I don't know the answer to that one but perhaps the Post can tell us. It told readers that Republican members of Congress "were enraged" over the $1.2 trillion deficit projected for the 2010 budget.

Given that the major cause of the deficit is an economic crisis brought about by the policies pursued by a Republican president some people may wonder whether the Republicans really were enraged, as opposed to just trying to score political points. However, the Post was able to determine that the Republican rage was genuine. Perhaps they can share their method for distinguishing real rage from feigned outrage with their readers.

--Dean Baker

That's because it's not true. The latest data from the Case-Shiller 20 City Index show house prices falling at a 22.4 percent annual rate. That is about as bad as it can get, but the Post says that prices are showing signs of improvement.
I guess home prices are moving rapidly back towards their long-term trend level, but that is probably not what most readers would view as an improvement.

--Dean Baker

The big item that these economists (and therefore reporters) missed in the first quarter GDP was the reason for the 2.2 percent increase in consumption. Many pointed to this rise as an increase in consumer confidence.

Okay, so how does this increase in confidence fit with the rise in the savings rate from 3.2 percent to 4.2 percent? That won't work for most definitions of 3.2 percent and 4.2 percent.

Higher consumption can't be explained by rising income either. Income fell in the first quarter. So, where does higher consumption come from?

The answer to the mystery is lower taxes and higher transfers, most importantly the big cost of living increase in Social Security payments that seniors got this year. (The cost of living adjustment is based on the 3rd quarter CPI compared with the prior year. This included the run-up in gas prices, but not the subsequent fall.) Anyhow, chalk the failure to see this as yet another big miss for the economists who missed the housing bubble.

Btw, many also got the inventory story wrong also. Inventories will not keep falling and in fact will likely increase in subsequent quarters. That is good news for the economies of Japan and China and other major exporters. The bulk of the increase in inventories will be met by imports, not domestic production. In other words, inventories will not be the force that turns around the U.S. economy.

--Dean Baker

The NYT must get this straight. With a counterfeit product the buyer is deceived. The buyers of the low-cost cell phone knock-offs in China are not being deceived. They are happily buying copies of name-brand phones which they know are not actual name-brand phones.

This distinction is very important for both economic and policy reasons. From an economic standpoint, there are large benefits from the sale of unauthorized copies that do not exist with counterfeit products. From a policy standpoint, the consumer will be an ally in a crackdown on counterfeits. This is not the case with unauthorized copies.

--Dean Baker

The NYT alluded to the AIG bailout in the context of the GM negotiations without giving readers the full context. Representative Thaddeus McCotter, a Republican from Michigan, complained that it would be outrageous if the government were to honor credit default swaps (CDS) issued against GM bonds for creditors who are refusing to accept a deal for a write-down on their GM debt.

The point is that the CDSs issued by AIG should be worthless at present. AIG is bankrupt and has no resources to pay any portion of these CDS without the government's backing. However, if the government steps in and honors CDSs issued against GM debt by AIG at market value, as it has done with other CDSs issued by AIG, then creditors have far more incentive to take a hard line in negotiations on debt write-downs. In effect, the government is paying these creditors not to reach a deal on write-downs.

The Treasury department has yet to give any explanation for the $160 billion (@ $1300 per household) in payouts that it made through AIG. This money has gone to several of the largest Wall Street banks, as well as several large foreign banks. There was no legal obligation whatsoever for the government to make these payments and in some cases there would not have even been a legal obligation for AIG to have made these payments, if it could have survived without government money.

--Dean Baker

USA Today reports that in their survey of economists, the median forecast of peak unemployment for the downturn was 9.8 percent. The economists surveyed have consistently underestimated the severity of the downturn as the article notes in pointing out that their median estimate 3 months ago was 8.8 percent.

At this point, it is almost impossible envision a scenario where the unemployment rate does not cross 10.0 percent. Since we already know the weekly unemployment filings for the last 6 weeks, it is virtually certain that April unemployment will hit 9.0 percent. The economy is still losing jobs at a rate of close to 700,000 per month. It will not stop losing jobs overnight.

Even if the economy, lost no additional jobs between April and the end of the year, then the unemployment rate would still rise to about 9.5 percent by December. If it loses 1.6 million jobs (200,000 per month), then the unemployment rate will be 10.5 percent by December. At this point, this is probably about as optimistic a scenario as can be believed.

It is also worth noting that because the labor force is much older at present than in the early 80's, this implies an unemployment rate that is inflicting far more pain than did the rate at the peak of 1981-82 recession.

