Beat the Press

CNN Money Takes Strong Editorial Stand on the Budget in News Section

Fri, 20 Nov 2009 14:22:33 -0500

CNN Money decided to highlight the fact that when the debt increases, interest payments will rise. While those familiar with basic arithmetic probably already understood this fact, CNN Money decided that this is big news.

To make this fact more newsworthy, CNN Money decided to say some things that were untrue and some that were meaningless. In the untrue category we get the shocking fact in the subhead that: " the interest Americans will have to pay to keep the country running over the next decade will reach unheard of levels."
Actually, those of us old enough to remember back to the 90s have heard of these levels of interest payments.

The Congressional Budget Office projects that interest payments will average 2.4 percent of GDP over the next decade. By contrast, interest payments averaged 3.1 percent of GDP in the decade from 1985 to 1994.

In the dramatically irrelevant category, CNN Money told us that: "more than half of the $9 trillion in debt that Uncle Sam is expected to build up over the next decade will be interest." Hmmm, what on earth is that supposed to mean? Defense spending over the next decade is projected to be equal to more than 80 percent of the debt. I have no idea what this comparison is supposed to tell people. If we didn't have to pay interest on our debt, we could go more than halfway to balancing the budget over the next decade? If we got rid of the defense budget, then we could almost completely balance the budget.

This ranks high in the level of silliness. CNN Money should have gotten a large contribution from the Peter Peterson Foundation or one of the other advocacy groups trying to scare people about the deficit for this piece. This certainly is not a news story.

--Dean Baker

The People Who Missed an $8 Trillion Housing Bubble and Thought Iceland's Economy Was Thriving Oppose Auditing the Fed

Fri, 20 Nov 2009 06:26:17 -0500

That is what Alan Blinder tells us in a Washington Post column today. Blinder tells us that the vast majority of academic economists and people in the financial industry oppose efforts to make the Fed more accountable to Congress. (He also bizarrely asserts that "very, very few" people support more congressional control of the Fed. This would seem to be inconsistent with the support for the Paul-Grayson bill to audit the Fed.)

Blinder tells us why more congressional input into monetary policy would be a bad thing. He notes that the Fed will start to raise interest rates at some point when the economy starts to recover. He then presents the hypothetical scenario: "Would we like to see the FOMC members called on the congressional carpet to explain why they are 'killing jobs'?"

Very good question. Just about everyone I know would say "yes." As phone records for Treasury Secretary Timothy Geithner from his days as president of the New York Fed show, Fed officials are in constant contact with top figures in the financial industry. There is no doubt that they would loudly hear the complaints from the industry if they were not raising interest rates fast enough to meet the industry's concerns about inflation.

The financial industry tends to be more concerned about inflation than the rest of us. While there is a large body of research that shows that modest rates of inflation (3-4 percent) have little negative economic effect,
the financial industry holds large amounts of fixed rate long-term debt. This debt loses value even if there are just small increases in the rate of inflation. For this reason, the financial industry tends to be much more vigilant in opposing inflation than manufacturing or other industries or the public at large, who may benefit from seeing the real value of mortgages and other debt eroded. Given the excessive influence of the financial industry on Fed policy, it would be perfectly reasonable for those not tied to the industry to desire a countervailing force on Fed policy.

It is also worth noting in this context the Fed's propensity to error on the side of excessive tightness. In the mid-90s, most of the members of the Board of Governors wanted the Fed to raise interest rates because they argued that the unemployment rate was getting too low. At the time, the unemployment rate was 5.6 percent, the level that most academic economists viewed as consistent with a stable rate of inflation.

Alan Greenspan, who was not an academic economist, argued that there was no evidence of inflation in the economy, in spite of the relatively low unemployment rate. He insisted on keeping interest rates low and allowing the unemployment rate to fall. The unemployment rate did eventually fall to 4.0 percent, with little perceptible uptick in inflation. This allowed for the first period of sustained real wage growth for most workers since the 60s. However, these gains were only possible because of the quirkiness of Greenspan's economic outlook and his extraordinary prestige at the time as Fed chairman.

--Dean Baker

Good NYT Piece on Effort to Bankrupt the FHA

Fri, 20 Nov 2009 06:12:56 -0500

The NYT has an excellent piece on how the increase in FHA mortgage limits have made it a subsidy program for relatively affluent families, speculators, and frauds.

--Dean Baker

David Brooks Has Not Noticed the Recession

Fri, 20 Nov 2009 05:59:15 -0500

David Brooks pronounces the government's bailout of Wall Street a huge success. This is an interesting assessment. It is true that the financial sector profits are at a record high as a share of all corporate profits and the financial sector has reached a new record share of private sector income, and the industry stands to pay record bonuses this year, but these may not be the best measures of success to people other than Mr. Brooks.

