The New York Times (11/23/09) has an editorial on its front page today disguised as a news story.

Appearing under the headline "Federal Government Faces Balloon in Debt Payments," Times business reporter Edmund Andrews makes an impassioned plea for the neo-Hooverist economics popular in corporate media: Claiming that "the government faces a payment shock similar to those that sent legions of overstretched homeowners in default on their mortgages," Andrews maintains that "there is little doubt that the United States' long-term budget crisis is becoming too big to postpone."

There's not a lot of news in this ostensible news article; it appears to be largely based on the Office of Management and Budget's Mid-Session Review, which came out on August 25. And many of the facts derived therefrom are dubious or misleading; for example, the piece claims that "government debt has almost doubled in the last two years alone"; actually, gross federal debt is estimated at $12.9 trillion in 2009, and was $8.9 trillion in 2007; that's a far cry from almost doubling.

What's not in the piece or in the government forecast is anything to back up the idea that the federal debt situation is akin to an overstretched homeowner about to default on a mortgage; as economist Dean Baker (Beat the Press, 11/23/09) points out, "There is no evidence presented in this article that the rise in interest rates will place the U.S. government in a situation where it will be unable to pay its bills and no one cited in this article makes such a claim."

But Andrews' piece is not really about evidence so much as it about the personal intuition that just as individuals need to tighten their belts in hard times, so too should the federal government.  As Andrews writes:

Americans now have to climb out of two deep holes: as debt-loaded consumers, whose personal wealth sank along with housing and stock prices; and as taxpayers, whose government debt has almost doubled in the last two years alone, just as costs tied to benefits for retiring baby boomers are set to explode.

It's natural to conclude that frugality is the necessary penance to pay for profligacy--even more natural for Edmund Andrews, who wrote a whole book about his family's debt woes.  Applying that intuition to federal fiscal policy, however, is disastrous--that's why Herbert Hoover is supposed to be your model of how not to respond to a financial crisis.

And if you talk to economists, chances are that at least some of them will point out to you that deficit reduction is not what the United States needs right now.  For example, you could talk to economist and New York Times columnist Paul Krugman, who writes in the same edition of the paper (11/23/09), "Most economists I talk to believe that the big risk to recovery comes from the inadequacy of government efforts: The stimulus was too small, and it will fade out next year, while high unemployment is undermining both consumer and business confidence." (Give the Times credit for including some op-ed antidote to its front-page poison.)

But as Andrews' piece is an editorial only appearing by accident on the front page, he doesn't feel obligated to quote anyone who might question his instinct for austerity.  Instead he talks to the Concord Coalition, the vehicle billionaire Pete Peterson uses to express his opposition to government spending, and to a manager of the world's largest bond fund, who warns us against eating our nuts.

The piece closes by quoting the Treasury Borrowing Advisory Committee--IDed by Andrews as a group of "private-sector...market experts"--as saying that inflation ought to be our big worry and "fiscal prudence" our watchword.  Who is this committee, actually? It's chaired by someone from JP Morgan Chase, its vice chair is from Goldman Sachs, and its members include a representative of Peterson's Blackrock group--among other agents of the world's financial elite.

Maybe Andrews thinks these folks have nothing but the best interests of the nation on their mind.  But before he issued a front-page call for deficit-cutting in the midst of the deepest slump since the Great Depression, maybe he could've gotten a second opinion.

Today's lead New York Times story (2/1/09)--subheaded in the print edition "Scant Details, and Wall Street Reacts With a 4.6 Percent Plunge"--is a classic example of the fallacy of treating stock market prices as a kind of opinion poll. Reporters Stephen Labaton and Edmund L. Andrews wrote: "The initial assessment of the plan from the markets, lawmakers and economists was brutally negative, in large part because they expected more details."

Presumably the reporters talked to lawmakers and economists and got their responses directly. But when one is talking about the reaction of the market, one can only look at the direction of prices, which are set by traders who are primarily interested not in assessing economic plans, presumably, but in valuing stocks at what they're actually worth.

There's a school of thought that holds that the best response to the banking crisis is to declare that troubled banks are insolvent, have the government take them over and run them until they have a positive value again, and then sell them off. Some economists suspect that this may actually be the administration's unspoken plan, with the thinking being that the government might be reluctant to publicly acknowledge that major parts of the financial system are worthless. If stock traders believe that this is in fact the plan, then they would rationally sell problematic bank stocks for whatever they can get, because those stocks would soon be worthless.

Conversely,  many economists believe that it would be a bad idea to give large sums of money to insolvent banks, because the banks' management and stockholders might just pocket the money without improving the health of the financial sector. Such a plan might boost bank stocks without actually helping the economy.

Yesterday, according to the New York Times business section ("Stocks Slide as New Bailout Disappoints," 2/10/09), the stock market decline was

led by steep declines in Bank of America, Citigroup and large banks already leaning on taxpayers for support. Regions Bank, SunTrust, KeyCorp and Fifth Third fell even more as investors worried that regional banks could be vulnerable to a new "stress test" aimed at revealing the weakest links in the industry.

In many ways, the financial crisis is about assets being misvalued and the system threatening to grind to a halt as institutions are reluctant to acknowledge more realistic valuations.  If the Treasury plan means that banks that are worth nothing will soon be treated as though they are worth nothing, that could be a big step in the right direction. In short, plunging bank stock prices could mean that Wall Street thinks the administration is on the right track.