By Dean Baker
February 2, 2004
‘A New Kind of Workforce’ Emerges
Nell Henderson and Kristin Downey
Washington Post, January 27, 2004, Page E1
http://www.washingtonpost.com/wp-dyn/articles/A50600-2004Jan26.html
This article reports on the growth in contingent work in the last three years. It suggests that this is part of a permanent trend and not just a temporary situation attributable to the weak economy.
Mark Landler
New York Times, January 27, 2004, Page C4
This article reports on a speech on productivity growth and the future of the world economy by John Chambers, the CEO of Cisco Systems. At one point the article reports on the projections of a study by Goldman Sachs, that China will pass the United States as the world’s largest economy in 2041. This projection is based on measuring GDP by exchange rate values. For most international comparisons, economists use purchasing power parity measures of GDP. These try to estimate comparisons in terms of the value of comparable goods and services produced, if the same prices were applied in all countries. This gives a more meaningful measure than simply taking the GDP of one country and converting it into dollars at a current exchange rate. On a purchasing power parity basis, growth estimates in the Goldman Sachs study imply that China will pass the United States as the world’s largest economy by 2015.
Copyrights
The Tyranny of Copyright?
Robert S. Boynton
New York Times, January 25, 2004, Magazine p40
http://www.cepr.net/Economic_Reporting_Review/nytimesarticles/tyrannycopyright.htm
This informative article discusses the views of a number of scholars who view copyright as a restriction on freedom of speech and a constraint on creativity and innovation. It would have been useful to include some economic analysis in this discussion. Copyrights impose large inefficiencies by raising the cost of protected material (music, videos, software, etc.) far above the marginal cost of production. In the Internet Age, copyrights are also extremely costly to enforce. Given these inefficiencies, it would have been useful to include a discussion that examined the efficiency of copyright relative to alternative methods of supporting creative and artistic work.
The article also implies that the Free Software Movement is somewhat of a fringe group. Actually, its practices have spread quite widely. For example, the National Bureau of Economic Research, by far the leading research organization in the economics profession, has adopted the “copyleft” model of the Free Software Movement.
Agricultural Subsidies
Battle Is Looming Over Cotton Subsidies
Elizabeth Becker
New York Times, January 24, 2004, Page B1
http://www.cepr.net/Economic_Reporting_Review/nytimesarticles/battlecottonsubsidies.htm
This article reports on a WTO court case being filed by Brazil against the United States over U.S. subsidies to cotton producers. The article asserts that the United States and other wealthy countries give $300 billion a year in agricultural subsidies to its farmers. Actually, the annual size of these subsidies is closer to $90 billion a year, less than one-third this size. The article does not indicate the source for the $300 billion figure.
The article also comments on the
effect that U.S. cotton subsidies have had in depressing world cotton prices,
thereby harming developing countries that export cotton. It is worth noting
that world cotton prices have also been depressed by a sharp increase in cotton
production by developing countries. At the urging of the World Bank and other
international institutions, many developing countries have shifted from
subsistence crops to export crops, like cotton. This has had the effect of
lowering the world price of many of these products. While world cotton prices
would undoubtedly rise to some extent in the absence of U.S. subsidies, the
benefit to developing countries is likely to be quite limited since they have
increased the world supply of cotton to such a great extent.
John Burgess
Washington Post, January 24, 2004, Page A13
http://www.washingtonpost.com/wp-dyn/articles/A43119-2004Jan23.html
This
article discusses the impact of the rise of the euro on the economies of the
euro zone nations. At one point the article refers to recent evidence of more
rapid growth in the United States and then comments that “textbook analysis
says this should lead euro holders to sell the currency in masse in order to
invest in the United States, driving down its value.”
It
is unlikely that any textbook says this. Investors seek out the best returns,
not the fastest growing economy. The vast majority of international currency
flows go into interest bearing accounts (e.g. short-term deposits and bonds).
At present, interest rates in the United States are lower than in the euro zone,
therefore there would be no reason whatsoever for investors to take money out
of interest bearing accounts in the euro zone nations in order to invest in the
United States. It is possible that sustained rapid growth in the United States
would push up stocks, but the stock market has already experienced a rapid
run-up, raising price-to-earnings ratios far above historic levels. This means
that stocks in the United States are not likely to provide a good return in the
future, even if growth in the U.S. continues at a healthy pace. Finally, more
rapid growth could increase the return to direct investment in physical
capital, but firms make their investment decisions based upon long-term
considerations, not two or three quarters of growth.
In short, there is no
reason to think the recent growth spurt in the United States should lead to a
rise in the dollar. In fact, the textbook analysis suggests that by increasing
imports, and therefore increasing the borrowing needs of the United States, the
recent spurt of growth is actually more likely to lead to a decline in the
value of the dollar. Countries with large current account deficits generally
see a decline in the value of their currency.
The Recovery
A
Recovery Unlike Others Seems to Alter Fed Rate View
Edmund
L. Andrews
New York Times, January 26, 2004, Page C1
http://www.cepr.net/Economic_Reporting_Review/nytimesarticles/recoveryunlikeothers.htm
This article examines the nature of the current recovery, which it
notes has followed a very different pattern from prior recoveries. At one point
the article asserts that inflation is “running at barely 1 percent and still
slowing.” The article does not indicate which price index it used to measure
inflation, but most indexes do not currently show the rate of inflation to be
slowing.
