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Dean Baker: National Treasure


Despite the worst economy since the Great Depression and the clear failure of all of the policy tenets of the last three decades, economics and financial reporting has continued largely unchanged. It does not provide context or information that would help people understand why their wages are low, why their houses are underwater (worth less than they still have to pay for them) or why they can't find jobs. Instead, it continues to generate vast amounts of propaganda designed to continue funneling wealth upward. Into this breach steps Dean Baker, who performs the thankless job of reading through this swill with alacrity and writing up concise and eminently readable corrections on his web site, the Center for Economic and Policy Research (CEPR). Here are some recent examples that can help you learn how to read the extremely slanted financial news and how you can learn which questions you should be asking. On the subject of TARP fund repayment---where the line from the press is distinctly jubilant---there is <a href="">Bank Bailouts: Goldman's Debt to Society</a>, which reminds us that TARP was not a straight-out loan because it acted as a subsidy because of the extremely low interest rate at which the money was loaned: <bq>[...] the government stepped in and providing banks with huge amounts of money (we don't know exactly who got how much because the Fed refuses to tell us what it did with our money), at a cost far below what they would have been forced to pay in private markets. <b>The banks could lend this money at enormous premiums or use it to just buy government bonds and pocket the difference in interest rates.</b> (Emphasis added.)</bq> While on the subject of massive bailouts and financial institutions that are at least partially owned by the government now is a quick article, <a href="" source="" author="">Are Freddie's Losses on Loans Purchased Since September 2008?</a>, which asks for more detail on recent reports that Freddie Mac is getting an <iq>additional $10.6 billion from the government to cover its losses</iq>. Baker asks the obvious and very pertinent question of whether <iq>these losses are due to loans purchased before Freddie Mac was taken over by the government in September of 2008 or losses on loans purchased after this date.</iq> If the former, then the government is simply still paying for the<iq>bad business decisions</iq> made by Freddie Mac <i>before</i> it was purchased by the government; if the latter, then the government is <iq>effectively subsidizing banks by paying too much money</iq> for loans made by Freddie Mac to banks after the purchase. The most important question for taxpayers is never answered, to whit: are <iq>Fannie and Freddie are b[e]ing used to subsidize banks by overpaying for their loans?</iq> And, if so, doesn't this make the trope that the banks are paying back all of their TARP loans all the more mendacious? Or the outcry that BP might be "forced" to actually pay for the oil spill that it caused. <a href="" source="" author="">In the "Free Market" BP Pays for Every Cent of the Damage It Caused</a> <bq>BP caused damage to hundreds of thousands of people, possibly millions, living in the gulf states. <b>Under free market principles, they are supposed to compensate people for the damage that they have caused by their irresponsible conduct.</b> However, the "socialists" in Congress passed legilsation that <b>limited BP's damages to $75 million.</b> This means that they ignored market principles and had the government step in and seize property from individuals and hand it to BP.</bq> When the President says that BP will pay for everything, he means up to and including $75 million, which is likely to be only a sliver of the true final cost of the cleanup effort. That has nothing to do with the free market and everything to do with <iq>redistribut[ing] wealth income upward</iq>. And then there's the myth about retirement incomes, as documented in <a href="" source="" author="">How Far Will $5 Billion Go In Covering Retiree Health Care?</a>, in which the Washington Post fails to help its readers do the basic math in order to help them come to the desired conclusion that Obama is a socialist giving away $5 billion to retirees. Here, Baker helps readers figure out how far that amount actually goes. <bq>Since this $5 billion is the total amount available for the three years from 2011 until 2014, it means that there will be just under $1.7 billion available per year, or <b>less than $900 per retiree per year.</b> Health care costs for people in this age group average well over $10,000 a year, which means that this money will cover on average less than 9 percent of costs. (Emphasis added.)</bq> Ah, well, $5 billion spread across so many people and over three years sounds like far less than it did a minute ago. If you're one of the few in the first world for whom $5 billion still sounds like a lot of money. Next up is good old Thomas Friedman writing for the NY Times and cheerfully generalizing his success---having married a billionaire heiress---into an average success for his entire generation. The article, <a href="" source="" author="">What's the "We" Jazz, Thomas Friedman?</a>, has this to say: <bq>Of course those who know anything about the economy know that the vast majority of baby boomers have not fared especially well. [...] wages began to stagnate in the mid-70s, when the oldest baby boomers were in their mid-twenties [...] most saw very little gain in living standards relative to what their parents had. Many had to go heavily into debt to buy and hold a home, to send their kids through college or to cover the cost of a serious illness. [...]</bq> But Baker is also quick to point out that this situation is the expected outcome of directed policy that was---and still is---designed to <iq>redistribute income upward</iq>. As a result of all these policies, the <iq>vast majority [of Baby Boomers] have next to nothing to support themselves other than their Social Security</iq>. These are not things that you will ever hear from even the most reviled liberal rag like the NY Times, which should actually get you thinking about just how liberal the NY times actually is. But it probably won't, because then you'd have to face just how far to the right sources that accuse a right-wing source like the NY Times of being liberal really are. Baby Boomers are in this dire situation not becuase they're all overwhelmingly <i>stupid</i> but because they're naÔve and believe what their media tells them. They believe what people like Friedman tell them. <bq>We can blame the average auto worker, shoe salesperson and school teacher for not being smarter about the macroeconomy than Robert Rubin, Alan Greenspan, and other managers of economic policy, but the fact is that they made the mistake of listening to these people. They thought that stock prices and house prices would just keep rising forever. Sure, this was stupid, but Rubin, Greenspan and the rest were supposed to be really smart people, and it was their job to know the economy. Too bad Thomas Friedman was never smart enough to notice either the stock bubble or the housing bubble and to warn his readers.