--Dean Baker

There is no other way to describe an article with the subhead "Under Obama Plan, Some Entrepreneurs' Bills Would Soar." The piece centers on an extremely atypical small business owner who claims that her taxes would increase by more than 19 percent under President Obama's tax proposals. This person's situation would describe that of less than 1 percent of all small business owners so it is difficult to understand why such a person would be prominently featured in an article on President Obama's tax plans.

The article also includes several other misleading comments. The article claims that the segment of business owners who would see substantial tax increases is most responsible for new jobs. There is no evidence to support this assertion. Extensive analysis of job creation and destruction by firm size finds that firms at all sizes grow on net at roughly the same rate.

The article devotes a great deal of space to the percentage of small business owners who might have incomes that place them over the $250k cutoff that subjects them to higher taxes. This is almost completely irrelevant to anything. If a small business owner crosses this threshold by a small amount, as most in this marginal category would by definition, then it has very little impact on their tax bill. For example, if a business owner crosses the threshold by $10,000, then she would owe another $600 in taxes, an increase equal to 0.2 percent of the income of a family earning $260k.

The article also hypothesizes that President Obama might subject the income of people earning above $250k to the full 12.4 percent Social Security tax. During the campaign, President Obama suggested that he might impose a 3.0 percent tax on this income.

Finally, the article asserts that: "certain very large companies must organize as separate entities that are taxed twice -- on profits and shareholder dividends." Actually, it is not true that any business "must" organize as a separate entity. Certain very large businesses choose to incorporate because they find that the benefits that the government gives them by granting corporate status are so great as to make it worthwhile to pay the corporate income tax.

It is therefore incorrect to say that they are being taxed twice. The owners have decided to get the benefit of corporate status for which they pay the corporate income tax. Then, as individuals they pay taxes on the dividends they earn from the corporation. The corporate tax is completely voluntary -- if individuals did not feel that the benefits given them by the government from allowing legal incorporation did not exceed the size of the tax, then they could structure the business as a partnership and not pay the corporate income tax.

--Dean Baker

An NYT article that discussed doctor shortages never once mentioned the possibility of bringing in more doctors from abroad. It is far cheaper to train doctors (to U.S. standards) outside the United States and especially in developing countries.

If the United States relaxed the barriers that protect doctors in the United States from foreign competition then the gains to the economy would vastly exceed the gains from opening up trade in textiles, cars, steel or other areas. Unfortunately, the United States continues to be heavily protectionist when it comes to doctors and other health care professionals. This fact should be noted in reporting.

--Dean Baker

The Washington Post told readers that the Commerce Department's data on durable good orders for March was better than expected. The consensus forecast was a decline of 1.5 percent, while the actual decline was just so 0.8 percent, so it looks like they may have a case. The only problem is that the increase reported for February was revised down from 3.4 percent to 2.1 percent. The net effect of the downward revision and the reported growth number is to leave March's figure for durable good orders 0.6 percent below what had been expected.

--Dean Baker

This one is very close to true. Morning Edition had a piece this morning about the increase in the number of first-time home buyers. Its two sources were Lawrence Yun, the chief economist with the National Association of Realtors and a realtor.

NPR did not include any analysts to give the obvious downside to buying right now, specifically that house prices nationwide are falling at the rate of almost 2 percent a month. In some former bubble markets prices are falling at the rate of 3-4 percent a month. The sharpest declines are at the lower end of the market, the homes that first-time buyers are most likely to purchase.

This means that they are enormous potential gains from deferring a home purchase. For example, at the current rate of price decline, someone thinking of buying a home in the bottom third of the market in Los Angeles can save themselves more than $40,000 by putting off their purchase by six months.

This is why experts on asset building encourage people to delay home purchases at the moment, if at all possible. NPR should have spoken to someone for this story who did not earn their living by selling real estate.

--Dean Baker

That would seem to be the implication of a quote from China's former vice premier Zeng Peiyan, which appeared in the Washington Post today. According to the Post, Mr. Zeng wants the United States to guarantee the value of its currency.

This is a bizarre request. The United States has publicly been pressing the Chinese government to reduce its purchases of dollars, which maintain the dollar at its current value relative to the yuan and other currencies. The implied threat in Mr. Zeng's comment, that China would stop buying dollars, is exactly what both the Bush and Obama administrations claim that they want China to do.

The Post should have pointed out that China appears to be threatening to do exactly what the United States government has been pressuring it to do, stop "manipulating" its currency by depressing its value against the dollar.

