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Final Demand Growth Was 1.3 Percent Print
Tuesday, 10 August 2010 04:28

This item might have been worth mentioning in a discussion of the economy's growth prospects and the Fed's response. Growth has been boosted over the last 4 quarters by an inventory cycle as firms went from depleting to building their inventories. This cycle has now ended. Inventory growth is unlikely to accelerate further in the quarters ahead.

This means that GDP growth will be close to final demand growth. Final demand growth has averaged 1.2 percent in the last four quarters and was 1.3 percent in the most recent quarter. There is no obvious reason to expect that the rate will increase in the near future.

 
If the Consumer Is Not Deceived, It's Not "Counterfeit" Print
Monday, 09 August 2010 04:44

Why do reporters feel the need to indiscriminately label unauthorized copies as "counterfeits"? The distinction is very simple and important. A copy where the consumer understands that they are not getting the brand product is not counterfeit, regardless of whether or not there is an infringement of an individual or company's intellectual property protections. This distinction is important because the consumer is clearly benefiting in this case. The consumer is preferring to purchase the copy rather than the brand product.

By contrast, an actual counterfeit product is ripping off the consumer. The consumer is an ally in combatting counterfeits, whereas consumers benefit from the opportunity to buy unauthorized copies.

This simple distinction is lost at the the Washington Post. It describes markets in China as selling "counterfeit" products when it is very clear that consumers realize that they are not purchasing the brand product.

 
Undocumented Workers and Low Cost Labor Print
Monday, 09 August 2010 04:20

Morning Edition had a piece on people who hire undocumented workers to do tasks like landscaping their yards or cleaning their toilets. It quoted one person as saying that they hire immigrants rather than U.S. citizens or green card holders because she "believes American prices are inflated."

The article doesn't tell listeners what any of the employers in the piece do, but it is an absolute certainty that there would be a huge number of qualified people around the world who would be willing to do their jobs at a much lower wage than they receive. However, most people who work in occupations requiring more education enjoy much more protection from immigrant workers than people who landscape yards or clean toilets.

The position of the people interviewed in this piece is that they are entitled to protection from competition to keep their wages high, while they should be able to hire workers from the developing world at low wages to save money. It would have been helpful if the piece had elucidated their view more clearly.

 
Robert Samuelson Is Worried That the United States is Becoming Less Crowded Print
Monday, 09 August 2010 04:05

Yes, in the strange but true category, we have a columnist with a major national newspaper worrying that population growth in the United States could slow or even reverse. Yes, I have the same fear every time I push my way into the metro at the rush hour or get caught in a huge traffic jam. Imagine how awful it would be if cities were less crowded. It could make housing cheaper, reduce pressure on water and other resources and cut greenhouse gas emissions. Shortages of workers would drive up wages as the least productive jobs go unfilled (e.g. the midnight shift at 7-11 and parking valets at upscale restaurants). It's  a looming catastrophe if ever there was one.

Samuelson bizarrely thinks that slower or negative population growth will hurt the economy. He thinks that it will slow demand growth. There are two simple problems with this story. First, we are in an international economy, so if demand in the U.S. economy is growing less rapidly then we can sell our output elsewhere. The other problem is the big "so what?"

If we can produce everything we want in the United States and still not fully employ our workforce then we can all get longer vacations and have shorter workweeks. In a functioning economic system, having too much is not a problem -- you just work less. In the Netherlands they figured this out -- they use work sharing rather than layoffs to deal with inadequate demand. As a result its unemployment rate is close to 4.0 percent. In Germany, work sharing has been so effective that its unemployment rate is lower today than it was at the start of the downturn.

See, this is really simple for countries that have competent people guiding their economy. It is only inept economic policy that makes a shortage of demand a disaster for people and the economy. Too bad Samuelson won't discuss this failure of economic policy.

 

 
Oil Prices: Which Way Is Up? Print
Sunday, 08 August 2010 07:45

The NYT has a very good piece on the Minerals Management Service and the culture at the agency that led to a disregard of safety and environmental concerns. However, it gets an important point dead wrong at the very beginning. It begins by discussing a lease auction held in March of 1997 and tells readers that this was a period of rising oil prices.

That's not what the data show. Oil prices had been weak throughout the 90s and were headed down in March of 1997. At that point, in inflation-adjusted dollars, oil prices were near their lowest level of the post-war period. This can be seen as a secondary issue in terms of the article's main focus, but it is important to recognize that the world was not suffering from anything resembling an oil shortage at the time that that the government began this renewed push to open the Gulf to drilling.

