In this century Mexico has had the slowest per capita GDP growth of any country in Latin America. It has made almost no progress in reducing poverty and it is plagued by drug gangs and corruption. But Thomas Friedman sees a Mexico that doesn't show up in the data:

"In India, people ask you about China, and, in China, people ask you about India: Which country will become the more dominant economic power in the 21st century? I now have the answer: Mexico."

How does he come to this conclusion? Well one of the big factors in Friedman's story is that wages for workers in Mexico are falling behind wages elsewhere:

"with massive cheap natural gas finds, and rising wage and transportation costs in China, and it is no surprise that Mexico now is taking manufacturing market share back from Asia."

While Mexico might not do well by standard economic measures, Friedman points out that it does very well when it comes to signing trade agreements;

"Mexico has signed 44 free trade agreements — more than any country in the world — which, according to The Financial Times, is more than twice as many as China and four times more than Brazil."

In this same vein, Friedman excitedly quotes the Financial Times:

"Today, Mexico exports more manufactured products than the rest of Latin America put together.”

Let's assume this is true. Much of what Mexico exports are products like cars where it imports most of the parts. These are then assembled in Mexico and exported back to the United States. This assembly doesn't add much to Mexico's economy, but if for some reason you think that exports by themselves are a measure of economic success, you can score big through this route.

After telling readers that people in Mexico use Twitter, Friedman then comments that U.S. companies are investing more in Mexico, "which is one reason Mexico grew last year at 3.9 percent." Friedman apparently doesn't realize that 3.9 percent was not an especially rapid growth rate for Latin America last year. 

Just to ensure a regional balance, Friedman managed to overstate the cost of the war in Afghanistan by a factor of three by telling readers that:

"We do $1.5 billion a day in trade with Mexico, and we spend $1 billion a day in Afghanistan. Not smart."

Yes, the war in Afghanistan may not be smart, but CBO puts the price tag at less than $100 billion in 2013.

Anyhow, it is easy to see why the NYT runs Thomas Friedman's columns. He gives you all sorts of information that you would never find anywhere else. 

That seems the obvious response to the comment by Federal Reserve Governor Jerome Powell on the prospect of the United States government facing a debt crisis:

“We don’t know where the tipping point is, but wherever it is, we’re getting closer to it.”

Needless to say, the concern seems more than a bit silly given the problem of unemployment facing the country and the fact that both interest rates and the interest burden of the debt are near post-war lows.

But hey, at least worrying about the debt keeps these economists employed and off the streets. We can think of it as being like Keynes tongue in cheek proposal to bury pound notes and then let people dig them up. It might be pointless activity, but in a badly depressed economy it still can create jobs and increase output.

Wow, you've got to give those economists credit. As Neil Irwin tells us, they figured out that the Fed's bond purchases affect the budget. Of course they put it on the negative side, noting that the Fed stands to lose money when it sells off its bonds at a loss later in the decade if interest rates rise as projected.

There are two important points that are worth pointing out on this one. First, the Fed does not have to sell off the bonds. It can simply hold its bonds until maturity as those of us who are a few years ahead of mainstream economists pointed out a while back.

If the Fed were to go this route, it could reach its targets for restricting money supply expansion by raising reserve requirements. This shouldn't be that hard a concept to understand, the option appears in every intro textbook. While changing the base of reserves, rather than the money multiplier by changing the reserve requirement, is the preferred manner for the conduct of monetary policy, a set of higher reserve requirements scheduled long in advance should not be too disruptive to the banking system. We did use to have much higher reserve requirements. Also, China's central bank routinely uses reserve requirement changes to conduct its monetary policy.

The other point that should jump out at folks is that the projected drop in bond prices, which is the reason that the Fed is projected to lose money, presents a great opportunity for the government to reduce its debt burden. The idea is that long-term bonds issued at the current low interest rates will sell at sharp discounts later in the decade, if interest rates rise as projected.

These discounted prices will give the government the opportunity to reduce its debt by hundreds of billions of dollars -- perhaps more than $1 trillion -- simply by buying these bonds back at lower prices. Such a move would be utterly pointless since it would not change the country's interest burden at all, but since we currently live in a political environment where the debt to GDP ratio is an object of worship, this would be a great way to appease that god. It sure beats big cuts to Social Security and Medicare.

