Everyone knows that it can be difficult to get by on your own in the modern global economy. Sometimes people need a helping hand from the government. According to the Wall Street Journal, that seems to have been the case lately with Lehman Brothers, the sickest of the major remaining investment banks.

The article reports that the Fed investigated a rumor that Credit Suisse had pulled a line of credit from Lehman. When it determined that the rumor was false, the Fed quietly spread the word so that Lehman stock price and standing with other creditors would not be hurt.

That was very nice of the Fed, but they don't provide this negative rumor correction service to most businesses. How many family restaurants would love to have the government put out the notice that the rumors of customers having gotten sick is not true?

The fact is that most businesses are forced to surf the tide, benefiting from positive news and suffering from negative accounts, whether accurate or not. That is why it is so generous of Ben Bernanke's Fed to provide this negative rumor correction service for Lehman.

The article should have made clear that Lehman is benefiting from this extraordinary form of government welfare. There may be a public interest in keeping Lehman afloat, but it is also reasonable for the public to demand some sort of quid pro quo for such generous assistance for private firms. For example, it could insist that no executives at Lehman receive more than $2 million a year in compensation. If the people running Lehman object to such conditions they would always have the option of dealing with negative rumors themselves, and lose access to the Fed's discount window and also any implicit commitment from the Fed to protect its creditors in the event of bankruptcy.

Anyhow, the news reports should clearly identify major government interventions on behalf of private firms so that the public understands what it is at stake.

--Dean Baker

A reader of the NYT Magazine piece on Senator Obama's economic views would inevitably ask this question. The article is anxious to tell readers that the enormous growth in inequality over the last two decades has been due to the increased value that technology has placed on skills.

How can anyone who reads the newspaper believe anything like this? The CEOs of companies like Fannie Mae, Freddie Mac, Citigroup, Wachovia and other major financial institutions have shown themselves to be almost completely without skills, having cost their companies hundreds of billions of dollars of market capitalization, yet they were paid hundreds of millions of dollars for their work. If this reflects pay for skill, it is not obvious how.

Most workers have seen downward pressure on their wages over the last three decades because U.S. trade policy has been explicitly designed to put them in direct competition with low-paid workers in the developing workers. By contrast, more highly educated workers, like New York Times reporters, still enjoy considerable protection from competition with workers in the developing world.

It would be illegal for the New York Times, or any other newspaper, to hire two hundred highly qualified Indian reporters who would be willing to work for a fraction of the pay of their current reporters. If any newspaper did pursue this policy, it would almost certainly face serious fines and would almost certainly be forced to either pay the prevailing wage or fire the foreign workers.

By contrast, tens of thousands of restaurants, construction companies, cleaning companies and other employers of less-educated workers routinely hire undocumented workers at wages far below what native-born workers or green card holders would demand to do the same work. These employers generally have little fear of legal sanctions.

It is convenient for those who have benefited from the upward redistribution over the last three decades to believe that it was the natural result of the development of technology. However, this view requires ignoring all the obvious ways in which the government has structured the law to redistribute income upward. The NYT misrepresents the world and misleads its readers by presenting this view in an uncritical manner.

--Dean Baker

The Washington Post should keep that in mind when it reports on inflation. An article on the 1.2 percent jump in producer prices reported for July included a quote from a strategist at J.P. Morgan Private Bank claiming that a slowdown is needed to keep inflation in check.

It is not clear that slower growth is the best remedy for inflation at the moment. The main causes of higher inflation are rising world commodity prices, due to increased demand from China and other developing countries, and higher import prices due to the fall in the dollar.

It is not obvious that an economic slowdown in the United States will do much to counter either factor. Even if demand falls off in the United States, increased demand elsewhere in the world will continue to put upward pressure on the price of oil and other commodities. The falling dollar is a correction from its prior over-valuation which led to the country's massive trade deficit. An economic slowdown will not reverse the dollar's decline.

It would have been helpful if this article included the views of an expert who did not work for a bank, who could have presented these arguments to readers.

