Beat the Press

If the Politicians Say It, It Must Be True

That's the word from the Washington Post when it comes to the WTO negotiations. Today's article on the prospects for the Doha round asserts that "unlike previous negotiations with similar aims, this set of talks has an ambitious twist: The main goal is to change rules that have put poor countries at a disadvantage in the global marketplace." Yes, and we know that because... Look, the people structuring the Doha round are politicians. It should not be news that politicians are not always entirely truthful in their public comments. In other words, just because they say that the purpose of the Doha round is to help developing countries, this does not mean that the real purpose of the round is to help developing countries. The evidence actually shows that the Doha round is likely to do very little for developing countries and will actually hurt some who are net importers of agricultural products. (The removal of rich country subsidies causes agricultural prices to rise, which means that...

The Problem of Rising Wages in China

The Times had one of the most convoluted articles yet on demographics. Apparently, China's slowing population growth may lead to a shortage of cheap labor, no kidding the headline is "As China Ages, a Shortage of Cheap labor Looms." It wasn't that long ago that I learned my economics, but back then this was THE POINT of economic development. Countries wanted to have more good paying jobs relative to the size of their population so that people would not be forced to take the bad paying jobs. I am not quite sure what theory of economic development the Times has where a lack of people in low-paying jobs is a problem. (Maybe we can make Times reporters do them.) Just about everything else in the piece is equally incoherent. It gives us the warning of the rising ratio of retirees to workers. But let's toss in some arithmetic. China's per capita GDP is growing at more than 8 percent annually. This means that in a decade, per capita income will have more than doubled. Suppose the tax burden...

Do Mexican Voters Care About the Economy?

The New York Times apparently doesn't think so. In an article assessing the Mexican presidential campaign in its final days, there is no mention of the economic performance of the current administration. Since one of the two leading candidates is from the same party as the incumbent president, and pledges to continue the same policies if elected, the recent economic record would appear to be relevant. For those who care about such mundane things as economic growth, the cumulative per capita GDP growth in the first five years of the current president has been approximately 2.0 percent . By contrast, Mexico's per capita GDP grew 4.0 percent annually over the years from 1960-80. In other words, in 5 years under the current president, Mexico's economy grew as much as it typically did in 6 months over the period from 1960-80. As a general rule, weak economic growth will mean weak job creation and few gains in reducing poverty, and this appears to have been the case in Mexico. This weak...

Good Piece in the NYT on the Evils of Protectionism (drug patents)

When the government imposes restrictions that artificially raise prices above the competitive market level, economic theory predicts that producers will engage in anti-social rent-seeking behavior to maximize their rents. Drug patents, which raise drug prices by several hundred percent above the competitive market price (sometimes several thousand percent), lead to all sorts of corruption, just as economic theory predicts. Unfortunately, economists show relatively little interest in this interference with the free market. Fortunately, the NYT shows more interest. It has a good article on doctor run foundations that receive large payments from drug and medical supply companies. These foundations tend to produce research that shows the effectiveness of their donors' products. --Dean Baker

What Is $16 Billion to the Federal Governemnt?

The Times ran an informative article on the Bush administration's new rules requiring states to impose more stringent work requirements on welfare recipients. However, the piece fell short in telling readers the cost of welfare. It reports that welfare is blockgranted at $16 billion annually between 2007 and 2010. It would have been helpful to tell readers that the cost of the program will fall from 0.6 percent of total spending in 2007 to 0.5 percent of spending by 2010. Alternatively, government spending is projected to be approximately $50,000 for every person in the country over the next five years, of this $270 will be spent on welfare. --Dean Baker

When Numbers Don't Add Up at the New York Times

I have complained in the past about reporters' willingness to accept corporate numbers uncritically. My favorite example is the widely reported claim that the compensation of Delphi's unionized workers averaged $65 an hour. This implied a benefits package worth more than $70,000 a year. Anyone believe that? We have another example from the Times today. Its article on GM's buyout offer to workers reports that getting rid of 35,000 workers will save GM $8 billion a year. Hmmmm, my calculator puts that at a savings of just under $230,000 per worker. If you think this number sounds a bit high, you would get confirmation by the end of the article. The last paragraph reports the assessment of a stock analyst that GM earnings will rise $1.25 a share for each 10,000 workers who accept the offer. With 565.6 million shares outstanding, this implies additional earnings of $707 million for each 10,000 workers, or $2.47 billion for the 35,000 workers who accepted the buyout. That comes to a more...

New Homes Sales, the Rest of the Story

The May data for new home sales came in somewhat higher than expected. It is important to keep in mind that the home sales data record contracts, not completed sales. In the boom period a year ago, broken contracts were rare. Now that prices are weakening in many of the formerly hot markets, broken contracts are becoming common. To my knowledge, no one keeps data on the percentage of contracts that are broken, but there have been reports from some builders in California and Florida of cancellation rates in the range of 20-30 percent. If the nationwide rate of cancellation is even 5 percentage points higher than last year, it would conceal a sharp falloff in actual sales. One key measure that gets around this issue is the number of unsold homes. This was 556,000 in May, essentially the same as April's record high of 560,000, and more than 100,000 higher than the inventory of 450,00 reported in May of 2005. --Dean Baker

Trade Nonsense in the NYT

For reasons that I will not pretend to understand, newspaper editorial boards are huge proponents of trade agreements as a remedy to world poverty. They endlessly promote these agreements on their editorial and oped pages. Papers like the New York Times and Washington Post are as likely to print an oped critical of recent trade agreements, as Pravda would have been to print an anti-communist diatribe back in the days of the Soviet Union. Today's piece in the NYT is a great example. It touts a new W.T.O. agreement which would raise world income by $54 billion annually. Even better, the piece tells us that the lowest income countries, which have just 1.2 percent of world income, would get 1.9 percent of the gains. Before anyone celebrates this prospect, let's have some context. World income is approximately $50 trillion. So, the prospect of $54 billion in annual gains comes to 0.1 percent of world income. If the poorest countries get 1.9 percent of these gains, that comes to just over $...