--Dean Baker

In a piece on the apparent suicide of David Kellerman, the chief financial officer of Freddie Mac, the NYT told readers that:

"The roots and causes of suicide are often unclear. It is not known if Mr. Kellermann succumbed to the pressures of his job. But in the aftermath of his death, it is plain that at Freddie Mac, as at many of the companies in the center of this economic storm, there are forces so strong they can overwhelm almost anyone.

At General Motors, executives are fighting to save a company that has cut their salaries and suspended their vacations. On Wall Street, professionals are demonized and then asked to work overtime to repair the damage colleagues have wrought. These professionals may not deserve tears, particularly compared to the millions of Americans who have lost their jobs and their homes. But Mr. Kellermann’s death is a reminder that those suffering in this crisis reside in every neighborhood, from the squalid to the opulent."

It is hard to understand how these statements appeared in a news story. The article is speculating on issues about which it has no factual information. These comments might be appropriate for an oped, but they are not news.

As a factual matter, it is worth noting that almost all the executives with whom the article would like us to sympathize could quit their jobs tomorrow and enjoy a higher standard of living than most people, even if they never worked again.

In the specific case of Freddie Mac, it is astounding that these people did not see the housing bubble. Housing is all they do. Workers in other areas who showed such extraordinary incompetence would typically be fired without a moment's hesitation. However, relatively few people at Freddie Mac or Fannie Mae were fired.

--Dean Baker

Unfortunately most economists don't have a very good grasp of arithmetic. The NYT found one of those numerically challenged economists who told readers: "Only an outbreak of protectionist policies or a sharp rise in international shipping costs could slow or temporarily reverse manufacturing’s declining share of employment in the United States."

Actually, unless someone believes that the United States can run large trade deficits forever, and in effect foreigners will always give us more money for nothing, it is almost inconceivable that manufacturing will not grow as a share of GDP in future years. It's just arithmetic.

--Dean Baker

In the Morning Edition top of the hour news summary (not on web), NPR told listeners that car sales are down because of low consumer confidence. Wrong!

Car sales are down because consumers have seen $6 trillion in housing bubble wealth and have also seen around $8 trillion in stock wealth disappear. The reduced spending is the result of reduced wealth. Consumers need to rebuild their wealth, hence they are not buying things like cars.

The impact of wealth on household consumption is a well-studied economic relationship. NPR's reporters should be familiar with the concept. This matters because happy talk will not get people to start buying cars again. The problem is much deeper.

--Dean Baker

The NYT opted not to point this fact out to readers. An article reporting on the IMF's increased loss projections implies that the the banks have huge amounts of losses that are yet to be recognized. If these projections prove accurate, then the recent positive profit reports from the banks are largely illusory.

--Dean Baker

News of the housing crash and stock plunge has not yet reached the Washington Post (a.k.a. "Fox on 15th"). How else can one explain that two of their five deficit cutting measures involve reducing Social Security benefits. Certainly no one who had noticed the $15 trillion in lost housing and stock wealth by older workers and retirees would advocate taking away part of their Social Security, their one clear source of support in retirement.

This suggestion is especially outrageous since workers have already paid for these benefits through their Social Security taxes. As a result, the Social Security trust fund has accumulated enough bonds to cover benefit payments through 2049, according to the most recent projections from the Congressional Budget Office. It would be far more reasonable to suggest a partial default on the government debt, say a payment of 90 cents on the dollar. That would allow all bondholders to share the pain rather than just retired workers.

--Dean Baker

David Leonhardt visits a couple of foreclosure auctions and finds that house prices are still falling sharply. However, he seems surprised by this, claiming that by measures of rent and income house prices only have another 5 percent to fall. This is not true. The standard housing series show that house prices must fall another 15-20 percent in real terms to return to their trend levels.
(This is the inflation-adjusted Case-Shiller 10-City Index. These cities had somewhat larger bubbles than the country as a whole.)

--Dean Baker

It is being overly polite to Federal Reserve Board chairman Ben Bernanke to report on his concerns about increasing financial literacy without noting his own contributions to the public's financial confusion. Even when the housing bubble was near its peak, Mr. Bernanke insisted that there was no bubble. If Mr. Bernanke and other prominent economists had warned the public of the bubble, instead of denying its existence, they could have prevented millions of families from losing their life savings by overpaying for a house.

It would have been reasonable to note this fact when discussing M.r Bernanke's call for improved financial education.

--Dean Baker

The NYT almost made it to the end of an article about the Obama administration's decision not to reopen NAFTA before using the term "free trade." The context was a description of trade representative Ronald Kirk as a supporter of "free trade."

