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The Washington Post Again Touts Non-Existent Boom in Mexico Print
Tuesday, 24 July 2012 04:35

As noted previously, the Washington Post has a huge stake in saying that NAFTA was a success. As a result, it simply cannot honestly discuss the state of Mexico's economy in either its news or opinion pages. Today it has a piece that is headlined on the main page of its web site as "Mexico's middle class begins to boom." Readers would never know that Mexico has had the worst growth record in all of Latin America over the last decade.

Since the Post seems intent on recycling misleading news stories, I will recycle my comments. The segment below is from July 1 of this year:

The Washington Post Still Can't Talk Honestly About Mexico's Economy

The Washington Post is heavily invested in NAFTA. At the time of the debate it abandoned any pretext of being an objective newspaper, allowing both its opinion and news pages to be overwhelmingly dominated by proponents of the agreement. Since its passage the Post has refused to acknowledge that the agreement has had the intended effect in the United States of lowering the wages of manufacturing workers. (This is textbook economics. By putting U.S. manufacturing workers into more direct competition with their low-paid counterparts in Mexico, the result is that wages of manufacturing workers in the United States fall.) 

The Post also refuses to acknowledge that the deal has failed to improve Mexico's growth. In fact, a lead Post editorial in December 2007 told readers that Mexico's GDP had quadrupled since 1988, which it attributed to the benefits of NAFTA. The actual increase over this 19 year period was 83 percent, which put Mexico near the bottom in growth for Latin American countries.

The Post's prohibition of honest discussion of Mexico's economy is apparently continuing. In a piece on Mexico's elections today, the Post told readers:

"But annual growth during Calderon’s six years has averaged a middling 2 percent."

This statement gives a whole new meaning to word "middling." If we turn to the IMF's data and look at per capita GDP growth in the years 2006-2011, we find that on average Mexico's per capital GDP shrank by 0.1 percent annually over this period. This is not middling; this performance places Mexico dead last among Latin American countries (several countries in the Caribbean did worse.)

For some reference points, per capita growth in Argentina averaged 5.8 percent, Bolivia 2.8 percent, Brazil 3.1 percent, Ecuador 2.6 percent, and Peru 5.6 percent. There is nothing middling about Mexico's economic performance over this period; it was bad. 

 

And here's a graph so that folks can put the Post's graph showing the rise of Mexico's per capita income in some context.

per-capita-intl-dollars-07-2012

Source: International Monetary Fund.

See Mexico's boom?

 
NYT Says That China's Economists Are As Corrupt As U.S. Economists Print
Sunday, 22 July 2012 20:03

Given the failure of the economics profession to see the economic crisis coming or to devise an effective path forward, many people have come to question its competence and/or integrity. Somehow its assessments often seem to favor the rich.

For example, economists can be counted on to get really hot under the collar over a 20-30 percent tariff barrier that is designed to temporarily protect manufacturing workers, but don't even notice that patent protection for prescription drugs raises their price by tens of thousands percent. Economists can't even seem to remember that in a system of floating exchange rates, like the one we have, a decline in the value of the dollar is supposed to be the remedy for a trade deficit.

The NYT tells us that China's economists are equally incompetent and/or corrupt. It tells us that they are worried that the Chinese are not having enough kids:

"Pressure to alter the policy [the one child policy] is building on other fronts as well, as economists say that China’s aging population and dwindling pool of young, cheap labor will be a significant factor in slowing the nation’s economic growth rate."

Yes, that sounds like a real problem: "a dwindling pool of cheap labor." Any economist who complains about this is working for the people who want to employ cheap labor, he/she does not give a damn about the economy.

Insofar as growth is a measure of anything, it is per capita growth that matters. Why would anyone be happier if the economy grew 20 percent, but population grew 50 percent? This is unambiguously bad for the country as a whole, even if there are some people who might benefit from being able to hire cheaper labor.

Economists who are not employed by rich people understand that "cheap labor" means that lots of people are working for little money. This should not be a goal of any honest economist.

Read more...

 

 
The NYT Can't Find Credible Columnists, so They Hired Bill Keller Print
Sunday, 22 July 2012 12:33

I guess it's childish name-calling time at the NYT. Hence Bill Keller tells readers that if you ask any "credible economist" you will get Keller's preferred solution to the budget. At the top of the list is "entitlement reforms."

For those who don't know, "entitlement reforms" is Washington elite speak for cuts to Social Security and Medicare. They know that these programs are hugely popular, so the Washington elite crew use their little code word "entitlements," since they know that "entitlements" don't have nearly as much support. They also use "reform" since it sounds much nicer than "cuts." Of course the point is to cut Social Security and Medicare; Keller is simply not honest enough to say this to readers.

