More Fuzzy-Headed Economics from the New York Times

“Congress and the White House have yet to figure out that the economy will not recover until housing recovers.”  “Homeowners Need Help,” NYT Editorial, August 22, 2011

To use NYT-like claims of consensus, I would say that “everyone” knows that the recession and financial crisis began with the dramatic overexpansion of housing.  We built more houses than people could afford to buy. The housing bubble was made possible by federally-guaranteed loans and federal government pressure to sell to low-income home buyers. The financial sector then kicked in by creating a murky market in toxic mortgages.

The contraction began when we recognized that we had a housing bubble. Housing sales and prices collapsed and so did the financial system.

Now the NYT tells us that we will not have an economic recovery until housing recovers! We do not need a recovery of the overbuilt housing sector. If we build more planes, cars, or TV sets than the market is prepared to buy, we cut back on their production. We should not conduct policy to keep resources in a sector that has become artificially too large.

Only when resources are transferred out of housing into more productive activities will we have a real recovery. There is no reason why construction workers cannot build oil and gas pipelines or work in offshore drilling rigs, if only government restrictions on these industries could be eased. To keep resources frozen in housing by artificial means (such as curbing foreclosures and forcing banks to modify mortgages) does nothing but delay the recovery. (By the way, what bank would lend to new customers after being forced to renegotiate loans in borrowers’ favor?)

I wish the editorial writers of the NYT would rely on some basic economics, not emotion, when they take pen in hand.

Media Slant: Guess Which Newspaper Ran Which Story: Wall Street Journal or New York Times?

1. "Grand Bargain Talks Collapse"

WASHINGTON—A high-stakes effort by President Barack Obama and House Speaker John Boehner to hatch a landmark deficit reduction deal collapsed in anger Friday, sending Washington into a weekend of negotiations over how the world's top financial power can make good on its debt obligations.

In a letter to his colleagues, Mr. Boehner said he called off talks with the president. He informed Mr. Obama Friday night he planned to start negotiations with the Senate to seek what would likely be a smaller deal.

"In the end we couldn't connect. Not because of different personalities, but because of different visions for our country,

2. "Debt Ceiling Talks Collapse as Boehner Walks Out"

WASHINGTON — Negotiations over a broad deficit reduction plan collapsed in acrimony on Friday after Speaker John A. Boehner suddenly broke off talks with President Obama, raising the risk of an economy-shaking default.

A visibly angry President Obama, in a hastily scheduled White House news conference, demanded that Congressional leaders come to the White House on Saturday morning. “I want them here at 11 a.m. tomorrow,” he said. “They are going to have to explain to me how it is that we are going to avoid default.”

Answer (if you need an answer: WSJ =1, NYT =2)

NYT Media Bias: A Blatantly Misleading Headline (“Budget Cuts Raise Doubt on the Course of Recovery”)

I was taught in junior high journalism that headlines are guides to the content of the article. If the reader skips the article, the headline constitutes the information that the reader takes away. The headline should strive to honestly capture what the article is about.

“Budget Cuts Raise Doubt On the Course of Recovery” (NYT, Business section, April 12) blatantly violate this basic rule. The headline warns that experts (not the writer) think that the $38 billion budget cut (and cuts to follow) will harm the recovery. “The budget deal is a bet by the Obama administration that the loss of $38 billion in federal spending will not be the straw that breaks the back of the fragile economic recovery.”

We then learn that the straw is lighter than the lightest of feathers. The $38 billion equals one quarter of one percent of GDP and “joins a growing list of minor problems impeding growth, economists said.” Whom is he quoting, I'd like to know.

To underscore the impeding danger, the author tells us that a chief economist of a Chicago investment firm has reduced her growth forecast from 4.2 percent to 3.3 percent. There is no corollary statement her move was prompted by the budget cut. If it were, I imagine she would be laughed out of the investment community.

The article changes tone. We learn that things are looking up. The Fed and private forecasters predict that growth will accelerate. Even more surprising (in light of the dire headline), there are experts who think budget cuts will stimulate economic activity, but one such expert is dismissed as belonging to “a libertarian think tank.” However, other economists (in addition to the libertarian) opine that budgets cuts will have immediate economic benefits “by soothing the nerves of foreign investors.”

The NYT writer saves his strongest ammunition for last: an IMF warning that “the cuts proposed by the Obama administration will be challenging to implement in an environment of weak growth and high unemployment.” As I read this, the IMF is concerned that the administration cannot carry through on the proposed budget because of political considerations, not because of the economic consequences. I cannot really tell from the information in the article.

An accurate headline from an unbiased writer would have been: “$38 billion budget cut no threat to recovery, experts say.”