There is little doubt that if the government gives enough money to the Wall Street banks that they can stay afloat and prosper, as they have shown. However most taxpayers might have preferred some benefit from the trillions of dollars lent or given to the Wall Streeters other than being able to read about their high lifestyles in the gossip magazines or Goldman Sachs $500 million (@ 2 percent of its FDIC loan guarantee) contribution to charity.

Brooks also wrongly characterizes Treasury Secretary Timothy Geithner's view of government: "you’d probably say that he starts with a set of fairly conservative instincts about the role of government." His actions during the crisis suggest otherwise. He seems to believe that the government is obligated to play a very large role in protecting large financial institutions and their executives from the consequences of their actions. This makes him a classic nanny state conservative.

--Dean Baker

TARP Money Cannot Be Used to Pay Down the Debt!

Thu, 19 Nov 2009 05:49:12 -0500

Arghhhhhhh! TARP is a loan program, not a spending program. Let's explain the difference so that even a Washington Post editor can understand it.

A loan is expected to be paid back. When Congress appropriates money for a loan, it does not add to the deficit. The government lends out money, but it owns a loan that it expects to be paid back. The only cost to the government is either any subsidy implicit in the loan or the losses on loans that are not repaid.

The Congressional Budget Office expected the bulk of the TARP money to be repaid, therefore it was never scored as spending. Only the expected losses were scored as spending. Therefore, the Obama administration cannot use unallocated or repaid TARP funds to pay down the debt -- that is what CBO always assumed would be done with the TARP money.

It's a nice trick to claim this, but serious news outlets should not let them the Obama administration get away with such silliness.

--Dean Baker

Commercial Announcement: TARP Congressional Oversight Panel!

Wed, 18 Nov 2009 17:05:52 -0500

You can see the hearings live on Thursday, 9:30-11:30 EST. (Yes, I will be testifying).

http://cop.senate.gov/hearings/library/hearing-111909-economists.cfm

Bloomberg: Republicans Have Taken Over the House!!!!!

Wed, 18 Nov 2009 14:38:06 -0500

That is what readers of Bloomberg's discussion of the debate over auditing the Fed must think. After all, Bloomberg refers to a "Republican" bill with more than 300 co-sponsors. In the 435 seat House, the 300 co-sponsors of this bill would give the Republicans a comfortable majority.

In real world land the Democrats still have a comfortable majority of the house. In fact, the bill to audit the Fed is not a Republican bill. One of the two leads sponsors is Alan Grayson, one of the most progressive Democrats in the House. It was co-sponsored by more than 100 Democrats.

Perhaps Bloomberg can find a reporter who is a bit more familiar with the House to give a serious discussion of this effort to make the Fed accountable to Congress, just like any other government agency

--Dean Baker

Reporting What They Say, Not What They Think

Wed, 18 Nov 2009 05:01:25 -0500

An NYT article does a nice job of simply reporting what politicians say as their reason for opposing a public option, instead of doing the mind-reading exercise of telling readers what they think:

"Senator Thomas R. Carper, Democrat of Delaware, said he was trying to devise such an alternative to meet 'centrist concerns about the public option.' Over and over, Mr. Carper said, the centrists have made clear that they do not want to create an insurance plan that is 'government-run or government-funded.'"

The point is that these politicians may oppose a public plan because they have done a careful assessment of its merits and decided that it requires too much government involvement in health care or they may oppose it because they get lots of campaign contributions from the insurance industry (other explanations exist as well). The reporter does not know their true motives, he/she can only know what the politician claims as their motives. This is what they should pass on to readers.

--Dean Baker

The New York Fed's Ineptitude in the AIG Bailout Is a Front Page Story, but Not in the Washington Post

Tue, 17 Nov 2009 05:49:50 -0500

The special inspector general found that the New York Fed, then under the leadership of current Treasury Secretary Timothy Geithner, badly botched the bailout of AIG. Its mishandling likely cost taxpayers tens of billions of dollars to the benefit of folks like Goldman Sachs.

This story belonged on the front page. The NYT and WSJ both put in the front page, while Market Place radio made it the lead story. It got page 24 coverage in the Post. The Post is very concerned that increased Congressional oversight will interfere with the Fed's independence.

[Correction: I have been told that this was a page C1 article in the WSJ, not A1.]

--Dean Baker

What Would a Rout of the Dollar Look Like?

Tue, 17 Nov 2009 05:37:04 -0500

The Washington Post tells us that the decline in the dollar in recent months: "has raised fears that what has been an orderly decline could become a rout." Really? Who has these fears, what would a dollar rout look like?

I remember reading in the Washington Post and elsewhere how the "Buy American" provisions in the stimulus package were devastating to our trading partners. Of course, these provisions just applied to a few billion dollars of steel and other goods that would be purchased with stimulus money.