There is one other point about this piece that is worth noting. It tells readers:

"The great risk is that the political blowback from those losses would endanger the Fed’s independence." 

While the Fed deserves points for trying to boost the economy in the wake of the downturn it is hard to argue that the country has been well-served by an independent Fed. Greenspan at least looked the other way as the housing bubble grew to ever more dangerous proportions. Arguably, he even sought to fuel its growth as a way to recover from the collapse of the stock bubble.

The result has been incredibly disastrous with millions of lives being ruined by unemployment and the country likely to lose more than $7 trillion in output from the downturn. Could we really have done worse with a Fed that was more responsive to Congress? Perhaps, but it doesn't seem like we have much to lose here.

Note -- slight edits were made to an earlier verison.

In an article on the impact of the sequester on the Defense Department the Post told readers:

"The $46 billion dent to the Pentagon’s fiscal 2013 budget, long considered by the brass as nothing more than a political pawn, has taken on an air of inevitability, forcing commanders across the military to plan for painful reductions and argue that American lives and livelihoods are hanging in the balance" [emphasis added].

A real newspaper would of course reserve the adjective "painful" for the opinion pages. Any budget cut will lead to job loss and displacement. However the Post is not in the habit of applying the term "painful" when budget cuts take place outside of the military.

The Washington Post ran a major PR piece for the Trans-Pacific Partnership, headlining an article with the possibility that Japan might join the pact, "Japan’s economic turmoil may provide an opening for the U.S." As the article points out, Japan's trade barriers to U.S. exports are already very low. It is unlikely that the Trans-Pacific Partnership will increase U.S. exports to any substantial extent. 

Towards the end of the article the Post tells readers;

"With similar talks underway between the United States and the European Union, the administration hopes it can shape global intellectual property, Internet commerce and other policies in ways that work to the advantage of U.S. companies."

This seems the main point of the trade agreement. In this sense it is misleading to tout an "opening for the U.S." as the Post does in the headline. This appears to be a deal designed to increase the profits of U.S. corporations. There is likely to be little, if any, gain for ordinary people in the United States.

In fact, if U.S. corporations increase their profits from patents, royalties and other items in Japan and elsewhere, it could lead to job loss in the United States. If the U.S. companies get more money from abroad from these payments then it will lead to a rise in the dollar. That would reduce other exports from the United States and increase imports, thereby reducing employment in the manufacturing sector.

This piece also repeatedly refers to the deal as a "free-trade" agreement. This is wrong. An agreement that increases patent and copyright protection, which this pact would, is going in the opposite direction of free-trade, which would reduce such protectionist barriers. The Post could have saved space and increased the accuracy of the article by leaving out the word "free."

David Brooks is unhappy that:

"Voters disdain the G.O.P. because they think Republicans are mindless antigovernment fanatics who can’t distinguish good government programs from bad ones. Sequestration is a fanatically mindless piece of legislation that can’t distinguish good government programs from bad ones. Sequestration carefully spares programs like Medicare and Social Security that actually contribute to the debt problem. Sequestration will cause maximum political disgust for a trivial amount of budget savings."

While voters may well end up being appalled by many of the Republicans' mean-spirited budget cuts on poor and helpless people, it is hard to believe that they would be happy if the Republicans tried to cut Social Security and Medicare. These are both programs that enjoy overwhelming support among Republicans as well as Democrats.

Brooks later gives his recommendation:

"In a normal country, the politicians would try some new moves. For example, if they agreed to further means test Medicare they could save a lot of money. Democrats would be hitting the rich."

Brooks' proposed solution also would produce a trivial amount of savings unless he manages to hugely redefine "rich." While rich people do makes lots of money, and therefore it is possible to get considerable amounts of revenue by taxing them, they don't get much more in Medicare and Social Security benefits than anyone else.

When it came to repealing tax cuts, the cutoff for those who would pay higher rates was set at $400,000. If this same cutoff for being "rich" was applied to seniors, it would include less than one-quarter of one percent of people receiving benefits under these programs. That means the most we could save by taking away their benefits altogether would be a quarter of one percent of the cost of these programs. Since high income seniors already pay for a substantial portion of their Medicare benefit, the savings would be even less. The savings would be somewhat higher than one quarter of one percent on the Social Security side since the benefits of high income earners tend to be higher than average.

