Beat the Press

Inertia, Budget Reporting and Starving Children

I had earlier promised to give my explanation for the fact that articles on the budget fail to put budget numbers in a context that would make the millions, billions and trillions meaningful to readers. While laziness is part of the story, the bigger factor is simply inertia, why change? Reporters may agree that it would be very simple and more informative to express budget numbers as percentages of total spending or dollars (or cents) per person, but this is not how their papers did it last year. Including this information is a change, and doing things differently can put you on the spot. In short, since no one put budget numbers in context last year, no one will do it this year. There are forces that overcome inertia. For example, if inaccurate or incomplete reporting was giving readers a bad impression of Microsoft or the pharmaceutical industry, their lawyers and lobbyists would be haranguing reporters and editors on a daily basis, demanding a change in practice. While the media...

How Big Is China?

This is not a grand existential question; I am referring to the size of its economy. According to most news reports, China's GDP is approaching $2 trillion, rivaling Germany for the #3 ranking in the world, behind the United States and Japan. In fact, this figure grossly understates the size of China's economy. It is already far larger than Japan's economy and is likely to surpass the size of the U.S. economy in less than a decade. The error is simple. The standard number reported for China's GDP is based on a "currency conversion" measure of GDP. This method takes China's GDP, calculated in its own currency, and then converts this number into dollars, using the official exchange rate. However, China's currency is hugely under-valued, so this method provides a very poor measure of the value of goods and services produced in China each year. The method preferred by economists for most comparative purposes is a "purchasing power parity" measure. This measure adds up GDP by using the...

Surprising News on Mexico at the Washington Post

Readers of the Washington Post might have been surprised to read that since the passage of NAFTA, "Mexico's gross domestic product has ballooned, multiplying nearly seven-fold, from $108 billion in 1993 … to $748 billion in 2005" (" Mexican Deportee's U.S. Sojourn Illuminates Roots of Current Crisis ," 4-17-06:A1). This amounts to a world record 17.5 percent average annual rate of growth in the 12 years since NAFTA was implemented. Readers should be surprised to read this in a front page story in the Washington Post because it is not true. Mexico's economy has not "ballooned" since NAFTA. According to the IMF's most recent World Economic Outlook, Mexico's GDP grew by just 40.2 percent over this period, an average annual rate of 2.9 percent. This translates into per capita GDP growth of 1.3 percent a year. This is weak growth for any country, but it is especially weak for a developing country. (Mexico sustained per capita GDP growth of almost 4.0 percent annually from 1960-80.) This...

Budget Deficits and Current Account Deficits

A New York Times story on Iceland provides a good opportunity to discuss the asymmetry in reporting on government budget deficits and national current account deficits. While news of the budget deficit routinely appears prominently on the front pages (in addition to occupying considerable space on editorial and op-ed pages) discussion of the current account deficit is generally relegated to the inner pages of the business section. Since the long-term impact of the two on the economy is comparable, there is little justification for the difference in treatment. This is another Econ 101 story. A budget deficit is supposed to be bad because it pulls money away from other more productive purposes. Specifically it is supposed to raise interest rates and thereby crowd out private investment. (The deficit hawks have a hard time telling this story at present, with real interest rates in the U.S. at near post-war lows.) The result is slower growth and a poorer country in the long-term. There is...

The "Theft" of Health Care by Immigrants: Does It Matter?

The New York Times ran a front page story on Sunday that could have been a case study of why it is essential to put budget numbers in context. The article, " Medicaid Rule For Immigrants May Bar Others ," explains how new rules intended to prevent illegal immigrants from getting Medicaid may also prevent many eligible beneficiaries from getting assistance. The problem is that many low income people don't possess the necessary documentation (e.g. drivers licenses or birth certificates) needed to receive Medicaid under the new rules. The key flaw in an otherwise excellent article is the brief reference to the potential budget savings from the new rules. The article reports that the Congressional Budget Office projects the savings as $220 million over five years and $735 million over ten years. Many readers may have been misled into thinking that this is real money. The projected savings are equal to 0.0015 percent of projected spending over the next five years and 0.0022 percent of...

Immigration: Die at the Border and Open Borders

I want to follow up quickly to a couple of notes on my posting where I referred to the "Die at the Border" policy. I was not arguing for open borders. I don't think that anyone who has given the issue serious thought advocates open borders, since a literal open border policy would almost certainly imply an inflow of hundreds of millions of people in the next couple of decades. My point is that we don't have open borders; instead we have very serious limitations on immigration. Immigration is restricted both by the danger of the border crossing and the prospect of deportation due to a random encounter with law enforcement (e.g. a traffic ticket). These threats ensure that most immigrants will not be well-educated, since well-educated people in the developing world will not take these risks to work in the United States. This means that less-skilled workers in the United States have to worry about competition from undocumented workers, while the people who design and debate immigration...

Sick Europe and the Italian Elections

The elections in Italy prompted another round of knowing comments about how Europeans must get over their silly attachment to employment security (e.g. " Europe Stalls on Road to Economic Change "). None of the comments I saw even considered the possibility that the contractionary policies of the European Central Bank (ECB) play any role in Europe's economic weakness. The basic story here is fairly simple. While Alan Greenspan lowered the overnight interest rate in the United States to 1.0 percent in the summer of 2003, the ECB never lowered its overnight rate below 2.0 percent. This is in spite of the fact that inflation in the euro zone has been the same or lower than in the United States and the euro zone has consistently had higher rates of unemployment. The story does get more complicated (the Fed's overnight rate is now 4.75 percent, compared to 2.5 percent in the euro zone), but I would argue that the ECB has consistently been more contractionary than the Fed in its policies...

Immigrants and "Low Wage" Jobs

One of the great absurdities in the debate over immigration policy is the frequently repeated claim that the U.S. economy is generating more "low wage" jobs than can be filled by the domestic workforce. This line has been endlessly repeated in news stories on the issue. Quick trip back to econ 101: recall the concepts "supply" and "demand." What makes a job a "low wage" job? In econ 101 world, a job will be a "low wage" job if the supply is high relative to the demand. When there is insufficient supply, then the wage rises. My students didn't pass the course if they couldn't get this one right. Econ 101 tells us that there is not a shortage of workers for low wage jobs; it tells us that there are employers who want to keep the wages for these jobs from rising. Immigration has been one of the tools that have been used to depress wages for less-skilled workers over the last quarter century. Many of the "low-wage" jobs that cannot be filled today, such as jobs in construction and meat-...

When Out of Context Is Untrue

A couple of days ago, I gave my standard diatribe about the importance of putting numbers in context, especially budget numbers, which as isolated billions or trillions are virtually meaningless to the typical reader. In some cases, the issue is not just one of being uninformative, it's also a question of actually being wrong. In budget reporting, the most obvious case in which out of context is wrong, is when comparisons of the deficit are made through time. There have been many news reports pronouncing the Bush deficits the largest in history based on the fact that nominal deficits (which peaked at $413 billion in 2004) were larger than the size of the deficits in any prior year. This statement is true, but sufficiently misleading to be wrong. The impact of the deficit on the economy, and the potential debt burden it poses to taxpayers in the future, depends entirely on its size relative to the economy. This is the Bill Gates principle. If Bill Gates chooses to borrow $1 million for...

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