The Washington Post is a huge supporter of trade agreements like NAFTA that put non-college educated workers in direct competition with low-paid workers in the developing world, while largely protecting the most highly educated workers like doctors and lawyers. They push this selective protectionism by calling it "free trade." They also call anyone who disagrees with their agenda of selective protectionist, which is designed to redistribute income upward, a protectionist.

The paper really outdid itself today with a front page editorial that used the term "free trade" in the headline and 7 other times in a 900 word article.

--Dean Baker

The Post had a front page article with a headline warning readers that a "new round of foreclosures threatens housing market." Yes, well actually a huge oversupply of housing created by the bubble-driven construction boom is virtually certain to push prices back down to their trend level.

This one really is not hard. Nationwide, inflation-adjusted house prices rose by more than 70 percent during the bubble. Over the hundred years from 1896 to 1996 they had just kept pace with the rate of inflation. Prices must fall by another 15 percent or so to get back to their long-term trend. Given this departure from long-term trends, and the continued massive oversupply of housing as measured by record vacancy rates, it would be very surprising if house prices stabilized at their current level. Another wave of foreclosures will be a factor depressing prices -- and could cause prices to overshoot on the downside -- but prices would be virtually certain to fall further in any case.

The Post article included no discussion of the bubble. This is perhaps not surprising from a newspaper whose main source on the housing market during the bubble years was David Lereah, the chief economist of the National Association of Realtors and the author of the 2006 bestseller, Why the Real Estate Boom Will Not Bust and How You Can Profit From It.

--Dean Baker

Peter Peterson, the billionaire Wall Street investment banker, is devoting more than $1 billion to a campaign to whip up fears about budget deficits in order to force cuts in Social Security and Medicare. It almost looks as though the NYT has joined the effort.

It printed an article today that uses a measure of government debt that is explicitly designed to be misleading. The article reports on the debt of Greece, but then adds in a discussion of the debts of other countries, including the United States.

The calculations are misleading because they compare future obligations over many decades to the current year's GDP. The honest way to do this calculation is to compare future obligations to projected GDP over the time horizon in which these obligations will be met. However, this calculation would produce a much lower ratio. (The debt in the case of the U.S. would be around 6 percent of GDP.)

It is also worth noting that in the case of the United States, the vast majority of the projected deficit is due to exploding health care costs. If the country fixed its health care system it would instead have large surpluses.

--Dean Baker

The Washington Post reports that Senator Gregg does not know why the government is spending money to create jobs. According to the Post, Mr. Gregg said of a jobs bill:

"Why do we keep doing this? .... Why do we keep passing debt on to our children? Why do we keep running program after program out here that is shrouded in sweetness and light but not paid for?"

As every economist knows, the point of spending money in a downturn is to boost the economy and create jobs. If we raised taxes to pay for the spending then the spending would provide a much smaller boost to the economy. It would have been worth pointing out to readers that Mr. Gregg apparently has no knowledge of economics and is supporting policies that raise unemployment.

The statements from Senator Gregg, about issues that directly affect the lives of millions of people, are far more worthy than other comments that the Post and other media outlets have opted to highlight, such as then Senator Obama's use of the word "bitter" in reference to white working class voters during the presidential primaries.

--Dean Baker

In a discussion of the future of Fannie Mae and Freddie Mac the Washington Post noted that the government had committed $125 billion to cover their losses. While the article reports that these losses have been a major political issue, it would have been useful to point out that the losses were, in effect, subsidies to banks.

Fannie Mae and Freddie Mac buy mortgages in the secondary market. If they lose money it means that they paid banks more for these mortgages than they were worth. This overpayment is effectively a subsidy to banks who otherwise would have been left holding the mortgages on their books and likely would have incurred losses when they went bad.

--Dean Baker

The NYT reports that opponents of a measure that would save money by putting private lenders out of the government guaranteed student loan business warn that it could cost jobs. This is of course true.