Anyhow, let me just briefly explain why at least one non-credible economist doesn't support the cuts to Social Security and Medicare that former Senator Alan Simpson and Morgan Stanley director Erskine Bowles proposed. (Keller wrongly referred to their plan as a being a plan approved by their commission. This is not true, to be approved as a commission proposal a plan would have required the support of 14 of the 18 members of the commission.)

The Bowles-Simpson plan would impose substantial cuts to Social Security benefits that would hit people already getting benefits. It would reduce the annual cost of living adjustment by 0.3 percent. This would lower the benefits that retirees receive by roughly 3 percent after 10 years, 6 percent after 20 years, and  9 percent after 30 years.

This will be a serious hit to tens of millions of seniors who rely on Social Security for half or more of their income. Given that the average Social Security check is $1,200 a month, it is a bit hard to accept that these people should be in the center of our gunsights when we turn to deficit reduction.

Read more...

 

 
The One Percent Want Your Social Security and Medicare and Steven Pearlstein Is Trying to Help Print
Sunday, 22 July 2012 07:34

Steven Pearlstein, the Washington Post business columnist, often writes insightful pieces on the economy, not today. The thrust of his piece is that we all should be hopeful that a group of incredibly rich CEOs can engineer a coup.

While the rest of us are wasting our time worrying about whether Barack Obama or Mitt Romney are sitting in the White House the next four years, Pearlstein tells us (approvingly) that these honchos are scurrying through back rooms in Washington trying to carve out a deficit deal.

The plan is that we will get the rich folks' deal regardless of who wins the election. It is difficult to imagine a more contemptuous attitude toward democracy.

The deal that this gang (led by Morgan Stanley director Erskine Bowles) is hatching will inevitably include some amount of tax increases and also large budget cuts. At the top of the list, as Pearlstein proudly tells us, are cuts to Social Security and Medicare. At a time when we have seen an unprecedented transfer of income to the top one percent, these deficit warriors are placing a top priority on snatching away a portion of Social Security checks that average $1,200 a month. Yes, the country needs this.

The most likely cut to Social Security is a reduction in the annual cost of living adjustment of 0.3 percentage points. While that might sound trivial, the effect accumulates through time. After ten years, a typical check will be about 3 percent lower, after 20 years it will be 6 percent lower, and after 30 years it will be about 9 percent lower.

Social Security amounts to 90 percent or more of the income for one-third of seniors. For this group, the proposed cut in benefits would be a considerably larger share of their income that the higher taxes faced by someone earning $300,000 a year as a result of the repeal of the Bush tax cuts on high income earners. The latter is supposed to be a big deal, therefore the proposed cuts to Social Security are also a big deal.

Read more...

 

 
Picking on Paul Krugman: Conservatives Have No Problem With Big Government Print
Saturday, 21 July 2012 13:48

I don't often disagree with Paul Krugman these days but I do have to take him to task for buying into the "conservatives don't like government" line. In a blogpost he notes that a Republican health care bill in the House would take away funding for the Agency for Healthcare Research and Quality and any economic research funded by the National Institutes of Health. He then concludes by commenting:

"You sometimes hear conservatives saying that the role of government should be limited to the provision of public goods; obviously I don’t agree. But it turns out that they hate providing public goods, like research, too."

Okay, there is a consistent pattern in the behavior of conservatives and it has nothing to do with a dislike of public goods or even a dislike of government intervention in the economy.

What is the quintessential public good? That's right, the military. Do we see conservatives like Mitt Romney and Paul Ryan yelling about waste in the military and the need to pare it back? I surely haven't.

So why are they willing to spend so much money on one set of public goods, the military, but hate the thought of spending relatively trivial sums on the Agency for Healthcare Research and Quality or the economic research funded by the National Institutes of Health?

Let's think for a moment about who benefits. Yes, defense contractors make lots of money selling overpriced and often useless hardware and services to the military. While private contractors may get some nickels and dimes out of the Agency for Healthcare Research and Quality or economic research funded by the National Institutes of Health, you won't find the big bucks there. In fact, one result of the research funded by these two agencies might be that insurers, drug companies, medical equipment suppliers and other big corporate interests may find the usefulness or cost of their products called into question. That could lead to lower profits.

In other words, the most obvious story here is not that conservatives are opposed to public goods. Rather they are opposed to public goods that could have the effect of less income being redistributed upward.

Read more...

 

 
Are German Officials Really As Clueless About Economics as the Washington Post Says? Print
Saturday, 21 July 2012 07:51

A Washington Post piece on German attitudes towards the crisis in the euro zone at one point refers to the high borrowing costs in Spain and Italy. It then tells readers:

"But in Germany’s view, yields on Spanish bonds — just above 7 percent as of Friday — are indeed with precedent, since Spain borrowed at rates well above 8 percent for most of the 1990s, touching 14 percent at one point. Italy had even higher borrowing costs than Spain in the 1990s."

