We will know the answer to that one soon. President Bush said in his radio address today said that the oil in the offshore protected areas is equal to 10 years of current production.

No, that is not true. The Energy Information Agency, the government agency responsible for making estimates of oil reserves, calculates that there are approximately 8 billion of barrels of oil in the protected areas. Current production is approximately 3 billion barrels a year. That implies that the oil in the offshore protected areas is equal to less than 3 years of annual production, not ten years. That means that President Bush is off by a factor of more than three.

It actually is somewhat worse. U.S. production is only equal to 40 percent of consumption. Consumption is the more relevant factor in determining the importance of this oil. The oil in offshore protected areas is equal to only a bit more than a year of domestic consumption.

In other words, President Bush was completely misrepresenting the importance of oil in offshore protected areas. Why isn't this major news? Do the NYT, Washington Post, NPR, and Lehrer News Hour believe that President Bush lies so often that it can't be treated as news?

--Dean Baker

One of the first pieces of data to come out each month is chain store sales. The coverage reports year over year comparisons of spending at the major retail chains. (Just three chains, Wal-Mart, Costco, and Target account for more than 80 percent of the chain stores sales included in the report.)

The reporting is always expressed in nominal dollars. This can be misleading, since the same nominal increase will mean a smaller increase in real sales in a period of high inflation than low inflation. In the last year, the CPI index for commodities excluding food and energy rose by 0.6 percent. By contrast, the CPI for this category fell 0.8 percent in the year from July 2006 to July 2007. (This is not a perfect measure of inflation for these stores since it includes cars, which they do not sell, and excludes food and gas, which are sold in some chain stores.)

Articles reporting on the growth in retail sales should make some effort to account for the effect of inflation.

--Dean Baker

Marketplace had a segment this morning noting that a group of actuaries wants to raise the retirement age for Social Security. It noted that the program is running a $200 billion surplus now, but that it will have a deficit in just 7 years due to retiring baby boomers.

This is not true. The $200 billion surplus refers to total revenues, both taxes and interest on the government bonds held by the program. The program is projected to continue to have an annual surplus until the middle of the 20s. It will not fully draw down its bond holdings until 2046, according to the latest projections from the Congressional Budget Office.

It is understandable that a group of actuaries might want to raise the retirement age because of the possibility of a Social Security shortfall almost 40 years in the future, but Marketplace should not misrepresent the facts to help advance their case.

--Dean Baker

The Associated Press (AP) ran an article that praised Senator McCain's acceptance speech as "a bipartisan pitch." The article outlined the main themes, but politely managed to ignore the fact that Senator McCain found it necessary to completely misrepresent Senator Obama's health care proposal.

Senator McCain claimed that Obama's proposal would force people into a health care plan run by government bureaucrats. This is not true. Senator Obama's plan would give people the option of buying into a publicly run Medicare-type plan, but this would only be an option. Under Senator Obama's plan, no one would be forced to join the public plan, they would be free to stay with their current plan if they chose.

Senator McCain also misrepresented his plan on taxes for ordinary people. He claimed that he would not raise taxes, but his health care plan would raise taxes for tens of millions of middle income workers. McCain proposes making employer payments for health care taxable income. This will be a substantial tax increase for many workers. It also would have been appropriate to note this misrepresentation since Senator McCain has made low taxes so central to his campaign.

As a rule AP is not hesitant to criticize presidential acceptance speeches. The headline for its article on Senator Obama's speech was "Obama Spares Details: Keeps Up Attacks."

It is worth noting that most other news accounts seem to have ignored Senator McCain's misrepresentation of Obama's position on this important issue.

--Dean Baker

This NYT article discussing the reaction to the losses that it has suffered on dollar denominated holdings implies that the people running China's central bank had no idea what they were doing. The article implies that the bank was surprised by the fact that they lost money on these holding. If this is true, it is truly incredible that a major economic power would allow such inept people to run its central bank.

It is almost inconceivable that anyone who followed economic data did not realize that the dollar would decline from the level it has reached in 2001 and 2002. The United States had a large and growing trade deficit. It was throwing hundreds of billions of dollars into international currency markets every year for which there was no obvious demand.

It was understandable that China's central bank might buy up dollars in a conscious effort to keep the dollar high and thereby sustain its export market to the United States. This would mean that China was effectively paying people in the United States to buy its exports. This would be a reasonable growth strategy if China for some reason lacked the capability to generate this demand internally. (Otherwise it would make more sense for China to pay its own people to buy its goods rather than people in the United States.)