Suppose there is an efficient computer company that sells computers for $500 each and an inefficient computer company that sell comparable computers for $1,000 each. It is likely that the inefficient computer company employs more workers for each computer produced than the efficient manufacturer. Therefore switching orders from the less efficient company to the more efficient company would cost jobs.

This is effectively what is happening with the student loan program, except the more efficient provider happens to be the government. There is no more argument to obstruct this switch because of possible job loss than there would be to try to prevent people from buying goods from more efficient producers. This is economic growth. The people who lose their jobs should be reemployed where they could be more productive.

--Dean Baker

Anyone seriously interested in controlling health care costs would be actively discussing alternatives to patent protection for financing the development of prescription drugs and medical equipment. Everyone who has taken even an intro economics class knows that there will be horrible waste and corruption when goods can sell for hundreds of times their competitive market price, as can be the case with prescription drugs and medical equipment. Those interested in controlling costs would also be actively seeking to promote international trade in medical services since the health care systems in other countries are so much more efficient than the U.S. system.

Neither of these items even gets mentioned in David Leonhardt's discussion of the prospects for controlling health care costs. This is indicative of the incredible corruption of the public debate on health care reform.

--Dean Baker

The NYT reports that the Fed is debating whether much of current unemployment is due to a skills mismatch between workers and the available jobs as opposed to simply a cyclical shortfall in demand. It is worth noting that the assertion of skills mismatch is a predictable behavior of economists in policy positions in every recession. There were many papers arguing exactly this story after the last downturn as the economy continued to shed jobs for almost two years after the recession ended.

--Dean Baker

Morning Edition introduced an interview with George Soros by saying that the United States is still recovering from a financial meltdown. This is wrong. The reason that we have near double-digit unemployment is that we had an $8 trillion housing bubble that collapsed. The financial crisis was secondary.

This is best demonstrated by countries like Spain. Even though it has a relatively well-regulated financial system, and therefore did not have a financial crisis, its unemployment rate is 19 percent. Spain's problem was that it had a horrific housing bubble. It is not easy for an economy to recover from the distortions created by such asset bubbles.

NPR missed the bubble as it grew. It apparently still does not recognize what has happened to the economy.

--Dean Baker

The NYT reported that China and India both signed an agreement to limit their greenhouse gas emissions. The article cites unnamed analysts who complained that the new commitment by China and India falls short of the terms of the agreement.

The article neglected to mention that on a per person basis China emits about one quarter as much greenhouse gases as the United States, while India emits around one-eighth as much. It is impossible to understand these countries positions on this issue without recognizing how much less they contribute to global warming than people in the United States. They will not agree to permanently hold their emissions below U.S. levels without compensation and the U.S. lacks the ability to force them.

In other words, people who care about global warming should want the U.S. to pay China and India to limit their greenhouse gas emissions. Those who don't want to see such transfers are just wasting everyone's time.

--Dean Baker

Yep, the good news according to the headline of the USA Today article is that the Bureau of Labor Statistics reported that job openings in January were at their highest level since last February of 2009. That would be the month when the economy lost 726,000 jobs.

The numbers are going in the right direction -- it's good to see the number of job openings increase. And the number of layoffs and discharges fell to 1,890,000, the lowest level since April of 2008, a month when the economy shed 149,000 jobs. But we still have a long way to go before we are going to see healthy job growth. These numbers must be put in context.

--Dean Baker

Those who favor affirmative action for people with no discernible skills undoubtedly appreciate Dana Milbank's page 2 column in the Washington Post. Today Mr. Milbank used his column to tell the world that he knows absolutely nothing about economics.

The theme of the piece was that in ten years the United States will be like Greece. He discusses the trip to the United States of Greek Prime Minister George Papandreou seeking support for his country during its current fiscal crisis and tells readers: "if current trends persist, an American president will be doing the same thing in about 10 years."

The article goes on: "He or she will probably be in Beijing, asking for more favorable interest rates or pleading with the Chinese government to keep speculators from betting on an American default."

Okay, now let's imagine that Milbank had taken an econ class at some point. Suppose speculators were betting heavily against the dollar. The value of the dollar would be plummeting. If China still had its peg of the yuan to the dollar, then it would be spending trillions of dollars every year keeping its currency from rising. What would we be begging China about in this story?

