Another day, it's another front page article in the Washington Post about the budget deficit. The Post has apparently not not heard about the economic downturn that has the rest of the country concerned.

The article includes a comment about "the looming challenge of skyrocketing Medicare and Social Security spending. " Of course Social Security spending is not projected to skyrocket. It is projected to increase gradually, and its costs are fully covered by its own tax stream until 2048, according to the Congressional Budget Office's latest projections.

The cause of skyrocketing Medicare care costs are the sharp projected rise in health care costs, but the Post doesn't want to talk about health care reform.

--Dean Baker

A Washington Post editorial yesterday commented on an issue brief from the Congressional Budget Office which, "shows just how precipitous the recent decline in manufacturing work has been: 22 percent since the 2001 recession."

What is most striking about this editorial is that it gives the impression that the Post's editors were unaware of the sharp decline in manufacturing jobs over the last decade. This is not secret information, it is data can be found on the Bureau of Labor Statistics website in a matter of seconds.

The Post is disturbed by the fact that: "The study will provide some ammunition for those inclined to blame free trade for American industry's plight," since it points out that an increase in imports was an important factor in the job loss. Actually, few people are likely to blame "free trade," they are far more likely to blame the current pattern of selective protectionism that largely shields more highly educated workers from foreign competition while explicitly forcing manufacturing workers to compete with the lowest paid workers in the world.

Standards "free trade" models show that the U.S. economy would experience large gains if it were as easy for a kid growing up in India to work as a doctor or lawyer or Washington Post editorial writer, as a kid growing up in the New York suburbs. Trade policy has done little to reduce the barriers that protect professionals from this sort of competition.

--Dean Baker

It looks like President-elect Obama is picking up President Clinton's promise to end welfare as we know it. Back in those pre-welfare reform days, welfare checks went to poor families. Welfare as we know it now seems to involve giving taxpayer dollars to Citigroup and other banks.

The media seem to have largely overlooked the Citigroup tax credit in their discussion of the latest items in President Obama's stimulus proposal. According to the Washington Post, the proposal will allow companies to write off current losses against taxes paid over the last 4-5 years, not just 2 years, as in current law.

There are relatively few companies that could benefit from this tax break since most companies will not have losses so large that they would need more than two years of tax payments to balance them against. But, really big losers, like Robert Rubin's Citigroup, and other badly failing financial institutions, are losing much more money in 2008 and 2009 than they earned in 2006 and 2007.

Did the political connections of Robert Rubin and others in the financial industry have anything to do with the decision of Obama's economic team to be so generous to them? I don't have an answer to that question, but the media should be asking it.

--Dean Baker

Folks who haven't yet gotten enough of my writing may want to look at a piece on regulation that I did for the latest Boston Review. There are also good pieces there from Robert Pollin and Jeff Madrick.

--Dean Baker

The last time I went to the beach it was very crowded. The Washington Post wants us to be concerned that it might be less crowded in 20 or 30 years. The problem is falling birth rates and declining populations.

That's right the same people who told us a few months ago that the economy was just fine are now telling us that we should be worried about a planet with fewer people consuming less resources. Yes, this is yet another piece in the Post's jihad against Social Security and Medicare.

A smaller population should make us richer, other things equal, since there will be less demand for beach space and other natural resources. The declining rate of workers to retirees can easily be met by productivity growth (a concept with which Post writers seem unfamiliar) and by losing a few jobs on the midnight shift at 7-11s.

The column warns us that China may grow old before its grows rich. At its recent growth rates, output per worker in China will be almost 6 times higher in twenty years as it is today. Suppose its ratio of retirees to workers doubles over this period. Then means that supporting retirees at current living standards would impose a burden on workers that is one-third as large (relative to their income) as the burden imposed at present. That should make everyone really scared.

--Dean Baker

The Washington Post's obsession with the deficit thoroughly contaminates and confuses its economic and budget reporting. The obsession showed its ugly head yet again in a front page news story.

The article notes that President-elect Obama's health care plan is likely to carry an upfront price tag of $65 billion a year, even though it is projected to save money in the long-run. The article reports that Obama had originally planned to pay for this cost by raising taxes on the wealthy in 2009, but he now is planning to put off the tax increase until 2011 because of the recession.

The article then tells readers "That could sour some deficit hawks on the idea. 'It's going to be very problematic to me unless they can tell me how it's going to be paid for,' said Sen. Ben Nelson (Neb.), a leading centrist Democrat."

Okay, perhaps Mr. Nelson hasn't noticed, but we are in a severe recession. As a result, the overwhelming majority of economists want to see the government stimulate the economy by running large deficits. That means that we want spending that is not paid for.

