Economic Reporting Review
By Dean Baker
October
17, 2005
In This Issue:
• Outstanding
Stories of the Week
• Trade
and Development
• China's
Currency
• September
Employment Report
• The
Recession and the Economy
• Labor
Compensation at Delphi
• Cross
National Comparisons of Unemployment Benefits
• The
Budget
• Germany
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Outstanding
Stories
of the Week
Repeat Claims Strain Federal Flood Insurance
Gilbert M. Gaul
Washington
Post, October 11, 2005, Page A1
This article
reports on the number of homeowners who have repeatedly benefited from federal
flood insurance. In many cases, homes have been built on sites that are
especially prone to flood damage, and are rebuilt in the same location when they
get badly damaged or destroyed.
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African Food for Africa’s Starving Is Roadblocked in Congress
Celia W. Dugger
New
York Times,
October 12, 2005, Page A4
This article reports on how major food distributors have been able to block
plans to buy food from African producers to distribute to victims of famine.
According to the article, this shift would drastically reduce expenses
associated with shipping and storing grain, in addition to giving a boost to
Africa’s agriculture.
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Treated for Illness, Then Lost in Labyrinth of Bills
Katie Hafner
New
York Times, October 13, 2005, Page A1
This article
reports on the complex and often unintelligible medical bills that many sick
people must deal with. It points out that many people cannot determine which
bills are proper and end up paying money they don’t owe.
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Housing Aid Called Too Much, Too Little
Spencer S. Hsu
New
York Times,
October 12, 2005, Page A6
This article reports on the decision by FEMA to continue to house evacuees from
Hurricane Katrina in hotels instead of finding them more permanent and lower
cost housing in apartments.
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Trade
and Development
Europe Entertains An American Offer to Cut Farm Aid
Alexei Barrioneuvo and Tom Wright
New
York Times,
October 11, 2005, Page C1
This article reports on a Bush administration proposal for reducing agricultural
subsidies and tariff protections. The article asserts that the proposal is
intended to aid developing countries, noting that it is part of the agenda of
the “development round” of the World Trade Organization.
Actually, there is a large body of research (much of it from the World
Bank) showing that rich country agricultural subsidies and trade barriers have
relatively little impact on developing countries (see “The Relative Impact of
Trade Liberalization on Developing Countries,” [http://www.cepr.net/publications/trade_2002_06_12.htm]).
In some cases, the removal of subsidies will actually harm developing countries,
since it will increase the amount of money they will have to pay for
agricultural imports. The most obvious beneficiary of the removal of barriers to
trade in agricultural products will be the major grain trading companies in rich
countries. It is worth noting that the largest trading companies, such as Archer
Daniels Midland, have very powerful political connections.
The fact that the last round of the WTO was dubbed the “development round”
does not necessarily provide any information about its actual goals. President
Reagan called the MX missile the “peace keeper.” Giving the missile this
name did not necessarily mean that its actual purpose was to promote
peace.
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China's
Currency
U.S.
Steps Up Effort to Persuade China to Shift on Trade
Edmund L. Andrews
New
York Times,
October 10, 2005, Page C3
This
article reports on efforts by the Bush administration to persuade the Chinese
government to increase the value of its currency relative to the dollar. At one
point the article presents the views of “some American officials” that even
a major upward revaluation of the Chinese yuan would have little impact on U.S.
manufacturing. It is worth noting that this view directly contradicts claims by
proponents of recent trade agreements, that relatively small reductions in
tariffs would have large benefits for the U.S. economy.
A rise in the value of the yuan against the dollar is equivalent to a reduction
in a tariff on U.S. exports of the same amount. (A rise in the yuan of 20
percent has approximately the same impact as the elimination of an import tariff
of 20 percent). A rise in the yuan is also equivalent to removing an export
subsidy on Chinese goods to the United States. If Bush administration officials
do not believe that even large changes in the value of the yuan against the
dollar can have a substantial impact on the U.S. economy, then they must not
believe that the much smaller tariff changes associated with CAFTA or NAFTA had
any measurable impact on the U.S. economy.
It is important to note that the U.S. trade deficit with China is rapidly
increasing. Even if a rise in the value of the yuan does not directly shrink the
deficit, it would almost certainly slow the rate of growth. The article also
asserts that imports from other countries would likely simply displace imports
from China. In fact, most other countries are likely to also raise the value of
their currency against the dollar, if China leads the way, as happened the last
time when China raised the value of its currency.
It is also important to note that the only other plausible mechanism
(other than devaluing the dollar) for bringing the U.S. trade deficit down to a
sustainable level is pushing the U.S. economy into a severe recession. There is
no other plausible path to correcting the huge trade deficit.
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September
Employment Report
Storms
Took Toll On Jobs In Sept.
Nell Henderson
Washington
Post, October 8, 2005, Page D1
http://www.washingtonpost.com/wp-dyn/content/article/2005/10/07/AR2005100700459.html
Job
Losses Are Below Expectations
Eduardo Porter and Vikas Bajaj
New York Times, October 8, 2005, Page B1
http://www.nytimes.com/2005/10/08/business/08jobs.html?ex=1286424000&en=7b5a0637d133efc4&ei=5090&partner=rssuserland&emc=rssThese
articles report on the Labor Department’s employment report for September.
