Beat the Press

Same Store Sales Mean Less When There are Fewer Stores

Fri, 06 Nov 2009 06:36:59 -0500

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?

Fri, 06 Nov 2009 06:18:59 -0500

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

Fri, 06 Nov 2009 05:16:24 -0500

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?

Thu, 05 Nov 2009 05:57:27 -0500

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

Wed, 04 Nov 2009 12:37:32 -0500

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

Wed, 04 Nov 2009 05:49:18 -0500

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?

Wed, 04 Nov 2009 05:39:18 -0500

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

Wed, 04 Nov 2009 05:22:59 -0500

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?

Wed, 04 Nov 2009 05:07:25 -0500

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

Tue, 03 Nov 2009 06:16:31 -0500

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

Tue, 03 Nov 2009 05:55:05 -0500

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

Tue, 03 Nov 2009 05:28:23 -0500

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

Tue, 03 Nov 2009 05:19:34 -0500

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

Mon, 02 Nov 2009 03:25:17 -0500

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

Sun, 01 Nov 2009 09:12:11 -0500

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