You can sign up to receive ERR and other CEPR e-newsletters at the CEPR Listserve Signup Page. You can find the latest ERR at the Economic Reporting Review Main Page. All ERR prior to August 2000 can be found at Fair.org.

Links to both New York Times and Washington Post articles require registration. To sign up for these free services, go to the NY Times Sign-up Page and the Washington Post Registration Page.


Outstanding Stories of the Week

Surge In Jobs Mostly Bypasses the Factory Floor
Louis Uchitelle
New York Times May 11, 2004, Page C1

This article examines the employment situation in manufacturing, pointing out that a new surge in hiring is unlikely even if the economy improves.

Herbal Drug Widely Embraced In Treating Resistant Malaria
Donald G. McNeil Jr.
New York Times, May 10, 2004, Page A1

This article reports on the growing recognition of the drug, artemisinin, as an effective treatment for malaria. The article notes that research on the drug had been neglected for decades, primarily because it is a natural herb and therefore not subject to patent protection. This sort of neglect is a predictable result of a patent based system of drug research.

Across America, War Means Jobs
Jonathan Weisman
Washington Post, May 11, 2004, Page A1

This article examines the sectors in which war related spending has led to an increase in economic activity and employment.


Immigration and Jobs

When a Job Calls And No One Answers
Eduardo Porter
New York Times, May 9 2004, Section 3 Page 3

This informative article discusses the impact of immigration restrictions on the domestic labor market. Much of the discussion is framed around the experiences of the owner of a small plumbing firm in upstate New York. According to the article, the firm is unable to find more plumbers, even though it pays $30 an hour in wages, plus a generous benefit package.

The article notes that immigrant labor could in principle fill these jobs, but that the visa process makes it difficult for the firm to hire immigrants. The article then concludes by claiming that the inability to get immigrant plumbers cost domestic jobs, since the employer laid off support staff because he could not get the plumbers needed to do more jobs.

This is an incomplete picture. Presumably the people who might have contracted with this firm to have bathrooms repaired or other plumbing work performed, still had this work done. If so, then they would have employed other plumbers, and indirectly support staff. The inability to get immigrant plumbers may have meant fewer jobs at this particular firm, but it does not necessarily imply that the economy will have fewer jobs in total.

The article also notes the argument that immigrants workers can have the effect of bringing down the price of certain types of labor. It then argues that the availability of low cost labor might be necessary in some industries in which firms cannot survive if they have to pay higher wages. While this is true, there is no reason that the public should be concerned about the survival of businesses that cannot pay decent wages and still earn a profit.

This is exactly what would be expected in a dynamic economy. Wages rise through time roughly in step with productivity. Firms that are unable to accomplish the same increases in productivity as the economy as a whole must try to raise their prices, if they want to maintain their profit margin. If market conditions prevent them from raising their prices, then they are eventually forced out of business. This is the normal market process. There is no obvious reason that it would be desirable to rescue failing firms by making low cost immigrant labor available.


Bush-Kerry Campaign

Despite Rhetoric, Bush, Kerry Agree On Many Issues
Jim VandeHei
Washington Post, May 9, 2004, Page A1

This lengthy article examines the similarities between the positions taken by President Bush and Senator Kerry on many key issues. Much of the discussion is inaccurate. For example, the article claims that both Democrats and Republicans have "coalesced, in broad terms, around a similar set of issues." Among these issues it lists "tax cuts instead of tax increases," "global trade instead of protectionism," and "deficit reduction, at least as a spoken goal."

All three claims are either wrong, or empty. Both parties are in fact ardently protectionist in areas that affect key constituencies. They strongly support extending patent and copyright protection throughout the world, raising the prices of protected items by several hundred percent above the free market price. They also support professional and licensing restrictions in highly paid professions (such as a quota on the number of foreign medical residents who can practice in the United States), that protect these workers from international competition. The parties only agree on subjecting less-educated workers to international competition.

Most Democrats have already come out for tax increases in order to bring down the deficit. No politician has ever advocated tax increases as an end in itself; they have also argued for taxes in order to serve some public purpose and that continues to be the case today. Similarly, few (if any) politicians have ever advocated large deficits. The Republicans have openly and explicitly supported policies (tax cuts) that had the predicted effect of leading to large deficits.

The article implies that the stated difference between President Bush and Senator Kerry on tax policy is relatively minor. While the number of people affected by Kerry's proposed tax increase on the richest 2 percent is small, the amount of revenue at stake is equal to approximately 10 percent of general tax revenue

The article also asserts that "whoever wins, a huge majority of Americans will benefit from the same lower marginal rates." While both candidates promise not to raise taxes for the vast majority of the country, it is not clear that either candidate will meet this commitment. The deficits may be so large that tax increases could become necessary in order to prevent interest rates from rising to levels that would be harmful to the economy. This scenario is especially likely if the United States keeps a large military force in Iraq, a policy to which both candidates are currently committed.


Outsourcing

As a Center for Outsourcing, India Could be Losing Its Edge
Noam Scheiber

New York Times, May 9, 2004, Section 3 Page 3

This article examines the economics of outsourcing work to India. The information in the article does not support the claim in the title. The article notes large differences in wages between India and the U.S. It reports that wages in India in the sectors heavily involved in outsourcing are rising rapidly, but even with large increases in Indian wages, a huge cost differential will remain. Also, some of the key non-wage costs that it identifies as discouraging outsourcing are transition costs. These costs are a one-time expense. Once a firm has begun to outsource and incurred these costs, it presumably has incentive to maintain and expand its operations in India.