Suppose China had broken its peg to the dollar so the big bad speculators had pushed the yuan from its current value of about 15 cents to 30 or 40 cents. Chinese goods now cost 2 or 3 times as much in the United States and our goods cost one half as much to people in China. What would we be begging China about in this story? (Our other trading partners would be in the same situation.)

Currency values correct trade imbalances. While U.S. productive capacity has taken a hit from the policies that Milbank and his Post colleagues favor (the high dollar and trade policies they have promoted), it still produces and exports an enormous amount of goods and services. If we ever faced a crisis like that facing Greece today, it would be at least as much a problem for the rest of the world as for the United States.

The reason that Greece faces such enormous difficulties is that it is part of the euro zone and therefore does not have a currency that can simply adjust in value. This basic point, which has been widely noted in the business press, apparently escaped Milbank's attention.

--Dean Baker

In an article about the increasing number of people receiving long-term unemployment benefits the Post told readers that to have a labor force suited for the jobs of the future: "the Obama administration has tried to address that by investing heavily in education, clean energy and scientific research."
Actually, the Obama administrations investments in education almost certainly don't even offset the state and local cuts in spending forced by the recession. Its heavy investment in clean energy and scientific research is dwarfed by its spending on the war in Afghanistan.

--Dean Baker

There is a line being pushed by some on the right (e.g. David Brooks today) that small businesses are putting off hiring because of uncertainty over the costs they may face from health care reform, global warming restrictions, or other tax and regulatory changes.

It is understandable that small businesses would be reluctant to commit themselves to having another employee on the payroll if we were in a country like Italy or Spain where permanent employees have a substantial degree of employment protection. Employers in these countries (and most other wealthy countries) cannot simply lay off workers any time they choose.

However, if we live in the United States, we know that employers here can lay off anyone they want, any time they want, with no restrictions whatsoever. This assumes that there is not a union contract, which is the case for 93 percent of private sector employees and close to 100 percent of employees of small businesses.

Suppose that we have a conscientious small business owner who can't stand the thought of laying off workers. (This isn't facetious, such people exist.) Would these small business owners be reluctant to hire workers right now because of uncertainty over future costs? Well, consider that 4 million workers leave their job every month. That is almost 3 percent of payroll employment. If employers are worried about costs that they may face in 2011 or even 2012, they are virtually certain to see substantial attrition in their labor force between now and then.

This means that even if they don't want to lay anyone off, small businesses need not worry that hiring today will leave them with more employees than they can afford once President Obama and his Big Government crew bury them in taxes. In short, when they say that uncertainty about taxes is delaying hiring, the David Brooks crew is just making things up.

--Dean Baker

I was one of the economists who thought the February jobs report was relatively good given the weather. Still, that was only compared with an expectation of a very bad report. The WSJ went a bit overboard with a headline: "Outlook Brightens for Jobless."

The report still showed a loss of 36,000 jobs. It is certainly possible that if we remove the effect of the weather, that the number would have been a small positive, but this is nothing to write home about. The economy has to generate about 125,000 jobs a month just to keep even with the growth of the labor force. No one thinks the economy would have created that many jobs in February even if the weather had been great.

Given the severity of the downturn, we should be seeing job growth in the neighborhood of 300,000 to 400,000 a month. There is no plausible story that gets us there any time soon. And, there are many downside risks with the withdrawal of supports for the housing market, state and local government cutbacks, and the possibility of a higher dollar worsening the trade balance. So, the WSJ may want to rework that headline.

--Dean Baker

Robert Samuelson argues that they will. Samuelson apparently believes that people's standard of living is determined only by their tax bill. According to Samuelson's world view, Bill Gates is much worse off than the typical middle class family because he pays so much more in taxes.

Of course in real world land, well-being is determined by after-tax income. The greater sum that Bill Gates pays in taxes is trivial compared to his enormous income.

