The Wall Street Journal reinforced its call for spending cuts, seemingly undeterred by recently discredited research and overwhelming evidence showing that fiscal tightening negatively impacts economic growth.
Reacting to recent research that has questioned austerity proponents' most cited figure -- the 90 percent debt-to-GDP threshold as identified by Camen Reinhart and Kenneth Rogoff -- an April 30 Wall Street Journal editorial claimed that the new revelations are being used to "revive the spending machine."
Instead of addressing the fact that the discrediting of Reinhart-Rogoff took, as The Washington Post's Neil Irwin puts it, a "great deal of wind out of the sails from those who argue that high government debt is, anywhere and everywhere, a bad thing," the WSJ instead used this event to attack government spending in all forms and reinforce calls for austerity. From the editorial:
The Keynesians are now using a false choice between "austerity" and growth to justify more of the government spending they think drives economic prosperity. The brawl over Reinhart-Rogoff is thus less a serious economic debate than it is a political exercise to turn more of the private economy over to government hands.
After five years of trying, we should know this doesn't work. The real way to promote a stronger economy is more austerity and reform in government, and fewer restraints on private investment and risk taking.
Arriving at such a conclusion requires not only obscuring the importance of the Reinhart-Rogoff debt threshold and its importance in pushing global austerity measures, but also ignoring a few key economic realities.
First, the editorial uncritically dismisses the impact of previous economic stimulus in order to bring into question any future government spending:
[Former White House economist Larry] Summers says governments should borrow more now at near-zero interest rates to invest in future growth. But this is what we were told in 2009-2010, when Mr. Summers was in the White House, and the $830 billion stimulus was used to finance not primarily roads or bridges but more unionized teachers, higher transfer payments, and green-energy projects that have since failed. Why will it be different this time?
The WSJ fails to note that the economic stimulus that was enacted in 2009 is widely regarded as a success. According to a WSJ forecasting survey conducted in 2010, 70 percent of economists agree that the stimulus helped the economy, and a May 2012 Congressional Budget Office report noted that it created between 900,000 and 4.7 million full-time-equivalent jobs in 2010 and between 600,000 and 3.6 million in 2011.
Second, and perhaps more notably, the editorial completely ignores the mounting evidence that too little government spending is already hurting the U.S. economy. When individual contributors to GDP growth are isolated, it becomes clear that in the majority of recent quarters, cuts in government spending have pulled down overall economic growth. In fact, the negative contribution of too little government spending has compromised growth even in the face of strong private contributions.
And while editorial board member Stephen Moore may feel that recently enacted across-the-board spending cuts have helped economic growth, economists and even Fox News personalities recognize that they have and will continue to negatively impact GDP growth.
WSJ's call for ever elusive "pro-growth" spending cuts stands in stark contrast to observations made by former pro-austerity advocates. The International Monetary Fund, which previously called for austerity measures throughout Europe, recently noted that fiscal tightening has failed to deliver a reduction in debt due to declines in output. Even John Makin of the conservative American Enterprise Institute now claims that the U.S. has cut federal spending enough to substantially reduce the debt-to-GDP ratio.
Fox News glossed over an important aspect in its reporting on lower than expected GDP growth -- the government contribution to GDP has been negative in the majority of recent reports.
Following the April 26 release of first quarter GDP growth estimates, Fox Business anchor Stuart Varney dismissed the 2.5 percent increase as "not good numbers," claiming that the increase was not indicative of a robust recovery. From Fox News' America's Newsroom:
Varney provided a laundry list of reasons why GDP growth has failed to live up to expectations, including recent federal and state tax increases and, notably, cuts from sequestration - a reversal from previous right-wing assertions that sequestration was too small to harm the economy. Varney failed to explain, however, that too little government spending has been holding back economic growth, as indicated by many of quarterly reports from the past two years.
The Bureau of Economic Analysis provides data on individual contributions to GDP, including government spending's contribution. When the government's contribution to GDP growth is separated from total growth, it becomes apparent that it has been a drag on the economy for much of the past two years.
