Beat the Press

From the NYT�s Europe-Bashing Desk

Sweden is holding an election on Sunday, which earned it a bit of ink in the Times . The article notes that Sweden�s official unemployment rate of 5.7 percent is one of the lowest ones in Europe. It then reports the assertion of the conservative opposition candidate that its unemployment rate would be 21 percent if you add in people on disability, early retirement and in government training programs. It would be helpful if the article provided some evidence to readers to better allow them to assess the truth of this claim. Politicians are known to say things that are not true. Serious reporters do not just report one claim and then a denial. (e.g. Democrats oppose President Bush they claim he is mass murderer. The president denies the allegation.) It is not even clear what the 21 percent figure is intended to refer to. (Does it count every retiree in Sweden as being unemployed?) The OECD does make an effort to standardize measures of employment and unemployment. It reports that the...

Reporting Industrial Production Data

The Fed released data for industrial production for August yesterday. The story in the media was that production had fallen by 0.1 percent in August, suggesting that the economy was slowing. Well, this is a case where more caution would be helpful. First, it is best to focus on the data for manufacturing. The other two components, mining and utlities, are very erratic. (Utility output tells you primarily about last month's weather.) Manufacturing output was unchanged in August. While this may not give a very different picture, it is worth noting that the Fed revised July's growth figure up from 0.1 percent to 0.4 percent. This means that the new report showed August output as being 0.3 percent above where we had previously believed July's output to be. I'm not saying that there has not been a slowdown in manufacturing (my guess is that there has been), but the latest data are far more ambigious than the headline number implies. --Dean Baker

How Environmentalism Wrecked California's Economy

Actually, California's economy has done pretty well over the last 30 years, yet its per capita use of electricity has barely budged. It also ranks near the bottom of the 50 states in per capita gasoline consumption. This is a striking story , given how much some politicians and economists have led us to fear regulations aimed at reducing greenhouse gas emissions. Anyone who takes global warming seriously should look at this article. --Dean Baker

The Consumer Price Index and Living Standards

One of the themes that has arisen in the recent Paul Krugman inspired debate on middle class living standards is the possibility that the consumer price index (CPI) misses improvements in the quality of various goods and services, and therefore overstates the true rate of inflation. This would then mean that "real" wages and income have risen more than official data show. I have spent far more time on this issue than I would have liked. In the mid-nineties there was an effort inspired by Alan Greenspan and spearheaded by the late Senator Daniel Patrick Moynihan to cut Social Security benefits based on this claim.

The Deficit You Didn't Read About

The deficit hit another record in July. It's now running at an $820 billion annual rate, more than 6 percent of GDP. Of course, I'm talking about the trade deficit, not the budget deficit. All the bad outcomes of large budget deficits are also true of large trade deficits, yet the media barely notice a trade deficit that is now more than 3 times as large as the budget deficit. (Even if we add in the money borrowed from Social Security the trade deficit would still be almost twice as large as the budget deficit.) Like the budget deficit, in the short-run the trade deficit allows higher living standards. We can consume imported goods that we are not paying for, just as the government can spend money that is not paid for with tax revenue. In the long-run we cannot do this, we accumulate foreign debt on which we will have to pay interest. While the media never tires about talking about long-run problems from the budget deficit, they manage to largely to ignore the much larger trade...

Wal-Mart's Average Wages

The NYT reported on Chicago Mayor Richard Daley's decision to veto an ordinance setting a higher minimum wage for large stores (e.g. Wal-Mart). After 2010, the law would have required large stores to pay workers at least $10 an hour, plus $3 an hour for benefits. The article concludes by presenting the assertion of a Wal-Mart spokesperson that the average wage for "full-time hourly associates" in Illinois is $10.41 an hour. Before anyone assumes that this means that Wal-Mart already pays more than the 2010 minimum imposed by the vetoed ordinance, it is important to remember that the spokesperson only referred to "full-time" employees. What percent of Wal-Mart's workforce is counted as full-time? I don't know this one offhand, and the article provides no guidance on this issue. Maybe they could have gotten this information if they had spoken to someone from an organization that is critical of Wal-Mart. --Dean Baker

Finger Pointing on the Housing Bubble

We are still at the early stages of the collapse of the housing bubble, but it�s not too early to start pointing fingers. This isn�t a question of vengeance, the issue is accountability. If the dishwasher breaks the dishes, she gets fired. If the custodian doesn�t clean the toilet, he gets fired. Economists think it�s very important that people who don�t do their job adequately face serious sanctions, including job loss. This provides the necessary incentive for people to do their job effectively, and sustains the economy�s productivity. This is why it is important to identify the people who did not do their job, and therefore contributed to the growth of a dangerous housing bubble. A very big finger has to be pointed at all the reporters who cover the housing market. In news stories on the housing market, how many times did they present the views of the economists from Fannie Mae, Freddie Mac, the National Association of Realtors, the Mortgage Bankers Association, and the...

