Same Store Sales Mean Less When There are Fewer Stores

Why do reporters and analysts always fail to take note of the fact that there are fewer stores this year than last year? This is important when we compare same store sales, because the stores that have survived over the year now have a larger share of retail business.

In a normal year there is growth in the number of stores year to year, so flat same store sales would be consistent with rising total retail stores. With many chains having closed stores in the last year and many smaller stores having gone out of business, flat same store sales would imply a decline in total retail sales. Reporters and retail analysts should know this.

--Dean Baker

Why Does the Government Spend So Much More on Peter Peterson Than It Does On Poor Children?

It probably has something to do with the fact the billionaire investment banker owns lots of government bonds on which he collects interest. (Okay, I don't know this for sure, but I'm guessing that he does own bonds.) The interest that a billionaire like Peterson collects on government bonds would almost certainly exceed by a huge amount payments for poor children for items like health care or child care.

Is this an injustice? Perhaps, but most people would consider the fact that Peterson paid for the bonds to be an important factor in the discussion. In the same vein, where does Steven Pearlstein get off complaining that the government spends $7 on the elderly for every $1 it spends on children, without noting that most of this spending comes through Social Security and Medicare, programs with designated taxes? In other words, seniors paid for these benefits.

Pearlstein may not care that seniors were told that their taxes were paying for these programs, but everyone else does. (That is why they are designated taxes, as opposed to "payroll taxes for funding defense spending and Wall Street subsidies.") This sort of comparison is dishonest.

--Dean Baker

When Fannie Mae Sells Tax Credits to Goldman Sachs, Taxpayers Lose

Fannie Mae is losing money, therefore it owes no taxes. However, it does have tax credits on its books. Enter the geniuses at Goldman Sachs. They want to buy the tax breaks from Fannie so that they can put them to good use.

The Post mentions this proposal in the context of a report on Fannie's 3rd quarter losses. It notes a Treasury Department analysis showing that any gains to Fannie from the sale will be offset by a loss of tax revenue to the Treasury.

Actually, this does not require much analysis and the government will be a guaranteed loser on this deal. Goldman does not pay $1.00 for $1.00 of tax credits. It might pay 95 cents for a dollar of credits, perhaps even 99 cents, but it will pay somewhat less than 100 cents on the dollar. Since Goldman would pay less to Fannie than the value of the lost tax revenue to the Treasury, this sale is a guaranteed loser for the government. There is no reason for it to allow Fannie to make this sale.

It is also worth mentioning that some of Fannie's losses are likely attributable to loans made after its government takeover in September of last year. One reason is that it continued to make loans to purchase homes at bubble-inflated prices. It could have avoided these losses by using rent-based appraisals.

--Dean Baker

Why Does the Post Never Report on Job Loss from Defense Spending?

The Post told readers this morning that critics of measures to limit global warming warn that legislation could be:"a job-killer in states dependent on manufacturing and natural resources." While the risk of job loss associated with measures to limit global warming have been frequently mentioned in the Post and elsewhere in the media, the same economic models that show job loss from these measures would show much larger job loss associated with the increases in defense spending that we have seen this decade.

Nonetheless, there has been virtually no discussion of job loss associated with defense spending in the media. It is likely that the vast majority of the public -- probably even the vast majority of people in policy making positions -- do not realize that standard economic models show job loss from defense spending. This is the result of extraordinary negligence from the major news outlets.

--Dean Baker

Cash for Clunkers Pushes Up Used Car Prices

I was waited to see if anyone would notice. USA Today gets the prize. It was pretty much inevitable that there would be a rise in used car prices following the C4C program. If you require that 900,000 trade-ins get destroyed rather than being resold, this has to create somewhat of a shortage in the used car market. It's remarkable that no one seemed to have noticed (there were big jumps in used car prices in the CPI for both August and September).