Of course Mr. Kirk is not a supporter of free trade. He supports government protection in the form of copyright and patent protection and has never expressed concern about the barriers to foreign professionals working in the United States which inflate physicians wages and the price of other professional services.

Reporters can save words and increase accuracy by dropping the word "free" from such discussions.

--Dean Baker

The NYT discussed the possibility that the Obama administration may seek to shore up the core capital of the major banks by converting its preferred shares that it purchased last fall into equity shares. The article does not discuss the very important issue of the rate of conversion.

At the time the government converted its preferred shares in Citigroup to common shares, the conversion ratio was far below the market value. By accepting a ratio below the market value, the government was essentially just giving money to Citigroup and its shareholders. It will be important to examine the price for any future conversions to determine if they are also government giveaways to the banks.

The article also refers to the stress tests that the government is imposing on the banks. The negative scenario in these tests is that the unemployment rate rises to 10 percent. At this point, it is virtually certain that the unemployment rate will rise above 10 percent by the end of 2009 and will likely still above 10 percent for most or all of 2010. This means that the economy is likely to impose far more stress on the banks that is assumed in these tests.

--Dean Baker

The obvious answer is, they don't. If you are a free-market fundamentalists then you are absolutely opposed to bank bailouts. That one is really really simple. See, the free-market means you leave the market to run itself. Bank bailouts involve taking taxpayer dollars and handing them to banks that would go belly up if left to the market.

However simple this distinction might seem, it somehow escaped the NYT which discussed the policies promoted in recent decades as though they could be plausibly described as "free-market fundamentalism." It should be perfectly apparent to everyone at this point that the people designing economic policy in recent decades had no philosophical commitment to "free markets," they were trying to design policies that had the effect of redistributing income upwards.

In the case of the banks this meant giving them implicit government insurance, both through the FDIC and the "too big to fail" policy, without constraints on their behavior or making them pay for it. This approach has nothing to do with free markets, it is a story of wealthy people using their political power to get valuable benefits from the government. The NYT is insulting its readers by implying that these policies had anything to do with free market philosophy.

--Dean Baker

That's right boys and girls, the alleged upturn in the housing data was just due to weather. Yes, analysts were surprised, but competent analysts were not.

--Dean Baker

The reason for the question is the Washington Post headline that told readers that the growth of China's economy had slowed to a "crawl" in the first quarter. The "crawl" in China was a 6.1 percent annual growth rate.

On a per capital basis this is a more rapid growth rate than Mexico has achieved in any year since NAFTA's passage. The Washington Post has repeated touted Mexico's fast growth in the post-NAFTA era, on one occasion even telling readers that Mexico's economy had quadrupled since 1988. Unfortunately, this growth figure was just a number that the Post's editorial board had invented to help make its case for NAFTA. The true growth figure was just 83 percent.

Anyhow, it is worth noting that the growth rate that is describing as a crawl in reference to China is much better than its poster child Mexico has even managed to attain since the passage of NAFTA.

--Dean Baker

It's true that older workers and retirees have just lost $15 trillion in the collapse of the housing bubble and the stock market plunge, but that is no reason not to cut their Social Security, according to the Washington Post. After all, some of them still have enough money for food.

Btw, someone has to explain the bank multiplier to the Post. Yes, giving a dollar in capital to the banks can end up generating $10 in loans, if they are prepared to make them. But, the benefit to the economy may be very little. The loans may go to buy cattle futures, credit default swaps, or shares of Goldman Sachs stock. None of these uses provide any direct stimulus to the economy. The economy is driven by real demand (C+I+G+X-M for those who have taken intro econ), and the relationship between more bank capital and an increase in real demand is very indirect at best.

--Dean Baker

The banks are just fine. Only a small number of loans have gone bad. Ah yes, it's a beautiful day. I suppose we have full employment also.

It's great to have diverse viewpoints, but NPR should try to make sure that the economic analysts it features have some grasp of reality. Richard Bove, who was featured on a segment on Morning Edition, doesn't fit the bill. Banks are seeing record default rates on all forms of loans and will continue to do so for the next two years. It is absurd to contend that the banks are just fine as Mr. Bove contends. It is irresponsible to present this as a serious position.

--Dean Baker

Rather than just noting surprised analysts, the Post might try noting that many of the economic analysts, whose views it uncritically conveys to readers, are often clueless. The retail sales number for March provides yet another example.