The only way to achieve substantial savings in these programs through means-testing would be if we applied means testing to people with income around $50,000-$60,000 a year. This would be a major redefinition of "rich." (That's one way to make more rich people.)

A NYT article reporting on the fact that banks are proving much more willing to forgive debt on second mortgages than first mortgages highlighted the case of Danette Rivera, a 38-year-old single mother, who had $115,000 of second mortgage debt forgiven and is facing foreclosure by Bank of America over unpaid debt on a first mortgage. The piece told readers:

"The bank, citing customer privacy concerns, declined to comment."

It would have been helpful to remind readers that Bank of America has no privacy concerns in discussing its general policy on debt forgiveness. While the bank should rightly have refused to discuss the specifics of Ms. Rivera's case, it certainly could have discussed its normal practice in dealing with underwater homeowners in cases where they hold both the first and second mortgage. (It's not clear whether that was the case in this situation.)

The Washington Post once again showed why it is known as "Fox on 15th Street" when it reported on a group of small business owners urging that Social Security, Medicare and Medicaid be protected from cuts. At one point the piece refers to plans for "overhauling the nation’s revenue-bleeding entitlement system."

"Revenue-bleeding" does not appear to be the official name for the programs in question. Most newspapers would try to constrain their enthusiasm for cuts to Social Security, Medicare, and Medicaid and leave phrases like "revenue-bleeding" for the opinion pages.

The piece also includes the inaccurate assertion that:

"Once again, the hour is growing late for elected officials to strike a deal to avoid a potentially catastrophic blow to the economy, as the $1.2 trillion round of automatic spending cuts known as 'sequestration' is scheduled to commence at the end of the month."

It is not clear what is meant by "catastrophic." Any deficit reduction of the sort that the Post routinely advocates will slow growth and increase unemployment. The sequester cuts are no different in this respect, however the Post has usually urged these cuts and praised others for pushing such cuts. It is striking that it now seems to treat it as a fact that deficit reduction would be catastrophic.

The paper also includes an assertion from a small business owner that:

"“Economists agree that sequestration would send us back into recession.”

Actually, almost no economists would claim that the sequester cuts would lead to a recession, although they would slow growth by between 0.6-0.8 percentage points in 2013.

This is the question that will be asked by readers of his column complaining that no one is listening to Morgan Stanley director Erskine Bowles and former Senator Alan Simpson. Milbank complains that Obama is only willing to cut Medicare by the $400 billion amount advocated in Bowles-Simpson's initial plan. (Milbank mistakenly calls this the commission's plan. The commission did not issue a plan since no plan received the necessary majority vote.) Milbank attacks Obama on these points:

"But that proposal was made in 2010, and the nation’s finances have since deteriorated."

If Milbank had access to budget documents he would know that the nation's finances have deteriorated because the economy has performed worse than the Congressional Budget Office had expected. In 2010, it expected that unemployment rate would average just 6.5 percent for the years 2012-2014 (Table 2-3). The country did not have a lavish spending spree or tax cutting orgy, it ran larger deficits because the economy has been weaker and needed and needs more support.

Milbank condemns the failure of Obama to support more budget cuts, and specifically more cuts in Medicare, in the face of economic weakness as being unserious. (He also condemns Republicans for being unwilling to raise taxes. Milbank's attachment to Medicare cuts is striking since CBO's projections for Medicare costs have actually fallen by more than the cuts originally advocated by Bowles and Simpson.

Anyhow, for Milbank it is clear that the goal is to inflict pain on ordinary people, throwing them out of work and taking away Medicare and Social Security. In the Washington Post this is the criterion for being serious.

That's what he told us in his column today, because he sure didn't make much of an argument. Lane cites several recent papers showing that the minimum wage has no negative effect on employment (including my colleague, John Schmitt's paper). He then notes that these studies could be right, but he also refers to research by David Neumark of the University of California at Irvine and William Wascher of the Federal Reserve that shows the last minimum wage hike (from $5.15 an hour in 2007 to $7.25 in 2009) lowered employment of young people by 300,000.

