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The U.S. Has "Free Trade" Agreements, not Free Trade Agreements Print
Thursday, 19 May 2011 04:53

When the United States negotiates trade agreements with countries in Latin America, it likes to call them "free trade agreements." Apparently this makes them more salable than simply calling them "trade agreements."

These deals do not actually lead to free trade. They generally do almost nothing to remove the barriers that protect highly paid professionals, like doctors and lawyers, from foreign competition. More importantly they increase many protectionist barriers, like patent and copyright protection, which raises prices by several thousand percent above the free market price.

For this reason, in this article on relationships with Latin America, the NYT should either have simply called the agreements negotiated with Panama and Colombia "trade agreement" or used quotation marks in describing them as "free trade" agreements.

 
Kristof's Misplaced Praise for Economists Print
Thursday, 19 May 2011 04:15

NYT columnist Nicholas Kristof does not have a very good track record in identifying effective ways to help poor people in the developing world. (He was a big promoter of Greg Mortenson, the best-selling author of Three Cups of Tea, whose aid project now appears to be largely a fraud.) His column today indicates that his track record is not about to improve.

He urges people who want to help the world's poor to study economics and points to useful results that economists have uncovered. While the results he mentions are intriguing, Kristof somehow manages to ignore all the harm that economists have done in the developing world.

For example, the economists at the International Monetary Fund had routinely imposed structural adjustment programs that required that parents pay fees for their children to attend primary school. These agreement also often required fees for the provision of basic health services. This practice kept millions of children out of school and denied them basic preventive health care, since even small fees were unaffordable to many poor parents.   

The practice was not changed voluntarily by the economists at the IMF. Rather it was a change that was forced on the institution by activists who were able to use their influence in Congress to require that the IMF stop making these fees a condition of getting loans. 

At present, virtually all economists are making a point of not noticing the efforts of the United States and other wealthy countries to raise the price of medicine to people in the developing world by imposing patent protection. All the "free-trade" agreements that the United States has negotiated with developing countries have imposed stronger patent protection or other monopolistic restrictions (e.g. data exclusivity for tests used to get drugs approved) that typically raise the price of drugs by several thousand percent above their free market price. The TRIPS provisions of the WTO (which were drafted by the U.S. pharmaceutical industry) also were intended to have this effect.

While any economist (and most non-economists) should possess the ability to recognize the potential harm that these provisions can imply for the world's poor, very few have tried to call attention to these protectionist measures. It is worth noting that very powerful forces, most notably the pharmaceutical industry and the Gates Foundation, stand behind these sorts of measures. That could explain the reluctance of economists to apply economics to these issues.

Contrary to what Mr. Kristof suggests, the biggest obstacle to improving the lot of the poor in the developing world is probably not a lack of knowledge of economics, but rather the efforts of the powerful from preventing the teachings from economics from being applied in situations where it would hurt their interests.

 
What Do You Know, the Recession Is Actually Serious Bad News Print
Thursday, 19 May 2011 04:05

In an article on the poor employment prospects for recent college grads, the NYT told readers:

"Now evidence is emerging that the damage wrought by the sour economy is more widespread than just a few careers led astray or postponed."

This is actually a good article that includes some new evidence on the extent to which recent college grads are either working at jobs that do not require a college degree or out of work altogether. (The graph accompanying the article shows that 22.4 percent are out of work altogether and 22.0 percent are working at jobs that don't require a degree.)

It's just striking that a sentence like this appeared near the top of the article. We're just now discovering that there is serious damage from this downturn? Some editor was asleep at the wheel on this one.

 
Plunging Mortgage Applications: Reporters Should Notice Print
Wednesday, 18 May 2011 19:46

Home sales fell through the floor last May as the first time home buyers tax credit ended in April. The expiration of the credit pulled a lot of sales forward, so that few people were buying in May.

This is why it should have people very concerned that purchase mortgage applications for last week were actually slightly below the level for the same week last year. The same was true for the prior week also. These are weekly data, which means that the numbers will be erratic, but this is not a good sign.

 
Record High Used Car Prices Reappear in USA Today Print
Wednesday, 18 May 2011 13:19

USA Today is now telling us that used car prices may not stay at their record highs. As I explained last week, we expect most items to be hitting record-high prices most of the time, since the economy is seeing moderate rates of inflation, not deflation. However, it turns out that we are not actually seeing record high car prices rights now, at least not according to the Bureau of Labor Statistics. The difference between the indexes referred to in the article and the index shown in the graph is that the Bureau of Labor Statistics adjusts for changes in quality.

 

 

 

used_cars

 
According to Economists, Increased Pension Payments by Federal Employers are a Cut in Pay Print
Tuesday, 17 May 2011 05:38

This basic fact should have been included in a Washington Post piece that talked about plans to require federal employees to contribute more from their paychecks to their retirement plan. Economists of all political persuasions view workers' pay as a total compensation package. When comparing pay in different jobs or industries economists include employer payments for health insurance, pensions, and other benefits, along with straight wages.