These analysts had expected flat sales or a modest increase based on chain store sales. What the analysts failed to note is that the sales data was biased upward because very few independent stores have opened in the last year, while a large number of the stores that were in business in March of 2008 are no longer in business in March of 2009. This means that the chain stores account for a larger share of total retail sales.

Competent economic analysts knew this and were not surprised by the retail sales data.

--Dean Baker

The NYT reports that China has been buying up fewer dollars in recent months to hold as reserves. It suggests that this may be due to growing concern about the potential loss in value on its dollar holdings.

It is worth noting that China must buy up dollars in order to keep down the value of its currency against the dollar. China has maintained a managed exchange rate where the value of the yuan is below the market rate. This reduces the cost of China's imports to people in the United States. This managed exchange rate is exactly what the U.S. government has complained about for years as currency "manipulation."

If China decided to stop buying up dollars for whatever reason, then it would mean that China's currency would rise against the dollar. Ostensibly, this is what U.S. government wants to see happen. It is not something that should provoke fear.

--Dean Baker

That would be fine, except that he's writing about it on the Washington Post's oped page. He warns readers that Obama's plan will drive up costs while possibly offering little benefit in terms of better health.

Of course that is possible, but the plan is quite explicitly designed to lower costs. It may not succeed, but to construct a whole column around the idea that Obama intends for Americans to get by with less material income and more "psychic" income is irresponsible.

This story is Sameulson's invention. It has nothing to do with President Obama's policies.

--Dean Baker

Let's see, the economy has lost over 5 million jobs. More than 20 million people are now either without work or can only find part-time work. Tens of millions of families have just lost their life's savings. All of this is due to the fact that the Federal Reserve Board could not confront the financial industry and clamp down on the housing bubble before it grew to such dangerous levels.

The Washington Post reviews this situation, recognizes the failings of our political system, and naturally concludes that we need a special commission to cut Social Security and Medicare. Next week the Post will no doubt feature an editorial noting the problem of global warming and conclude that we have to cut Social Security and Medicare. If the Boston Celtics win the NBA championship, it will probably provide another reason for cutting Social Security and Medicare.

--Dean Baker

Those poor bankers are now claiming that they got predatory loans from the government. I'm not kidding, that is what the NYT reports, although it didn't quite put the issue in these terms, presumably to spare the bankers from ridicule.

The NYT article tells readers that some of the banks are now unhappy with the terms of the TARP and want to return the money they borrowed. However, this early repayment would effectively carry substantial penalties (sort of like the penalties for early payment on adjustable rate mortgages with teaser rates).

This raises the tough question of whether borrowers be held responsible for understanding the contracts they sign. Admittedly, these are bankers, so perhaps more leniency needs to be extended, but what about the sanctity of contract. Larry Summers, the head of President Obama's National Economic Council, gave a great lecture on the importance of the sanctity of contract when the topic was the bonuses of AIG executives. Perhaps President Obama can get Mr. Summers to give the same lecture to the bankers who are now complaining about their repayment penalties.

Hopefully future news stories will bring these issues into the discussion.

--Dean Baker

I'm not kidding, after all Wells Fargo showed a $3 billion profit last quarter. I'm not show if this piece is meant to be news, commentary, or satire.

--Dean Baker

It seems that the people who could not see an $8 trillion housing bubble are now optimistic about the economy's prospects. That's what the Washington Post tells us.

The article points to strong bank profits, respectable March retail sales, and a modest rise in exports. While it is possible to say that all the numbers could have been worse, these data do not provide much grounds for optimism.

In the case of bank profits, much of the profit was driven by a surge in mortgage refinancing which produces large fees for banks. This surge will continue for the near term, but before long most of the people who are able to refinance their mortgages will have done so. Banks have also opted not to declare large write-downs of bad loans in the current quarter. They have apparently decided, possibly for political reasons, to defer write-downs of bad debts for future quarters.

It is important to put reports on chain store retail sales in some context. First, the same store sales are higher relative to overall chain sales because the chains have opened fewer new stores over the last year and in some cases actually have fewer stores in March of 2009 than in March of 2008. More importantly, there will be some upward bias in the chain store sales overall since there are fewer alternatives stores in 2009 than in March 2008.

Many stores that might have provided competition for the chains in March of 2008 no longer exist in March of 2009. Therefore, we should expect to see an increase in chain store sales even if there had been no change whatsoever in overall retail sales.

The article also cites Richard W. Fisher, the president of the Dallas Fed, as saying that the unemployment could cross 10 percent by the end of the year. It is encouraging that even a Fed bank president might now recognize this fact, but Post readers should know that it is a virtual certainty that unemployment will cross 10 percent by the end of the year.

