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

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