--Dean Baker

The Trade Deficit Leads to a Weaker Dollar, Not the Budget Deficit, Tell the Post

The Post flunks econ 101 yet again telling readers that the budget deficit threatens to lead to, among other things, a falling dollar. Of course, in econ 101 students learn that the bad story of a budget deficit is that it raises interest rates, which will raise the value of the dollar.

A trade deficit, by contrast, leads to an excess supply of dollars, which therefore causes the price of the dollar to fall. In places other than the Washington Post, the decline in the dollar is a good thing, leading to increased net exports and an improvement in the trade deficit.

--Dean Baker

Can the Government Recover Its Investment in General Motors?

The Government Accountability Office (GAO) concluded that the government was unlikely to recover its investment in General Motors based on the history of GM's stock prices. This is a bad metric, reporters should have looked to other analysts instead of just repeating the GAO figures.

GM's past stock prices were depressed by pension and health care liabilities that will not apply to the new GM. The better metric is a projection of stock prices based on estimates of future profitability. Toyota's quarterly profits peaked at just under $4 billion in the 3rd quarter of 2007.

Suppose that a reborn GM is able to achieve half of Toyota's profits or $8 billion a year. If GM's stock price is equal to 15 times earnings (roughly the historic average), then the market capitalization would be $120 billion. The government's 60 percent stake would then be worth $72 billion, enough to give it a decent profit on its investment.

Of course there is no guarantee that GM will reach this level of profitability, but this is the question that GAO should have assessed in trying to determine whether the taxpayers will recover their investment.

--Dean Baker

Washington Post Runs Front Page Editorial for Tort Reform

The Washington Post had a front page news story complaining that the health care reform plans being considered by Congress will not have major savings in part because they do not include tort reform. The Post tells readers that tort reform could save $54 billion over the next decade.

Let's see, we will spend about $30 trillion on health care over the next decade, so this comes to less than 0.2 percent in total spending. Is this the best chance to have savings on health care? If the Post's editors were not such hard-core protectionists, they would be complaining that the health care bills do not remove barriers to trade in health care, which would offer savings that are hundreds of times larger. But free trade is apparently not on the agenda at the Post.

--Dean Baker

Is Temporarily Inflating House Prices a Good Idea?

Suppose the government could temporarily prop up the price of clothes by 2-3 percent, would that be a good idea? The government certainly could temporarily inflate the price of clothes (a clothes buyers' tax credit might do the trick), but it's not clear that this policy would have many advocates.

The situation seems different with house prices. Remarkably, no one even wants to talk about the issue. The $8,000 tax credit is equal to just under 5 percent of the median house price. This certainly was one of the factors in the recent turnaround of house prices. Is it a good policy for the government to temporarily prop up prices so that people buying now are likely to sell at lower real prices in the future?

This policy transfers money from homebuyers who do not benefit from the tax credit to current homeowners who sell their house now and also the banks who hold mortgages that might otherwise not be paid off. By slowing the price adjustment process it also delays the recognition by homeowners of their actual wealth. The result is that many people are likely overestimating the wealth they will have in retirement and therefore not saving adequately.I know that reporters did not talk about this issue when we had an $8 trillion housing bubble, but that is not an excuse for not talking about it now.

--Dean Baker

Goldman Sachs and Fannie's Tax Breaks

This NYT article notes that the proposal to have Fannie Mae sells its housing tax credits to Goldman Sachs is a loser for the Treasury. The article would have benefited from one additional sentence pointing out that Goldman's claim that buying the tax credit will help the low-income housing market is therefore bogus, because the government could help the market at lower cost by providing the money directly to Fannie and Freddie.

--Dean Baker

Cheap Innuendo On Al Gore

It's hard to understand this NYT article. Al Gore has been as open as possible in both his warning about the dangers of global warming and his efforts to support businesses that produce green technology. The latter obviously implies the possibility that he might profit from these investments. This article seems to imply that there is something improper in this picture, but there is no accusation that Gore has used his political ties to help his investments (which would be a scandal), so where's the news in this story?