The arithmetic is fairly simple. The economy shed 680,000 jobs per month over the last three months. Weekly unemployment insurance filings have been as high over the last month as at any point in the prior three months, which means that the April data will almost certainly show a similar rate of job loss. This will push the April unemployment rate up by 0.4-0.6 percent to between 8.9 to 9.1 percent.

If job loss just stopped for the next eight months, the unemployment rate would rise by approximately 0.5 percentage points by December. There is no one who thinks that the economy will suddenly stop losing jobs after April, nor that it will start creating jobs before the end of 2009. This means that it is a virtual certainty that the unemployment will cross 10 percent by the end of the year.

--Dean Baker

It's web maintenance day here at the Prospect. Between now and 8 p.m. EST, there will be no new content on the blogs, and commenting will be disabled. Don't fret -- we'll be back tomorrow, and with faster load times.

--The Editors

The Washington Post gave a glowingly positive account of Ben Bernanke's efforts to deal with the economic crisis. Missing from this discussion was any mention of the fact that he deserves a large part of the blame for this crisis.

Bernanke was a persistent and vigorous bubble denier, first in his capacity as a member of the Board of Governors and then on his becoming Fed chair in January of 2006. Even as the bubble began to unwind in the winter of 2007 he gave assurances that the problems would be contained in the subprime market. After he engineered the takeover of Bear Stearns in March of 2008, Bernanke told Congress that he did not see another Bear Stearns out there. Needless to say, he was surprised by the collapse of Lehman and the market's response six months later.

It might have been worth including some acknowledgment of the fact that, in addition to being the person trying to lead us out of this crisis, Bernanke was also one of the people who deserves the most blame for leading us into the crisis.

The media have a tendency to write glowing accounts of people in positions of power in the United States. I recall when a person I knew quite well was given a high position, the news reports described this person as being brilliant and having a sharp intellect. I personally liked and respected this person, but I doubt very much that anyone who knew this person would have made a point of talking about their brilliance or sharp intellect.

Unfortunately, reporters often seem to believe that it is their job to promote confidence in the people in power. It isn't.

--Dean Baker

With the sound of the G-20s breast-beating about the dangers of protectionism still echoing, it is remarkable to read a NYT piece recounting the entertainment industry's complaints about its inability to enforce its copyright monopolies, without any economic analysis of the cost of this protectionism to the economy. The economic losses from copyright protection are far greater than the losses from other forms of protectionism.

It would be desirable to include some economic analysis in these articles. (For example, see David Levine's excellent "Against Monopoly" website.)

--Dean Baker

Arguably Richard Cohen is just best ignored as readership of the Washington Post oped pages rapidly approaches zero, but it is worth correcting the logic by which he decided that Larry Summers, one of President Obama's top advisers, is making a huge sacrifice by foregoing Wall Street millions.

All jobs carry a mix of pleasant and unpleasant aspects. Many people take relatively low-paying jobs, for example school teachers or social workers, because they believe that they are advancing a social purpose that they consider valuable. In other cases, the people who perform the work may not consider it inherently valuable and may actually view it as carrying negative value. For example, a mob hitman would likely fall in this category.

It seems reasonable to believe that many, if not most, Wall Street players probably don't attach much intrinsic value to outguessing the market. (Yes, I know how to tell the story that they assist the process of "price discovery." I just don't think anyone believes it.) In this case, the high salary is associated with work that might be inherently distasteful.

In this sense, a person's prior salary does not give an accurate measure of the sacrifice they might be incurring to enter government service.

--Dean Baker

So it seems, otherwise it would have been mentioned in an article that discussed rising default rates on consumer debt. The article correctly notes that unemployment is highly correlated with delinquencies and default. That's of course true, but an important part of the story is the loss of home equity due to plunging house prices.

People who have equity in their homes will rarely default on credit card debt or other forms of consumer credit since they have the option to borrow against this equity. Now that tens of millions of homeowners no longer have the option to borrow against their homes, they are far more likely to default if they lose their job or have a serious health problem.

--Dean Baker

That is what the WSJ should have been asking. It reports that stress test evaluate the solvency of banks: "even if the unemployment rate were to rise above 10% and home prices to fall by an additional 25%." This is far from a worse case scenario. With the unemployment rate at 8.5 percent, and the economy reportedly losing 660,000 jobs in March, the unemployment rate is almost certain to cross 10 percent before the end of the year. With house prices dropping by 2.0 percent per month, it is also very plausible that house prices will drop by 25 percent.