This means that when political figures call for federal employers to pay more money out of their paycheck into their pensions, they are calling for these workers to get a pay cut. This is not a debatable point in a he said/she said as this article implies. It is true.

 
Ezra Klein Gets It half Right on the Dollar Print
Tuesday, 17 May 2011 05:17

Ezra Klein makes the case that the United States needs a weaker dollar in order to increase net exports and move towards more balanced trade. (Former Senator Ernest Hollings referred to the weaker dollar as a "competitive" dollar.) However it wrongly thinks the need is temporary and that China' currency policy is the sole problem.

In fact, the problem of the over-valued dollar is longstanding and dates back to Robert Rubin's days as Treasury Secretary. When Rubin took over as Treasury Secretary he reversed his predecessor's position that the dollar should be allowed to drift downward.

In fact, the decline in the value of the dollar was supposed to be one of the fruits of President Clinton's deficit reduction policy. A lower valued dollar was suppose to boost U.S. net exports and turn our trade deficit into a trade surplus. In standard economic theory rich countries are supposed to run trade surpluses, lending capital to poorer developing countries.

Rubin instead insisted that the United States wanted a high dollar. He put muscle behind this view in 1997 East Asian financial crisis. He used the Treasury Department's control over the IMF to force the crisis countries to repay their debts in full, instead of allowing for defaults and write--downs. The repayment was financed by a massive boost in exports from the region. This was made possible by sharply lower values of their currencies against the dollar. In other words, the value of the dollar rose.

The harsh conditions imposed by the IMF in the East Asian crisis led countries throughout the developing world to begin to accumulate reserves on a massive basis in order to avoid ever being forced to deal with the IMF. This meant deliberately depressing the value of their currency against the dollar.

The huge U.S. trade deficit in the late 90s and the last decade was a major source of the imbalances of these years. A trade deficit logically implies (i.e. there is no damn way around it) either a large budget deficit or negative private savings, or some combination.

In the late 90s, the country had a budget surplus, but negative private savings. This was the result of the stock bubble. The wealth created by that bubble led to a consumption boom which pushed savings rates to levels that were at the time record lows.

After the stock bubble collapsed, the budget deficit returned. While the deficit fell back to more normal levels in 2006 and 2007, this was associated with private savings again becoming highly negative as the household saving rate fell to near zero in the years 2004-2007. The culprit in this case was the wealth created by the housing bubble.

Klein misses this story. The over-valued dollar is not a side-bar, nor is China a lonely culprit in this story. The over-valued dollar is central to any understanding of the U.S. economy over the last 15 years. 

 
The Post Thinks That Its Readers Have More Time to Study Budget Proposals Than Its Reporters Print
Tuesday, 17 May 2011 05:06

That is the only thing that readers can conclude from a classic he said/she said piece about the Ryan budget plan approved by House Republicans last month. The piece simply repeated assertions about his budget from Representative Ryan and responses from House Minority Leader Nancy Pelosi and other Democrats.

It did not, for example, point out that the Congressional Budget Office projects that the Ryan plan would increase the cost of buying Medicare equivalent policies by $34 trillion (5 times the projected Social Security shortfall) over the program's 75-year planning period. Nor did it point out that the Republican proposal envisions that by 2050, most areas of government spending, including the military budget, will shrink to a size that is less than two-third the current size of the military budget.

The Post readers generally will not have time to look such things up for themselves. Post reporters should.

 
How Does the Post Know the Way Republicans "Regard" the Health Insurance Exchanges In the ACA? Print
Tuesday, 17 May 2011 04:53

Of course the Post does not have a clue as to how Republican politicians actually "regard" the health insurance exchanges established under President Obama's health care plan. All the Post can know is what these politicians say. It has no idea what, if anything, they actually believe about this system. This should cause readers to question why it asserted:

"Republicans, however, regard it [the insurance exchange system] as a likely first step down the road to a government-controlled insurance system."

The people in question are politicians, not political philosophers. They do not get their jobs for their refined views on social and economic issues. They get their jobs for appealing to important interest groups. The Post should understand this fact.

 
Greed and Medicare: Understating the Waste in the Ryan Plan Print
Tuesday, 17 May 2011 04:36

Timothy Egan understated the extent to which the Ryan plan would raise costs for Medicare beneficiaries. He reports that it would double the amount that the typical beneficiary would have to pay for their care. Actually, the Congressional Budget Office projects that it would triple the cost for retirees by 2030, with the ratio rising even higher in later years. (This doesn't take account of the increase in the eligibility age to 67.)

It's worth noting that the vast majority of this additional cost is due to increased payments to the insurance industry and health care industry. The CBO projections imply that only about one-fifth of the increased cost to beneficiaries will be savings to the government.

 
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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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