However, it would be bizarre if China's central bank bought up dollar denominated assets in the last 7-8 years thinking that they were making a good investment. It is difficult to understand how they thought they would make money on their dollar holdings. Apart from buying bonds from Zimbabwe, it's hard to imagine how they could have made a worse investment.

If the people who run China's central bank are really this ignorant, that should have been the headline of the article, which should have been on the front page.

--Dean Baker

Suppose some right-wing type is enraged at seeing a sign that calls President Bush bad names. Suppose he tears the sign down. Suppose the owner of the sign calls the police and asks to have this person arrested. My guess is that the police tell the caller to calm down and get over it. After all the police have more important things to do.

While the police are unlikely to get involved in protecting property of little intrinsic value when it comes to protecting political speech, they are very willing to get involved in protecting property of little intrinsic value in protecting copyrights and corporate profits. It is remarkable that the NYT can give instructions on seeking out legal downloads without ever commenting on the great lengths to which the government will go to protect songs that are worth 75 cents.

--Dean Baker

The NYT notes that Germany has one of the highest gender pay gaps across Europe telling readers: ""while the wage gap between women and men is narrowing across the European Union and in the United States, it is stagnant in Germany."

The numbers it presents don't quite support this case. The NYT reports that from 2000 to 2006 (the most recent year for which data is available) "German working women on average have gone from earning 26 percent less than men to making 24 percent less than men." By comparison, in the United States "the number has bounced between 23 percent and 24.5 percent" over the same period. (The gap dropped by a percentage point in 2007.)

The article discussed the difficultly that German women face in dealing with the demands of their jobs and family and also in getting access to child care. While these are undoubtedly serious problems for German women, they are also serious problems for U.S. women. Unlike their counterparts in Germany, working mothers in the United States have no guarantee of paid time off when they have a child, and many cannot even count on receiving unpaid leave.

While Germany ranks behind many other European countries in promoting family friendly work policies, it does not rank behind the United States. It is ridiculous to portray Germany's policies in this area as being uniquely dysfunctional.

--Dean Baker

The NYT discusses the Food and Drug Administration's drug approval process which often allows drugs on the market before there is direct evidence of their effectiveness. It would have been worth noting how government patent monopolies distort this process.

Drug companies are anxious to gain patent rents and therefore will aggressively lobby the FDA to approve their drug, whether or not their has been sufficient testing. By contrast, in cases where there are already a number of drugs to treat a specific health condition, like those discussed in this article, it would be socially beneficial to require long and extensive testing, since there is little reason to believe that a new drug will offer substantial addition benefits.

The article quotes an industry representative as complaining that such a requirement would be expensive and discourage the development of new drugs. Of course that is precisely the desired outcome. We would rather see drug companies pursue cures for health conditions where current treatments are inadequate than try to develop copycat drugs. This point should have been discussed explicitly in the article.

--Dean Baker

In an interesting article about the increasing number of workers who are withdrawing funds from their 401(k) plans, the Post told readers that "401(k) plans are replacing employer-sponsored pension plans and Social Security as the main source of retirement savings for many Americans." No, that actually is not true.

The median wealth for late baby boomers (workers age 45 to 54) is around $170,000, with most of this being equity in their home. Even for workers in the second wealthiest quintile the median wealth is only $250,000, with roughly half being home equity. This means total non-housing wealth (including personal savings and family businesses, in addition to 401(k)s) will be around $125,000 for this group. By comparison, these households can expect around $20,000 a year in retirement from Social Security.

Two-thirds of retirees receive the majority of their income from Social Security. The share of the population that will receive more of their income from a 401(k) plan than Social Security is relatively small.

--Dean Baker

An AP article reports that workers are retiring later. It cites as one of the factors the decline in the stock market. Since the vast majority of workers have very little money invested in the stock market, its effect on retirement decisions is likely to be limited. On the other hand, the vast majority of older workers do have a home. The plunge in house prices over the last two years is likely to have a large impact on retirement decisions. For most of these workers, the drop in house prices will have destroyed a large segment of their wealth.