The GDP deflator rose at an annual
rate of 1.6 percent in the third quarter of 2003, and has risen by 1.7 percent
over the last year. By contrast, it rose at a 1.5 percent annual rate from the
third quarter of 2001 through the third quarter of 2002. The core (excluding
food and energy) rose by just 1.1 percent in the last year, but the annual rate
of inflation in the core in the second half of the year (1.2 percent) was
slightly higher than the 0.9 percent rate in the first half of the year. The
core finished consumer goods index rose at annual rate of 1.8 percent in the
most recent quarter, up from a 1.0 percent rate for 2003 as a whole. By
comparison the core finished consumer goods index fell by 0.5 percent in 2002.
The core intermediate material index shows a similar pattern. In short, most
price indices are showing a modest increase in the rate of inflation at
present. This indicates that there is less of a basis for concern about
deflation now than in 2002 or earlier in the first half of 2003.
The article does not discuss the
falling dollar and the trade deficit at all. The decline in the dollar that has
already taken place is certain to place some upward pressure on inflation in
the United States, due to rising import prices. With the dollar likely to
decline more in the future, as a result of the large U.S. trade imbalance, it
is likely that there will be further upward pressure on inflation.
At one point the article reports
that forecasters were surprised by the continued strength of housing starts.
This actually should not have been a surprise. As long as home prices are high,
builders will have a strong incentive to put up new housing. In this way, home
construction is very similar to the issuance of IPOs on the NASDAQ. As long as
the NASDAQ remained high, there was a strong incentive to rush forward with new
IPOs. Similarly, as long as housing prices stay near their current level,
builders will have a strong incentive to try to build new homes and place them
on the market.
Economic
Growth Showed A Soft Side During December
Reuters
New York Times, January 28, 2004, Page C10
This article reports on new data
from the Commerce Department, which showed that new orders for durable capital
goods fell for the second consecutive month. This report could prove to be an
important sign of economic weakness.
The growth spurt in the second half of 2003 was
driven primarily by a surge in consumption, which was in turn driven by last
summer’s mortgage refinancing boom and the tax rebates checks sent out in July.
Mortgage refinancing has since slowed to a trickle, and no further tax cuts are
currently scheduled. With job growth still very weak, and real wages falling,
it is unlikely that consumption demand will grow very rapidly in the months
ahead. In order to sustain a healthy pace of demand growth, investment will
have to fill the gap created by slower consumption growth.
Data on monthly durable good orders are notoriously
erratic, but December’s numbers were the second straight month of decline. It
is difficult to reconcile these two reports of declining orders with a view
that investment demand is growing rapidly. The December data should have been
reported as an important warning sign about the strength of the economy.
However, the Times only mentioned it in a small wire service story. This
information was only noted in passing in the Post at the end of an
article about the Fed’s decision on interest rates (“Fed Holds Interest Rates
Steady,” 1-29-04; E1).
New York Times, January 27, 2004, Page A1
This article reports on the release
of new budget projections from the Congressional Budget Office. The headline of
the article describes the projected deficit of $477 billion in 2004 as a
record, based on the fact that it is the largest deficit in history measured in
dollar terms.
While this is true, it is misleading. As the economy
grows, it can absorb larger deficits. The only meaningful measure of the
deficit is as a share of GDP. The projected 2004 deficit is equal to
approximately 4.5 percent of GDP, less than the post-war high of 6.0 percent of
GDP in 1982. This fact is mentioned in the article, but only as a small point
that many readers could miss. The size of the deficit as a share of GDP should
have been highlighted instead of the deficit measured in nominal terms.
It is worth noting that the “on-budget” deficit,
which excludes the money the borrowed from the Social Security trust fund, is
projected to be approximately 6.3 percent of GDP in 2004. This deficit is a
record high.
Bush
Scaling Back Dollars for Third World
Elizabeth
Becker
New York Times, January 29, 2004, Page A15
Bush
Is Said to Seek More Money for Arts
Robert
Pear
New York Times, January 29, 2004, Page A22
These articles discuss President
Bush’s budget plans for foreign aid and the National Endowment for the Arts
(NEA). Both articles discuss the spending in dollar terms. It would be helpful
to readers if the sums being proposed for these programs were expressed as a
share of total budget, since most readers will have relatively little sense of
the magnitudes of the proposed spending.
In the case of the foreign aid
proposal, the article reports that President Bush will propose spending $2.7
billion to combat AIDS in developing countries and $2.5 billion for the
Millennium Challenge Account program. These expenditures are equal to 0.11
percent and 0.1 percent of projected federal spending in 2005, respectively.
The $140 million that President Bush will reportedly propose to spend on the
NEA is equal to 0.006 percent of projected federal spending.
Republican
Concerns About Deficits Grow
New York Times, January 30, 2004, Page A15
This article reports on concerns
expressed by several prominent Republicans, that the deficits projected for
future years could harm the economy. At one point the article presents the
complaint of John Shadegg, a Republican congressman, that discretionary
spending has been growing 9 percent a year. It is worth noting that the vast
majority of this increase is attributable to increases in military spending and
spending on homeland security. The other categories of discretionary spending
just kept pace with inflation last year, and have increased slightly faster
than the rate necessary to maintain service levels over the last three
years.
Katherine
Q. Seelye and David M. Halbfinger
New York Times, January 30, 2004, Page A13
This article reports on a debate
between the seven remaining Democratic presidential candidates. At one point it
presents a quote from Senator Joe Lieberman, in which he claimed that NAFTA led
to net gain of 900,000 jobs. There is no economic analysis of NAFTA that shows
job gains of even one-tenth this size.