Dean Baker's Blog, page 360

Alan Greenspan's Bad Memory

Steven Pearlstein reviewed Alan Greenspan's new book in the Washington Post today. He is far too generous to the former Maestro.

Pearlstein tells readers:

"Like Fred Astaire on the dance floor, Greenspan glides through the list without the slightest sign he might have had something to do with those developments. What he does remember is that during his watch, the markets and the economy quickly recovered after asset bubbles burst — in 1987 (junk bonds) and again in 2001 (dot-com). Based on th...

Let's Play Which Way Is Up With Steven Rattner

Economic policy debates in the United States suffer from the fact that participants often have trouble deciding whether the problem is too much of something or too little. They do however know the problem is really bad. Steven Rattner treats us to an excellent example of the which way is up problem in a column in the NYT today.

The focus of the piece is Japan. He notes Japan's recent upturn in growth following the aggressive stimulus policy being pursued by its new prime minister, Shinzo Abe...

Numbers in Context: Big Congrats to the New York Times and Margaret Sullivan

I spend a lot of time on this blog beating up on the New York Times. There is a reason I pick on them; they are the best. There is no doubt that the NYT is far and away the most important newspaper in the country. There is no close second. They cover more news in more depth than anyone else by a large margin. Their judgements on what is news and how it is reported sets a standard that has an impact, either directly or indirectly, on every news outlet in the country.

For this reason, it is hug...

Morning Edition Says Debt Standoff Will Boost Employment and Create Jobs

Actually, it didn't explicitly say this, but that was the implication of comments from Adam Posen, the head of the Peterson Institute for International Economics. In a top of the hour news segment (sorry, no link), Posen said that the standoff will accelerate the pace at which countries throughout East Asia begin to trade in Chinese yuan instead of dollars. This will reduce demand for dollars, thereby lowering the value of the dollar.

A lower valued dollar will make U.S. exports more competit...

NYT Pushes Bad Arithmetic To Hype Consequences of Debt Standoff

The NYT, along with most of the rest of the media, has been eager to highlight the costs and risks of a debt default and even the standoff over the debt. An article today pushed this line in part by misrepresenting the impact of the 2011 standoff. The piece quoted Beth Ann Bovino, chief United States economist at Standard & Poor’s:

" 'We saw huge effects during the summer of 2011, with consumer confidence hitting a 31-year low in August and third-quarter G.D.P. growing just 1.4 percent, ....

Getting China and Japan to Hold Fewer Dollar Reserves Is an Official Policy Goal

The NYT should have pointed out this fact in its discussion of the implications of the standoff on the debt. The piece noted the uncertainty created by the standoff and then told readers:

"Any long-term turn away from Treasury bonds would most likely be driven in large part by foreign investors, like the Chinese and Japanese governments, which are some of the biggest holders of Treasury debt. The willingness of these governments to buy bonds has long held down the cost of credit in the United...

Medical Device Tax Is Recouping Some of the Excess Profits from the ACA

The NYT ran a column by Topher Spiro which defended the medical device tax. The column neglected to give the main rationale for the tax, it will recoup some of the excess profits that the industry will accrue as a result of the Affordable Care Act (ACA).

The logic here is fairly straightforward, medical devices are like prescription drugs, they can cost a lot to develop, but are cheap to produce. Companies get back their research costs by charging prices that are far above their production c...

Congress and the President Will Focus on Debt Even Though Interest Payments Remain at Historic Lows

The Washington Post article on the budget agreement told readers:

"Senate Budget Committee Chairman Patty Murray (D-Wash.) was to have breakfast Thursday morning with her House counterpart, Rep. Paul Ryan (R-Wis.), to start a new round of talks aimed at averting another crisis. Obama repeated his vow to work with Republicans to rein in a national debt that remains at historically high levels.

It obviously felt it necessary to the not especially accurate tidbit that the debt remains at histori...

Sorry Kids, Thomas Friedman Is Not Very Good at Economics

Many young people may have been mislead by Thomas Friedman's column, titled "Sorry Kids: We Ate It All," which implied that our children might somehow suffer because we are paying so much to seniors for Social Security and Medicare. The reality of course is that if our children and grandchildren do not enjoy much higher standards of living than do current workers and retirees then it will be because the rich have rigged the deck so that they can accrue most of the gains from economic growth.

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NPR Says Rivers Will Flow Upstream if the Government Misses a Debt Payment

The media seem to be on a crusade to scare readers into thinking that hitting the debt ceiling will be the end of the world. One item that has been useful in this process is the story that a technical default (a missed interest payment) in the spring of 1979 led to lasting rise in interest rates.

This story is apparently derived from an obscure 1989 article by Terry Zivney that claims this default led to a lasting 60 basis point increase in Treasury bill rates. NPR highlighted this study in...