--Dean Baker

The NYT has a nice piece on the marketing campaign for two vaccines against cervical cancer that has led to the rapid spread in use of the new vaccine. Cervical cancer is relatively rare in the United States, and usually not fatal. Furthermore, the longterm effectiveness of the vaccine is not yet known, nor are its potential side-effects fully understood. Nonetheless, through a successful marketing campaign that has involved heavily lobbying of state officials and even using the location of research facilities as a marketing tool, Merck and GlaxoSmithKline have gotten the vaccine widely accepted. Some states even mandated it for school girls.

This is the sort of corruption that economists predict result from relying on patent rents to finance research instead of more efficient mechanisms.

--Dean Baker

There has been an enormous rise in wage inequality over the last three decades. Most economists attribute this increase in inequality to the increased premium that highly valued skills can command in a globalized economy.

Fannie Mae (along with the rest of the financial sector) is working hard to prove these economists wrong. Daniel Mudd, the CEO of Fannie Mae, has earned tens of millions of dollars in this position over the last three years. In exchange for this extraordinary compensation, more than 1000 times what a minimum wage earner pulls down, Mr. Mudd pushed Fannie in bankruptcy. How many minimum wage earners could do that?

The Post gives an inside look at some of Mr. Mudd's incompetence, although it covers up his ineptitude by wrongly describing the decline in house prices. The article reports that Fannie Mae performed stress tests on its portfolio of subprime mortgages and concluded that it faced little risk.

According to the article, the stress tests assumed that house prices would fall by 5 percent for two years. It then asserts that: "the deterioration in home prices has not been as extreme as the hypothetical "stress test" scenario." This is not true, according to the Case-Shiller index, house prices fell by 16.2 percent in the one and three quarters years since prices peaked in the second quarter of 2006 (data for the 2nd quarter of 2008 is not yet available). Price declines have been even sharper for lower priced homes that were likely purchased with the subprime mortgages.

It required extraordinary incompetence not to recognize the housing bubble even in 2007 after prices were already declining. However, according to this article, Fannie Mae was still buying more subprime mortgage backed securities at this point.

Any normal worker would be fired in a second for such incredible incompetence, however Mr. Mudd is still in his job drawing a seven figure salary. Furthermore, no one seems to view this as strange, which suggests that it is common to have people with no skill whatsoever in the very highest paid positions in our economy.

--Dean Baker

The NYT got the story wrong today when it noted that exports of manufactured goods are lagging growth of agricultural goods. The article implies that the decline in the value of the dollar is not having the beneficial effect on exports that would ordinarily be expected because so much manufacturing has already relocated elsewhere.

In fact, the growth in of exports U.S. manufactured goods has been very impressive, given the slowdown in both the world economy and the U.S. economy. It is important to realize that the U.S. economy has itself become an engine for U.S. exports because so many products for the U.S. market are assembled outside of the United States. This means that when the economy grows more rapidly, more parts are exported to factories overseas to assembled and then imported back to the United States. This pattern also applies to exports of long-lived capital goods, as increased demand in the U.S. will increase investment in developing countries to serve the U.S. market.

For this reason, a downturn in the U.S. economy would be expected to lead to a downturn in exports of U.S. manufactured goods. This is exactly what happened as the U.S. economy sank into recession in 2001. Exports of capitals goods fell by 21.2 percent from the first quarter of 2001 to the first quarter of 2002. By contrast, exports of food, feed, and beverages fell by just 0.3 percent.

Without the sharp fall in the dollar in recent years, it is likely that the slowdown would have to let to a falloff in exports of manufactured goods. Instead they have risen at a rapid pace, albeit not as quickly as exports of commodities.

--Dean Baker

Yesterday it printed an editorial that implied (incorrectly) that U.S. corporations face a higher tax burden than their competitors in other wealthy countries. Today it has a column by Amity Shlaes that is a diatribe against all the economic damage the Democrats will do.

While much of the column is just random ranting against Democratic policies, the column does include the assertion that the Democrats want to eliminate the cap on the Social Security payroll tax, "an effective increase in the top marginal tax rate of 6.2 percent, or for some 12.4 percent, all by itself." The problem with this charge is that no one of any prominence in the Democratic party is proposing removing the cap on the payroll tax.

