Dear ERR Readers,
This is the last issue of the Economic Reporting Review. I am happy to report that the New York Times and Washington Post were kind enough to provide a record number of outstanding articles for the occasion. (Alternatively, I may have just gotten soft.)
Anyhow, we will be carrying through with our plans for a blog, starting next Monday, April 10th. We will send out a notice for the blog, with its URL next Monday. In a similar vein, my new book, The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer, will be coming soon to a website near you.
I hope that people have found ERR useful over the years and that the blog will prove at least as useful in the future.
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Retraining Laid-Off Workers, But for What?
Louis Uchitelle
New York Times, March 26, 2006, Section 3, Page 1
This article examines the success of retraining programs for workers who have lost their jobs by focusing on the experiences of airplane mechanics who had been employed at a United Airlines maintenance facility in Indianapolis. The article reports that the vast majority of these workers were eventually forced to accept jobs that paid far less than ones they previously held, a typical experience for workers who lose their jobs.
Fund Manager, It’s Time To Pick a Side
Gretchen Morgenson
New York Times, March 26, 2006, Section 3, Page 1
This article reports on efforts by a new foundation to try to pressure investment funds to use their power to reign in the pay of top executives.
Inherit the Wind; There’s Little Else Left
Eduardo Porter
New York Times, March 26, 2006, Section 4, Page 1
This article examines the sizes and distribution of estates in recent years. It points out that the vast majority of estates are relatively small, implying that most baby boomers will not be significantly aided in retirement from inheritances from their parents.
Vague Law and Hard Lobbying Add Up to Billions for Big Oil
Edmund L. Andrews
New York Times, March 27, 2006, Page A1
This article reports the sequence of events that allowed major oil companies to reduce their royalty payments on federal oil leases by tens of billions of dollars.
Immigration Divides Allies
Jonathan Weisman
Washington Post, March 31, 2006, Page A1
This article examines the differences among liberals on immigration policy. It presents the views of several economists of the impact of current immigration policy on the wages of less-educated workers.
Shocks Seen in New Math for Pensions
Mary Williams Walsh
New York Times, March 31, 2006, Page C1
This article examines the impact that a new set of accounting rules being considered by the Financial Accounting Standards Board would have on corporate net worth.
A Benefit for Insurers
Milt Freudenheim
New York Times, March 31, 2006, Page C1
This article examines the possibility that a major goal behind the design of the new Medicare drug was to get beneficiaries out of the traditional Medicare program and to enroll with private insurers instead. As the article notes, any substantial shift out of the traditional program is likely to raise costs for the government, since private insurers charge an average of 15 percent more to cover a beneficiary.
In Motor City, Anger Yields to Pragmatism
Dale Russakoff
Washington Post, March 26, 2006, Page A1
This informative article reports on the mood among General Motors auto workers as they consider the company’s new buyout proposal. The article repeatedly asserts that the loss of high paying jobs in the auto industry is an inevitable outcome of globalization.
Actually, the loss of these jobs was the result of policy decisions that were intended to place U.S. manufacturing workers into direct competition with manufacturing workers with low wage workers in the developing world. U.S. trade policy could have instead focused on placing doctors, lawyers, and other highly paid professionals into international competition, but these groups have more political power than auto workers and the majority of the labor force that has lost income as a result of trade policy.
With an Eye on Politics, Edwards Makes Poverty His Cause
Erik Eckholm
New York Times, March 26, 2006, Page A19
This article reports on a conference on poverty sponsored by a foundation started by former Senator John Edwards. The article discusses Edwards' concerns about the loss of relatively good paying jobs in manufacturing, but then adds that he has “shied away from calls for protectionism.” Actually, Mr. Edwards has been willing to accept protectionist measures that maintain high wages for doctors, lawyers and other highly paid professionals. He has only been opposed to protectionist measures that would benefit less skilled workers.