The same story applies for the millennials. The projections from the Congressional Budget Office, the Fed and all other standard sources show that before-tax compensation will rise on average at the rate of about 1.4 percent a year. This means that after 20 years their compensation will be more than 30 percent higher than what workers get today. This means that even if they pay substantially higher taxes than workers today, they will still have substantially higher living standards.

The retirement of the baby boomers is likely to help millennials. It will reduce the supply of labor -- creating opening higher up on career ladders -- thereby allowing millennials to get better jobs with higher pay.

The real threat to millennial living standards are:

1) inequality -- the continuation of the recent trend where more money goes to the top of the income distribution;
2) a broken health care system -- protectionists in control of policy want workers to give all their money to insurers, drug companies, medical supply companies and highly paid specialists;
3) ecological problems -- if the people in Bangladesh can make our children pay for the damage we have done to their land and lives through global warming, then our kids may be in trouble;
4) incompetent economic policy -- if geniuses like Alan Greenspan and Ben Bernanke continue to control economic policy, then they may be able to create poverty even in a world of enormous potential affluence.

These factors rarely get mentioned in Samuelson's account.

--Dean Baker

The NYT has a piece discussing efforts by Ford and GM to improve their quality. There is a chart accompanying the article showing the trend in complaints for the three automakers over the last decade. It shows a sharp drop in complaints by model year for both Ford and GM, while the numbers for Toyota remain almost flat.

The picture is somewhat distorted since it doesn't take account of sales. GM and Fords sales both fell by roughly one-third over this period, while Toyota's doubled. This means that Toyota also saw a sharp fall in complaints per vehicle, while the declines on a per vehicle basis for Ford and GM are not as steep as indicated by the graph.

--Dean Baker

The NYT's piece on Iceland's referendum on using public money to pay debts to foreign bank depositors failed to explain the real issues involved. During the boom, several Icelandic banks courted deposits outside the country, mostly in the UK and the Netherlands, by offering higher interest rates. The banks then used these deposits to finance a range of highly speculative investments.

As long the bubbles kept expanding, this model was hugely successful. However, when the bubbles burst, the value of the banks' assets collapsed and they had no ability to repay their depositors. This would have all been a private matter, except that the government insures bank deposits up to a certain level (like the FDIC in the United States). Iceland, as a matter of its treaty obligations with the European Union, is obligated to maintain a system of public deposit insurance which applies to both domestic and foreign depositors.

The issue here is whether private banks can effectively create enormous obligations (the money at stake would be equivalent to $6 trillion in the United States) for taxpayers. There was obviously an enormous regulatory failure on the part of the Icelandic bank regulators. International agencies like the IMF also played a role in failing to call attention to what were obviously very speculative investments. (Frederick Mishkin, a former Federal Reserve Board governor, did his part to promote the Iceland catastrophe, touting the great strength of its economy in a 2006 report. He does not appear to have faced any consequences as a result.)

It is also likely that some of the banks' actions involved fraudulent accounting practices if they concealed the extent of their true liabilities. The question then is whether the taxpayers or the depositors should bear the risk from fraudulent actions by banks. Arguments could be made in both directions, but this issue is never mentioned in the article.

It should also point out how the Iceland makes a mockery of anyone who claims to support leaving financial activities to the market. In almost all cases, actors in financial markets assume that governments will stand behind banks at the end of the day. Therefore when they say want the government to leave things to the market they are lying. They just want to be able to take risks with taxpayers money, without being fettered by regulations limiting the extent of these risks. In short, the finance boys want a free lunch, not a free market.

--Dean Baker

Just about every member of Congress supports protecting one or more domestic industries from foreign competition. For example, no member has publicly endorsed opening up our health care system to greater international competition.

Therefore, describing a member of Congress as "anti-free trade" is misleading since the description would apply to every member of Congress. In describing Representative Sander Levin, the interim chair of the House Ways and Means Committee, as "anti-free trade," the Post just means that he is opposed to trade measures that it supports.