In the previous 13 quarters, government spending has only added to GDP growth twice - once in the second quarter of 2010, and again in the third quarter of 2012.
This observation has been recognized by others, causing The Washington Post's Ezra Klein to boldly state that "government is hurting the economy - by spending too little." Of course, any recognition of this fact from Fox News would require the network to abandon its longtime stance that increased government spending can only hurt the economy.
The Wall Street Journal attempted to absolve ratings agency Standard & Poor's from allegations of fraud, ignoring the mounting evidence against the firm that indicates it contributed to the financial crisis.
On February 5, the Justice Department filed civil charges against S&P, alleging that the firm knowingly inflated ratings on investments leading up to the financial collapse. Following S&P's request on April 23 to dismiss the case, The Wall Street Journal editorial board quickly ran to the firm's defense, claiming "the judge ought to grant S&P's motion for many reasons, not least because otherwise no one will be able to sort Washington's list of victims and villains."
The editorial argues that federal action against S&P is unwarranted, because the Justice Department alleges that banks, who have previously been targets of lawsuits themselves, were defrauded by S&P's overly optimistic ratings. The Wall Street Journal's logic suggests that S&P couldn't possibly be accused of wrongdoing because the banks that used its ratings are also accused of wrongdoing:
The truth is that S&P's ratings on mortgage bonds, along with those issued by Moody's and Fitch, did inflict terrible damage. But this was not because employees at these firms are more stupid or unethical than those at other businesses. The damage occurred because the same government that's now suing S&P required financial institutions to use the ratings issued by S&P and the other raters.
Of course, in arriving at this conclusion, the editorial conveniently omits the facts behind the Justice Department's lawsuit. According to WSJ's own reporting in the wake of the financial crisis, internal emails at S&P suggested that analysts knew how risky mortgage-backed financial devices were, and that the firm adjusted ratings to satisfy their clients instead of providing objective analysis.
Furthermore, the editorial fails to mention that S&P's recent request to have the suit dismissed relies on the firm rejecting its long-standing position that its ratings are objective -- a fact that the Justice Department's complaint makes clear. Instead, S&P now alleges that its ratings "were never meant to be taken at face value by investors," as the WSJ noted in its own reporting.
WSJ's fact-free defense of S&P falls in line with previous attempts by conservative media to shield the firm from legal action. When the Justice Department's complaint was initially filed, right-wing media figures dismissed the suit as "government retribution" over S&P's previous downgrade of U.S. credit.
The research consistently cited by media figures to support cutting government spending has recently been invalidated, raising questions about how mainstream coverage of economic policy promoted incorrect data.
In January 2010, economists Carmen Reinhart and Ken Rogoff released a study that suggested when countries reach debt levels of 90 percent relative to GDP, economic growth would be compromised. Conservatives in politics and media alike repeatedly cited the figure in discussions about the economy.
A study released on April 16, however, found that the conclusions reached by Reinhart and Rogoff were based on data that was riddled with errors. Reinhart and Rogoff's response to the critique -- in which they maintain they never implied that rising debt caused lower growth, just that the two were associated -- shows that media's handling of the figure was wrong all along.
These new developments show that media consistently used an apparently incorrect figure for the past few years to call for austerity measures. Here's a look back at how major cable networks cited the figure in its coverage of the budget and economic policy:
Video by Alan Pyke.
Fox News has consistently downplayed positive weekly jobless claims reports, ignoring the standard the network set for signs of labor market improvements.
A Media Matters analysis revealed that despite consistent improvements in the number of people filing for unemployment benefits, Fox's coverage of weekly jobless claims reports was overwhelmingly negative. The network consistently used the reports to bring up unrelated negative economic news, a practice that has become common on Fox when faced with positive economic developments.
Fox News' coverage of weekly jobless claims in the first quarter of 2013 overwhelmingly focused on negative aspects of the labor market and broader economy. However, weekly claims numbers have been consistently improving, beating Fox's own standard for signs of a positive labor market.