This employment report showed a drop of 1.1 percentage point, to 19.8 percent,
in the employment to population (EPOP) ratio for African American teens. This is
the lowest EPOP reported for African American teens since May of 1984. Neither
article noted this development.
The Times article suggested that the economy would appear much stronger
in October, noting that the price of oil at the end of the month was already
down from the peaks it reached in September. Actually, the price of refined
products like gasoline and home heating oil is far more important than the price
of oil. The price of these products had never risen in proportion to the run-up
in crude oil prices in September. (The widely cited market prices are spot
prices; most oil is purchased on long-term contracts.) The price of both home
heating oil and gasoline was far higher in October than it was before Hurricane
Katrina. The economy has still not felt the full impact of these price
increases.
The headline of the Post article
implies that employment data reflected the impact of both Hurricane Katrina and
Hurricane Rita. In fact, Hurricane Rita hit after the surveys were conducted, a
point correctly noted in the Post
article.
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The
Recession and the Economy
Have
Recessions Absolutely, Positively Become Less Painful
David Leonhardt
New
York Times,
October 8, 2005, Page B1
This
article assesses the economy’s recent recovery and compares it to prior
recoveries. The article assumes that the negative shocks hitting the economy
have been extraordinary in recent years: “the United States has endured an
almost biblical series of calamities in recent years – wars, hurricanes,
financial scandals, soaring oil prices and rising interest rates.” Actually,
there is nothing especially unusual about this list of negative events. The
United States experienced larger wars in the fifties, sixties, and seventies.
The oil shocks of the seventies were certainly much more severe than the recent
shock has been thus far. Hurricanes and other natural disasters have also
occurred with regularity as have financial scandals. There is no obvious basis
for claiming that the negative external events hitting the economy at present
are any larger than the events that have hit the economy at many points in prior
decades.
The article also implies that the current recovery has been faring unusually
well in recent years despite these external shocks. In fact, the economy went
through its longest period of job loss since the Great Depression following the
2001 recession. The employment to population ratio is still almost 2 percentage
points below its pre-recession level. Using the recovery of the labor market as
a metric, the economy has never been less resilient throughout the post-war
period.
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Labor
Compensation at Delphi
Auto-Parts
Supplier Files for Chapter 11
Sholnn Freeman
Washington
Post,
October 9, 2005, Page A18
Auto
Supplier Delphi Nears Bankruptcy
Danny Hakim
New
York Times,
October 9, 2005, Page A14
At one point the Times article notes that the U.S. auto industry is at a disadvantage
competing against Japanese firms because they have nationalized health care.
While this is true, it is important to note that a nationalized health care
system only provides an advantage because it is far more efficient than the U.S.
system. The nationalized health care system also must be paid for, and if the
Japanese system were as inefficient as the U.S. health care system, then
Japanese firms would be paying roughly the same amount in taxes to the
government to support the health care system as U.S. firms pay to private
insurers. However, because the Japanese system costs less than half as much per
person (and allows the Japanese to enjoy substantially longer life expectancies
than people in the United States), health care imposes a much smaller burden on
Japanese firms than it does on U.S. firms.
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Cross
National Comparisons of Unemployment Benefits
Where
To Be Jobless In Europe
Mark Landler
New
York Times,
October 9, 2005, Section 4, Page 4
For example, if an engineer loses her job, and has little ability to support
herself, then she may be forced to take a more menial job, like working as a
sales clerk or in a restaurant, rather than finding another job as an engineer.
While it is in the worker’s interest to have the ability to search long enough
to find a better job, it is also benefits the economy as a whole. The worker’s
training as an engineer will be wasted if she works at a job that does not allow
her to fully utilize these skills. For this reason, a certain level of
generosity in benefits will be desirable to increase economic efficiency (see
“Finding the Better Fit: Receiving Unemployment Insurance Increases the
Likelihood of Re-employment With health Care Insurance,” [http://www.epinet.org/content.cfm/ib205]).
Back to Top
The Budget
Liberal
Hopes Ebb in Post-Storm Poverty Debate
Jason DeParle
New
York Times,
October 11, 2005, Page A1
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Construction
Merkel
To Succeed Germany’s Schroeder
Craig Whitlock
Washington
Post, October 11, 2005, Page A1
This article reports on an agreement
between Germany’s two largest political parties under which Angela Merkel, the
head of the Christian Democrats, will become chancellor. At one point the
article asserts that Germany’s unemployment rate hit 12 percent this year. It
is important to realize that this figure uses the official German measure of
unemployment. This measure treats anyone who is working less than 15 hours per
week as being unemployed. Using the OECD standardized measure of unemployment,
which is similar to the U.S. measure, Germany’s unemployment rate never
crossed 10 percent.
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Dean Baker is Co-Director of the Center for Economic and Policy Research in Washington, D.C.