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Managers of San Diego Tech Firms Don't Know How to Run Their Business Print
Sunday, 13 February 2011 13:52

That would have been a better headline for an article in the San Diego Union Tribune than the actual headline: "San Diego tech companies can't fill thousands of jobs." The article begins by telling readers:

"Even though the jobless rate continues to hover in the double digits, there are literally thousands of high-paid job openings in San Diego County just waiting for the applicants with the right skills, according to the leaders of the local high-tech community.

But they say that finding those applicants can be a challenge, partly because of the area’s high cost of living and the lingering perception that San Diego’s more of a beach town than a Silicon Valley South."

There actually is a chart accompanying the article that tells readers why tech firms in San Diego may be having trouble getting workers. Of 14 cities listed on the chart, the pay for tech workers in San Diego, adjusted for living costs, ranks 8th. It is more than 30 percent below the pay in Durham, North Carolina, the top paying city on the list.

If firms in San Diego really want to attract more workers then the trick is paying higher wages. Managers of tech companies should understand the way markets work. If they want to attract workers from other cities then they will have to pay more money, if they are unwilling to pay more money, then there is really no shortage. These firms are simply unwilling to hire people at the prevailing wage.

It is also worth noting that the unfilled tech jobs have little to do with the problem of unemployment in San Diego. According to the Bureau of Labor Statistics, there are more than 160,000 unemployed people in San Diego. The article reports that there are 6,000 unfilled tech jobs. This means that if every last tech job was filled (there would always be some vacancies due to turnover), it would reduce the number of unemployed by less than 4 percent.

(Thanks to Mark Paul for the tip.)

On Cancer Policy, the Washington Post Rates Ignorance Over Facts Print
Sunday, 13 February 2011 08:49

The Washington Post's Outlook section told readers today that, "On cancer, the EPA rates fears over facts" [the headline is slightly different in the online version]. The point of the piece is that people are 10 percent more likely to die from heart disease than cancer, yet they fear cancer more. As a result of this seemingly irrational fear, the EPA is placing a greater emphasis on combating cancer, the less dangerous killer, than heart disease.

Let's trot over to the Centers for Disease Control (CDC) to see what they say about this issue. They confirm the basic story, heart disease is the leading cause of death for both men and women. But we find something very interesting when we look at the causes of death by age.

For men, cancer is a more frequent cause of death up to age 25, heart disease is somewhat more frequent cause of death for men between the ages of 25-54. Cancer is then the leading cause of death for men between the ages of 55-74, with heart disease then becoming the most important cause of death for the oldest men.

For women, the age issue is more unambiguous. Up to age 65, cancer is by far the more frequent cause of death, killing more than twice as many women as heart disease. Heart disease only passes cancer as a cause of death among women once they reach the age of 75.

So, it doesn't look like the EPA has to rate fear over facts in order to focus more of its attention on cancer than heart disease, it just has to look at the data.

The New York Times Has Never Heard of Jumbo Mortgages Print
Saturday, 12 February 2011 08:42

That is what we should conclude from an article on the Obama administration's proposal for dismantling Fannie Mae and Freddie Mac that told readers:

"Investors also may be reluctant to provide money for 30-year fixed-rate mortgages, a product that has never existed without government support."

Jumbo mortgages are mortgages whose size exceeds the maximum allowed for them to be purchased by Fannie Mae or Freddie Mac. They have been offered by the private sector at interest rates that were usually about 25 basis point (0.25 percentage points) higher than the rates charged on mortgages that could be purchased by Fannie and Freddie. Since the crisis, this spread has increased to around 75 basis points.

The article also bizarrely frames the discussion in a context where "the country could no longer afford to sustain its commitment to minting homeowners." It is absurd to say that in the past we could afford a commitment that we will not be able to afford in the future, since we are getting richer year by year. With productivity growing at a rate of about 2.5 percent a year, the country will be generating almost 30 percent more output for each hour of work in a decade, and over 60 percent more than we produced back in 2000. If we could afford a commitment to "minting homeowners" in 2000, then surely the country could afford it in 2020.