He then warns that if their research is right, and we push the minimum wage too high, then we could be hurting the people we are trying to help. He also points out that even if the research showing no employment effect is right, then we would still be hurting other workers by pushing up prices or wage compression. He then proposes spending more money on the earned-income tax credit (EITC) as an alternative to a higher minimum wage.

Okay, let's have some fun here. Lane's bad story is that 300,000 fewer workers would be employed. That sounds really awful, after all these are the people we are trying to help. But let's think about this one for a moment. The jobs we are talking about tend to be high turnover jobs that workers only hold for relatively short periods of time. The research that Lane is depending on shows that at any point in time 300,000 fewer workers will be employed as a result of a minimum wage hike of more than 40 percent. In effect, this means that workers will on average have to spend more time between jobs looking for work.

More than 3 million workers were in the affected wage band between the old and new minimum wage. If we assume that on average they worked 10 percent less (the 300,000 job loss) and that their average hourly wage gain was 20 percent (half of the wage increase) then on average these workers will net roughly 8 percent more in pay each year (120 percent * 90 percent), while working 10 percent fewer hours. Pretty awful story, huh? And that's based on the research that finds a negative effect on employment. 

As far as the rest Lane's story, yes, the higher pay for minimum wage workers comes mostly out of other workers' pockets. (Some comes from profits and some comes from increased productivity.) This is true of everyone's pay. If protectionists did not dominate national policy we could import more doctors and bring our doctors' pay in line with pay in other wealthy countries and save other workers close to $100 billion a year in health care costs. But the money that goes out of workers' pockets to support the excess pay of doctors, Wall Street bankers or CEOs doesn't concern Lane, only the money that goes to pay custodians, retail clerks, and dishwashers.

But the best part is the idea that the EITC is somehow free. In fact we need government revenue to pay the EITC, which requires taxes. Taxes will also come out of workers' pockets and also have a distorting effect on the economy. In addition, there are also costs associated with administering the EITC. While it does not have nearly the level of fraud claimed by its critics, clearly some portion of the money is paid out improperly. And, low-wage workers often have difficulty dealing with tax returns. Many throw hundreds of dollars in the garbage paying tax preparation services in order to claim their EITC.

In short, Lane doesn't really have much of a case against a higher minimum wage even if we accept his bad story about job loss. And, he seems to have imagined that there is an alternative costless way to get more money to low-paid workers.

There is one final point worth noting in the context of proposals to increase the minimum wage. From its inception in 1938 to 1969, the minimum wage rose in step with economy-wide productivity growth. If we had continued this policy over the last four decades the minimum wage would be $16.50 an hour. Even if the minimum wage is raised to 9.00 an hour, minimum wage workers would get none of the benefits of economic growth over the last four decades.

Addendum:

Charles Lane wrote to tell me that I had misrepresented the Neumark estimate of the employment impact of the last minimum wage hike. Neumark was only referring to the impact of the last phase of the increase (which was phased in over three years) from 6.55 to 7.25, a rise of 10.7 percent, not the increase from 5.15 that I had referred to in my initial note. 

I should have looked at his reference in the column. I'll admit that I have not taken Neumark's work on the minimum wage seriously since he uncritically took data from the fast food industry lobby to try to argue the case that the minimum wage caused unemployment. It turned out that the industry had cooked the data. When Neumark used data that was independently collected he found the same result as everyone else, the minimum wage did not increase unemployment.

But, even if we take Neumark's numbers at face value, we still don't get much of a horror story. A rise of 10.7 percent means that the average gain would be around 8.9 percent. (To see the logic, imagine that hourly earnings were originally distributed evenly between the prior minimum wage of $5.15 an hour and the new minimum wage of $7.25 an hour. After two rounds of minimum wage hikes, two thirds of the workers are now sitting at $6.55 an hour or close to it. The remaining third are evenly distributed across the remaining band. This would mean that two-thirds of the affected workers would recieve the full 10.7 percent increase, while the remaining third would see an average hike of 5.4 percent. This gives an average increase of 8.9 percent.)

Neumark's estimate would then imply workers are on average putting in 10 percent fewer hours and taking home 2 percent less money. This is based on the assessment of an economist who has devoted a career to trashing the minimum wage. Can't say that sounds like a horror story.