A stress test is supposed to examine a worse case scenario, not an optimistic one. By picking overly optimistic projections, Treasury increases the likelihood that banks will pass the stress test. This should have been noted in the article.

--Dean Baker

In a piece about Larry Summers' ties to Wall Street, the New York Times told readers that Summers "before the crisis broke out, spoke and wrote about the need for greater financial regulation." There may be occasions where Mr. Summers did make such statements, but he is known much more for his opposition to increased regulation. Including his opposition to increased regulation of credit default swaps when he was deputy Treasury Secretary in 1998.

--Dean Baker

That's what president Obama is giving the Wall Street banks. Politico did not use good judgment in running this "Inside Obama's bank CEOs meeting," piece.

The basic point is that everyone who took part in this meeting had an interest in making it appear as though President Obama is taking a hard line with the banks. After all, the rich bankers who wrecked the economy are not very popular right now. Most people probably do not consider President Obama's plan to give them another trillion dollar bailout (equal to 300 million SCHIP kid year years) the best use of taxpayer dollars as the unemployment rate rises towards double-digit levels.

It serves both the bankers and President Obama to have President Obama seen as being tough on the banks, even as he hands them this money. Maybe he really only did give the bankers one glass of water and maybe he really did speak sharply to them. But, the bank chieftains were probably happier with this reception than they would have been with a gourmet lunch and music that didn't come with the $1 trillion.

Politico was likely fed this story to distribute it for public consumption. The White House and the banks have public relations offices that are supposed to do this work.

--Dean Baker

This is one of those rare cases where I have to disagree with Paul Krugman. His column today implies that China is somehow surprised that it is in a situation where it stands to face large losses on its dollar holdings.

This is implausible on its face. Did China not notice when the dollar fell from being worth 1.2 euros in 2002 to just a bit more than 0.6 euros last year? Did it not occur to China that they might place better bets on other currencies than a rapidly declining dollar?

The "China just discovered view" implies that China thought the dollar was a good place to invest its money and is now surprised to find that this is not true. The alternative perspective is that China understood all along that it was going to get whacked on its dollar investments. It chose to invest in dollars to prop up the dollar against the yuan. This made Chinese exports very cheap for people in the United Sates, thereby leading to the boom in U.S. imports from China.

In effect, China was subsidizing the purchase of its exports by inflating the value of the dollar relative to the yuan. Given its extraordinary growth over the last decade, this was clearly an effective development path and it may justify any subsequent loss on its dollar holdings. (Obviously, alternative paths were possible, whether they would have been better for China is an open question.)

Anyhow, the reason why the distinction between the China surprise versus strategy view is important is that the bad guys are already using the China threat as an argument to cut Social Security and Medicare. The argument goes that if we don't get our budget in order (i.e. cut Social Security and Medicare) then the Chinese will pull the plug on us. The Peter Peterson crew have already been vigorously pushing this line.

As I have argued elsewhere, we have nothing to fear if China stops investing in the U.S., but it is also important to point out that they are not suddenly surprised (shocked, shocked) by the fact that they are going to take a hit on their dollar investments. This was the deal that they consciously entered, eyes wide open.

--Dean Baker

I no longer have to joke about how the media is trying to discourage the public from concerning itself with financial regulation by telling them it's too complicated for them. NPR just did this explicitly.

There are some very basic points here that everyone should understand. The details of any form of regulation will be "complicated." For example, the actual fire safety rules for schools are undoubtedly very complicated. How many of us could write up the appropriate safeguards to ensure that our children will be protected from fire risks as they study?
Similarly, the safety rules that are necessary to ensure that our food is not contaminated would also require background that very few of us have.

Nonetheless, there are very few people who would therefore question the need for school fire safety regulation or food safety regulation. NPR is doing cover-up for the financial industry and inept and/or corrupt policymakers and regulators when it tells us that the issues are complicated.

The basic issues were extremely simple. There was a massive asset bubble that created $8 trillion in illusory housing wealth. The collapse of this bubble was going to lead to an economic disaster. This was simple, really simple, and any competent economic analyst could see it coming.

This bubble was being supported by a flood of really poorly written loans that would go bad at huge rates when the bubble burst, leading to massive losses. This was simple, really simple, and any competent economic analyst could see it coming.

How do we prevent such a disaster again? We tell the Federal Reserve Board that part of its job is to combat asset bubbles. We tell them that Alan Greenspan was wrong in thinking that asset bubbles are really cute. It would probably be good to fire some of the people at the Fed who didn't warn of an $8 trillion housing bubble, just so that they know we are serious.