According to Fox News, economists believe when the weekly number of initial jobless claims filed stays below 375,000, it's a sign the labor market is healthy enough to reduce the unemployment rate.
Fox News host Bill Hemmer cited that threshold on the January 10 edition of America's Newsroom, while showing a chart with a bright yellow line across it at the 375,000 mark: "Economists say that weekly claims must consistently fall below 375,000, shown by that yellow line on the screen right there, to indicate that the job market is strong enough to lower the unemployment rate." When the next week's numbers came out on January 17, Hemmer's co-host Martha MacCallum again touted Fox's chart showing the threshold, noting, "You always want to look at the chart, in terms of the long-time trend here." She continued, "Economists say that the weekly claims number has to consistently fall below 375,000 as indicated by that yellow line."
For the first quarter of 2013, weekly jobless claims have consistently fallen below Fox News' threshold of 375,000, signifying an improving labor market.
The final report of the quarter, released on April 4, represents the first one-week spike over the 375,000 threshold in 2013, but the more telling number - the four-week moving average of weekly initial claims - remains well below Fox's bright yellow line. (Other news outlets report that the economists' consensus about the threshold is 400,000 weekly claims, and economist Frank Lysy says that new jobless claims occur at a rate of 310,000 to 320,000 per week when the economy is at close to full employment.)
Despite consistent signs that the labor market is improving (by Fox News' own standards), Fox was overwhelmingly negative when reporting on weekly jobless claims.
When the weekly claims beat consensus expectations or declined from the previous week, Fox News anchors regularly used the positive news to highlight other, unrelated metrics, such as rising gas prices or federal spending. When weekly claims did not meet expectations or rose from the previous week, anchors regularly used the news to paint a negative picture of the economy.
Overall, Fox News was about 13 times more likely to present weekly jobless claims with a negative rather than positive tone. Furthermore, Fox's negative coverage greatly overshadowed neutral reporting.
Media Matters reviewed every Thursday edition of Fox News' Fox & Friends, America's Newsroom, and Happening Now from January 3, 2013 to April 4, 2013 and recorded the amount of time spent discussing the weekly jobless claims report.
We identified "positive coverage" as that which indicated weekly claims were improving, or made broader positive implications for the labor market and overall economy. Positive coverage of the economy that was introduced in direct relation to the weekly claims report was also counted.
We identified "negative coverage" as that which indicated weekly claims were deteriorating, or made broader negative implications for the labor market and overall economy. Negative coverage of the economy that was introduced in direct relation to the weekly claims report was also counted.
We identified "neutral coverage" as that which directly reported the information in the Labor Department's weekly jobless claims report.
When tone of coverage was unclear, Media Matters chose to err on the side of neutrality.
We did not include coverage of topics that were unrelated to the weekly claims report, even if they were brought up in a segment that was primarily focused on the report. For example, the January 3 edition of Fox & Friends contained a segment that introduced the weekly jobless report and pivoted to discussing the Hurricane Sandy relief bill. In this instance, time spent discussing the Hurricane Sandy relief bill was left out of the analysis. When it was unclear whether coverage of a topic was brought up in relation to the weekly claims report, Media Matters chose to exclude it from the analysis.
In segments where coverage related to the weekly claims report was introduced before the report itself, Media Matters chose to begin time recording when the report was initially introduced.
Fox Business host Stuart Varney claimed that any signs of a weakening labor market cannot be explained by sequestration. However, economists have linked the expected slowdown in hiring to sequestration, and note that any negative impacts are likely to be temporary.
Reacting to an unexpected rise in weekly jobless claims, America's Newsroom host Bill Hemmer asked Varney if any of the rise was due to sequestration. Varney responded by claiming, "No...There's no seasonal factors, it's not weather, it's not sequester, it's just weakness in the underlying economy."
