Beat the Press

Big News: Arithmetic Problems at the Council of Economic Advisors

Economists are supposed to be good at math. It is a great honor for an economist to be appointed as head of the President's Council of Economic Advisors. For these reasons, it should be big news that the person currently holding this position apparently has problems with simple arithmetic. According to an article carried by Dow Jones Newswire, Ed Lazear, the current chief of the Council of Economic Advisors, claimed that wage growth "seems to be taking off right now." The article reports Mr. Lazear's view that workers now seem poised to get substantial real wage gains. If the article presented Mr. Lazear's comments accurately, then it missed the real news. Nominal wages are at best just keeping pace with inflation, leaving no room for real wage growth. From June 2005 to June 2006, the average hourly wage increased by 3.9 percent in nominal terms. From May 2005 to May 2006 (the June data is not yet available) the consumer price index increased by 4.1 percent. This means that the real...

Silliness on the Budget Deficit

The coverage of the debate over the recent budget numbers has been painful. The arguments on both sides have been far removed from reality. The media should have put in the effort to bring the issue back to earth. First, the White House's claim that the recent growth in revenue show that the tax cuts have somehow paid for themselves, by increasing growth, is laughable. If we go back to 2001, before the economy had the benefit of President Bush's tax cuts, CBO projected the economy to grow by 20 percent between 2000 and 2006. On its current path, growth over this period is projected to be 16.7 percent. (CBO's growth projections are constructed to average in the effect of recessions, so the 2001 recession should not affect this story. Furthermore, even the White House's growth projections do not show the economy ever catching up to the path projected by CBO in 2001. In other words, the White House's economists don't believe that the tax cuts have had any substantial impact on growth.)...

Noble Lies to Promote Korean Trade Agreement?

The prospect of a new trade agreement with the United States has prompted mass opposition within South Korea, as demonstrated by large and angry protests. The International Herald Tribune (IHT) appears to be rising to the occasion, going all out to push the new pact. The article includes a variety of facts that are supposed to demonstrate the need for the trade agreement. It begins by noting that South Korea's growth "averaged a torrid 8 percent a year in the 1970's and 1980's, has slowed in recent years." Wow, they can't sustain an 8 percent growth rate, disaster looms. In fact, South Korea's per capita GDP growth has been averaging about 3 percent a year over the last few years. This is very good for a country with European standards of living. (Post NAFTA Mexico would be euphoric if it ever achieved this growth rate.) The article then reports that Korea's share of the U.S. export market has fallen to 2.6 percent from 3.3 percent a decade ago. And this is supposed to matter, why?...

The "Social Security and Medicare" Syndrome

Many of the stories on the reduction in the 2006 budget deficit have correctly focused on the fact that the long-term deficit picture still looks pretty awful. However, they have badly misled readers about the reason for the deficit problem. The standard line is that "Social Security and Medicare" costs will explode as the baby boomers retire (e.g. this NYT piece ). This is incredibly misleading. Social Security costs will rise modestly -- the projected increase in SS measured as a share of GDP from 2005 to 2030 is less than the increase from 1960 to 1985. The real culprit in the story, as every serious reporter knows, is Medicare. And the reason that Medicare costs are projected to explode is that the U.S. health care system is broken. In other words, the deficit stories should be talking about how the exploding cost of the U.S. health care health system will devastate the budget and the economy. People should demand that the reporters get this simple point right and stop telling...

Credit Card Debt Soars in May

The initial reports on the Fed's release of consumer credit data for May focused on the slow 2.4 percent annual rate of growth reported for the month. This reporting misses the boat. There are two major components to consumer credit. The non-revolving component is primarily car loans. This component fell at a 2.0 percent annual rate, reflecting weak car sales. The other component is revolving credit. This is primarily credit card debt. This component rose at 9.9 percent annual rate in May. This is a sharp acceleration from earlier this year, when revolving debt was actually declining. It is always possible that a single month's data is simply an aberation and will be reversed next month. But if this proves to be the beginning of a trend, then the story goes like this: home prices have stopped rising and may even be declining in some places. This means that people can no longer sustain their consumption with by withdrawing equity from their homes. Therefore, many people are turning to...

And, You Can Read More ......

For those who want to read more of my ramblings, I am guest blogging at the Drum Major Institute this week. --Dean Baker

The Washington Post Argues for More High-Skilled Immigrants

Okay, I tricked you. The Washington Post ran an article reporting that the wages of high-skilled workers in the Washington area are rising far more rapidly than the wages of less-skilled workers. It attributes this fact primarily to technology that has reduced the demand for less-skilled workers. Those who believe in market forces would see rising wages as evidence of a labor shortage. In other contexts (e.g. nurses, construction workers, custodians etc.) the Post has reported that the country needs immigrants to deal with such labor shortages. Surprisingly, this article did not include any discussion of the need for more high skilled immigrants. In fairness, the article did conclude with a brief discussion of immigration and its impact on wages. It does not attempt to reconcile the claim that wages for less-skilled workers are being driven down by technology with the claim that the country is sufficiently short of such less-skilled workers, that it desperately needs immigrants. Let...

The NYT Magazine on Immigration

The NYT magazine had a pretty good piece summing up the state of the academic debate on the impact of immigration on the labor market. I have two quick observations. The piece, like the literature, largely ignores the impact of immigration on housing costs. This is important, because housing is a large chunk of people's expenditures, especially those of low wage workers, who are the focus of the discussion. Examining wages across cities and regions provides little insight if we don't adjust for differences in housing costs, since housing accounts for close to 40 percent of the consumption of low income families. A casual glance at the data suggests that there is a real issue here. Certainly housing costs have risen far more rapidly in cities with heavy concentrations of immigrants (e.g. San Diego, Los Angeles, Miami) than those with few immigrants (e.g. Cleveland, St. Louis, Detroit). Second, the article is rather cavalier in its treatment of high end immigration. The author notes in...