April Employment Report

U.S. Job Creation in April Gives Strength to Recovery
Nell Henderson and Amy Joyce
Washington Post, May 8, 2004, Page A1

This article reports on the Labor Department’s release of employment data for April. At one point it notes that the data show average hourly and weekly wages both rising. This is almost always true, as nominal wages virtually always rise from month to month. The more relevant issue is the rate at which they rise, relative to inflation. Over the last three months wages have risen at just a 2.1 percent annual rate. This is below the current rate of inflation, which is close to 3.5 percent, which means that real wages have actually been falling.


Health Care

Faulting the Administration, Kerry Vows to Rein In Health Care Premiums
Jodi Wilgoren
New York Times, May 11, 2004, Page A19

This article reports on a speech in which Senator Kerry described his health care agenda if he gets elected. At one point the article cites a report distributed by the campaign as showing that "America spent more per capita on health care -- $4,887 -- than nine industrialized democracies." Actually, the United States spends more than twice as much per person as the average for other wealthy democracies, and has a shorter life expectancy than all of them. The Kerry campaign apparently chose to list nine countries for purpose of comparison, but these countries were representatives of a larger group, not exceptions.

Biggest Divide? Maybe It's Health Care
Robin Toner
New York Times, May 14, 2004, Page A16

This article discusses the differences between President Bush and Senator Kerry on health care. At one point, the article claims that President Bush's critics accuse him of leaving the public "squeezed by the soaring costs of an unfettered market."

Actually President Bush is an ardent opponent of an unfettered market in health care. He has been a staunch supporter of strong patent monopolies, which raise drug prices by several hundred percent above the free market price. He also has supported restrictions on the number of foreign doctors who are allowed to practice in the United States, which raises their pay far above world market levels. In addition, he has pushed for tens of billions of dollars in government subsidies to the insurance industry to allow them to be able to compete with the government-run Medicare program. Since Bush has been such a strong proponent of government intervention to aid powerful interest groups, it is odd for critics to accuse him of supporting an unfettered market.

Trade

France Splits With Europe Over Farm Subsidy Plan
Paul Meller
New York Times, May 11, 2004, Page W1

This article discusses divisions within the European Union over a new proposal to eliminate agricultural export subsidies. At one point the article claims that a new WTO pact is "intended to make trade more equitable to developing countries, and in particular to help the poorest nations, which suffer the most from the protectionist policies of wealthier nations."

It is questionable whether the purpose or the outcome of a new WTO pact will be to make trade with developing countries more equitable or to reduce protectionism. A major goal for the United States has been to increase protectionism in the form of extending patent and copyright protections. According to the World Bank, extending these forms of protection will cost developing countries approximately as much as any gains that they may expect as a result of reduced trade barriers in rich countries (See "Relative Impact of Trade Liberalization"). If the purpose of this agreement were simply to benefit poor countries and to reduce protectionism, the United States would not be insisting on increasing these barriers to trade.

Trade Deficit

U.S. Trade Deficit Grows Unchecked
Paul Blustein
Washington Post, May 13, 2004, Page E1

Trade Gap Widens to $46 Billion on Oil Imports
Edmund L. Andrews
New York Times, May 13, 2004, Page C1

These articles report on the Commerce Department's release of data on the trade deficit in March, which hit a new record. Both articles refer to the possibility that foreign investors may stop putting their money in the United States, which would make it more difficult to support the trade deficit. Actually, foreign investors have already cut back their rate of investment in the United States.

The trade deficit is currently being financed in large part by the purchases of dollar assets by foreign central banks, most importantly China's and Japan's. Both central banks have purchased hundreds of billions of dollars worth of assets in the last year in the hope of sustaining the high value of the dollar, and thereby supporting their export markets in the United States. These banks will continue to buy dollar-denominated assets until they decide they have a better way to support domestic demand, but this has nothing to do with investors' assessment of the United States as a good place to keep money.

In both cases this article ran on the front page of the business section. The trade deficit, and the borrowing it implies, has roughly the same effect on future living standards as a budget deficit of the same magnitude. These papers routinely place stories about the budget, of far less consequence, on the front page. Given the importance of the March trade data, these articles also deserved front-page attention.

At one point, the Post article suggests that much of the rise in the March deficit can be attributed to higher import prices - a predictable outgrowth of the decline in the dollar. It is easy to verify that this is not the case. The trade deficit rose by $3.9 billion in nominal terms from February to March. Using inflation adjusted dollars, which removes the effect of price changes, the deficit rose by $3.2 billion. These data indicate that higher import prices explain less than 20 percent of the rise in the trade deficit.


Small Businesses

Kerry Gathers Tales of Health Care Cost Burden
Jodi Wilgoren
New York Times, May 12, 2004, Page A16

This article reports on a set of health care proposals put forward by Senator John Kerry. The proposals are geared largely towards small businesses. At one point the article asserts that Mr. Kerry sees small businesses as "the engine of the nation's economy."

Small businesses are an important political constituency. There is also considerable popular support for measures that are seen as aiding small businesses. This means that Mr. Kerry has good political reasons to profess his support for small businesses regardless of how he views their economic importance. The article does not indicate how it has determined Mr. Kerry's actual view of small businesses.


Germany

Group Says Europe Is Lagging in Global Recovery
Mark Landler
New York Times, May 12, 2004, Page W1

This article reports on the OECD's assessment of the world's economic prospects. At one point, the article identifies Germany's main problem as being that "consumers remain in near paralysis." This claim is interesting for two reasons. The German government has recently adopted policies that were designed to discourage consumption, pushing people to instead save more for their retirement. Second, one obvious way to encourage consumption would be for the European central bank to lower interest rates. Neither of these issues are raised in the article, even though they are directly related to the problem it identifies.