The more obvious question is whether it is good policy. Many moderate-income people were persuaded to buy homes at the peak of the bubble, losing whatever savings they had accumulated and ending up seriously underwater in their mortgages. Also, many people in unstable work or family situations, who will not be able to stay in a home for a long period of time, have wasted large amounts of money on realty fees, closing costs, and other transactions costs as a result of buying a home. This is why people who care about giving moderate- and low-income families good housing options and the opportunity to accumulate wealth do not push homeownership but focus on rental options instead.

Also, the government did not solve the moral hazard problem associated with the public/private mix in Fannie and Freddie. These institutions ended up bankrupting themselves because they were run by executives who received Wall Street type salaries in the tens of millions a year by virtue of generating large amounts of fees. This incentive structure encouraged them to take huge risks since they had a government guarantee standing behind them.

These policy issues loom as much larger concerns than whether the government can afford a commitment to homeownership, since it so obviously can.

The Yuan as an International Currency Print
Friday, 11 February 2011 06:01

The NYT discussed the prospect of the Chinese yuan becoming an international currency. At several points the article implied that this would mean displacing the dollar. This is not true.

There are several international currencies, the euro, the British pound, the Japanese yuan, and even the Swiss franc, in the sense that they are held as reserves and sometimes used as the means of exchange in trade. The dollar is by far the dominant currency, but it is certainly not the only one.

While the yuan may at some point displace the dollar as the leading international currency, if it becomes an international currency, it will initially join this longer list of currencies. Assuming China's economy continues to outpace the growth of the U.S. economy, its currency will eventually displace the dollar as the leading international currency.

David Brooks' Inspiring Rhetoric and Lack of Truth Print
Friday, 11 February 2011 05:15
David Brooks concluded a piece, "The Freedom Alliance," calling for a mass movement to cut Social Security and Medicare:

"It’s not only about debt; it’s about freedom. It’s about whether we get to make budget choices or whether we have our lives dictated by the inexorable growth of programs beyond our control."

Wow, I've got "God Bless America" going on the stereo and I'm getting out my marching clothes!

Brooks better hope that the masses march before they think, because if the sequence goes in the other direction, the march will never happen. As everyone knows, there is no story of programs with out of control costs.

The whole story is of out of control health care costs. This is a problem of a broken private sector health care system. This becomes a budget problem because we pay for more than half of our health care through public sector programs like Medicare and Medicaid. If per person health care costs in the United States were the same as in any of the countries with longer life expectancies, we would be looking at huge budget surpluses, not deficits.

The evidence would suggest that Brooks' mass movement should be directed at reforming our health care cesspool. We pay 10 times what we should for prescription drugs because of our absurd method of financing research through government granted patent monopolies. This government intervention gives an enormous incentive for drug companies to lie about the effectiveness and safety of their drugs, something which they do with considerable frequency. There is a similar story with medical devices.

Our doctors also get paid far more than doctors in other wealthy countries. This is not true for our retail clerks and our steelworkers. The reason is that our doctors enjoy much greater protection from international competition than less politically powerful workers. If Brooks, who fashions himself as a free trader, really wanted to get our deficit under control, he would be revving people up to reduce the barriers that sustain the high salaries for doctors in the United States.

Brooks could also be trying to motivate people to support a Medicare buy-in that could save hundreds of billions in administrative costs over the next decade. Or, in keeping with his "freedom" theme, how about just giving Medicare beneficiaries the option to buy into other countries' health care systems with the beneficiary and the government splitting the savings? This one is all about freedom -- let our beneficiaries go!

So, the basic question is whether we confront the powerful interest groups who profit from our broken and corrupt health care system or whether we beat up the retired and disabled workers who depend on Social Security and Medicare. David Brooks told us where he stands.

NPR Joins the Budget Cutting Crusade Print
Thursday, 10 February 2011 18:22

NPR told listeners that: "the federal budget boosted spending during the recession, and now it's widely acknowledged that spending has to come down. The questions are how soon and by how much (emphasis added)."

The term "acknowledged" implies that it is a fact that spending must come down and that people in policy debates are just now recognizing what it is known to be true. Of course it is not a fact. While federal spending did rise in the downturn, primarily to offset budget shortfalls at the state level and to pay for counter cyclical programs like unemployment insurance and food stamps, there is no reason in principle why federal spending could not remain permanently at its current level. Even at 24 percent of GDP, the share of government spending in the economy in the United States would still be near the bottom among wealthy countries.