</bq> Yet another source considered to be very liberal in the right-wing wasteland that is contemporary American thought, NPR, is next on Baker's shit-list in the article, <a href="" source="" author="">NPR Shills for Doctors</a>, where he notes that NPR cheerfully focused laser-like on the plight of doctors, as if they formed the most-beleagured segment of the American population. Instead, as Baker points out, <bq>It would have been helpful to include the perspective of an economist who could have told listeners that physicians are the most highly paid profession. An economist also could have told listeners that our physicians are paid far more than doctors in countries like Germany and Canada, which is one reason that the U.S. health care system is so uncompetitive. An economist also could have discussed the protectionist measures that keep the pay of U.S. physicians so far above world levels.</bq> Following up on his gutting of Thomas Friedman and his like-minded compatriots, wherein Baker puts paid to Friedman's---and many of his cohorts'---obsession with deficits is the article, <a href="" source="" author="">The Post Makes Stuff Up in the News Section to Push Its Deficit Reduction Agenda</a>, clears up the heavily promulgated confusion that a <iq>lack of fiscal discipline</iq> was the primary cause of the Euro-zone's current crisis. <bq>The euro's problem stem from the fact that many economies across Europe were driven by a housing bubble. The European Central Bank (ECB), like the Fed, thought that bubbles were fun and opted to ignore the growth of dangerous housing bubbles in many countries. [...] <b>Because Greece and the other troubled countries are stuck in the euro zone, they can neither lower interest rates nor decrease the value of their currency to offset the contractionary impact of deficit reduction.</b> As a result, deficit reduction can lead to a downward spiral in which lower output leads to a higher budget deficit, requiring further cuts, and therefore causing a further drop in output. (Emphasis added.)</bq> Further to U.S. coverage of the fiscal policy of the European Central Bank is the article, <a href="" source="" author="">What About the ECB's Reputation as a Competent Central Bank?</a>, which reminds readers in the U.S. that, contrary to what even their purportedly liberal news sources tell them, <iq>[c]entral banks are supposed to intervene to help economies in this sort of crisis, that is why governments create them</iq> and that, when they do so, they are not <iq>yield[ing] to politics</iq>. Such reporting is so deliberately deceptive and is yet another example of the finely tuned self-censoring propaganda that is mass media in the U.S. The misinformation about the EU is flying fast and thick recently, with the article, <a href="" source="" author="">The Post Misinforms Readers About the Greek Crisis</a>, taking the Post to about its completely ideological approach to economics reporting because it continues, against all logic, to hammer on the issue of debt ratios, when the problem in Greece lies elsewhere. <bq>There have been and are many countries with considerably higher ratios of debt to GDP than Greece than manage to borrow in financial markets without major problems. The more obvious problem with Greece is that it is in the euro.</bq> A final example comes from the article, <a href="" source="" author="">The NYT Doesn't Know About the UK's Housing Bubble</a>, in which the New York Times again willfully ignores the massive impact that the implosion of the global housing bubble had on all involved economies. <bq>The economic collapse following in the wake of the housing crash is the main source of the country's current fiscal problems, <b>not profligate spending</b> [...] (Emphasis added.)</bq> ...although even the NY Times is only too happy to parrot the standard right-wing line that all possible problems are due to profligate spending and, of course, excessive taxation of business and the wealthy. This is basic economics that even a tyro can learn with a few weeks concentrated reading and yet entire newspapers throughout the world are staffed with writers who either are incapable of understanding basic macroeconomics or are unwilling to do so. Or are perhaps hamstrung by ideological limitations within the organization for which they work. Next up is Baker taking the Post to task for speaking out only the business side of an issue, in the article <a href="" source="" author="">Why Should We Care What the Chamber of Commerce Tells Us About China?</a> <bq>A drop in the dollar relative to the yuan will improve the U.S. trade situation for two reasons. First, it will make U.S. exports cheaper for buyers in China, leading them to buy more. Second, it will make Chinese imports more expensive for people in the United States, leading the U.S. to consume fewer goods from China and more domestically made goods. [...] The U.S. executives in China only care about the former effect. [...] Rather than presenting the views of these executives as the simple truth about U.S. trade with China, <b>the Post should have presented them as the views of a narrow interest group.</b> (Emphasis added.)</bq> As an added bonus, if you run out of cool economics news by Dean Baker, then give Felix Salmon a whirl. He's got his head screwed on pretty tightly as well. As an example, the article, <a href="" source="Reuters" author="Felix Salmon">Deconstructing the crash</a>, addresses the 90-minute "crash" on Wall Street last week. He's not a radical by far, but he quite sensibly suggests that such mini-crashes are only going to get more and more frequent as more and more of the trading system is just a bunch of computer software "algos" constantly watching each other for minute changes in attitude toward different securities and derivatives. To that end, he humbly suggests that the only real brake on such rampant trading is a tax. <bq>Thereís a very sensible idea going around that a simple way to deal with nearly all of these problems, at a single stroke, would be to implement a tiny tax on financial transactions. Historically, people have complained that such a tax harms liquidity, which is true. But the fact is that it harms the bad kind of liquidity ó the liquidity which dries up to zero just when you need it most. Liquidity, if itís spread across multiple electronic exchanges and can disappear in a microsecond, does very little actual good, and in fact does harm during tail events like this. Letís tax it, and raise some money for the public fisc at the same time as slowing down markets and making them think before doing a trade.</bq> Where Baker is much easier to follow even if you don't have a degree or a strong interest in economic policy and financial markets jargon, Salmon can get a bit more involved. He's worth adding to the newsfeeds, though.