--Dean Baker

McClatchy Does Its HomeWork on Goldman Sachs

They have some good investigative work here, here, and here. If Fox went over Goldman with the same energy it pursued Acorn, no one in Congress would go within a mile of its lobbyists.

--Dean Baker

Housing Is Not on a Sustained Upturn

The Post noted the 6.1 percent rise in pending home sales reported for September, following the 6.4 percent increase reported for August, and told readers that housing: "is not merely leveling off but is rising at a steady clip." Actually, the sharp upturn in the last two months is likely due to the fact that the first time homebuyers tax credit was scheduled to expire at the end of November. While it now appears that this tax credit will be extended, there were undoubtedly many people who rushed to buy a home before the expiration date.

--Dean Baker

Robert Samuelson Asks Whether Creatures from Neptune Will Storm the Planet

Yes, with the unemployment rate about to hit 10 percent, Robert Samuelson yet again expresses concern over the country's biggest problem: the prospect of defaulting on its debt. Never mind that investors are prepared to hold U.S. government bonds for an interest rate of just 3.5 percent -- the lowest rate (except for earlier in this crisis) in almost 60 years. There is still nothing more important for Post readers to hear about than the risk that the U.S. government will default on its debt. Who knows, maybe if the Post and other media outlets run enough pieces touting this risk they may even be able to scare some investors and affect the markets, even if their efforts thus far have failed.

It's too bad that the Post could not have been troubled to talk about the $8 trillion housing bubble before it burst. Given the huge additional to the debt that resulted from the collapse of the bubble, which was entirely predictable, anyone who was really concerned about the debt would have filled their pages with talk of the housing bubble in the years 2002-2007. But, the Washington Post could find no space for such warnings.

Even today, the paper and Robert Samuelson are such determined protectionists that they refuse to even consider the prospect of free trade in health care, a step that would drastically reduce the projections for long-term deficits. Oh well, this is like War of the Worlds, a scare story, not serious policy analysis.

--Dean Baker

Washington Post's Narrow Thinking on Too Big to Fail

The Washington Post's editors apparently never heard of Paul Volcker, Alan Greenspan, or Sheila Bair. How else can can one explain an editorial on dealing with "too big to fail" banks that never once mentions the solution proposed by them and thousands of others -- break them up. Could the Post's editors really be unaware of the prominent group of current and former financial officials who have argued that the only way to effectively rein in too big to fail institutions is to whittle them down to a size where they are not too big to fail?

The Post also repeats without comment the illogical claim that the proposal to tax big banks after the fact to cover the failure of one of their brethren will provide incentives for good behavior. How? If a bank is behaving well, but incompetent regulators (are there any other kind?) allow a rogue bank to behave irresponsibly, then they get stuck with the tab under this proposal. Of course the rogue bank won't care. They will be out of business and won't have to worry about the tax. Where are the incentives here?

Don't the Post's editors think at all before they write one of these things?

--Dean Baker

The NYT Spreads Scare Stories About Financial Market Panic

The first sentence of a NYT article told readers that the White House and Congress are faced with: "anxiety in financial markets about the huge federal deficit and the potential for it to become an electoral liability for Democrats." There is absolutely no evidence whatsoever presented in the article to support this bold assertion.

What we know is that investors are willing to hold 10-year Treasury bonds at a 3.5 percent interest rate. This suggests that financial markets are very unconcerned about the deficit and the future prospects for the U.S. government. By comparison, they demanded interest rates of more than 5.0 percent to hold Treasury bonds in the late 90s when the government was actually running surpluses. The higher interest rate suggests a greater level of anxiety.

While the financial markets appear unconcerned about the fiscal condition of the United States, there are many wealthy people, who claim to speak for financial markets, who are expressing concern. The NYT should distinguish between the views expressed by these wealthy people (all of whom were too incompetent to see an $8 trillion housing bubble) and reality.