The producers at NPR may want government spending to come down, but this is just their opinion of the direction that the country should be taking. There is no need to cut government spending that exists for anyone to acknowledge.

Thanks to Michele Mattingly for calling this to my attention.

Jobless Claims and the Weather Print
Thursday, 10 February 2011 14:20

Reuters highlighted the drop in new jobless claims reported for last week to 383,000, which it pointed out was a 2 1/2 year low. It would have been worth mentioning that weather may have been a factor limiting claims last week. A severe snowstorm hit much of the Midwest and Northeast, likely making it difficult for people to file claims.

A large jump in claims in the second week of January to 447,000, was explained at the time by the fact that weather had prevented laid off workers from filing claims in the prior weeks. If that explanation was true, then it is likely that weather also prevented people from filing claims last week, which means that we should expect a jump in claims next week.

It is good that this report appears to be receiving some attention. The last few reports, which showed higher than expected claims, had been given very little coverage.

NPR Flunks Trade Reporting, Again Print
Thursday, 10 February 2011 05:35

President Obama pledged to double exports in five years. This one should have lead to raucous laughter across the country, because it is just silly policy. As every economist knows, exports do not create jobs, net exports (the difference between exports and imports) creates jobs. If exports by themselves created jobs, then we could create millions of jobs by importing trillions of dollars of goods from Mexico, Canada and elsewhere and then exporting them back over the border again.

Unfortunately, NPR chose not to make this point in discussing President Obama's trade target on Morning Edition. Instead, it treated the doubling of exports as a serious and important economic goal. It also repeatedly referred to "free trade" and "free trade agreements."

The Obama administration is not promoting free trade or free trade agreements. Its trade agenda does little or nothing to remove the barriers to trade in highly paid professional services, like physicians' services or legal services. It also increases protectionist barriers for copyrights and patents.

Promoters of these pacts like to call them "free-trade" agreements because it sounds better than selective protectionism, just as President Reagan dubbed the MX missile the "Peacekeeper." However, it would have been inappropriate for the media to call the MX missile the "Peacekeeper" (it didn't), and it is inappropriate to refer to these trade deals as "free-trade" agreements. 

The Rise of the Chinese Yuan Causes Other Asian Currencies to Rise as Well Print
Wednesday, 09 February 2011 06:11

The WSJ reported that the Chinese yuan rose sharply against the dollar today and that this increase led to sharp rises in other Asian currencies as well. Put this one in the "who could have known?" category.

Many of the economists cited by major news outlets are undoubtedly surprised by this sequence of events. They have minimized the importance of a rise in the yuan to the U.S. trade deficit by insisting that the United States would simple turn to other producers as a source of imports.

Those who understand the economy pointed out that other Asian currencies tend to follow the yuan, so that a rise in the value of the yuan would likely also lead to a rise in the value of other currencies against the dollar. This means that the rise in the yuan is likely to reduce U.S. imports from China and other countries, thereby reducing imports and creating jobs.

Structural Unemployment: Does Anyone Care About Evidence? Print
Wednesday, 09 February 2011 05:41

Most news outlets have given considerable space in recent weeks to the argument that the U.S. economy suffers from structural unemployment. This means that the reason that people are unemployed is that they lack the skills necessary for the available jobs. This contrasts with the idea that the unemployment is primarily cyclical, which means that it is the result of a lack of demand in the economy. This issue is central to our understanding of the economy since it effectively raises the question of whether we blame unemployed workers for lacking the skills needed to get a job or we blame policymakers for lacking the skills needed to run the economy.

The evidence for the structural unemployment argument has mostly been anecdotal -- interviews with managers who complained that they could not hire people at the wage they wanted to pay. The news reports on structural unemployment have not sought to look for the sort of data that would support this view of the economy, such as evidence of rapidly rising real wages for some occupations or a large increase in job openings.

One item that had been cited as supporting the structural unemployment view was the modest increase in the number of job openings from the trough of the downturn in the summer of 2009. Job openings had risen by close to a third from their low, although they were still down by more than 25 percent from their pre-recession level. Openings also never rose above 25 percent of the number of unemployed.

In any case, given the importance of the job openings number for those making the structural unemployment argument, it might have been expected that the release of data from the Labor Department showing that the number of openings had fallen for the second consecutive month would have gotten considerable attention. Instead, it merited just a few small pieces or blognotes.

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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.