Beat the Press

Tim Russert Bashes Social Security, Yet Again

If Social Security was a private corporation, Tim Russert would be unemployed and NBC would be out of business. (When you misrepresent the financial state of a private business in the way that Russert misrepresents the financial state of Social Security, you get sued for libel.) Note how the fact that Social Security, Medicare, and everything else that fits under �entitlements� becomes a Social Security problem, as Russert points out that entitlements account for 52 percent of the budget, approaching 70 percent. (I believe that these percentages exclude interest payments, but it's not clear where Russert is getting these numbers.) Note that Mr. Russert ignores the fact that Social Security is funded by a designated tax that will keep the program fully funded until 2046, according to the most recent projections of the Congressional Budget Office. Many people, including me, have tried to call Russert�s attention to the actual numbers on Social Security � he obviously does not care. He...

From the NYT�s Europe Bashing Desk

The NYT�s Europe-bashing desk pulled out the stops today in going after Germany . Readers would have learned about Germany�s �chronic double-digit inflation.� This surely would be news to most readers, since the OECD puts Germany�s inflation rate over the last year at just over 2.0 percent. Perhaps the article meant to say �chronic double-digit unemployment.� Well that�s a bit closer, but still no cigar. The OECD puts Germany�s unemployment rate at 8.2 percent. [The web version has replaced "inflation" with "unemployment."] (Even this number should be qualified � former East Germany still has an unemployment rates in the high teens, which means that the unemployment rate in the areas that comprise former West Germany is around 6.5 percent.) Then the article warns about �a health care system that is going bankrupt because of rising costs and an aging population.� Well, we all hate health care systems that are going bankrupt � but yes that�s right BTP fans, Germany�s costs are not...

"I'm Hoping For Prices to Drop"

No, that's not me rooting for a quick end to the housing bubble; those are the words of David Lereah, the chief economist of the National Association of Realtors, as quoted in the Wall Street Journal . Yes, this is the same economist who until recently was assuring buyers that house prices will never fall. The new data on pending sales of existing homes show a year over year drop of 16 percent, yet more evidence that the bubble is bursting. --Dean Baker

The Last Throes of the Housing Bubble

The standard story of financial bubbles has that financing gets progressively more tenuous as the bubble expands. BusinessWeek has a nice piece about the latest and most pernicious financial innovation of the current bubble, the option ARM. It's too bad that no one in a position of authority was awake before the bubble grew to such proportions. --Dean Baker

Monthly Wage Growth Data: Hours of Pain

Regular users of government data (like reporters) should know its limitations. Many of the series are highly erratic, meaning that any individual number contains a considerable amount of error and a limited amount of information. The hourly wage data very much fit this bill. In the real world, hourly wage growth doesn�t change very much from month to month. (How could it? � not that many people change jobs in a month; and wages don�t suddenly plunge or soar for workers keeping their jobs.) However, the monthly wage series does show large fluctuations in the rate of hourly wage growth. For example, in April, the average hourly wage reportedly increased by 10 cents, a 0.6 percent increase. Similarly, it reportedly rose by 8 cents in July, a 0.5 percent increase. Before anyone gets too concerned that these wage increases will lead to inflation, let me point out that wages rose by just 1 cent in May and 2 cents in August. The smart folks out there already guessed that the slow wage growth...

The Washington Post Redefines "Fast"

The Post has an article headlined "Fast-Growing Countries to Gain More Clout at IMF." The list of countries is China, South Korea, Turkey, and Mexico. The first three countries can reasonably be described as "fast-growing," but not Mexico. Mexico's per capita GDP growth has averaged just 1 percent annually for the last decade, a slow rate for any country, but an especially pathetic pace for a developing country. Whatever the reason Mexico is getting increased clout at the IMF, it has nothing to do with fast growth. --Dean Baker

China�s Demographic Squeeze? Have the Martians Invaded?

The Times ran an article about India�s rise as a manufacturing force. Much of it is informative, but some of it is painful. In the painful category is the claim that global manufacturers are turning to India because of �a serious demographic squeeze facing China.� It then goes on to point out that although China has a larger population than India, because of China�s �one child policy� India will have more young workers in less than a decade. Okay, let�s step back to reality. China�s supply of manufacturing workers will not be limited by its population anytime soon for the simple reason that close to half of its work force is still in agriculture. So, there is not any imminent shortage of manufacturing workers in China. Now, there is a separate point. There is some evidence (noted in the article) that wages are rising in China. This is not a �demographic squeeze,� this is the desired result of economic growth. Chinese workers, like New York Times reporters, would like better living...

The Statistical Discrepancy: A Source of Phony Wage Growth

A New York Times article today commented on the extraordinary jump in wages over the last two quarters. Before anyone breaks out the champagne, take a look at the statistical discrepancy in the GDP accounts. This might be is a bit nerdy, but there is an important story here. In principle, it is possible to add up GDP on either the income side (e.g. wages, interest, profits) or the output side (e.g. consumption, investment, government) and get the same number. Of course, they never end up exactly the same � you don�t get perfect accounting in a $13 trillion economy. Typically, the output side comes up slightly higher than the income side. (The conventional wisdom is that people might hide income in order to avoid taxes.) This gap between output side GDP and income side GDP is the statistical discrepancy. The big story on the statistical discrepancy is that it fell by $150.8 billion over the last two quarters. The most obvious explanation is that the income side of GDP is currently...