Senator Obama has called for imposing a tax of 2-4 percent on income over $250,000. This would affect only about one-fifth as many people as would be affected by removing the cap on the tax and the maximum impact would be less than one-third as large as Ms. Shlaes suggests.

Columnists are supposed to have considerable leeway in expressing their views, but they should not be allowed to attribute positions to their opponents which they do not hold.

--Dean Baker

The Washington Post editorial page has no qualms about making up data to further its agenda. Last December, when it wanted to attack the Democratic presidential candidates for their criticisms of NAFTA, the Post told readers that Mexico's GDP had quadrupled since 1987. In fact, the actual growth during this period was about 83 percent, according to the IMF. Most newspapers might feel embarrassment about using such a blatant misrepresentation to push its preferred policies, but not the Post.

Today, the preferred policy is further reductions in corporate income taxes. To advance this agenda the Post tells readers that, "U.S. companies operating abroad already labor under a bigger tax burden than most foreign competitors."

That's not what the OECD says. Data from the OECD show that in the average member country corporate taxes are equal to about 3.5 percent of GDP. In the United States, corporate taxes have generally been between and 1.5 percent and 2.5 percent of GDP over the last two decades, according to the Congressional Budget Office (Table F-4).

That would have been the appropriate headline for an article on the Democrats' plan to open up some offshore areas to oil drilling. Polls show that the public strongly favors opening areas to offshore drilling because they believe that it will lead to a decline in gas prices.

Of course this is not true according to the estimates of the Energy Information Agency (EIA). The EIA projects that no oil will come from these areas for a decade, and even when the area attains full production levels in about 20 years, there will only be enough oil to lower gas prices by around 3-4 cents a gallon.

The media have rarely bothered to point out these facts, which would undermine the Republicans' efforts to make this a major election issue.

--Dean Baker

The vast majority of small businesses are traditional brick and mortar stores. These stores pay sales taxes to support local services. By contrast, huge Internet retailers like Amazon don't collect sales taxes, giving them a huge competitive advantage against small bookstores and other businesses that collect sales tax.

According to the New York Times, Senator McCain is a strong opponent of removing this tax subsidy for Amazon. The article includes several comments asserting that Senator McCain is a strong ally of small businesses. It would have been appropriate to note that his support of this tax subsidy that hugely disadvantages small businesses.

This article also incorrectly describes Senator McCain as a strong supporter of free trade. This is not true. Senator McCain has supported increased protection in the form of stronger patent and copyright protection. He also has never expressed concern about the protectionist barriers that make it difficult for doctors and other highly educated professionals from working in the United States.

--Dean Baker

This is what the headlines of the news articles noting the recent rise in the dollar should have said. Instead, we were told things like "Dollar's Rise Could Dampen Inflation," and "Dollar Rallies Against Euro, Pound on Concerns of Global Slowdown."

The over-valuation of the dollar has been of the economy's most serious problems for the last decade. The high dollar led to an unsustainable trade deficit that peaked at almost 6 percent of GDP in 2006. By definition, a trade deficit means that domestic savings is less than domestic investment. This means that (barring an investment boom, which we have not seen) there must be either a large government deficit, low private savings, or a combination of the two. None of these situations are desirable or sustainable, at least over the long-term. While the trade deficit has consistently been far larger than the budget deficit over the last decade, it has received far less attention from the media.

The only plausible way to bring the size of the deficit down to a manageable level is by reducing the value of the dollar. A lower dollar is especially important in the wake of the collapse of the housing bubble. Without the improvement in the trade balance, the economy would have been shrinking over the last three quarters. Without a continued improvement in the trade balance, spurred by a falling dollar, there is little hope that the U.S. economy will escape a prolonged downturn.

The media should be giving more attention to the recent rise in the dollar and pointing out the danger it poses to the economy. It should also be discussing the dollar in the context of the presidential campaign, since the next president's policy on the value of the dollar is likely to have more impact on the near-term health of the economy than anything else he does in office.