Creative Stories on Wage Growth in the Washington Post

There was a larger than expected jump of 8 cents in the average hourly wage reported for June. This left some folks scrambling for an explanation. The Washington Post found a creative one, courtesy of "some analysts." According to these analysts, the more rapid wage growth in June is partly explained by a change in the mix of jobs, with the economy losing low wage jobs in the retail sector and adding jobs in the relatively high-paying manufacturing sector. Okay, sports fans, let's check the numbers. Employment of production workers (the relevant category) in the retail sector reportedly fell by 20,000 in June. Employment of production workers in manufacturing increased by 19,000. This gives a total change in composition of 39,000. This change in composition is equal to 0.042 percent of the total employment of production workers (92,700,000). The difference in pay between manufacturing workers and retail workers is $4.25 an hour. This means that 0.18 cents of the reported increase in...

The Coin of the Realm

The Washington Post had an interesting piece about whether it still makes sense for the government to mint pennies, given how much they cost to make relative to their value. The article might have asked the same question about the dollar bill. Coins are in general much cheaper to keep in circulation than bills, and given that a dollar today is worth about as much as a quarter was 35 years ago, it might be time for the switch. Of course we do have dollar coins, but they rarely circulate. In this respect, it's worth noting that the last two dollar coins both feature women (Susan B. Anthony and Sacagawea [a native American woman who accompanied Lewis and Clark on part of their journey]). These are the only U.S. coins or notes to portray women. --Dean Baker

The Washington Post's Front Page Editorial on Mexican Elections

The lead headline of the Washington Post this morning was "Mexico Vote Tally Gives Free-Trader a Narrow Victory." Wrong! Felipe Calderon, the candidate who is now ahead in the vote tally to be Mexico's next president is not a free-trader. He has supported increasing copyright and patent protection and shown no special interest in removing protectionist barriers that obstruct free trade in the services of highly paid professionals (e.g. doctors, lawyers, accountants). The Washington Post does not own the term "free-trade." If they want to identify Calderon by his trade position, they can call him pro-NAFTA. It is more accurate and saves 2 letters. --Dean Baker

New York Times Does PR Work for Brazilian Energy Company

Remember the good old days when newspapers didn't just unquestioning print what the powerful tell them? (Okay, maybe they never existed.) Anyhow, a Times article this morning reports that Petrobras, the Brazilian energy company, has invested $50 billion in Bolivia. How does the Times know how much Petrobras has invested in Bolivia? Did their reporter go around and price out the various wells and pipelines that the firm has constructed over years? Maybe the reporter talked to an expert who gave his/her estimate of the amount invested. While both of these are possibilities, the article doesn't tell us the source of the $50 billion figure, leaving open the possibility that the Times just printed what the company told them. This matters because, as the article reports, Petrobras is currently engaged in a dispute with the Bolivian government over its efforts to renegotiate royalty agreements. Petrobras' moral, if not legal, claim is improved, insofar as it has invested heavily in...

W.T.O. Mysteries in the Washington Post

Economists always like to talk about the ideal situation of perfectly competitive markets. This is the world in which there are vast numbers of buyers and sellers so that no individual buyer or seller can affect the price. In this world, every producer is a price taker. This means that the price is set by the market, and they can sell as much as they want to produce at the prevailing market price. In the real world, this is not an accurate description of most markets, which have a relatively limited number of sellers. The one market that does seem to fit the competitive story reasonably well is agriculture. Farmers see a price in the market for corn, wheat, soybeans, etc. and they can sell as much as they choose at this price. Unfortunately, the Post apparently does not believe that agriculture is a competitive market. It reports today that the United States is trying to open up markets in developing countries in order to give U.S. farmers something to offset the loss of subsidies in...

Xenophobia at the New York Times

The New York Times editorial page went a bit overboard in its anti-Bush tirade on the budget deficit. The basic point, that the Bush administration deficits are too large, is on the mark. (By the way, they could better make this point using the gross deficit [4.0 percent of GDP], which includes the money borrowed from Social Security, or better yet, just report the change in the ratio of gross debt to GDP.) If the Times had left the issue there, all of us econ types could happily applaud this push for fiscal responsibility. But our intrepid Times editorial writers felt the need to push further. They tell us that the debt is especially troublesome because 43 percent is in foreign hands and "debt owed to bankers in Beijing, Tokyo and elsewhere could destabilize the dollar and from there, drive up interest rates and prices." Huh? Okay, let's check the bases here. Most foreigners hold government debt for the same reason that investors in the U.S. hold debt, they value its safety, and also...

Getting Tough on Immigrants Seeking Health Care

To paraphrase my friend Brad DeLong, "why oh why do newspapers have to use meaningless numbers when it is so easy to provide information." Today's example is a Washington Post article about a new rule that requires people to show proof of citizenship before they can be covered by Medicaid. The article includes much useful information and comments from both proponents and opponents of the rule. Then it tells us that the Congressional Budget Office estimates that this rule will save Medicaid $735 million over the next decade. Great, everyone realize how much money that is? Okay, we know the Washington Post has an educated readership, but virtually none of their readers has any idea how important $735 million over the next decade is to the budget or their pocketbooks. Let's suppose the reporters had taken a moment to look at projected spending for this period. CBO projects total spending over the next decade at $33.3 trillion, or approximately $111,000 per person. The potential savings...

Pages