--Dean Baker

The House just approved a $15 billion jobs bill that was already passed by the Senate. Will it help the economy? The NYT told readers that Representative Bob Etheridge, "estimated that the measure could create one million jobs." It then quoted Republican Representative Steven LaTourette saying that: "This is a no-jobs bill, this is a faux-jobs bill, this is a snow-jobs bill."

Later we are told that: "But lawmakers said that given the dismal unemployment picture, they were willing to give it a try, and estimated the tax breaks would put 300,000 people to work." It's not clear where this 300,000 jobs number came from or which lawmakers it is associated with.

As a practical matter, the incentive in the bill, which is primarily the 6.2 percent employer side of the Social Security tax, is unlikely to be large enough to have much effect on hiring. Even in the current weak economy, employers hire close to 4 million workers a month offsetting the departure of roughly the same number of workers. Most of these new hires would qualify for the credit, which means that the bulk of the $15 billion is likely to go to firms for hiring that they would have done in any case.

Readers are not likely to have the time or background to evaluate competing assertions about a bill's impact. The NYT reporter should.

--Dean Baker

The NYT told readers the defense spending in the United States is equal to 4.0 percent of GDP. The Congressional Budget Office reports that it was 4.6 percent of GDP in fiscal 2009 and will be 4.7 percent of GDP in fiscal years 2010 and 2011.

--Dean Baker

The Washington Post had another piece pushing deficit scare stories. This time it tells readers that Greece's problems could spillover to the U.S. According to the piece, fears of a Greek default could lead investors to become more worried about a U.S. default, pushing up interest rates on U.S. government bonds.

There are two logical problems with the assertions in the piece. If investors flee U.S. bonds because they fear default, where are they going to put their money? If the U.S. actually did default, then almost any other asset will also take a huge hit. For example, holding U.S. stock or bonds would be really really stupid if you thought that the U.S. government was going to default on its debt.

This would in turn imply a general flight from dollar denominated assets, which in turn would lead to a plunge in the value of the dollar. A plunging dollar would in turn lead to soaring exports and a would cause the economy to boom rather than crash, as the article claims.

The other logical problem is that, contrary to the assertion of the article, the Fed actually can control long-term interest rates. It can in principle buy as many Treasury bonds as it wants. Ordinarily it would be reluctant to buy a huge amount of long-term bonds because of fears of inflation, however in the context of a sharp downturn and high unemployment, inflation is not a serious concern.

--Dean Baker

Okay, he said "runaway federal spending," but as long as you're making stuff up, you might as well make it invading Martians. It's no less true and a hell of a lot more exciting.

As those of us here on planet earth know, there is no credible story of runaway federal spending. The budget deficit exploded because of the recession, which in turn was caused by the collapse of an $8 trillion housing bubble. But, Brooks needed copy for his NYT column, so runaway federal spending it is. I still think he should have talked about invading Martians.

--Dean Baker

The NYT contrasts the resistance to austerity measures in Greece with the enthusiastic embrace of budget cutbacks by the Irish government. It is worth noting that Ireland's unemployment rate has increased from 4.6 percent before the crisis to 13.0 percent in the most recent data. It is unlikely that many of the economists and policymakers who promoted policies that lead to the crisis, or the bankers who profited from these policies, are among the 13.0 percent of the labor force who are unemployed.

--Dean Baker

On Wednesday of every week the Mortgage Bankers Association releases its index of mortgage applications which provides data on applications for mortgages for both purchase mortgages and refinancing. For some reason this index is almost completely ignored by economic reporters.

This is difficult to understand. While a single week's data is of limited value, because it is so erratic, a four week average can provide important up-to-date information on the state of the housing market. While speculators have played some role in buying up blocks of homes, especially after foreclosure, the vast majority of homes are purchased with mortgages. This means that the applications index is giving analysts an early glance on the state of the housing market. (Applications typically precede sales by 4-6 weeks.)

The news last week is pretty bad in this respect. While applications are up some from prior weeks, applications over the last month have been running close to 10 percent below the badly depressed year ago data. Look for more surprised economists when data on house sales are released for February and March.