--Dean Baker

The NYT reports that the FDIC is hiring back retirees to help it cope with the sudden increase in bank failures resulting from the housing crash. At one point the article tells readers: "Few expect the scale of the current crisis to approach that of the 1980s debacle [the S&L crisis], in which 2,000 banks and savings and loans were eventually closed."

It is worth noting that almost no economists anticipated any crisis at all even a year ago. Given their complete failure to see the housing and mortgage crisis coming, their projections of its severity are likely to be of relatively little value.

The actual number of bank failures is likely to be far lower than in the 80s, but this is largely because the crisis of the 80s led to a huge consolidation within the industry, with many small banks closing or merging with other banks. This time around, the banks that fail will be much larger (one of the failures to date IndyMac, was the second largest bank failure in U.S. history), and the value of deposits in failed institutions is likely to be comparable (measured as a share of GDP) to what we saw with the S&L crisis.

--Dean Baker

One item largely overlooked in the reporting on the surprisingly large jump in the July CPI is its implications for growth. The 0.8 percent jump in the CPI will almost certainly exceed the increase in nominal consumption spending for the month (nominal retail sales fell in July), which means that consumption spending will show a decline for the second consecutive month. With the last round of rebate checks arriving in July, and the economy continuing to shed jobs, it is unlikely that August and September will show any big burst in consumption.

Therefore consumption spending, which comprises 70 percent of GDP, is likely to fall in the 3rd quarter. There is little chance that housing will show a positive number for the quarter and non-residential investment will be at best a weak positive. Spending by state and local governments will also be weak or negative, as deficits force cutbacks in the new fiscal year.

Last quarter, trade gave a big boost to GDP, and this number will be revised upward based on the June trade data. However, it is unlikely that we will see much improvement from the 2nd quarter trade numbers, with most our trading partners now slipping into recession.

In short, it is very likely that the third quarter GDP number will be negative. That may not mean very much in itself. GDP numbers are always somewhat erratic, and there is not much difference in the real world between a small positive and a small negative number. But, the 3rd quarter GDP figure will be released the Thursday before the election. It is the last major pre-election data release. Coming at that time, a negative number is likely to draw considerable attention.

--Dean Baker

In general, property taxes are less sensitive to the ups and downs of the business cycle than income taxes, so they provide a more stable source of revenue. However, property taxes that are tied closely to property values, as is the case in many states, would be a very erratic source of revenue in the face of an expanding housing bubble that is now collapsing.

That is why it is peculiar that the NYT asserts that California's budget has been harmed in this downturn because it is more dependent on income taxes than property taxes. The state's restrictions on property tax, stemming from Proposition 13, limited the extent to which taxes increased during the housing bubble. As a result, property tax revenue is falling less rapidly in the crash than would otherwise have been the case.

--Dean Baker

The New York Times finally put some meat on the bones of the repeated claims that Japan will face a labor shortage due to its declining population. The NYT reported how Chinese workers are being brought in to fill jobs for which Japanese workers cannot be found.

The focus of the article is a village where Chinese workers are brought in to pick lettuce. Presumably, farmers would have to pay much higher wages to get Japanese workers to pick their lettuce. This could make lettuce growing unprofitable in Japan. The result would be that the land would be used to grow other crops, or it could even be left available for other uses. Since most farming is heavily subsidized in Japan, if land was pulled out of agricultural production, it could mean substantial savings to the government.

One of the other potential problem mentioned in this article is that a chain restaurant may be forced to cut back on its plan to triple its number of stores because it can't get enough workers.

These are useful examples for showing why a declining population does not pose an economic problem. Japan has no special interest in maintaining its lettuce production, if it proves not to be an economically viable sector. If farmers cannot make a profit paying the prevailing wage to grow lettuce, then there is no obvious loss to the country if the lettuce industry is allowed to disappear. Similarly, Japan has no special interest in seeing this restaurant chain triple in size if the market conditions will not support this growth.

Lettuce farmers and restaurant owners may be unhappy about losing access to cheap labor, but this is not a problem for the economy or the country as a whole.