Economists do not support Varney's insistence that sequestration has had no impact on the job market. An April 3 Associated Press report noted economists' opinions on the link between sequestration and hiring:
Jim O'Sullivan, chief United States economist at High Frequency Economics, now expects just 160,000 net jobs in the March employment report, instead of 215,000. Jennifer Lee, an economist at BMO Capital Markets, said her group had lowered its forecast to 155,000, from 220,000.
Ms. Lee said businesses might have temporarily suspended hiring because they wanted to see the impact of $85 billion in government spending cuts, which began on March 1.
Furthermore, while Varney used the rise in weekly jobless claims to paint a thoroughly negative picture of the labor market, the same AP report noted that "most economists say any slowdown is likely to be temporary."
Indeed, when a more stable measure of the labor market is examined - such as the preferred four-week moving average of initial jobless claims - a much less negative picture emerges. While the four-week average rose in the April 4 report, the underlying trend of weekly claims has been positive. Since the beginning of 2013, the trend of initial claims has declined greatly, producing four-week averages at levels not seen since 2008.
Conservative media are again using a European financial crisis to stoke fears about the U.S. economy.
According to many right-wing media figures, the Cypriot government's plan to tax private bank accounts to avert a fiscal disaster provides a dire warning for the U.S. Many have speculated or outright claimed that the same could happen here unless the so-called "debt crisis" is averted
Of course, fears of heavy taxation on private bank accounts occurring in the U.S. are largely unfounded, with many experts noting the comparison between the two countries is ill-conceived. But the facts rarely matter for right-wing media when it comes to exploiting a European crisis.
The Wall Street Journal has repeatedly supported the conservative call for states to cut income taxes in order to foster economic growth, ignoring a large body of evidence that shows cutting or eliminating income taxes is economically damaging.
In recent months, The Wall Street Journal has published opinion pieces in support of Republican governors' push to reduce or eliminate state income taxes.
A January 30 editorial claimed that eliminating state incomes taxes "makes sense," arguing that it would spur economic growth and bolster state revenues. Economist Art Laffer and Wall Street Journal editorial board member Stephen Moore reiterated that thinking in a March 28 opinion piece titled "The Red-State Path to Prosperity," which argues for - among other measures - "pro-growth tax reform" that hinges upon a reduced reliance on income taxes.
Both pieces ostensibly rely on research conducted by the corporate-funded, right-wing American Legislative Exchange Council (ALEC). Both Laffer and Moore have published research jointly with ALEC, and the January 30 editorial directly references Laffer's ALEC research. According to the Center on Budget and Policy Priorities (CBPP), ALEC's studies on state-based tax reform are heavily biased toward states with low taxes and often do not comport with broader research findings:
ALEC's studies and reports claim that its agenda would boost economic growth and create jobs, but they are disconnected from a wide body of peer-reviewed academic research on public finance.
In addition, the preponderance of mainstream research refutes core elements of ALEC's argument, showing that state tax cuts or lower state taxes generally do not boost the economy, state tax cuts do not pay for themselves in the form of higher economic growth that generates more revenues, progressive taxes and corporate taxes do not inherently damage the economy, and taxes generally do not cause people to flee a state. (emphasis added)
Indeed, a recent review conducted by CBPP reinforces the lack of validity in ALEC and WSJ's claims -- of the eight peer-reviewed studies on the effect of state-level personal income taxes on the economy since 2000, six have found insignificant effects, and one had internally inconsistent results. CBPP also found that in states that cut taxes the most in the 1990s, average annual job growth fell far below the national average in the following economic cycle.
Fox News host Bill O'Reilly has a long and documented history of pushing economic misinformation on his program, reinforced recently by economist Richard Wolff who said O'Reilly's claims about the economy are false.
On the March 25 edition of the independently syndicated Democracy Now!, former University of Massachusetts, Amherst economics professor Richard Wolff responded to O'Reilly's claim that European countries are going bankrupt because they are "nanny states," stating:
WOLFF: You know, he gets away with saying things which no undergraduate in the United States with a responsible economics professor could ever get away with. If you want to refer to things as "nanny states" then the place you go in Europe is not the southern tier -- Portugal, Spain, and Italy -- the place you go are Germany and Scandinavia because they provide more social services to their people than anybody else. And guess what? Not only are they not in trouble economically, they are the winners of the current situation.
[O'Reilly's] just making it up as he goes along to conform to an ideological position that is harder and harder for folks like him to sustain, so he has to reach further and further into fantasy.
O'Reilly's misinformation on economic issues, however, is not just contained to commenting on the European experience. Here are 10 other examples of O'Reilly's failure to accurately understand economics:
10. O'Reilly Falsely Compared The U.S. Debt Situation With That Of Greece. In an effort to force Congress to enact deep spending cuts, O'Reilly claimed that "like Greece, Ireland, and Spain...the USA has bankrupted itself." However, economists agree that the U.S.-Greece comparison is misguided and ignores the structure of the countries' economies.
9. O'Reilly Dismissed The Recession's Effect On Gas Prices. O'Reilly expressed doubt over the economic downturn's effect on gas prices, claiming that President Obama's explanation for low gas prices was "totally bogus." In reality, gas prices dropped precipitously during the recession, a fact that many news outlets -- including Fox -- reported at the time.
8. O'Reilly Claimed That Food Stamps Have No Economic Value. In a discussion about President Obama's stimulus bill, O'Reilly claimed that increasing spending on food stamps has "nothing to do with stimulating the economy." However, economists largely disagree, and studies have indicated that food stamps are among the most stimulative of government programs.
7. O'Reilly Suggested Bush Tax Cuts Increased Revenue. In an interview with former President Clinton, O'Reilly claimed that because of "the tax cuts under Bush, more money flowed into the federal government." However, when tax revenues are expressed as a share of the economy, the Bush tax cuts resulted in the lowest level in any decade since the 1950s, a fact noted by many economists.
6. O'Reilly Dismissed The Causes Of Income Inequality. In a discussion with Fox News contributor Kirsten Powers, O'Reilly brushed aside income inequality, claiming, "Income inequality is bull. Nobody gives you anything, you earn it." However, O'Reilly's statements ignored the fact that, at the time he said them, taxes on top income earners are at historic lows, and that, according to the Center on Budget and Policy Priorities, "typical middle-class households face higher rates than some high-income households."
5. O'Reilly Blamed Undocumented Immigrants For California's Budget Problems. In a segment on California's budgetary problems, O'Reilly claimed that an "enormous amount of money" was being spent on the "illegal alien problem." However, O'Reilly ignored that fact that a majority of undocumented immigrants pay taxes, and that granting them legal status could have a positive impact on the economy.
4. O'Reilly Repeatedly Suggested That "Irresponsible Behavior And Laziness" Cause Poverty. O'Reilly has consistently characterized the poor as "lazy" and "irresponsible," ignoring the consequences of the recent economic downturn and the rise in income inequality in recent decades.
3. O'Reilly Claimed That The Economy "Would Be Fine" If We Cut Spending To 2008 Levels. In a segment discussing sequestration, O'Reilly called for a rollback in spending to 2008 levels, claiming that the economy "would be fine" if spending was cut to that level. However, this proposal that has been repeatedly criticized by economists as economically dangerous, costing as many as 590,000 jobs.
2. O'Reilly Claimed That The Stimulus Was A Failure. O'Reilly has repeatedly stated that President Obama's stimulus package was a failure, ignoring the fact that, according to the non-partisan Congressional Budget Office, it increased employment by over 1 million jobs and raised GDP by between 0.8 and 2.5 percent.
1. O'Reilly Repeatedly Claimed That Economy Is Worse Off Than It Was When Obama First Took Office. O'Reilly has consistently stated that the Obama administration's policies are hurting the economy, even going so far as to claim that it is worse off than it was prior to Obama's first inauguration. However, by almost every measure of economic health, including unemployment, net job creation, and GDP, the economy has improved greatly since 2009.