There are other regulations we need also, but NPR doesn't have to bring the public in on the details of the regulation of credit default swaps and collaterized debt obligations just like it doesn't have to bring us in on the complicated details of school fire safety regulation and food safety regulation.

The basic story is that we do know how to prevent asset bubbles and we do know how to prevent a flood of deceptive loans that are virtually certain to default. It is also true that the regulations absolutely will not be perfect and in that sense it will slow growth. So what? The placement of traffic signals is not perfect and therefore slows growth.

We never do anything perfectly, that includes financial regulation. Does NPR have any evidence that the risks to growth of bad regulation are larger than the risks of misplaced traffic signals? If so, that would be an interesting piece for listeners.

But, that is not what NPR gave us. NPR implied that a housing bubble was allowed to grow to enormously dangerous levels because everything was so complicated as opposed to the possibility that those in charge were either corrupt and/or incompetent.

This is truly dreadful reporting, it's simple.

--Dean Baker

The Associated Press sees "signs recession nears bottom." There were two major data releases this morning.

The first was weekly unemployment claims. The number for the week was 669,000, near the high for the downturn. In addition, the prior weeks number was revised up from 652,000 to 657,000. That doesn't look too encouraging.

The bright spot cited by AP was that durable goods orders were up 1.8 percent, slightly higher than the consensus estimate of 1.5 percent. Of course, the data was also accompanied by a downward revision of the January data from a decline of 1.9 percent to 3.5 percent. This means that the orders data for February were 1.3 percent lower than expected by the consensus among economic forecasters. If we get too much more good news like this, we will all be unemployed.

--Dean Baker

USA Today had a piece about the growing threat of protectionism. It then listed a series of measures in the various G-20 countries that it viewed as protectionist. For some reason, it excluded from its list the trillions of dollars in below market rate loans that the United States is giving to its financial system. It did not even include the "buy America" provision in the Geithner plan that requires that the financial firms managing investment funds in the plan be headquartered in the United States.

--Dean Baker

In an analysis of the impact that the crisis is having on Europe's welfare state, the NYT told readers that:

"Demographics, too, are a challenge. On the one hand, workers fear that as they age, they will be at a disadvantage when competing for scarce jobs against younger, less expensive workers. Experts also fear a shortage of skilled workers, as Europe’s population ages and becomes more of a burden on budgets."

Let's see, older workers fear that they won't be able to compete with younger workers for scarce jobs. So the problem is too few jobs, and too many workers. Would the situation of older workers be better if they were a relatively smaller share of the population and had more younger workers to compete against?

Of course the next sentence tells us that Europe has the opposite problem when it comes to skilled workers, too few workers and too many jobs. There is one problem with this story, the ratio of the wages of highly-educated workers to the wages of less educated workers is lower in Europe than in the United States. This is not consistent with a shortage of skilled workers in Europe.

The article also includes the claim that France has a 21.5 percent youth unemployment rate. It is worth noting that the main reason that the youth unemployment rate is higher in France than in the United States is that most French college students do not work, while most college students in the United States do work. (The unemployment rate is the percentage of the unemployed among the labor force, those either working or looking for work.) Approximately the same share of young people are unemployed in France and the United States.

--Dean Baker

CNN is joining the chorus of those seeing an uptick in weather distorted data. They pointed to upticks in housing starts, and new and existing home sales in February as evidence the economy is turning around. We all want to see the economy turn around, but the weather is not going to doing it for us. Let's look at the numbers.

The number that drew the most attention was the big 22.2 percent jump in starts from January to February. That is impressive, except that the February number was only 4.5 percent above the December number. Furthermore, all of the increase was in starts in multi-family units. Starts of single family units were down 9.4 percent from their December level.

Looking more closely, we see that permits were up by 3.0 percent in February, exactly offsetting the decline in January. In other words, houses that were not started in January due to the weather were instead started in February. The January downturn was due to the weather and the February uptick was therefore an artifact of weather.

We get the same picture with the other series. Existing home sales were up 4.6 percent in February, but still down 0.4 percent from December. New home sales were up 4.7 percent from January, but were down by 9.7 percent from the December level.

The basic story is that January was a very bad month in part because of worse than usual weather. February looks good both because the weather was not bad relative to what is normal for the month and also because activity that was delayed because of weather in January instead took place in February.

This false optimism will likely be wiped out by the March jobs report that will be released on Friday. Reporters should try to find experts that know about the weather.

--Dean Baker