--Dean Baker

It was hard to get people to take the housing bubble seriously in 2002, 2003, 2004, and 2005, but in 2008, even Alan Greenspan is able to see it. So, how can the NYT print a lengthy piece on the explosion of home equity loans without mentioning the role of the bubble.

The bubble is central in this story, because if home prices rise 10 percent a year, and are expected to continue to rise for the indefinite future, then it is entirely reasonable for people to borrow against the new wealth created by this appreciation to support their consumption.

Unless homeowners listened to that small minority of economists who warned of the bubble (and ignored the pronouncements of Alan Greenspan and other prominent economists), they would been entirely reasonably in consuming based on their housing bubble wealth. This fact should have been mentioned in this article.

--Dean Baker

If the U.S. never fixes its health care system and the cost horror stories prove true, then people will just stop using our health care system. It will be cheaper to go anywhere on earth for care than to see a doctor in the United States (and the care will almost certainly be better elsewhere).

--Dean Baker

That could have been the headline of an article reporting on a new set of projections for immigration from the Census Bureau. According to the article, immigration will rise from its current rate of 1.3 million a year to more than 2 million a year by the middle of the century.

By contrast, the Social Security trustees intermediate scenario assumes that immigration will fall from its current rate to just over 1 million a year by the middle of the century. Even the low cost scenario assumes immigration of only 1.3 million a year by the middle of the century.

A more rapid pace of immigration improves the financial situation of Social Security. If the Census projections prove correct, then close to 30 percent of the projected Social Security shortfall would be eliminated. This point should have been mentioned in the article.

The Post hasn't heard of Social Security either.

--Dean Baker

USA Today tells us that workers have not cut back their contributions to 401(k)s with the downturn. But the data it presents show they have. According to the article, average contributions have increased by 1.5 percent between 2007 and 2008. Inflation over this period has been close to 4.0 percent, which means that real contributions have fallen by close to 2.5 percent.

--Dean Baker

That seems to be the conclusion of a NYT column bemoaning new rules that restrict contact between the bankers who underwrite new stock issues and stock analysts. The column presents the argument of Frank Quattrone, an investment banker who was accused of obstruction of justice charges in connection with passing along biased research. (The charges were dropped.)

Mr. Quattrone argues that the restrictions on contact with bankers make it too expensive to research small firms. As a result, there is little information available to investors about these firms. That makes investors more reluctant to buy their stock, which makes it more difficult for them to raise capital through the stock market.

It would have been appropriate to note, that the misinformation that was spread prior to the imposition of restrictions to limit conflicts of interest, caused many new stock issues to be hugely over-valued. While this led to enormous bonanzas to many entrepreneurs who started worthless companies, for the larger economy it implied a huge mis-allocation of capital. Money that could have been used productively in established firms was instead funneled to businesses that were destined to bankruptcy.

There are alternatives to raising capital through public issues of stock, which small companies have long pursued (e.g. bank loans and venture capital). The most obvious implication of Mr. Quattrone's comments is that many small companies should not be looking to the stock markets as a source of capital. The column should have made this point.

--Dean Baker

The NYT reports on a growing trend for Wall Street banks to ship jobs, including many high-paying jobs, to India. This is a situation in which increased trade will lead to gains to the economy as a whole, as the cost of financial services drops. It should also help to reduce inequality as one, two, or even three digits get removed from some of the compensation packages of the Wall Street crew. It would be useful to include some economic analysis of this new trend.

--Dean Baker

The Washington Post reported today on the economic slowdown hitting Europe. The article makes the interesting point that, while the Federal Reserve Board lowered interest rates when the economy started to run into trouble, the European Central Bank has responded by raising interest rates.

The article includes comparisons of growth rate projections for the United States, Italy, Germany, Spain and France. It is worth noting in such comparisons that the populations of Italy and Germany are both shrinking and the population of Spain is virtually flat. France's population is growing at a rate of about 0.4 percent annually. By contrast, the population of the United States is growing at the rate of 0.9 percent annually. This means that to maintain the same rate of improvement in living standards, annual GDP growth in the United States has to be about a percentage higher than in Italy, Germany, and Spain, and a half percentage point higher than in France.

