Dean Baker's Blog, page 491

Full Cost-Benefit Analysis of AIG Bailout

The Washington Post (a.k.a. Fox on 15th Street) did another one of its cheer leading pieces for the bank bailouts, telling readers that country is likely to make money on its bailout of AIG in its lead editorial. This is of course silly since the Post's calculation assumes no opportunity cost for money.

Under the Post's definition of profit, if the government lent out $10 trillion for 30 year mortgages are 1.0 percent interest, and got this money paid back, then it would have made a profit...

Genuine Counterfeits

The NYT discovers a real case of counterfeiting in an article about a wine dealer who was arrested for selling millions of dollars of fake wine. This one is worth noting because it is in fact actual counterfeiting, as opposed to the cases of selling unauthorized copies that are often wrongly identified as "counterfeits" in the media.

The difference is that in a case of actual counterfeiting the buyer is defrauded. They think that they are getting something that they actually are not getting. ...

Unit Labor Costs: Can We Force WSJ Reporters to Read the Graphs They Use?

It would be a big step forward if we could. Kathleen Madigan tells readers that the Fed is going to have to start worrying about inflation since unit labor costs have exceeded the core inflation rate in the last two quarters. This is shown very nicely in the graph accompanying the blognote.

Of course this graph also shows unit labor costs running way below core inflation all through 2009 and 2010. This means that companies had huge increases in profit margins over this period. It might be...

Oil Prices ARE Determined in the World Market #3456: It is Not Just Something that President Obama Says

A NYT article on President Obama's proposals for increasing the tax credits for buying cars powered by alternative fuels concluded by quoting President Obama's statements that gas prices are determined by the world market and will be little affected by increased U.S. production of oil. This is also something that happens to be true.

U.S. oil production is around 9 percent of world production. Even very large increases in U.S. production would have only a minimal effect on world oil prices...

The NYT Editorial Board Flunks Housing and the Economy 101

The NYT's editorial on housing policy makes it sound like it expects the Nasdaq to return to its 2000 peak of 5000. The NYT wants more action on housing in order to get prices to rise and boost the economy. There is so much that is wrong about this view that is difficult to know where to begin.

At the most basic level, why on earth would we expect house prices to rise? Has the NYT still not noticed the housing bubble? There was no logic to the run-up in house prices over the years 1996-2006.

...

Erskine Bowles on Predictable Economic Crises

Tennessee Senator Bob Corker had an oped in the Washington Post complaining about the budget deficit. He concluded the piece by quoting Morgan Stanley director Erskine Bowles comment that the deficit is leading to "the most predictable economic crisis in history."

This is not true. There are many countries that have sustained debt to GDP levels of more than twice projected for the United States ten years from now. Japan currently has a debt to GDP ratio of more than 200 percent and can still ...

The Washington Post Gets Out Extra Whitewash for Piece on the IMF and Greece

The Washington Post had a front page fluff piece on the IMF of the sort that would be expected in a paid advertisement. The 5th paragraph tells readers:

"Over the decades since its creation after World War II, the IMF has taken responsibility for ensuring the health of the global economy. The agency has repeatedly rescued teetering governments and restored confidence to panicked markets by coupling its unrivaled expertise with money provided by member countries, most prominently the United...

David Brooks Argues That If We Were More Moral, We Would Throw Millions More Out of Work

Yes, he did. His paean to the late James Q. Wilson is titled, "the rediscovery of character." It is a discussion of how Wilson touted the importance of values to a country that Brooks believes lacks them.

In the middle of the piece he tells readers:

"Every generation has an incentive to spend on itself, but none ran up huge deficits until the current one. Some sort of moral norms prevented them."

Of course the reason that the country is running up huge deficits at the moment is that private s...

There Is Little Disagreement That Drilling Off the U.S. Coast Will Have Almost Zero Impact on the Price of Gas

In an article on the debate over offshore drilling, the NYT told readers:

"while candidates have sparred over the reasons for rising prices, there is little disagreement over the call for more drilling, onshore and offshore."

The NYT should have also told readers that there is almost no disagreement among economists that drilling everywhere all the time offshore will have almost no impact on the price of gas in the United States. The reason is that we have a world market for oil. The...

Will the French Have to Work Fewer Hours to Compete With Germany?

The NYT had an article comparing the relative success of Germany's economy compared with France. It notes that Germany has a considerably lower unemployment rate and stronger growth.

The article highlights France's stronger labor market protections as a factor explaining the different outcomes. In this vein, the article includes a quote from a German official that, "the French work to live and the Germans live to work."

The data suggest otherwise. In 2009, the most recent year for which data ...