While the piece later notes that "many economists" say the comparison is misleading because Spain and Italy had higher inflation (much higher) and growth in the 1990s, this is in fact the view of all economists who know arithmetic. Economists focus on the real interest rate, the difference between the nominal interest rate and the inflation rate. Currently inflation in Spain and Italy is running near zero, which means that the nominal interest rates of above 7 percent translate into real interest rates above 7 percent.

By contrast, inflation in both countries averaged more than 5 percent for the first half of the 1990s. This means that a nominal interest rate of 8 percent would have translated into a real interest rate of around 3 percent.

If Germany has people in positions of responsibility who do not understand the concept of the real interest rate it would be very scary. That would be worthy of a major front page story.

 
When Pension Fund Managers Can't Do Arithmetic Print
Saturday, 21 July 2012 07:41

There are good paying jobs for unskilled people managing pension funds. Floyd Norris reports on how these folks, who get 6-figure salaries, expected to get 8 percent returns even when the price to trend earnings ratio in the stock market exceeded 20 and even 30.

People who know arithmetic could have explained to these managers that this would not be possible. Today many of these pensions are seriously underfunded.

 
The Reason God Created Central Banks Print
Friday, 20 July 2012 16:25

Matt Yglesias notes the housing bubble in Canada and then asks what the Canadian government could do about the bubble. His point is that it would be enormously unpopular if the government deliberately took steps to burst the bubble.

This is of course true and it is one reason why the government should have acted years earlier to prevent the bubble from getting as large as it did. However there is another actor that doesn't appear in Matt's story, the Bank of Canada. The official story on central banks is that they are supposed to be independent so that they can do what is best for the economy without fear of the immediate political repercussions.

As a practical matter, central banks tend not to be independent of political influence, especially from the financial sector. However it is reasonable to ask why the central bank is not doing what it is supposed to do. Suppose the Bank of Canada announced a 1 percentage point increase in the overnight money rate and that it would continue to increase interest rates until house prices fell by 30 percent, or whatever amount it considered appropriate.

It is difficult to believe that this policy would not quickly deflate the bubble. This may not be pretty (if the bank had been awake it would have done this 5 years ago), but it would be better than letting the bubble just continue to grow. And what is the Bank doing that is more important, targeting 2.0 percent inflation?

 
Charles Krauthammer Doesn't Know Left from Right Print
Friday, 20 July 2012 05:46

Actually, he just gives the right-wing caricature of the left, telling readers:

"The argument between left and right is about what you do beyond infrastructure. It’s about transfer payments and redistributionist taxation, about geometrically expanding entitlements, about tax breaks and subsidies to induce actions pleasing to central planners."

The real difference is not over government intervvention in the market. The right actually supports massive government interventions in the economy. For example, government granted patent monopolies on prescription drugs will transfer more than $4 trillion from consumers to drug makers over the next decade compared to a free market. 

The right also supports having the Federal Reserve Board deliberately raise unemployment to put downward pressure on the wages of ordinary workers and thereby keep inflation low. And, it supports having trade agreements that put manufacturing workers in direct competition with low-paid workers in the developing world, while leaving highly paid professionals like doctors and lawyers largely protected. This has the predicted and actual effect of redistributing income upward.

The real argument between left and right has little to do with government intervention in the market. The real issue is whether the goal is to steer the economy in a direction that will allow the benefits of growth to be broadly shared or whether to structure the economy in a way that directs income upward.

 
Medicare Vouchers Increase Costs: That's a Fact Print
Friday, 20 July 2012 05:06

If one of the major party presidential candidates started to claim that the sun orbits the earth, reporters would suddenly treat the issue as a matter of debate. We would be told that candidate X claims that the sun goes around the earth, however candidate Y maintains that the earth actually circles the sun. 

That is the conclusion that one would get from an ABC news piece that discussed Governor Romney's proposal to replace the existing Medicare system with a voucher system. This would in fact raise the costs of providing Medicare equivalent policies. This is a conclusion that the Congressional Budget Office reached based on years of studying both the operation of private plans within Medicare, under the Medicare Plus Choice system and the Medicare Advantage system, and the operation of the huge private insurance market outside of Medicare.

In this context, President Obama's assertion that Romney's plan would leave seniors unable to afford traditional Medicare is not just an empty claim. It is a fact.

Responsible reporting would inform audiences of the evidence on this issue, and not leave it as a he said/she said. Reporters have the time to investigate the truth of the candidates competing claims. Their audiences do not.

[Thanks to Robert Salzberg for the lead.] 

 
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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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