For the French, Joie de Vivre Fades Into Fear
Molly Moore
Washington Post, March 25, 2006, Page A1
This article examines attitudes in France in the context of the mass protests against a new law making it easier to fire young workers. The article implies that France is losing out in international competition. Actually, France is doing quite well in international competition, at least relative to the United States. The United States is currently running a trade deficit that exceeds 7 percent of GDP, meaning that it buys far more from the rest of the world, than the rest of the world wants to buy from the United States. By comparison, France’s trade deficit is a relatively modest 1.7 percent of GDP.
In discussing France’s weak economy it also would have been appropriate to mention the contractionary monetary policies being pursued by the European Central Bank. Virtually all economists agree that the United States would have slower growth and higher unemployment if the Federal Reserve Board had pursued similarly restrictive policies.
Biggest Drop in 9 Years for New-Home Sales
Reuters
New York Times, March 25, 2006, Page B3
This article reports on the Commerce Department’s release of data showing a 10.5 percent in decline in new home sales in February. It is worth noting that this decline is almost certainly exaggerated due to an error in reporting.
The biggest factor in the February decline was a reported 29.4 percent drop in home sales in the west. This one-month decline is too large to be plausible, barring extraordinary weather events. In fact, the decline repeats a pattern that has been visible in this data since July of last year. The west has shown a large jump in new home sales reported for the first month of each of last three quarters. The increases in July, October, and January were 27.5 percent, 25.4 percent, and 6.6 percent, respectively. In each case, the next two months showed much lower sales. The one-month declines in August, November, and now February were 19.5 percent, 21.2 percent, and 29.4 percent, respectively.
Clearly, there is a problem with these data, as reports of new home sales in the west are being clustered in the first month of the quarter. While new home sales data do clearly show a substantial downward trend in homes sales over the last half year, the February decline was almost certainly not as steep as this report indicates.
Help Wanted as Immigration Faces Overhaul
S. Mitra Kalita and Krissah Williams
Washington Post, March 27, 2006, Page A1
This article reports how employers view proposed restrictions on immigration. It reports that many employers have difficulty obtaining native workers or legal immigrants at the wages they offer. It then notes that if they paid higher wages then this would likely be passed on in the form of higher prices, which would anger consumers.
It is worth noting that consumers would also benefit if professionals like doctors and lawyers could be brought into the United States to work for wages that are far lower than what these professionals usually receive. The inflow of large numbers of immigrants into a limited sector of the labor market, allows the rest of the population to benefit at the expense of the workers with U.S. citizenship who might otherwise hold these jobs.
At one point the article discusses the types of jobs that are largely filled by immigrants and the wages they pay. It lists construction in this category, with an average wage of $17 an hour. It is important to note that there are large variations in wages in the construction industry. Craftsmen like plumbers and electricians can earn more than $30 an hour. On the other hand, laborers may only get $7-$8 an hour at many construction sites.
A Quiz for Would-Be Citizens Tests Germans’ Attitudes
Richard Bernstein
New York Times, March 29, 2006, Page A4
This article discusses a proposed test that immigrants would have to take in order to become German citizens. At one point the article reports on the low number of births in Germany last year (680,000-690,000 according to the article, which is equal to approximately 0.9 percent of the country’s population). It then describes this low birth rate as a “demographic crisis.”
The article provides no explanation as to why this poses a crisis. As a densely populated country, it would seem that most Germans would greatly benefit from a reduction in the country’s population. There would be less pollution and congestion and a larger share of the population could afford to live in desirable locations, for example on land near rivers or the ocean.
Since Germany has a relatively high unemployment rate, a lower rate of labor force growth should also help to reduce the unemployment rate over time and eventually help to put upward pressure on wages. The article does not indicate what negative effects would result from a low birth rate.
Joshua Brewster Bolten: Longtime Ally, Now a Top Aide
Elisabeth Bumiller
New York Times, March 29, 2006, Page A16
This article discusses Joshua Bolten’s record as head of the Office of Management and Budget. At one point it asserts that over the last three years Bolten has “presided over the biggest budget deficits in the history of the United States.”