--Dean Baker

This small item in the NYT deserves more attention. The Department of Agriculture banned a small meat packer from testing its cattle for Mad Cow disease. It seems that the problem is that the big meat packers don't want the expense of testing their cattle, but they also don't want this small meat packer of getting a competitive advantage from being able to certify that its beef as been tested and shown to be free of Mad Cow disease.

This is just a wonderful example showing that the Bush administration conservatives have no interest in the free market or "you are on your own" economics. They are prepared to use the heavy hand of the government to ensure that small meat packers do not win out over bigger more politically powerful meat packers. It is clear that the Bush administration is not prepared to tell the big meat packers that "you are on your own."

[Thanks to Ben Zipperer for the head up.]

--Dean Baker

The NYT is making up stories about the economy again. It told readers that "for years, he got no credit for a long-running economic recovery, in part because of popular anger over Iraq."

What are they talking about. The economy was losing jobs from shortly after President Bush took office in January of 2001 until August of 2003. It then created jobs for just over four years and then began shedding jobs in January of 2008. How does this compares to an expansion that lasted for more than 8 years under Clinton? This period of job expansion was far weaker than the stretch of almost 8 years in the 80s also. In fact, it was a relatively short period of employment growth compared to other post-war expansions and it was also quite weak with the pace of job growth relatively modest over most of the period.

So Bush had a short and relatively weak period of job growth. What exactly was he supposed to get credit for?

--Dean Baker

I apologize to readers who know what a windfall is, but since NYT columnist Ben Stein does not and asked to be taught, I thought I would oblige him. Mr. Stein notes that Senator Obama wants to tax the profits of the oil industry to help to pay for a stimulus package. He then asks:

"why punish the owners of the oil companies, who are largely pension plans, group or individual, and individual investors? Why should we punish some American firefighters who own oil company stocks more than American firefighters who own drug company stocks or tobacco stocks? Why tax away the savings of some Americans because they happen to own a share in a company that supplies a totally legal, absolutely indispensable product like oil? I don’t get that at all."

Okay, I'll write this slowly so that even Ben Stein can follow it.

First, close to half of stock, included oil company stock, is owned by very rich people, so the fact that a small portion is owned by firefighters has nothing to do with the time of day. Some of the oil companies' stock is owned by child molesters. Should we be discussing that?

More practically, the oil companies are making enormous profits at present because oil prices went up far beyond what almost anyone had anticipated. In other words, Exxon-Mobil, Shell, and the others had not anticipated $120 a barrel oil when they undertook their investments 10-20 years ago. They would have made a fine profit if oil had stayed in the range of the $30-$40 a barrel they anticipated when they made their investments. The gap between the return they expected and the return they are getting because of unanticipated events is what economists call a "windfall."

The government often acts to prevent windfall gains. For example, if workers in a key industry opted to go on strike to press for higher wages, they would get put in jail. Mr. Stein may be too young to remember, but this is what happened to air traffic controllers when they went on strike in 1981. Their leaders were thrown in jail. The government has held the threat of jail over the heads of other unions that have considered or carried through strikes in situations where they were arguably exploiting their bargaining position.

The neat thing about a windfall is that the elimination of the windfall does not affect supply. It would have been profitable to produce the amount of oil that the industry is currently producing even at far lower prices. This means that we can tax away much of the industry's profits without affecting the supply of oil. In the longer-term, there could be some modest impact, since oil companies will realize that their likelihood of collecting an extraordinary windfall in the future is lower if governments are prepared to tax it away. However, this may not be much of a concern, since just about everyone recognizes that we have to move away from oil consumption in any case.

Mr. Stein also mentions the claim from Martin Feldstein, an economist who has made a career out of being wrong (e.g. he claimed that Social Security had a large negative impact on private savings and that the Clinton tax increases would raise very little revenue), that most of the recent tax cut was saved. This one prompts a really big "huh?" from those familiar with arithmetic.

Real consumption was 5.6 percent higher in May than April, 2.6 percent higher in June than April, and 0.9 percent higher in July than April, all months in which real disposable income would have fallen from April's level, absent the tax rebates. Maybe Feldstein thinks that families increased their spending because of optimism about the economy, but I doubt that many would agree with that view.

--Dean Baker

News reports on the revised second quarter GDP data released on Thursday and the June data on consumer expenditures released on Friday, included many comments from economists expressing surprise at the strength of the GDP data and the weakness of the consumption data. Neither report presented surprising information to people who seriously follow the economy.