Of course in 2011, when hopefully the economy will be back on track, we will be collecting the taxes that Obama had wanted to cover the cost of his health care plan. In that sense the plan will be paid for in the period in which we want it to be paid for.

It is possible that Mr. Nelson doesn't understand basic economics and how stimulus works, which should have been pointed out in the article, since he is clearly an important figure among centrist Democrats. However, the Post article makes it appear as though Mr. Nelson's objections make sense. This is not true. If someone supports a large stimulus, then the fact the first years of a health care reform plan are not paid for, should be a non-issue.

--Dean Baker

Following its practice of merging editorial content with news, the Washington Post had yet another lead article warning about the budget deficit and national debt. While there are some efforts at balance in the piece, it still misrepresents the nature of the deficits in these years. It also carries on the Post's longstanding practice of misleading readers about the relationship between the deficit and the dollar.

The article is misleading in that it does not point out that a substantial portion of the deficit (e.g. the $700 trillion TARP) is being used to by assets. This money is not spending that just goes out the door, like money spent on the war in Iraq or on health care. The government will likely lose money on the TARP (my bet at least), but it will get most of this money back when it sells the assets (shares of preferred bank stock) that it has acquired through the program.

The discussion of the dollar fails to note that the main factor that will determine the value of the dollar in the long-run is the trade deficit, which bears no direct connection to the budget deficit. The dollar will fall (actually it has already been falling against many currencies over the last month) because the United States has a large trade deficit. The decline in the dollar will in turn eventually reduce the trade deficit, which will reduce the outflow of dollars each year.

Readers should understand that the dollar will fall regardless of whether or not we run large budget deficits. A sharp decline in the dollar is the only plausible way to bring the trade deficit to a manageable level. The fall in the dollar is therefore a necessary correction mechanism, it will not be the result of a profligate fiscal policy.

--Dean Baker

The lead article in the New Year's Day edition of the Washington Post bemoaned the loss of $6.9 trillion in value in U.S. stock market last year. While those who own large amounts of stock have reason to shed tears, this may end being good news for the rest of us.

The loss of stock wealth means that stockholders have less claim to value of the country's output. The U.S. economy can produce just as much in 2009 as it did in 2008 (in fact somewhat more, because of labor force and productivity growth). If stockholders can demand less because of the reduced value of their stock, then this leaves more for the rest of us.

The most visible evidence of how the loss of stockholder wealth can benefit the rest of us was the sharp decline in consumer prices over the last three months. As a result, real wages rose at almost a 15 percent annual rate in the three months from September through November.

Of course, insofar as the demand generated by stockholders (and homeowners, who have also seen their wealth plummet) is not replaced by other sources, then workers are losing jobs. Eventually weakness in the labor market will put more downward pressure on real wages. However, if the loss of demand from stockholders is effectively replaced by demand from the government or foreign sector, then the vast majority of the country will be made better off by this plunge in stock prices.

The Post should have reporters who understand this fact.

--Dean Baker

Addendum: Since the question has been asked repeatedly, I will try to quickly explain how the fall in stock prices can make non-stockholders wealthier. There are two components to the wealth that people have in stock.

One component is the flow of income in dividends, which is turned based loosely on the growth of corporate profits. If, for the moment we make the unrealistic assumption that the growth in profits is unaffected by the crash (there will be feedback effects as we are seeing -- the plunge in demand that resulted from the stock and housing crash is also leading to declines in profits), then this future flow of dividend income will not be affected.

The second component of wealth is that value of the stock itself. How much can I get for selling my 100 shares of Verizon today. This second component is obviously directly affected by the fall in stock prices. Stockholders will consume based in part on the value of their stock wealth. The logic is that they try to more or less balance their consumption over their lifetime. If they have more wealth, then they can consume more over their lifetime.

To take a simple example, imagine a person is 75 and can expect to live another 10 years, and had $200,000 in stock. Then we might expect this person to spend roughly 10 percent of her wealth or $20,000 a year. Now suppose the market has crashed and her stock is only worth $100,000. Then we would expect her spend just $10,000 a year.

This is what is happening as a result of the stock crash. Stockholders have less wealth and therefore are spending less money on cars, vacations and everything else. The reduction in demand places downward pressure on the price of these goods, making them cheaper for everyone. Those folks who did not have a lot of stock gain in this story, assuming that they hold onto their jobs.

China just took actions that will raise the price that tens of millions of people around the world pay for software. This will reduce their income and depress demand for other products. The WSJ reported on the Chinese government's crackdown on a factory producing unauthorized copies of software, but neglected to mention the impact on consumers and the economy.

--Dean Baker

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.