David Brooks and Inequality: Round II

After getting a few things wrong in his last column, David Brooks is back to tell us his remedy for the problem of inequality: education (sorry, it�s Times Select and therefore not linkable). He proposes an agenda that would promote educational opportunity for middle class and poor kids. I question whether his route is the best one for this task (universal child care and health care would rank higher on my list), but promoting educational opportunities for the less advantaged is certainly a good thing.

Consumer Debt and the Housing Bubble

The Fed released data for consumer debt for July on Friday. The release got little attention, and the short pieces that did cover it mostly focused on the slower rate of growth. The growth in consumer credit overall slowed from a 7.3 percent annual rate in June to a 2.8 percent rate in July. For the revolving debt component (primarily credit card debt), the slowdown was much sharper, from 13.2 percent in June to a 3.4 percent rate in July. I had previously noted the sharp uptick in credit card debt as evidence of the bursting of the housing bubble. When houses stop appreciating, people are forced to borrow against their credit cards instead of their homes. This new report doesn't change my mind. The reason is that the growth rate for credit card debt was revised sharply upward for the prior two months. The growth rates previously reported for May and June were 11.0 percent and 9.8 percent, respectively. These numbers were revised upward in yesterday's report to 13.0 and 13.2 percent...

Will Autoworkers Catch Up to CEOs?

According to the New York Times reporting on wages at Delphi, the autoworkers seem to be gaining rapidly. Earlier the NYT had reported that compensation for autoworkers at Delphi averaged $65 an hour. They never gave a detailed breakdown of this figure, but they did report that wages were $28 an hour. If the wage number is right, then the Times $65 an hour figure implies that Delphi workers average $37 an hour, or $74,000 a year, in health insurance, pension and other benefits. While I had noted that this seemed implausible to me, the Times has raised the bar in their latest reporting. It now tells us that workers at Delphi get more than $80 an hour in compensation. If the hourly wage rate is unchanged, then the Times is telling us that Delphi workers are getting health insurance, pensions, and other benefits that are worth $104,000 a year. I don�t think so. --Dean Baker

David Brooks Swings and Misses in Inequality Debate

NYT columnist David Brooks weighed in on the origins of inequality in his column (sorry�it�s NYT select and therefore not linkable). While he wants to assure readers that inequality is not a serious issue, and not caused by policy, he gets almost everything in his article wrong. Briefly, here are the highlights:

Labor Costs and the Fed

Both the NYT and Post had articles this morning that warned about the 4.9 percent annual rate of growth in unit labor costs in the second quarter reported yesterday, and indicated that this could cause the Fed to raise interest rates further to combat inflation. Whatever the Fed does on interest rates, let�s hope that the quarterly data on unit labor costs is not the reason. Unit labor cost data are highly erratic and are also subject to large revisions. This is due to the fact that both the numerator (compensation in the national income accounts) and the denominator (productivity) are highly erratic. Compensation can jump because of the timing of health care payments to insurers or the decision of workers to take stock options. (Compensation for the first quarter was revised up in yesterday�s release to show a 13.7 percent annual rate of growth, after originally showing a 6.9 percent rate of growth.) Productivity for the second quarter was reported as growing at 1.6 percent annual...

Medicare Drugs and What Politicians "Think"

There should be a simple rule written in huge neon signs in every newsroom: �You don�t know what politicians �think.�� The reason is simple. Politicians do not generally say what they think. They say what will advance their political careers. This is their job. (That is a bi-partisan comment.) If a reporter believes that she knows what a politician actually thinks then she is probably too close to this person to be able to cover them objectively. Reporters best serve the public by reporting what politicians say, and leave it to their readers to determine what the politicians might actually believe (if anything). For this reason, it was very annoying to read a book review in the Washington Post that tells us that Bill Thomas, the chairman of the House Ways and Means Committee, prohibited Medicare from offering its own drug plan that would negotiate directly with the drug industry because he �thought pitting private insurance companies against one another would inject competition into...

The Cost of Protectionism in Russia: Counterfeit Drugs

The NYT had an interesting piece on counterfeit drugs in Russia. It reports that counterfeits may account for as much as 30 percent of total sales. This is what happens when the government creates an artificial monopoly with patent protection. Just as the Soviet Union couldn't prevent black market sales of blue jeans, Russia can't prevent sales of unauthorized versions of patented drugs. A little economic analysis would have been very useful in this article. --Dean Baker