--Dean Baker

The Post ran a lengthy piece in the Sunday Outlook section about the plight of the Wall Street investment banks and the millionaires and billionaires who run them. According to the article, without the sleaze practices of the last decade, they just can't make any money.

It's touching to see that some of the richest people in the country might be worried about their future and the future of their industry, but why would a serious newspaper devote space to such nonsense. Is there a public interest in ensuring that incompetent investment bankers can still make millions, tens of millions or even hundreds of millions a year pushing deals that harm the economy?

While the author tries to argue the case, anyone who has taken an intro econ course or has enough intelligence to tie their own shoes can recognize the argument as nonsense.

Let's take the author's worst case scenario. Suppose Goldman Sachs, Merrill Lynch, Lehman Brothers and the rest go out business. Does that mean that no one is doing underwriting of stock and bond issues?

Absolutely not. The whole premise of the piece is that the profits have been driven down so much by competition that there is no money in this line of business any more. The demise of these Wall Street giants would simply mean that a large number of overpaid bankers would have to look for jobs elsewhere in the economy. The elimination of this huge layer of waste in the industry would mean an enormous increase in the productivity of the investment banking sector and for the economy as a whole. Perhaps we should have government retraining programs for unemployed investment bankers, but there certainly is no reason to stand in the way of economic progress.

The real outrage is that the Post allows this sort of shallow special interest pleading for investment bankers, while it would never publish a comparable piece on behalf of autoworkers or textile workers. Even worse, the Outlook section would never consider a piece that would correct some of the inaccurate impressions given by this article.

As every economist knows, the public should be applauding the elimination of waste in the investment banking sector (i.e. the loss of tens of thousands of investment banking jobs and big pay cuts for those remaining). It is unfortunate that the Post will not allow an economist to make this point in its newspaper.

--Dean Baker

I haven't seen the data, but let's suppose that were true. Would the Washington Post simply report the results of the poll without raising questions about the tooth fairy's existence?

That is how the Washington Post reported the results of a new ABC News poll on public attitudes towards drilling restrictions. The article notes that the overwhelming majority of voters now supports the removal of drilling restrictions. It never points out that the removal of restrictions will have no impact whatsoever on the price of gas for close to a decade, and even when the full effect of new production is felt in 15 or 20 years the impact will only be a 3-4 cents a gallon.

The article does attribute a statement to this effect to House Speaker Nancy Pelosi, but this would be comparable to having a quote from Speaker Pelosi denying the existence of the tooth fairy. The non-existence of the tooth fairy is not a matter of partisan dispute, it is a fact.

Similarly, it is a fact that removing environmental restrictions on drilling will have no impact on oil prices any time soon and only a trivial impact in a decade or two. The polling results presented in this Post article are a testament to the incredibly bad reporting on this topic, which has led so many voters to believe something that is clearly wrong. This article provides an example of poor reporting.

--Dean Baker

The NYT has an interesting article today reporting the views of several economists on how much further they expect house prices to fall. One of the economists, Christopher Mayer, argued that the extraordinary spread between mortgage rates and the interest rates on Treasury bonds has been a substantial factor depressing prices. The comments seem to imply that when the mortgage market settles down there will be a reduction in this spread giving a boost to house prices.

Actually, what is unusual at present is not the spread between mortgage interest rates and Treasury yields, but rather the unusually low real yield on Treasury bonds. The real return on the 10-year Treasury bond is currently negative, with the interest rate around 3.9 percent and the inflation rate around 4.5 percent. This is extraordinary. Typically, the real return on the 10-year Treasury has been in the range of 2-4 percent.

The low current return on Treasury bonds is due largely to the fact that foreign central banks, most importantly China's, are consciously trying to prop up the dollar and the U.S. economy by buying vast amounts of U.S. Treasury bonds. They are doing this to sustain their export markets to the United States. In exchange, they have been willing to take enormous losses on their holdings of Treasury bonds.

This is not a typical situation and will presumably not persist indefinitely. When foreign central banks no longer feel the need to prop up the dollar and hold down U.S. Treasury rates it is likely that the yield on Treasuries will rise, thereby closing the gap with mortgage interest rates. The real interest rate on mortgages of approximately 2.0 percent, is actually quite low by historical standards. It typically is in the range of 3.0-4.0 percent.