--Dean Baker

That is undoubtedly the question that many would have after reading a Post article on an effort to stop stimulus spending on wind energy because some of the turbines are built in China. The point of stimulus was of course to create jobs in the United States. If it turned out that spending in a particular area was not creating jobs in the United States, then it doesn't fit very well in a stimulus package (although it may still be useful spending).

The Post article repeated a few assertions, but it did not provide readers any basis to assess the key questions: how many jobs are being created here? what share of the wind turbines are constructed in the U.S? how large are the savings from buying them from abroad? Since these questions were not addressed, readers of the article would have little basis for assessing the debate over energy spending in the stimulus package.

--Dean Baker

The Post tells us that reconciliation: "is a procedure created in 1974 to help lawmakers advance politically difficult budget legislation, particularly measures that reduce the deficit." It then tells us that it has been used 22 times. Two of these 22 uses were to pass President Bush's major tax cuts.

--Dean Baker

The NYT told readers that:

"The pound fell to $1.4954 on Tuesday, its lowest level against the dollar in nearly 10 months. The yield on 10-year government bonds, known as gilts, slid as investors fretted that Parliament would be too fragmented after a crucial election in May to whip Britain’s messy finances back into shape."

That's pretty good that the NYT can read concern about this complex scenario into the market's 1-day movement. It is especially impressive since the yield on the 10-year bonds seemed to go the wrong way for this story. A lower bond yield usually means that investors are less concerned about the country's prospects and therefore require a lower risk premium.

The biggest threat to the UK's economy is that it appears to have re-inflated its housing bubble. This is setting up the country for a further economic collapse at some point in the future when interest rates return to more normal levels. The NYT's market insiders were unable to see to the problems developing from the bubble originally so it should not be surprising that they still have little understanding of the economy.

--Dean Baker

After Alan Greenspan, Ben Bernanke is more responsible for the economic downturn than any other person in the country. He was a Fed governor from 2002 to 2005 and then chairman of President Bush's Council of Economic Advisors from the summer of 2005 until he took over as Federal Reserve Board chairman in January of 2006. During this whole time he insisted that there was no housing bubble and that everything in the housing market was just fine. He fully supported Alan Greenspan in allowing the bubble to grow to ever more dangerous levels.

Therefore it is striking to see a front page Washington Post article tell readers that Bernanke has: "led efforts to make the Fed's bank oversight more effective and focused on broad risks to the economy that arise out of banks' decisions." This would like saying Bernie Madoff was working to ensure integrity in finance, without mentioning that he had pulled off the biggest financial scam in history. That is not exactly a complete picture.

The article also badly misrepresents the issues surrounded the risk of inflation. It tells readers that: "some liberal economists argue that the president should quickly appoint Fed governors who would be inclined to leave rates low for longer to try to get growth going again, even if it comes at the cost of mild inflation."

Actually many economists, some of whom are not at all liberal (e.g. Greg Mankiw, President Bush's chief economist), argue that the Fed should deliberately actually target a higher rate of inflation (3-4 percent), with the idea of lowering the real interest rate. Since nominal interest rates cannot be pushed below zero, the only way to make real interest rates as low as they should be given the severity of the downturn is to raise the inflation rate. The IMF has recently taken a similar position as well.

Therefore it is wrong to imply that there are only a few liberal economists who think the Fed should risk higher rates of inflation. Many centrist or even conservative economists have argued that it should actively promote inflation.

--Dean Baker

The NYT reviewed a new book by Jaron Lanier, who we are assured is a very creative person and one of the early pioneers of the web. According to the review, Mr. Lanier is very upset about people getting material at no cost over the web. His preferred solution is harsher punishments for copyright violation.

Of course, another possible direction would be to devise alternative mechanisms for financing creative work. But that would require creativity.

--Dean Baker

He told readers that: "Democrats on the whole believe in using government to correct the inequities and inefficiencies the market creates, while Republicans on the whole think market outcomes are almost always better than anything government can produce."