The almost exclusive source for the upward revision in the GDP data was a sharper decline in the trade deficit than had been previously reported. Since the trade data for June had already been released, along with a downward revision for the trade deficit reported in May, there was no basis for having been surprised by this upward revision. The data was already known.

Similarly, the weak consumption report for July could have been inferred based on the weak retail sales data which had been reported earlier in the months. Real spending on retails sales (which accounts for approximately two-thirds of non-housing consumption) were sharply lower for June. As a result, it was virtually certain that consumption as a whole would be lower for the month.

Any economist who was surprised by either the GDP release or the data on consumer spending simply was not following the data closely enough.

To preempt surprise among economists, the July consumption data means that it is very likely that the 3rd quarter GDP data, which will be released the Thursday before the election, will show negative growth for the quarter. With the stimulus ending in July and the economy continuing to shed jobs in August and September, it is virtually certain that consumption, which is 70 percent of GDP, will fall for the quarter. Residential housing is almost certain to be down for the quarter also. Both federal and state and local government spending are likely to be close to flat, as budget deficits force cutbacks at the state and local level, and erratic increases in the timing of federal spending get reversed.

The investment component (10 percent of GDP) is likely to show a small positive with equipment investment possibly offsetting a decline in structure investment. Trade is likely to show little improvement after the strong second quarter showing, especially with the economies of our trading partners weakening. Inventories will be a plus for the economy after being a big negative in the second quarter, but probably not enough to pull GDP for the quarter into positive territory.

--Dean Baker

Anti-labor groups have been trying to whip up opposition to the Employee Free Choice Act by arguing that it will take away workers' right to have their union representation decided by a secret ballot. The most basic problem with this claim is that workers do not currently have this right.

Under current law, it is employers who have the right to demand that recognition be decided by a secret ballot. Unions can, and often are, certified by card check, a mechanism whereby it is determined that a majority of the workers in a bargaining unit have indicated their support for a union. Unions can also be decertified by card check.

The major change of the Employee Free Choice Act is that workers would have the option to determine the manner of certification not employers. The Post gets an "A" for pointing out that it would "end a company right to demand a secret-ballot election." Under the Act, workers would still have the option to petition for a secret ballot election, but the choice would remain with the workers.

--Dean Baker

The WSJ noted the 7 percent falloff in profits in the second quarter compared with the year ago level and said that it "raised concerns about the employment outlook." It's not obvious that this should be the primary concern from falling profits.

Profits tend to be highly cyclical, with profits rising in the upturn, when employment is growing rapidly and falling during the downturn, however the link between profit growth and employment growth is not very tight. In the 90s, the profit share of output peaked in 1997, yet the economy continued to generate jobs at a very rapid pace until the last months of 2000. The same has been true in prior cycles, in which the cyclical peak occurred a year or more after the profit peak.

--Dean Baker

There was a more rapid rise in durable goods orders in July than most economists had predicted. While this rise received considerable attention, and seems to have sparked a rally in financial markets, the media largely overlooked the 4.6 percent increase in orders for machinery, which was one of the largest sources of the increase.

Machinery has seen the strongest growth in orders this year, with an 11.0 percent increase year-to-date compared with 2007. (Primary metals has had a somewhat larger rise, but this is likely due in large part to higher prices.) The machinery orders are presumably associated with an increase in manufacturing capacity. Increased demand for manufacturing is in turn likely the result of the improved competitiveness of the United States due to the fall of the dollar.

For this reason, it would be appropriate to highlight the jump in machinery orders. It appears that the declining dollar is having the predicted effect on manufacturing, which is the best hope for a sustained recovery from the current downturn.

--Dean Baker

The coverage of the release of the June Case-Shiller housing prices indices overlooked two important items in the data. First, an examination of the tiered indices (these show separately the movement of house prices in each city for cheapest third of houses, the middle third, and upper third) indicates a sharp divergence within many markets. In several of the former bubble markets higher end home prices appear to be stabilizing, while prices for homes in the bottom tier continue to fall rapidly.

For example, in Los Angeles prices in the bottom third of the market fell by 3.2 percent in June, while prices in the top third fell by just 0.2 percent. Over the last quarter, prices for homes in the bottom tier fell at a 12.2 percent annual rate, while prices in the top tier dropped at just a 0.8 percent rate.

