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The Law of One Price Does Not Hold

Why Oh Why Can't We Have a Better Press Corps? Steve Kroft of 60 Minutes Does Not Know How To Do His Job Department

Why oh why can't we have a better press corps?

A correspondent emails:

Kroft says the states have spent a half trillion more than they took in since the recession began.... [T]he National Income and Product Accounts (Table 3.3) have a line for 'net lending or borrowing (-).' From 2007Q4 to 2010Q3 the total is $344 billion, not $500 billion. Over the same period there is over a trillion in gross investment for state and local governments, much of which ought to be financed by borrowing. The NIPA entry for the gap between revenues and operating expenses sums to minus $49 billion. Kroft is off by a factor of ten.

Kroft acknowledges the recession caused revenues to tank but says this "exposed" bad spending practices and habits. When it comes to putting a number on the disfavored spending, Kroft throws around unfunded liabilities--references to "gold-plated" benefits for retirement, but no numbers. The health benefits of state and local government retirees are entirely "unfunded" and much larger than the pension bill--but the GAO recently found that S&L retirees' health costs over the next fifty years are projected to rise by only 2% of state revenues. But saying that would not soon good on teevee.

Kroft focuses on Meredith Whitney, who claims the state and local municipal-bond market will be the next blow-up. She predicts 50-100 "big defaults" within the next 12 months. Kroft should revisit this prediction when 2011 winds to a close. Little defaults--defaults on debt by local governments on project bonds backed by dedicated revenue streams that the government is not obliged to supplement--do not count, as such are not rare even in boom times...