This morning Tom Gjelten warned in his self-styled "lesson" that political dysfunction in the United States could lead to severe economic consequences similar to what is roiling Greece and Italy. His reporting was based on terrible economic and bad political reporting.
Here is his story:
http://www.npr.org/...
Here is what I wrote to NPR
I was surprised that Tom Gjelten's normally excellent reporting was so off-base this morning. Here are just a couple of aspects that troubled me.
First, the not-so-subtle "lesson" of the piece was that the lack of political resolve to fix economic problems in Europe was not only pushing Greece and Italy into economic chaos but that a similar lack of political resolve could have dire consequences in the United States. This is economic nonsense. Italy and Greece are indebted to someone else's currency, the Euro, meaning they cannot control its value. The two situations could not be any more different. Indeed, the attempted illustration of the Standard & Poor downgrade makes just the opposite point it was used for. Yes, S&P noted political instability as its reason for the downgrade but the markets laughed it off. The world has since been throwing trillions of dollars at the U.S., driving the ten-year treasury note down to an absurdly low 2.05%. The world knows that our economy is strong; that we can repay our debts in our own dollars, even if simply printing more as a last result; but even the inflationary threat of printing more has not driven the world away from our bond market. There is absolutely no evidence that political dysfunction in Washington has had or will have any effect whatsoever resembling Greece and Italy. In fact, the world may actually favor gridlock in D.C.
Were the Super Committee to fail, it would not be the economic end of the world as this piece suggests, for at least two reasons. Members of both parties have already talked about repealing the so-called automatic spending cuts if the committee fails. And, the Bush Tax Cut Extension expires at the same time the automatic cuts would otherwise go into effect. Does any knowledgeable poltical observer really believe that if the Super Committee fails to reach agreement those Bush tax cuts will expire and the huge cuts to the military will go into effect without Congress passing any legislation about them? I didn't thnk so. So, the entire "lesson" of the piece is not based on any likely reality, political or economic.
Second, this sentence bothered me as being rankly incorrect: "Democrats and Republicans are divided over whether to emphasize spending cuts or tax increases." That is not at all what divides the two parties. That is the worst form of false equivalence I have heard lately. The Democrats on the Super Committee have made spending cuts by far the largest portion of their proposal, almost equal to the cuts proposed by the Republicans. The Democrats have asked that some very modest tax increases be included. The Republicans have insisted on none.
Gjelten's piece was both bad economics and bad politics. I usually expect and get much better reporting. There are two topics here that deserve richer reporting: (1) how the debt problems in Greece and Italy differ or resemble those in the United States and (2) the real-world consequences of and reactions to a Super Committee failure. I hope to hear that reporting soon.