The Minimum Wage and Doctors' Pay

Since there have been some interesting comments on two separate posts from last week, I thought I would pull them together. To get up to speed, NPR ran a piece last week which decried (slight exaggeration) the low pay of doctors. I also commented on the failure of reporting on a minimum wage hike to note the extensive research showing that modest increases in the minimum wage (like the ones being debated) have no significant effect on employment. The responses have raised issues about the appropriate wages for doctors and people who work at the type of jobs that get the minimum wage. The point that I wanted to make is that these two are linked. The wages of people working at low paying jobs are a cost to doctors, and doctors' pay is a cost to those earning low wages. The logic of this is simple. While some wage increases may be absorbed in lower profits, and may also be offset by higher productivity, at least some part of any wage increase will be reflected in the prices of the goods...

NPR's Sob Story for Struggling Doctors

NPR did a piece this morning on doctors' pay that leaves you wondering why they get taxpayers dollars. The basic point was that doctors, especially primary care physicians, are struggling. The news hook was a new survey that showed that doctors' net (after malpractice) pay is not keeping pace with inflation. The survey showed that average net compensation for all physicians in 2003 was just over $220,000 a year (in 2006 dollars). This is down by 7.1 percent (adjusted for inflation) from the 1995 level. Of course there are big differences by specialty. (The decline in pay is partly explained by a 4.1 percent shortening of the average workweek.) While the survey found that surgeons average almost $300,000 a year, primary care physicians average just $160,000 a year. The NPR story chose to focus on the latter, highlighting the difficulties of making ends meet. However, instead of finding a typical primary care physician, NPR found a doctor who claims to be making just $50,000 a year,...

Reporting Nonsense on the Minimum Wage

Suppose that the senators who support a quick withdrawal from Iraq got in the habit of saying that the United States should get out of Iraq because losing 100 U.S. soldiers a day is an unacceptable price for the occupation. Would the media simple report this claim without comment? Or, would they point out that these senators apparently don't realize that the fatality rate is approximately 2 per day? My guess is that every story that noted the claim that 100 soldiers a day are being killed would correct this assertion based on an authoritative source on the causality count. The media would probably also run numerous stories that reported on the fact that the proponents of a hasty withdrawal have no idea what they are talking about. This would be good journalism. The question is why it is not applied to the debate over the minimum wage. Reporters routinely quote claims from politicians opposed to raising the minimum to the effect that it would lead to a large loss of jobs and will slow...

Dollars Down the Drain

The Washington Post reported on former Treasury Secretary, and soon to be former Harvard President, Larry Summers' suggestion that the foreign central banks of developing countries begin to unload some of their huge dollar holdings. As someone who has been writing on this issue for almost five years (see here , here , and here ), I am glad to see that it is now getting attention from some prominent economists. Unfortunately, the article (and perhaps Summers) confuses cause and effect. The article implies that the central banks acquire these huge holdings because of their countries' vast trade surpluses with the United States. It suggests that the banks buy up dollar reserves because they don't know what else to do with their money. While there be some holdings due to simple confusion of this sort, this is probably the least important factor in the huge build-up of reserves. Part of the reason is that developing countries do not want to end up in financial crises where they can then be...

Rich Countries Provide $300 Billion Annually in Subsidies to the Pharmaceutical Industry

You won't see this headline in the newspapers. You should ask why. Newspapers have repeatedly reported on the hundreds of billions of dollars that the rich countries give to the agricultural industry. (See the Financial Times for the latest example.) While the wording of the headlines, and often the articles themselves, would lead readers to believe that this money is being paid directly from rich country governments to farmers, the vast majority of this money takes the form of higher prices that result from trade barriers of various types. To those who might say that it doesn't matter whether the money comes from government coffers or through higher prices to consumers, I will point out that this is not how the media generally treat the issue. The media have never run a story about the hundreds of billions of dollars in government subsidies to the pharmaceutical industry. These subsidies take the form of patent protection, government granted monopolies that raise the price of patent...

From the Times Europe Bashing Desk

The NYT had a piece this morning reporting on how Europe is heavily dependent on coal, despite its "green image." While the article had much useful information, it never mentioned the fact that Europe emits approximately 50 percent as much greenhouse gas per capita as the United States. In the numerate world, this is an important piece of information. At one point the article discusses how much Europe will have to reduce its emissions if it is to compensate for growing emissions in China and India "to say nothing of the United States." As far as I know, none of the people running European countries are morons, nor are the environmentalists who promoted the Kyoto agreement. If China, India, and the United States do nothing to contain their emissions of greenhouse gases, then whatever Europe does or does not do will be completely irrelevant. There would be absolutely no point in Europe absorbing substantial economic costs in a futile attempt to stop global warming. The proponents of the...

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