There’s a similar story in Miami, where prices in the bottom tier fell at a 14.5 percent annual rate over the last quarter, while prices in the top tier fell at just a 4.2 percent rate. Over the last year, prices in the bottom tier have fallen 31.6 percent, which is not much larger than the 25.3 percent decline in prices for houses in the top tier. There’s a similar story in Las Vegas, Phoenix, San Diego, and San Francisco.

Ultimately, there must be some spillover in the sense that if the cheapest homes fall far enough, people looking to buy more high-end homes might instead opt for a cheaper one and then invest in major renovations. But the divergence that is showing up in the data at present is striking.

The other important point to note in connection with house prices is that inflation has picked up so that house prices would be falling rapidly in real terms, even if nominal house prices were flat. Over the last quarter, the CPI, excluding the rental components, increased at 14.1 percent annual rate. The bubble can be deflated either by a fall in nominal house prices or through inflation. There are important distributional implications for which route the collapse follows (borrowers will be helped by inflation, while lenders will be hurt), but either route can restore house prices to their long-term trend level.

--Dean Baker

It would be nice if some of the people who get paid big dollars because they supposedly have high skills could acknowledge that they messed up. It would also be nice if the national media did not consider it part of their job to cover up for powerful people who messed up on their job.

Yes, that headline is a a direct quote. It also is the sort of statement that has no place in a serious news article. The swelling tide of toxic loans is not proving to be more worrisome than feared. The problem is that the people who were supposed to be regulating the financial system did not know what they were doling.

The people who did understand the economy knew that an unprecedented run-up in house prices, with no remotely plausible explanation based on fundamentals, with no corresponding increase in rents, was a bubble. We also knew that bubbles burst. And, we knew that when bubbles in a highly leveraged asset like housing burst, that lots of debts go bad and that banks then take really big hits.

The NYT should be exposing the incompetence of people who were paid big dollars to know the housing and financial markets (this includes both bankers at place like Citigroup, Merill Lynch, Bear Stearns, Fannie Mae and Freddie Mac, as well as the top regulators) and completely failed in their responsibilities.

It should not try to tell readers that the housing crash was somehow an unforeseeable event that came out of the blue. It was an entirely predictable event and it was only incompetence that prevented these people from seeing it. Unfortunately, unlike dishwashers and custodians, bank executives and regulators are not held accountable for their performance. Instead, the media covers it up for them.

--Dean Baker

The NYT discusses efforts by local governments to use public money to purchase and renovate foreclosed properties to help revitalize hard-hit areas. At one point the article presents a comment from an economist at the CATO Institute complaining the program that supports this effort will distort the housing market and that it would be best to leave this process to the private sector.

It would have been helpful to put the size of the program in context. The program involves $4 billion in federal money. This is equal to approximately 0.02 percent of the value of the $20 trillion housing stock. It is equal to approximately 0.3 percent of annual housing sales. Spending of this magnitude is not likely to lead to large distortions in the housing market.

--Dean Baker

The Post is complaining yet again thatpoliticians are unwilling to deal with a Social Security shortfall that is first projected to hit in 2049, when John McCain will be 113 years old. To try to makes it case sound more compelling it refers to the date 2018 when the Social Security trustees project that tax revenues will first be inadequate to meet benefit payments.

Of course 2018 is completely irrelevant to the finances of the program. At that point the program is projected to have accumulated more than $5 trillion in government bonds. But the Post wants to scare readers to advance their Social Security agenda so they trot out 2018 as though it is a date that anyone needs to worry about.

The positive side of this story is that Social Security's finances look much better than the Post's. If it keeps making up scare stories about Social Security, perhaps the date of its demise will be hastened.

--Dean Baker

I'm not kidding. The Post actually printed a column bemoaning the fact that people have alternatives to news outlets like the Post, CBS, NPR, etc. And it's solution to this terrifying problem is protectionism, which it is hoping will come in the form of higher energy prices.

Fortunately, the author's understanding of computers and networks is not much better than their understanding of the media. While many computers and networks are energy hogs, it is not difficult to design much more energy efficient systems. These already exist and their price is falling rapidly, so at least this type of protectionism will not prolong the life of failing mainstream media outlets. The fact that sort of column can be given such prominence in a top newspaper demonstrates clearly the need for alternatives.