--Dean Baker

Dumb and Dumber on Stimulus Jobs

There is a cottage industry developing among political reporters trying to investigate whether the Obama administration’s claims on jobs created or “saved” by the stimulus are true. For example, ABC’s intrepid White House reporter Jack Tapper said on his blog:

“DeSeve and Bernstein [Obama administration spokespeople] were not able to say how many of the 640,329 jobs were saved and how many were created. How do they know that government officials asking for stimulus funds to help prevent layoffs were legitimate?”

The Washington Post also got into the act with its own piece commenting on the administration's jobs figures that: "Republicans and government watchdogs questioned the reliability of the figures."

This is an exercise in extreme silliness. It will be almost impossible to identify the vast majority of jobs that are created or saved by the stimulus because this would require a full knowledge of the flow of spending from tens of thousands of governmental units and the consumption decisions of 150 million households. However, there are fairly well-recognized economic relationships (outside of the University of Chicago) that allow the administration to produce reasonably good estimates of the number of jobs created or saved by the stimulus.

The administration is not using any hocus pocus in producing these job numbers. It is simply applying rules of thumbs that have been used by both Democratic and Republican administrations as well as impartial bodies like the Congressional Budget Office. If these reporters want to investigate the Obama administration's actions, their time would be much better spent looking at its ties to the financial industry where they could well be some substantive issues.

btw, any reporter who puts the word "saved" in quotes should be fired immediately. It reflects either ungodly stupidity or pathetic partisanship. Every month, 2 million workers are dismissed by their employer. If this number can be reduced by just one-tenth, then net job creation will be increased by 200,000 a month or 2.4 million a year. Anyone who implies that there is something peculiar about efforts to reduce the numbers of jobs lost by "saving" jobs is badly misleading readers.

--Dean Baker

Were the Markets Really Disappointed by September Consumption Data?

The NYT headlines tells us that: "Day After Rally, Stocks Retreat on Consumer Weakness." The problem with this story is that anyone who carefully read the GDP report yesterday would not have been at all surprised by the data on consumer spending released today. It was already included in the third quarter GDP.

Those of us who passed third grade arithmetic would look at the number reported for third quarter consumption, then subtract out the numbers on monthly consumption that the Commerce Department had already released for July and August, and voila, we would know what number the Commerce Department was going to release for September consumption.

Any Wall Street traders who were surprised by the September consumption data should be looking for a new line of work.

-- Dean Baker

Housing Vacancy Rate Hits New Record: Media Don't Notice

You would think that an industry that almost completely missed an $8 trillion housing bubble would be trying to do a better job in reporting on the housing market: But that does not appear to be the case. The Census Bureau reported that the number of vacant units hit a new record high yesterday and it appears that no one noticed.

--Dean Baker

Growth Accounting 101

The 3.5 percent GDP growth number reported for the third quarter was widely touted in the media. Some perspective would have been helpful. In the four quarters following the end of the 74-75 recession growth averaged 6.2 percent. In the four quarters following the 1981-82 recession the economy grew at a 7.5 percent annual rate. In short, given the severity of the downturn, the growth reported in the third quarter was quite weak. Most forecasts show growth being even weaker in future quarters.

There were a couple of other items that also were not reported accurately. Contrary to what the Washington Post told readers, businesses are not rebuilding their inventories. Inventories shrank at a $130.8 billion (in 2005 dollars) annual rate in the quarter. Inventories contributed to growth in the quarter because the rate of decline was slower than in the second quarter.

Also, the widely repeated claim that businesses increased spending on equipment and software is not entirely accurate. The Commerce Department reported that businesses bought equipment and software at a $895.3 billion annual rate in the quarter, that is down from the $897 billion annual rate in the second quarter. However, adjusting for inflation, it reported that spending measured in 2005 dollars increased from $876.5 billion to $879 billion. This is primarily a story of measured quality improvement in computers and software.