--Dean Baker

A large portion of the people who have been displaced by foreclosures following the collapse of housing prices have been renters. This fact has largely been ignored by the media, presumably because it has also been largely ignored by politicians. Of course an independent press is supposed to report on what is important regardless of whether it fits the agenda of politicians at the time.

Today, the Washington Post had a front page article noting the large number of tenants who have been displaced by foreclosures. The article includes a great quote from an expert at Harvard University's Joint Center for Housing Studies, a research institute that was widely known for denying the existence of a housing bubble: "It's only now that the renter's dilemma is bubbling up to the top."

Those experts who recognized the housing bubble had been raising this issue for some time.

[Addendum: Based on the discussion below, I want to make two points about the plight of tenants. While I am in general sympathetic to the plight of homeowners losing their homes, they did sign a mortgage that got them into trouble. I understand how mortgages can be complex documents and that mortgage issuers were often deliberately deceiving homeowners, but they still had some control over the situation. By contrast, the tenants are being evicted because their landlord didn't pay their mortgage. The tenants had no recourse in this story, unless they had somehow been able to analyze the financial position of their landlord.

The second point, is that contrary to some assertions in the comments, renters often can have pets. My wife and I are renting with two fine pound hounds. If we had to look for another unit that allowed pets, it would be a serious problem for us or for any renter who had pets, as many do.]

--Dean Baker

Okay, it's a propaganda flick directed more broadly against government social programs, but the review appears on the front page of the business section, not the opinion section where it belongs. The film is intended to scare people about the size of the government debt, as is indicated in the subhead.

To further this goal the review reports the size of the debt and the projected future growth in the debt in trillions of dollars, not relative to the size of future GDP. Every competent reporter and policy analyst knows that virtually no one can understand what it means to have a debt over all future time of $53 trillion, a number presented in the review.

On the other hand, if the review had told readers that the projected debt is equal to 6 percent of future income, then nearly all readers would be able to understand its meaning. Using the $53 trillion figure is an effective way to scare people, but not to inform them.

Perhaps more importantly, virtually the whole debt story is due to projections of exploding health care costs. If per person health care costs in the United States followed the cost path in Germany, Canada, or any other country with better health outcomes than the United States, then the debt problem would be relatively minor.

The makers of this film have an agenda (apparently shared by the Washington Post) to seriously cut Social Security and Medicare. To advance this agenda, they deliberately deceive the public about the nature of projected budget shortfalls and conceal the fact that the projected crisis is entirely a health care story. An honest film on the projected debt problem would be devoted to discussing the U.S. health care system.

(The review implies that this debt view is correct because the makers of the film anticipated the housing meltdown in 2007. Any competent economist should have been able to foresee the collapse of the housing bubble. It was not necessary to believe scary stories about the debt to recognize the bubble.)

--Dean Baker

That's how the NYT would describe it if it employed the same euphemism in describing Obama's plan to raise taxes on the wealthy as it did to describe proposed cuts to pensions in Europe.

It includes several comments that are inaccurate or peculiar. For example, the article tells readers that France's spending on public pensions is projected to rise from 13.3 percent of GDP today to 14.8 percent in 2050. It then describes this as three times the share in the United States.

The current share of GDP going to pensions in France is more than three times the share for the United States, but the share in 2050 will be less than two and a half times the 6.1 percent share of GDP projected to go to Social Security in 2050. The increase in pension benefits in France projected for the next 40 years is actually relatively minor.

At one point it compares Sweden's partial privatization to the one proposed by President Bush in 2004. It is worth noting that Sweden's public system, after the privatization, is one-third larger than the system in the United States.

The article also asserts that the public system in the United States faces less stress than in Europe because of the U.S. system of employer based pension. Actually, this system is collapsing rapidly so that most workers will not be able to anticipate substantial income from either defined benefit or defined contribution pensions.