 
Public Pension Shortfalls: Don't Forget Braindead Economists Print
Saturday, 07 August 2010 22:19

As noted below, the NYT declared class war against school teachers and custodians, arguing that the public must focus on taking away their pensions. The prior note left out a very important point -- if the economists who make projections of pension returns knew arithmetic, then the pension funds would not be facing these huge shortfalls.

These "experts," all of whom draw high salaries in their working careers and much higher pensions than public employees (think of people like Harvard Professor Martin Feldstein, Boston University Professor Lawrence Kotlikoff, and Steve Goss the Chief Actuary for Social Security), all asserted that stocks would average 7.0 percent real returns even when the market was at its bubble peaks. If the market had performed as they had projected, then these pension funds would be just fine today.

In short, the biggest problem with these pension funds is that they listened to the country's leading economic experts in planning for the future. Unfortunately, the workers and the taxpayers will pay for the incompetence of the experts. The experts themselves are protected.  

 
The Washington Post Tries New Tactic in Campaign to Cut Social Security Print
Saturday, 07 August 2010 13:42

The Washington Post adopted a new tactic in its ongoing campaign to cut Social Security benefits, highlighting a relatively trivial amount of mispayments or fraud, leading readers to believe that the program has major administrative problems. The Post devoted a major news story to a GAO report that found "1,500 federal workers might have received improper or fraudulent Social Security payments in the past several years."

There are just under 8 million people who receive disability benefits. Summing over 4 years would give approximately 30 million disability years of benefits. The GAO report identifying 1,500 federal workers who received benefits would imply 3,000 per years of improper benefits, assuming an average of 2 years of benefits per worker. This is equal to 0.01 percent of the beneficiaries of the program.

A mistake of this magnitude would warrant little or no attention in a newspaper reporting issues that affected people's lives in any way. However, it is not surprising that it would get substantial attention in a newspaper like the Post, which is on a campaign to cut Social Security and freely uses its news section to advance this agenda.

 
Are They Allowed to Talk About Alternatives to Copyright at the NYT? Print
Saturday, 07 August 2010 08:08
Apparently not. A lengthy magazine piece that discussed the music industry's costly efforts to track down restaurants and bars that play copyrighted music without authorization never mentioned the possibility that there could be alternative mechanisms for financing music in the Internet Age. Instead, it held out the hope that new technology may allow the industry to monitor every radio, computer, and cell phone so that Time Warner would know every time one of its copyrighted songs was being played.
 
NYT Reports on Protectionist Measures With No Economists' Comments Print
Saturday, 07 August 2010 07:42
The "Buy America" provisions of the stimulus package got huge amounts of ink from the NYT, the Washington Post, and other media outlets, all of which were anxious to feature economists denouncing them as protectionist. For some reason the NYT did not feel the need for similar denunciations in an article reporting on a bill that quite explicitly protects highly-skilled workers by imposing a tax for visas. The bill also is peculiar in that it is structured so that large U.S. companies would escape the tax. Only foreign-owned companies with relatively few U.S. employees would pay the tax.
 
The Post Falls Short On What Fed Can Do Print
Saturday, 07 August 2010 07:19

In its discussion of the weak July jobs report the Post noted that the Fed could take steps to boost the economy. It listed the possibilities as: "pledging to keep interest rates low for even longer than now expected, cutting the interest rate on banks' reserves, or buying additional mortgage securities."

These are all relatively modest steps. There are measures that have been proposed that would have much more impact. For example, Greg Mankiw, President Bush's chief economist, and Oliver Blanchard, the chief economist at the International Monetary Fund, have both suggested that the Fed could set an inflation target of 3-4 percent as a way of lowering the real interest rate.

The Fed could also commit itself to buy and hold a large amount of government debt (e.g. $1 trillion to $3 trillion) to alleviate concerns that the debt will impose large interest burdens on the government in the future, thereby creating more room for aggressive stimulus. The Post should be listing the full range of options that are being put forward in policy debates, not just a small narrow set of relatively inconsequential measures.

It also would have been worth mentioning that the Census still employed 200,000 temporary workers in July. Most of these jobs will disappear in the next two months, which means that the economy will have to generate 100,000 jobs a month in August and September just to keep employment flat.

 
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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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