This point matters because the additional spending by this measure does not mean that more people are being employed producing equipment and software. If the quality adjustment is accurate, it means that businesses are getting better equipment and software, which will allow them to be more productive in the future, but this does not help employment today.

--Dean Baker

Homebuyers Tax Credit: Where Is Rick Santelli?

Folks may recall Rick Santelli, the commodities trader who sparked outrage when he went into a diatribe on CNBC about not wanting to pay his neighbor's mortgage. The context was the mortgage modification program proposed by President Obama, which uses government money to provide lenders and servicers with an incentive to modify mortgages. (The money actually goes to banks, not homeowners, but we'll ignore that for now.) This complaint resonated among at least some segment of the population, who were given considerable attention in the media.

Congress subsequently passed a stimulus bill which included an $8,000 first-time homebuyers tax credit. This tax credit is about to be renewed and expanded to apply to some current homeowners who buy a new house.

Given the anger over the mortgage modification program and the attention that this anger received, it would be reasonable for the media to be investigating the anger (or lack thereof) over this tax credit. After all, if Rick Santelli is angry about paying for his neighbor's mortgage, isn't he also angry about paying for his house?

--Dean Baker

Marketplace Radio Confuses the Stimulus and the Bailout

One reason that there is relatively little public support for stimulus is that the public often confuses it with the $700 billion TARP. While the stimulus was about boosting the economy, the TARP was about keeping banks from sinking due to their own incompetence. It is understandable that the public would not feel warmly about the TARP.

The general public can be excused for confusing the stimulus and the TARP. Reporters, who are paid to know the distinction between these two massive programs, have difficulty keeping them separate also. This morning, Marketplace Radio introduced a segment on the jobs created by the stimulus by referring to as "the $787 federal bailout fund."

--Dean Baker

NPR Gets the GM Deal Wrong

NPR told listeners that the government would be unlikely to get all its investment in GM back. The logic is that we are owed close to $50 billion. This gives the government claim to 61 percent of the company's stock. However, the piece tells us that even at GM's peak, its stock was only worth $57 billion, so GM's stock price would have to go even higher than its previous peak in order for the government to get back its money.

It sounds like someone here forget to adjust for inflation. A more serious analysis would have calculated a reasonable earnings target (the piece refers to $10 billion a year -- a reasonable target) and then took a price to earnings ratio of say 15 to 1. At that level of earnings and with a 15 to 1 PE, GM stock would be worth $150 billion. The government's share would be worth $92 billion.

Is that the best guess of what will happen, perhaps not. It requires some serious analysis of GM's ability to reclaim market share. But, the prospect that the government will recover its money is not absurd.

byw, this piece was prefaced with the ridiculous assertion that the government had already made money on the bailout of banks. This is nonsense.

Some banks have repaid their TARP money, including interest, and the government has cashed out options. This gives us a profit on those loans. But, this does not mean that on net the government has made a profit.

There are many banks that will almost certainly not repay their loans in full including giants like Citigroup and Bank of America. Claiming a profit based on the paybacks to date would be like a clothing store boasting about the profit on the 20 shirts it sold, ignoring the 180 that are sitting unsold on its shelf. We won't know whether we have made a profit on the TARP until we know the payback on all the loans. The paybacks to date tell us almost nothing.

--Dean Baker

Vacancy Rates Hit New Record

You probably heard it here first, but you shouldn't have. The rental vacancy rate jumped 0.5 percentage points in the third quarter, while the vacancy rate for ownership units edged up 0.1 percentage point. The long and short is that we have never had such a large glut of housing.

The folks in Congress are giving people $8,000 to increase the rental vacancy rate (i.e. buy a home). Of course this will lead to lower rents, which could cause other potential homeowners to rent rather than own. It may also cause some landlords to convert their rental units into condos. In other words, this is really silly housing market policy.

But hey, it's just $8,000 and it's not like we're giving it to families to pay for their kids' health care or food or anything.

--Dean Baker

How Do You Define "Torrid"?