Imagine that all imports soared in price by 40-50 percent due to a rout of the dollar. Suppose also that all the goods that everything the U.S. exports (roughly $1.5 trillion a year) were suddenly available in Japan, Germany, Canada and everywhere else at half of its current price, due to a rout of the dollar. No doubt our trading partners would just sit there dumbfounded as their trade surpluses turned into huge deficits, right?

In reality, the story of a dollar rout is absurd. U.S. trading partners would intervene to keep the dollar falling below levels that they considered acceptable to their economies. The dollar rout is simply a scare story that Wall Street people like to circulate for their own ends. The Post should not be repeating this nonsense.

--Dean Baker

Good Editorial on Housing at the Post

Mon, 16 Nov 2009 06:02:26 -0500

Too bad they didn't run things like this during the bubble years. They should also have mentioned rent-based appraisals, but this is pretty good coming from the Post.

--Dean Baker

Drug Companies Lie About Their Test Results #45,671, Can We Talk About Patent Protection?

Mon, 16 Nov 2009 05:48:24 -0500

The NYT has an article reporting on how test results on Zetia, a new cholesterol lowering drug, were hidden or misrepresented. It never mentions the incentives given by patent protection for this sort of corruption. There are alternatives to patent protection for financing drug research. It is remarkable that this never gets mentioned in news reporting. The distortions created by patent protection for prescription drugs dwarf the distortions created by the protectionist measures that "free traders" focus their sights on.

--Dean Baker

The New York Times Claims the Chinese Are Morons

Sun, 15 Nov 2009 08:44:08 -0500

The NYT decided to hype the story of China as lender to the U.S. government and told readers that China is going to monitor the government's fiscal situation. It quoted a nameless U.S. government official engaged in talks with the nameless Chinese officials: "they wanted to know, in painstaking detail, how the health care plan would affect the deficit," explaining that: "Chinese officials expect that they will help finance whatever [health care plan] Congress and the White House settle on, mostly through buying Treasury debt, and like any banker, they wanted evidence that the United States had a plan to pay them back."

If China is concerned about being paid back, then they should be asking first and foremost about the U.S. trade deficit. This will be far more important in determining the value of the dollars that China receives back on the money it lends to the Treasury. If the U.S. government had budget surpluses for decades into the future, but it continued to run trade deficits that were comparable to their pre-recession level (6 percent of GDP), then China would be repaid in dollars that are worth far less than the ones it had lent to the government, since the trade deficit would depress the value of the dollar over time.

If China is really concerned about the return on its investment in U.S. Treasury bonds it would be asking about the U.S. trade deficit, not the budget deficit. It would be truly incredible if high level Chinese officials did not recognize this fact.

More likely, the nameless U.S. official has an agenda to push to the public and therefore he/she made assertions about the Chinese that may not be true in order to advance this agenda. Good reporters recognize that political figures have agendas and therefore do not always present information accurately. That is why they do not let them speak off the record unless there is a very good reason.

--Dean Baker

The Fed Is Responsible for 10.2 Percent Unemployment in the Same Way That Al Queda Was Responsible for September 11th

Sun, 15 Nov 2009 08:30:24 -0500

The reason for repeating the obvious is that David Ignatius in the Washington Post is trying to rewrite history on this topic. He belittles people who hold the Fed responsible for the economic downturn:

"With unemployment above 10 percent, the public is angry about last year's financial crunch -- and looking for people to blame. The Fed is just elitist enough, and Bernanke is just enough of a professorial egghead, to make them targets for popular anger."

This absurd condescending comment has no place in a serious newspaper. It would be like writing that "the public is angry about the September 11th attacks and Al Queda and Osama Bin Laden are just Muslim enough to make them proper targets for popular anger."

There may well be an anti-elitist strain to the anger against the Fed and Bernanke, but serious people do not dispute their responsibility for the economic crisis. There was an enormous housing bubble that was easy for competent economists to recognize. It was inevitable that it would collapse and that its collapse would lead to a serious downturn. Bernanke and the Fed allowed the bubble to just continue to expand until it collapsed of its own weight instead of using the powers of the Fed to rein it in before it grew to dangerous levels. All of this is entirely clear to those who know the history, even if the facts may be confused in the minds of the Post's columnists.

(Just to be clear, the Fed did not plan the collapse of the bubble and the downturn in the way Al Queda planned for thousands of people to die in the September 11th attacks.)

Dean Baker

Is the NYT Prohibited From Discussing Alternatives to Patent Supported Drug Research?

Sun, 15 Nov 2009 07:56:07 -0500

It seems that this could be the case. Even in an article that discusses ways in which M.I.T. is trying to make the patent system less inefficient there is no mention of any alternative to patent support for financing drug research.

It's good to see that M.I.T. is devoting its resources to reducing the inefficiency of the patent system, but its efforts would probably be better directed towards developing alternative mechanisms, that assumes that M.I.T. is not also prohibited from discussing alternatives.

--Dean Baker