rates in a more normal 6.5 to 7.5 percent range. If these extraordinarily low rates helped to support prices now, then we should expect a subsequent collapse in prices when rates return to more normal levels.

To put numbers here, let's assume that pushing mortgage rates down below 4.0 percent will raise prices to a level that is 15 percent higher than when rates are at more normal levels. That means that a person paying $200k for the median house can expect to see a loss of $30,000 when she sells it five years later in a more normal interest rate environment.

For most families, $30,000 will be a very large chunk of their accumulated wealth. In other words, this would be a really big hit. Unfortunately, USA Today readers will for the most part not know about this side of the story because the paper only saw fit to present Mr. Lockhart's plan, not the views of anyone who considered the consequences of this proposal.

--Dean Baker

Okay, quick quiz time. Family A has an income of $80,000 and owes $20,000 in credit card debt. It also has $100,000 in equity on its home. Family B has an income of $80,000 and owes $20,000 in credit card debt. It is $50,000 underwater in its mortgage. Which family is more likely to default on its credit card debt?

Apparently the WSJ doesn't see a distinction between the situation of Family A and Family B. In a discussion of rising delinquency rates on credit card debt it never once mentioned the loss in home equity due to the collapse of the housing bubble.

The WSJ largely missed the $8 trillion housing bubble as it grew and apparently still cannot see it even as its collapse throws the economy into the worst downturn since the Great Depression.

--Dean Baker

The NYT reported that Barney Frank, the chair of the House Financial Services Committee, complained about the conduct of the bank bailout that “the anecdotal evidence is still overwhelming that there are people who think they are good borrowers who can’t get loans.”

It would have been appropriate to note that the data appears to contradict Mr. Frank's anecdotal evidence. There has been no surge in the number of mortgages applications over last few months. (They did jump last week in response to lower interest rates.) If people felt that they were creditworthy, but were being turned down anyhow, then they should be a sharp rise in the number of mortgage applications relative to house sales. Since this has not taken place, it seems that Mr. Frank is wrong in his assertion.

The NYT could have better informed its readers by calling attention to this fact.

--Dean Baker

NPR told listeners to Morning Edition that Congressional Republicans were "bailout weary," and therefore may oppose the bailout of the auto industry. Not many Republicans have indicated that they intend to oppose any further bailout money be authorized under TARP.

It's certainly not obvious that they are weary of bailouts in general. It just seems that they are not anxious to help the auto industry.

--Dean Baker

Workers do not currently have the right to a secret ballot in elections deciding whether or not they will have a union. The employer has the option to recognize a union based on card check (a majority of workers sign a card indicating their desire to join a union) or to demand an election certified by the National Labor Relations Board. The Employee Free Choice Act that will be considered by Congress in the next session gives this choice to workers.

Under the legislation, workers could organize by card check, but they can also petition to have an election overseen by the NLRB. Therefore it is incorrect for the Post to assert that the bill's "intent [is] to eliminate secret ballots in union elections."

--Dean Baker

Losing 533,000 jobs is really really awful. The economy is in a free fall. Unfortunately, the situation is probably even worse than the data now show.

The reason is that the Bureau of Labor Statistics (BLS) imputes jobs into its survey for new firms that could not included in its sample. This imputation is based on its "birth/death" model which is inevitably backward looking. As a result, it misses turning points, underestimating job growth when the economy speeds up and overestimating job growth (or underestimating job loss) when the economy slows.

The BLS imputed 143,000 jobs into the establishment data over the last three months based on its birth/death model. In the three months from September to November of last year BLS imputed just 117,000 jobs into the establishment data.

It is inconceivable that job growth in new firms over the last three months was larger this year than in the same months of 2007. When BLS revises these data based next summer based on data from unemployment insurance records, it is virtually certain that November will show even more job loss than was reported today.

In short, as bad as the picture looks now, the reality is almost certainly worse. (Btw, reporters who cover the employment data should know about the birth/death imputations.)