USA Today tells us that the economy grew at a "torrid 3.5% rate." In the four quarters following the 1974-75 recession the economy grew at a 6.2 percent annual rate. In the four quarters following the 1981-82 recession the economy grew at a 7.5 percent annual rate.

--Dean Baker

Sick Over Sick Days: Taking Bad Economics to Another Level

Casey Mulligan at the NYT's Economix really pulls out all the stops. I'll let my colleague John Schmitt make the case:

Casey Mulligan Swings and Misses

University of Chicago economist Casey Mulligan has a post today at the New York Times Economix blog where he seems to argue that the current push for statutory paid sick days in the United States is ignoring the role of economic incentives. According to Mulligan, workers in countries with generous paid sick day policies stay home because of "incentives, and not the flu".

I don't think Mulligan has been following the U.S. debate on paid sick days very closely. The U.S. debate is very serious about incentives. The current system --which does not require employers to provide paid sick days and leaves upwards of 50 million workers without paid sick days-- gives strong incentives to workers to go to work sick, lowering productivity and potentially spreading illness.

Of course, offering paid sick days also gives workers incentives to take time off when they are not sick. But, there is nothing in Mulligan's post that says where we should set the optimal level. He doesn't even make a case that the most generous systems in Europe are too generous, just that they lead to more sickness absences in some cases. For all we know, after we factor in the cost of contagious diseases, the most generous European systems might still be too stingy.

To make his point about the effect of incentives, Mulligan features the following graph from a recent IMF paper:
Casey Mulligan graph on sickness absences

Mulligan, however, has made very selective use of the original IMF graph:
IMF graph on sickness absences

In the original, Denmark, Germany, and seven other countries with more generous statutory paid sick days policies all have lower sickness absence rates than the United States. A really interesting question is: how is it that these countries are able to provide both guaranteed paid sick days and lower sickness absence rates? (And why didn't Mulligan include these countries in his graph?)

Archived: October 28, 2009.

The Trade Deficit and the Dollar: Another Washington Post Editorial in the News Section

Folks who took econ 101 know that currency fluctuations are the mechanism through which trade imbalances adjust. Countries with trade deficits expect to see their currencies fall in value. This makes imports more expensive thereby reducing the amount it imports. A lower valued currency makes its exports cheaper in other countries, thereby increasing its exports. With lower imports and higher exports, the size of the trade deficit is reduced.

This logic is pretty basic and not really disputed among economists. That is why it is striking to see a Washington Post piece on the fall in the value of the dollar that never once mentions the trade deficit. In keeping with the Post's editorial policy, the article attributes the decline in the dollar to the fact that the U.S. has: "a rising budget deficit and few ways to bring it under control that investors see as viable."

Of course, there is no direct relationship between concerns over the deficit and the value of the dollar, but if investors were really losing confidence in the U.S. government, as claimed in the article, then we should expect to see a sharp rise in long-term interest rates on U.S. government bonds. We don't. The interest rate on 10-year Treasury bonds is hovering near 3.5 percent, far lower than in the golden age of big budget surpluses. But hey, editorials aren't expected to include all the evidence on the other side.

The article also presents another fallacious horror story: "The risk remains of a full-blown run on the dollar that could force the Federal Reserve to suddenly raise interest rates, dealing a potentially severe blow to the U.S. recovery. That could happen if major holders of dollars, such as China and Japan, begin to sell off their holdings."

People who read the rest of the article know immediately why this story is absurd on its face. The rest of the article reports on how our trading partners are being hurt by the falling dollar.

What would happen to Europe, Japan, and other countries if the dollar were to suddenly plunge by another 40 percent against their currencies? Their exports to the U.S. would collapse and their imports from the United States would soar, devastating their economies. Does anyone think these countries would allow this to happen? If the dollar started to plunge, it is the foreign central banks that would have to take the lead to stop the slide, not the Fed.