--Dean Baker

NPR did a piece this morning on the loss of airline service by many communities as a result of higher oil prices. The basic point is that the higher prices can make service impractical because it raises costs. If the airline charges enough to cover its costs, then it will get fewer passengers, which would force further price increases. The result could be that there is no fare at which regular service can profitably maintained.

The piece then noted the economic harm that many communities fear if they lose regular air service. This was exactly the rationale for the regulatory structure that was in place prior to 1978. This structure deliberately kept prices on main routes higher than necessary in order to allow airlines to cover the cost of serving less heavily trafficked areas. In effect, the system of regulation had passengers on the main routes subsidizing the service to smaller cities.

If loss of service to smaller cities proves to be a major problem, it may be desirable to return to a comparable system of cross subsidies. The history would have at least merited some discussion in this piece.

--Dean Baker

Forgiveness might be divine, but forgetting is just bad reporting. When former Fed Chairman Alan Greenspan warns the public that the financial markets will not be set right until the housing bubble has fully deflated, it is worth reminding readers that Mr. Greenspan was a vigorous bubble denier during his tenure as Fed chair. He refused to take any steps to head off the growth of the bubble and repeatedly insisted that there was nothing out of line in the housing market.

--Dean Baker

The NYT tells us that the slowing of the growth rate of China's economy to just over 9 percent, "will make it much harder to supply jobs to the millions of Chinese moving to cities from rural areas in search of work."

The very next sentence tells readers that, "any slower growth could prove a shock to workers who have been receiving double-digit pay increases each year, as companies struggle to find enough labor to keep factories open."

Okay, the first sentence warns us that growth may be insufficient to absorb the number of workers leaving rural areas in search of jobs. The next sentence tells us that the slowdown in growth will reduce the labor shortage that has been putting upward pressure on wages.

We need an editor here. Double-digit wage growth implies that factories were having trouble attracting workers away from rural areas. If the economy weakens, then the rate of wage growth will presumably slow, but the country is not likely to face problems absorbing the flow of workers from the countryside unless the growth rate slows far more than is predicted in this article.

--Dean Baker

This article reports the results of the search for intelligent life at Freddie Mac, evidence that people did warn the highly paid CEO Bill Syron that the company was getting into trouble. It notes several warnings that were ignored by Mr. Syron. This is what newspapers are supposed to do.

The article does have important error. It notes that both Freddie Mac and Fannie Mae were unprepared for a nationwide decline in housing prices, which was of course an entirely predictable event to people who understood the housing market, which should include the management at these companies.

It then comments that: "the only real protection against such a downfall was purchasing only the safest loans." Actually, this would not have provided protection either because even safe loans default at much higher rates in a downturn, substantially reducing their value.

The only real protection would have been to stop lending in areas where housing appeared to be substantially over-valued, which would have been most of the country. Fannie and Freddie would have faced enormous political pressure if they had gone this route, but people who are paid 8-figure salaries are supposed to be able to make tough decisions. If Fannie and Freddie had cut the supply of credit, it would have burst the bubble at a much earlier date, limiting the harm to the economy.

--Dean Baker

The Washington Post, which excluded any articles warning of the housing bubble from its oped page all through the period the crisis was building, again has a piece assuring readers that there is no problem in the housing market. The piece concludes that there has been no large-scale decline in housing prices based on the Office of Federal Housing Enterprise Oversight's (OFHEO) House Price Index. It dismisses the 14.1 percent year over year nominal decline in the Case-Shiller index because it is driven largely by price declines in homes purchased with subprime mortgages and jumbo mortgages, both of which are excluded from the OFHEO index.

The article also reports research findings based on data in several cities that finds no feedback between rising foreclosures and falling prices. It concludes, based on these findings, that there is little basis for concern about a downward spiral in house prices.

The grounds for dismissing the Case-Shiller data are questionable. While most of the stock of housing falls within the category covered by the OFHEO index, close to half of the sales in recent years would fall outside of the category covered by the index. Subprime and Alt-A mortgages accounted for 40 percent of all mortgages in 2006. In addition, the median house price in large parts of the country (e.g. California, New England) would have required jumbo mortgages and therefore also not been included in the OFHEO index.