--Dean Baker

Actually, as far as I know that is not true. I just wanted to say it because the Washington Post has no qualms about printing this same lie about Social Security. The reality, according to the Congressional Budget Office is that Social Security is fully solvent until 2049 with no changes whatsoever, and even if no changes are ever made, it could always pay a far higher benefit to future retirees than what beneficiaries receive today. Unlike the Post, we correct errors at Beat the Press.

--Dean Baker

This could have been the headline of the Washington Post article on a forum about the long-term debt problems facing the United States. The article reported on a forum surrounding the release of IOUSA, a documentary on the debt problems facing the country.

While the film and several participants in the forum try to argue that the United States budget is facing an enormous gulf in coming decades, the overwhelming majority of the projected shortfall comes from projections of continually increasing health care costs in the United States. Since roughly half of health care expenses are paid by the government through programs like Medicare and Medicaid, these projections imply enormous budget deficits in future years.

However, the health care cost projections also imply that the enormous gap between the cost of health care in the United States and the cost in countries like Germany, Canada, and France will explode to tens of thousands of dollars per person per year. Unless the United States hugely increases the protectionist barriers for our health care system, it will be impossible for it to sustain these sorts of price differences. People will take advantage of more efficient health care systems elsewhere in the world, unless we fix the system in the United States.

--Dean Baker

The Bureau of Labor Statistics (BLS) doesn't think so, or at least they don't adjust for this quality deterioration in their price indices for air transportation. This is worth noting in the context of a NYT article about the increasing percentage of air travelers who are involuntarily bumped from their flights.

The failure to adjust for the deterioration in the quality of air transportation almost certainly leads this component of the consumer price index (CPI) to understate inflation. While there has been a concerted effort within the economics profession to find ways in which the CPI might overstate inflation, and to force the BLS to adjust its measures accordingly, there has been much less interest in examining ways that it might understate inflation.

The understatement at issue is not likely to be large in terms of the whole index, since the weight of air travel is less than 1.0 percent (this means that if the bias is 2 percentage points annually in air travel, the understatement for the CPI as a whole would be 0.02 percentage points), but many economists have made a big issue over very small biases in the opposite direction.

--Dean Baker

The Washington Post noted that the Mortgage Bankers Association (MBA) mortgage application index for last week was 34 percent below its year ago level. This figure understates the decline in new mortgages for two reasons.

First, subprime lenders are under-represented in the MBA index. Since the decline in mortgages occurred disproportionately in the subprime segment of the market, the MBA index will not fully reflect this decline. Also, since many subprime lenders have cut back their lending or gone out of business, some of these borrowers may now be showing up at banks who are included in the MBA index.

The other reason that the MBA index understates the decline in mortgages is that it measures applications, not mortgages. Mortgage applications are far more likely to be turned down now than a year ago, which means that the same number of applications corresponds to fewer mortgages this year than last year.

--Dean Baker

You know, consumption expenditures, the category that accounts for 70 percent of GDP in the United States. The reason that WSJ readers may wonder if the paper has heard of consumption is that an article comparing wage growth in the euro zone and the United States never mentions it.

The article argues that the euro zone countries have greater fear of a wage-price spiral than the United States, because its workers have been better able to keep up with inflation due to its more powerful unions. While this is undoubtedly true, the fact that wages in the United States are not keeping pace with inflation is likely to depress consumption.

The savings rate was already close to zero, meaning that workers on average were spending their whole income. If their real income falls, then they will be forced to consume less, especially in a context where many no longer have equity in their homes against which they can borrow. This will reduce demand in the economy and worsen the downturn.

--Dean Baker

It will take close to a decade to get any oil whatsoever from the offshore areas that are currently protected from drilling for environmental reasons. Even when the area reaches peak production in around 20 years, there is only oil to bring the price of gas down by 3-4 cents a gallon.

These facts come from the Energy Information Agency and are well known to anyone who has bothered to look into the issue at all. That is why the NYT must be calling the McCain campaign stupid when it asserts that:

"Mr. McCain has focused on offshore oil drilling and broad tax relief as steps to directly assist the greatest number of working Americans, by lowering taxes and, his campaign hopes, both gas prices and home foreclosures."

Since Mr. McCain's plan offers little in the way of tax relief to middle income families against current law, it is unlikely that they believe that their plan will actually lower home foreclosure rates. Unless they are completely clueless they don't "hope" their offshore drilling plan will lower gas prices. This is just something they say to get votes and hope that the media will not call attention to the fact that they are lying.

--Dean Baker

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