Those of us who are concerned about the well-being of future generations are happy to see the dollar slide since this will reduce the trade deficit and therefore our level of indebtedness to other countries. The Post apparently is not in this group.

--Dean Baker

David Leonhardt's Age-Based Politics

David Leonhardt is upset that people on Social Security will get a $250 check from the government next year and denounces President Obama for pandering to the elderly. There is a lot of serious confusion in this piece.

First, he argues that the elderly have suffered less from the downturn from other groups be comparing declines in income and employment. This is actually a much tougher question that Leonhardt implies. The elderly have accumulated assets over their working lifetime. These assets plunged in value with the collapse of the housing bubble and the plunge in stock prices. This plunge has hit the elderly far more than other groups because they were in a position to have assets. So, if we took a wealth-based measure of impact, we would find that the wealthy were hit hardest by the downturn. (Asset prices were propped up by the bubble, but we can hardly blame the elderly for not being any better in recognizing the bubble than Alan Greenspan and the reporters at major media outlets.)

Second, in terms of government assistance, the making work pay tax credit is giving money to the vast majority of the under 65 population. The $250 boost to Social Security beneficiaries can be seen as an effort to provide comparable help to those who are no longer working. It's not obvious how this creates an injustice.

The third point is that Leonhardt seems to misunderstand the point of stimulus. We need people to spend money. Given the enormous idle capacity in the economy, we would benefit from handing checks to anyone who will agree to spend it. (Contrary to Leonhadt's assertion, this does not create a burden on children and grandchildren -- if anything the growth created by the stimulus is likely to mean we hand them a wealthier country.) The elderly will spend a high share of their checks, which makes this a good form of stimulus.

In fact, we really need larger deficits at this point to boost the economy, but politically this is not acceptable. We should thank the elderly for making some additional stimulus politically acceptable.

It is almost bizarre that Leonhardt would seize on this $250 check as an item to attack when there are so many larger, more pointless boondoggles. (I got an $8,000 check because I bought a home -- that didn't help anyone but my wife and me and our two dogs.) We gave close to 1 million people a $4,500 check for buying a car. The Wall Street crew pockets $6 billion a year, with many individuals personally pocketing tens of millions, through the fund managers' tax subsidy. How upset can we get about $250 checks to a group that is mostly not very wealthy.

Lastly, we get a line about protecting Medicare benefiting the elderly at the expense of our grandchildren. Actually, we could substantially reduce costs for Medicare and fully protect the quality of care. However, this would require attacking the interests of the health care industry. This is an interest group that the politicians (and the media) really pander to.

--Dean Baker

How Would Proposed Regulatory Reforms Have Worked in the Current Crisis?

This obvious question is going almost completely unasked in reporting on the financial reform. For example, if we had the large banks pay policy in place last fall, does anyone think that we would have imposed special assessments on Citigroup, Bank of America and the rest to cover the cost of bailouts of AIG and Lehman? And, if it wouldn't have helped in the last crisis, why does anyone think this approach will help in the next one?

Dean Baker

If an $8 Trillion Housing Bubble Collapsed and Wrecked the Economy, Would the Media Notice?

The answer is apparently not. The New York Times reported on the recent uptick in house prices and speculated about their future direction once government aid, like the $8,000 first-time buyers' tax credit, are removed. The article never once noted the extraordinary departure of house prices during the bubble years from their long-term trend.

Almost all of the discussion of regulatory reform also completely ignores the experience of the crisis. If the reforms being proposed had been in place during the crisis, but the regulators approached the economy in the same way (i.e. they saw nothing wrong with an $8 trillion increase in house prices), then they would have been worthless in preventing the economic collapse.

--Dean Baker

NPR Keeps the Economic Choices on the Banks Narrow

Morning Edition introduced a piece that reported on the House Financial Services Committee plans to deal with too big to fail banks by telling listeners that we had a choice last fall between allowing huge financial institutions to fail, with substantial risks to the economy, or give them hundreds of billions of dollars to keep them afloat.