No, it just ain't so. Republicans (and many Democrats) want the government to structure markets to redistribute income upward. This is why they support government granted patent monopolies that allow drug companies to tax consumers close to $250 billion a year (almost 2 percent of GDP) by charging prices far above the competitive market level. The same applies to government granted copyright monopolies which transfer hundreds of billions of dollars from ordinary workers to people like Bill Gates.

The Republicans (and many Democrats) also favor protectionist measures that prevent doctors, lawyers, and other highly educated professionals from being subjected to competition with low-paid workers in the developing world as are manufacturing workers. Republicans (and many Democrats) favor free insurance to the financial industry in the form of "too big to fail" bailout policies that allow them to rely on the government when their irresponsible behavior lands them in trouble.

Republicans (and many Democrats) really like it when the Democrats are described as the party of big government and the Republicans are described as the party of the free market. Even though it is not at all true, it is very helpful to the Republicans in advancing their agenda.

--Dean Baker

Robert Samuelson apparently doesn't believe that he has much of a case for his budget deficit scare stories. How else can we explain the fact that he expresses budget deficits in dollar terms rather than as share of GDP. Yes, the budget deficit is a REALLY BIG NUMBER. That would be true even if it were a tiny number relative to the size of the economy.

Suppose the deficit was $1,687,435. That is a really big number since almost none of us will ever see anywhere near this much money. However, for the U.S. economy, a deficit of this size is trivial. It is equal to 0.011 percent of GDP. The government could run deficits of this size forever and its ratio of debt to GDP would be continually shrinking as its GDP growth vastly exceeds the rate of growth of the debt.

In this vein, Samuelson notes that the baseline budget is projected to be $752 billion in 2015 and that even if President Obama's deficit commission reaches its target, the deficit will still be $571 billion. Measured as a share of GDP, the baseline deficit would be approximately 4.0 percent of GDP. The deficit reduction target would be just over 3.0 percent of GDP.

--Dean Baker

The Post told readers that South Korea and other East Asians governments are worried that their countries will become less polluted and that wages will rise in coming years. Of course that is not exactly how the Post described the situation. The Post said that "collapsing birthrates are alarming East Asian governments, which in coming years will face a demographic crunch as the proportion of pensioners rises and the number of working-age adults declines."

In standard economic theory, a smaller labor force will lead to a higher capital to labor ratio, which will increase productivity. If productivity is higher, workers can both enjoy higher living standards and be able to support a larger population of retirees. A smaller population will also make over-crowded countries more affluent by reducing the stress on space.

In addition, it will make it easier to meet goals for reducing greenhouse gas emissions. For example, a 10 percent reduction in population has the same effect on greenhouse gas emissions as reducing emissions by 10 percent per person. The latter would be costly, so a smaller population is a great asset for countries that are trying to be responsible in limiting the damage they do to the world.

--Dean Baker

Because Alan Greenspan and Ben Bernanke would not talk about the $8 trillion housing bubble, close to 30 million people are now either unemployed or underemployed. For some bizarre reason, policy people still have trouble talking about the bubble. For example, the NYT has an editorial discussing remedies for foreclosure which never mentions the housing bubble.

The bubble should be central in such discussions because it says a great deal about the future directions of prices. If the bubble has largely deflated, as it has in places like Phoenix and Las Vegas, then it makes sense to try to stabilize prices and make policy as though prices will follow normal patterns (rising at the rate of inflation) in coming years. On the other hand, prices in many East Coast cities are still bubble-inflated as are prices in places like Los Angeles and San Diego. In these areas, prices are likely to fall in coming years leaving today's underwater homeowners further underwater.

Discussing foreclosure policy without discussing the likely future direction of house prices is pointless. Those who are not talking about the bubble and the extent of its deflation are simply wasting time, not discussing housing policy.

--Dean Baker

In a measure of ungodly stupidity Congress extended the first-time homebuyers' tax credit to existing homeowners. Somehow, it didn't occur to them that if someone sells their home to buy a new one it does not provide a net boost to the housing market. (One more home is purchased, one more home is put up for sale.) Somehow this simple logical point escaped the reporters who cover the issue as well, as they are still waiting for the credit to provide a lift to the housing market.

--Dean Baker