--Dean Baker

A bankrupt company that was losing money, shuts down and lays off its workers. That sucks for the workers. The immediate culprit is the recession created by the collapse of the housing bubble. So why does the WSJ tell its readers that the workers are the victims of the "credit crunch?"

What is their evidence that the problem is a credit crunch? How often do banks lend money in a steep downturn to a business that is losing money?

The WSJ is just making this up. The problem was that the WSJ and other media outlets largely ignored the growth of an $8 trillion housing bubble, by far the most important economic phenomenon on the decade. Now that it has burst and sent consumption plummeting, they are blaming the economic collapse on a "credit crunch" instead of the more obvious problem that consumers just lost $6 trillion of housing wealth and another $8 trillion of stock wealth.

Maybe someone should finally share the secret of the housing bubble with the WSJ.

--Dean Baker

The Treasury Department is apparently considering a plan to push mortgage interest rates down to 4.5 percent as a way to boost the housing market. Is this a good idea?

The Post talked to a former Fannie Mae executive and a housing analyst, but no one who was competent enough to notice an $8 trillion housing bubble before it burst. Had they gotten a more diverse range of viewpoints, they might have found someone who told them that propping up the housing market with a temporarily low mortgage interest rate may not be very clever policy. Of course some folks didn't think that pay option ARMs were a good idea.

[The WSJ also couldn't find anyone who was capable of seeing an $8 trillion housing bubble.]

--Dean Baker

The U.S. auto industry is on life-support and the Post knows who the culprits are: the unions. It told readers that: "over the past three decades, they have lost ground to more agile foreign rivals that favored smaller cars built by non-unionized labor at lower wages."

Actually, many of these cars were built in unionized factories in Japan, South Korea, and Germany. Unions didn't keep foreign manufacturers from producing high-quality popular cars in these countries. Even when these companies set up shop in the U.S. they have been able to work well with unions. Toyota operated a plant in California where the workers were represented by the UAW for decades (it may still be open).

There may have been problems with the way the Big Three management dealt with unions, but other car companies have been able to operate very effectively with a unionized workforce.

--Dean Baker

The Washington Post decided to do he said/she said reporting on health care rather than inform its readers. It told readers that Senator Max Baucus, the chair of the finance committee, wants to push for health care reform, even though it will initially cost money. It then comments that his Republican counterpart, Senator Charles Grassley, says that the government doesn't have this money.

In fact, the government is planning a large-scale stimulus package where it is looking for areas in which it can usefully spend money. If health care reform would require an initial increase in spending, before subsequent savings could be achieved, then it would be an obvious target for the stimulus. The Post should have noted that Grassley's claim about the lack of money for such an investment is contradicted by the vast majority of economists from both political parties.

--Dean Baker

The NYT article on the decision of the National Bureau of Economic Research to officially label the downturn a recession included a set of charts comparing the current recession to the last five.

One of the charts shows the year over year change in house prices. These numbers are given in nominal terms, which leads readers to believe that house prices had continued to rise in prior recessions. If the price changes had been adjusted for inflation, then house prices would have dipped in the recession in 1980, 1981-1982, and 1990-1991.

--Dean Baker

The fraternity ritual of using totally meaningless numbers in budget stories is really running wild. Today the NYT discussed the stimulus package that Congress is considering for next year and never bothered to tell readers that the $400-$500 billion cost would be over the next two years.

Maybe NYT readers all knew that the spending would take place over two years, but I doubt this is the case. Of course, even if they did know that the spending would be over two years, it's unlikely that they really have a sense of how large this spending is relative to the budget or the economy. (The proposed package would be equal to between 7-8 percent of projected spending and 1.3-1.7 percent of GDP.)

It is really simple to express budget numbers in ways that are meaningful to readers. There is no excuse for not taking the 30 second necessary to do it.

[The Post is no better.]

--Dean Baker