This is not true, we could have given them money and totally transformed them by slashing pay for their executives (push into the six figures, from seven and eight figures) and change the way they do business. We could have ended many of the speculative practices of these firms and make them more boring. This option was generally ignored by the media at the time and it is still largely being ignored.

The piece itself forget to mention that the regulators failed to see the housing bubble. In making plans for new and complex regulatory structures, it is important to remember that our team of regulators all claimed to believe that nationwide house prices could not fall. If this was actually true, then banks were not taking excessive risks and the regulators acted properly. The problem was not the lack of the right regulatory agencies, the problem was the failure of regulators to correctly understand the economy.

NPR did not discuss the housing bubble at the time and it is still not accurately presenting the crisis caused by its collapse to its listeners.

--Dean Baker

NYT Drags German Miracle Through the Mud

Okay, I'm not on vacation, but this is a BTP flashback. My original write-up of this NYT news article was way too positive. This article was essentially a diatribe against Germany's welfare state. To make its case, it turned an incredible success story -- Germany's relatively low unemployment rate -- into a failure.

The basic deal is that Germany adopted an explicit policy of encouraging employers to shorten work hours rather than lay off workers. The government allows unemployment benefits to be used to pay workers to cover most of the loss in wages due to the shorter workweek.

As a result, Germany's unemployment rate has barely changed in the downturn. Its unemployment rate at present is 7.7 percent. This is down from 7.8 percent earlier in the year. Germany's unemployment rate in 2007 was 8.4 percent, 0.7 percentage points higher than the current level.

This is an incredible success story. Imagine Barack Obama's approval rating if the unemployment rate today was anywhere close to its 4.7 percent average for 2007. Think of the millions of unemployed workers who would not be struggling to pay their rent or mortgages or meet other bills if only our leaders were as smart as Germany's leaders. We could do something along the same lines in the U.S.

But NYT readers will be spared such thoughts because the article described the policy as a complete failure. To make its case, the NYT even used the German government's measurement of unemployment (which counts part-time workers as being unemployed) rather than the harmonized OECD measure that is directly comparable to the unemployment data in the United States.

This was not news reporting.

--Dean Baker

The NYT Has a Problem With Contracts, or at Least Union Contracts

When GM sold off its Delphi parts division, it made a series of commitments to its unions, including that it would stand behind its pension obligations. The fact that these commitments are being honored has angered the NYT. It featured an article pointing out that union workers, who had these commitments, are doing better than non-union workers who did not have these commitments.

This is similar to the situation in which executives, who were promised large pensions, tend to collect more money in retirement than ordinary workers, who did not contract for large pensions. That may not be fair, but that is the way that contracts work. It should not be news to the NYT.

--Dean Baker

Will the People Who Drove AIG Into Bankruptcy Leave for Bigger Paychecks Elsewhere?

That is the prospect raised by a NYT article reporting that many of the top execs at AIG are being lured away to a company established by Hank Greenberg, the former CEO of AIG. It would have helpful to note that many of the people leaving the company likely played some role in either carry through to allowing the issuance of the credit default swaps that led to the company's bankruptcy. It is not clear that losing these people would pose a problem.

--Dean Baker

Reporters Should Stop Trying to Read People's Minds

The NYT reported on the prospects of a public insurance plan being included in a health care package and tells readers that a public plan faced opposition from conservatives "to what they considered an attack on insurance industry profits."

Okay, that is not what the article actually said. Instead it told readers that conservatives' opposition is due the fact that they consider a public plan an: "excessive government role in the economy."

The reality is that the NYT does not know the reason why most conservative politicians oppose the public plan. Certainly their close ties to the insurance industry is a plausible explanation and possibly a more plausibly one than their philosophy of government. After all, these are politicians, not political philosophers.

Rather than attributing motives where they cannot be known, the NYT would best serve its readers if it just reported what people say.

--Dean Baker