Inviting China to the I.M.F.: Too Late

Like the exclusive WASP-only country club that opens the door to blacks and Jews after it can no longer raise the money to fix the roof, the I.M.F. is inviting China to play a larger role. The problem is that it is far too late to invite China to be a junior partner in this U.S. dominated institution, a fact that would be more apparent if reporters recognized the true size of China�s economy. The I.M.F. has been used by the United States to enforce a creditors� cartel against countries that did not follow an economic path that fit the interests of major U.S. corporations. The basic story is that the I.M.F. would lay out an economic program and if countries didn�t follow it, they would be denied credit by not only the I.M.F., but also the much larger World Bank, as well as other international development agencies. In general the private sector would follow suit. The power of the I.M.F. was best illustrated in the East Asian financial crisis, when it imposed harsh conditions, requiring...

Not Your Father's Recession

Virtually all economists missed the 2001 recession, in most cases not even predicting it until it was almost over. The main reason was that the recession did not follow the usual pattern. It was the result of the stock market crash decimating tech investment. All prior post-war recessions had been brought on by higher interest rates leading to a falloff in housing construction and new car buying. There is a similar situation today. If the economy slides into a recession (my bet), it is because of a crash of the housing bubble. This is one that will also not follow the usual pattern. For this reason, standard forecasting methods are likely to provide bad predictions. Fortunately, we have not had many instances of national housing crashes, so we don't have much experience on which to predict the course of a recession based on one. (Yes, housing markets are local, but we will have the simulataneous collapse of enough local markets to have a national impact, just as the rise in housing...

Rewritten History on AIDS

The NYT applies a large does of whitewash in its discussion of President Clinton�s current efforts to promote the treatment of AIDS in developing country. While the article notes in passing that Clinton �conceded that his administration fought too long to protect the patent rights of pharmaceutical companies against countries trying to make or import cheaper AIDS medicines,� this lone sentence hardly does justice to Clinton�s work on behalf of the pharmaceutical industry during his tenure in the White House. Clinton was the person who allowed the pharmaceutical industry to use the power of the U.S. trade office to get the TRIPS provisions into the 1995 Uruguay Round agreement of the W.T.O. These provisions will limit the access to generic drugs for billions of people in the developing world, in some cases raising the price of AIDS drugs by several thousand percent. Even in his last years in office, Clinton harassed the South African government over its efforts to issue compulsory...

Yet More Whining About Entitlements at the Post

Okay folks, get your checkbooks out. The people who pledged a CEPR contribution for every Post article/column whining about entitlements owe us money. This one is from Bob Kerrey and Warren Rudman, the co-chairs of the Concord Coalition. In addition to conflating Social Security and Medicare as �entitlements� that will pose problems, the column also has a few other standard scare tactics. For example, it projects a rise in spending from approximately 20 percent of GDP at present to 40 percent in 30 years. The biggest part of this rise is due to a rising interest burden. See, if we run larger deficits, and Congress never responds by either raising taxes and/or cutting spending, then we get a rising interest burden. Silly trick, but this is the Post . And of course, the article never discusses health care reform as something that should be on the national agenda. Do the authors not know that the U.S. spends more than twice as much per person on health care as the average among other...

Falling Wage Shares

The NYT had a good story on the falling wage share of output and the growing concentration of wage income among high wage earners (e.g. doctors, lawyers, CEOs). While the basic story is accurate, there are a couple of points that should be treated with more care. The article notes that the sharp drop in the wage share of GDP over the last three decades, from 53.6 percent in the first quarter of 1970 to 45 percent in the first quarter of 2006. While most of this drop is attributable to an increase in profits at the expense of wages, part of it is attributable to an increase in depreciation (the share of GDP that goes to replace warn out equipment and obsolete capital goods). The share of GDP going to depreciation has increased by almost 3 full percentage points over this period. This would imply a fall in the wage share of GDP, even if there was no redistribution to profits. The moral is just use national income or net national product (NNP) as the denominator. The point about...

Income Inequality: Missing Mechanisms

There has been a raging blog debate, following in the wake of some recent Paul Krugman columns, as to whether the rise in income inequality is due to policy or the natural workings of the economy. While Krugman indicated that he believed the policy view (promising details later), many of the economists weighing in have said that they don�t see any policy mechanism(s) that could explain the rise in inequality. Perhaps I have different eyes (or maybe I don�t have sufficient training in economics), but I see the mechanisms almost everywhere. There is a nice example in the news today. A judge ruled that Northwest�s flight attendants can�t go on strike to oppose the wage cuts that the airline is unilaterally imposing, following in the wake of its bankruptcy. In other words, a U.S. judge is telling workers that they will go to jail if they refuse to work for the wages that Northwest wants to pay them. (I know, I�m skipping some steps here.) Judges don�t have to threaten workers with jail...

NYT Discovers Seller Side Concessions

The New York Times had an excellent piece this morning on the fact that sellers are increasingly offering substantial non-price concessions in order to move their homes. As the article notes (and has been mentioned repeatedly on BTP) these concessions are not recorded in the sale prices that enter the standard house price indexes. Therefore these indexes are missing some of the price decline in recent months. I promised a BTP goat prize to articles commenting on housing prices that did not note this seller side concession issue. In the future, such articles will get a BTP-NYT goat prize.

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