This is only true when measuring the deficit in nominal dollars. Economists recognize this as a meaningless measure, since a bigger economy can obviously support a larger deficit. The relevant measure is the size of the deficit relative to the size of the economy. The deficit on unified budget (which does not include the money borrowed from Social Security) was 3.5 percent, 3.6 percent, and 2.6 percent of GDP over the last three years. This is far lower than the deficits in the years 1983-85, when the ratio of the deficit to GDP was 6.0 percent, 4.8 percent, and 5.1 percent. It is also lower than the deficits in the years 1991-93 which were 4.5 percent, 4.7 percent, and 3.9 percent of GDP.
The on-budget deficits, which include the money borrowed from Social Security, were considerably higher at 5.0 percent, 4.9 percent and 4.0 percent of GDP. But these were still considerably lower than the on-budget deficits in the early eighties and early nineties.
Protests in France Over Youth Labor Law Turns Violent
Elaine Sciolino and Craig S. Smith
New York Times, March 29, 2006, Page A12
This article reports on the protests over a new French labor law that would make it easier to fire young workers. At one point the article asserts that France has a social welfare system “that the country cannot afford.”
The article does not explain how it determined that France cannot afford its social welfare system. There are countries, such as Denmark, Austria, and Sweden that have more generous welfare systems by many measures, yet have managed to sustain healthy growth and low unemployment. Also, unlike the United States, France is not building up foreign debt at an unsustainable rate. It is not apparent that France’s welfare state is unaffordable.
O.K., Knockoffs, This Is War
Eric Wilson
New York Times, March 30, 2006, Page E1
This article reports on the efforts of some fashion designers to secure themselves copyright protection for their designs. Their intention is to make it illegal for other clothes manufacturers to imitate their designs without permission.
While the article points out the difficulty in determining which designs are original (all fashion involves some degree of copying from prior fashions) and enforcement, it never discusses the economic costs of the proposed copyrights. According to the article, a designer trench coat costs $1,565, while a knock-off version of the same trench coat cost $159. This implies that copyright protection in this case would raise the price of the coat by 900 percent.
This is an extremely costly form of protection. Trade negotiators and trade reporters have spent enormous amounts of time on protectionist measures for textiles and agricultural products which rarely raise the price of goods in the United States by more than 20-30 percent. Given the much larger costs associated with extending copyright protection to fashion designs, it would have been appropriate to include some economic analysis of this issue.
A Stickier Trade Gap
Daniel Altman
New York Times, March 26, 2006, Section 3, Page 4
This article discusses the United States trade deficit, which hit a record 7.0 percent of GDP in 2005 and appears likely to be even higher this year. In examining the possibility of reducing the deficit to a manageable level, the article holds up the example of the period from 1987 to 1991, when the deficit shrank from 3.0 percent of GDP in 1987 to almost zero in 1991. The article asserts that the United States managed to “dodge the bullet” during this period, but it is worth noting that U.S. economy fell into a recession in 1990, with the unemployment rate rising by almost 3 full percentage points at its high point. This was one of the factors that helped reduce the size of the deficit in 1991.
The article also asserts that a drop in the value of the dollar against currencies with floating exchange rates is likely to provide little help because most of the U.S. trade deficit is with countries like China, that fix their currency against the dollar. Actually, the impact of a decline in the dollar on the trade deficit depends on the volume of trade with a country, not the size of the deficit with the country.
For example, the United States currently imports approximately $300 billion a year from the European Union and exports approximately $180 billion. A sharp enough decline in the dollar against European currencies could in principle reduce imports by $100 billion (30 percent) and increase exports by $70 billion (40 percent) leading to a $170 billion reduction in the total trade deficit. If there was a similar shift from deficit to surplus with Canada, Japan, and other countries with floating exchange rates, the United States could largely eliminate its deficit, even if China and other countries with fixed exchange rates did not increase the value of their currency.
As a practical matter, the European Union and the other countries with floating exchange rates are likely to limit the decline in their currencies in order to preserve their export markets in the United States. However, it is not necessary for the dollar to decline in value against the currencies of the countries with whom the United States has a deficit in order to eliminate the trade deficit.
Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC.