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Why Is Thomas Friedman Afraid of Getting Lower Cost High Tech and Financial Services from India and China? Print
Wednesday, 03 November 2010 04:20

His latest column tells us that he had:

" a scary thought .... What if — for all the hype about China, India and globalization — they’re actually underhyped? What if these sleeping giants are just finishing a 20-year process of getting the basic technological and educational infrastructure in place to become innovation hubs and that we haven’t seen anything yet?"

It's difficult to know what in this story Friedman finds scary. The piece raises the prospect of these countries providing better and lower cost financial and technical services than those we currently receive from Wall Street and Silicon Valley.

It is not clear what Friedman's problem is with getting lower cost services. This is the way trade is supposed to benefit economies. Of course, those who work on Wall Street and in Silicon Valley will be hurt, just as steel and auto workers have been hurt by low-cost competition, but the vast majority of the country does not work on Wall Street or in Silicon Valley. 

If there is a point to Friedman's piece, it is very difficult to understand what it could be.

 

 
Post Misses Uptick in Consumer Spending Print
Tuesday, 02 November 2010 05:08
In an article that reported on the Commerce Department's release of consumption data from September, the Washington Post told readers that: "consumer spending was stuck in the doldrums." Actually, the report showed a very high rate of spending relative to income. The saving rate fell from 5.6 percent in August to 5.3 percent in September. Historically the saving rate has averaged more than 8.0 percent, so consumers are currently spending at a high level relative to their income.
 
The NYT Invents Economic Necessities for European Political Parties Print
Tuesday, 02 November 2010 04:57

Many prominent economists, including many with Nobel prizes, believe that Europe's economy, like the world economy, is desperately in need of more demand. Fortunately, the NYT is there to set them right.

It told readers today that social democratic parties in Europe must come to grips with the "necessity" of givebacks by workers. It would be great if the NYT could lay out its economic theory more fully so that those of us less expert in economics could understand how less demand in the current economy will spur growth and employment.

This new economic theory will make exciting reading if the NYT would share it with readers.

 
Deficit Commission Plots to Overhaul Social Security Behind Voters' Backs Print
Tuesday, 02 November 2010 04:44

That is what the NYT reported today, although it used somewhat different language. It told readers that:

"The group, which has a Dec. 1 deadline for recommending how to reduce the annual deficits swelling the federal debt, purposely has done little to date beyond five public hearings, and it has decided nothing lest any decisions leak and blow up in the flammable mix of a campaign year with control of Congress in the balance."

In a democracy, the purpose of elections is supposed to be to have voters determine issues like the future of Social Security and Medicare. According to this article, the members of this commission conspired to keep these issues outside of the election debate.

The article also tells readers that the co-chairs of the commission apparently misled the public in their prior statements. Both former Senator Alan Simpson and Erskine Bowles had given assurances that benefits would not be cut for current Social Security beneficiaries. According to this article, the commission is now considering changing the annual cost of living adjustment formula in a way that would reduce benefits. This reversal of a public commitment by the co-chairs should have been the main topic of a major news article.

 
Should NPR's Funding Be Cut? Print
Tuesday, 02 November 2010 04:37
That's a question that anyone who doesn't work on Wall Street may want to ask after hearing a segment on WAMU's "Power Breakfast" in which the anchor told listeners that failing to cut Social Security and Medicare may be "fiddling why Rome burns."
 
Cheap David Brooks Games Print
Tuesday, 02 November 2010 04:08

David Brooks, who made himself famous by turning the financial crisis into a "fiscal crisis," is back at game playing today. He outlines some of the main features of the Republicans' agenda assuming they get control of the House.

One of the items listed is the repeal of a provision in the health care reform bill that would require a business to file a 1099 every time they bought more than $600 of goods and services from an individual or business. While the Republicans will likely make this change, what Brooks doesn't tell readers is that Democrats would also. This was a provision that shoved into the lengthy bill that its proponents recognized as excessive almost immediately after it was passed. It would have already been repealed had the Republicans not blocked action in order to give themselves an election issue.

The other misleading item featured on Brooks' rather limited agenda for the Republicans is that they will take steps to make health care costs predictable for business. Brooks is revealing either his ignorance or his dishonesty with this one. He obviously is implying that the health care plan makes cost unpredictable for business. In fact, health care costs are already unpredictable for business.

Except in states where regulation prevents it, insurers can change what they charge businesses for health care as much as they feel like. While businesses can change insurers, this is time-consuming and the prices are very unpredictable (there are no price lists -- firms must go through an underwriting process). The Republicans have no plan that will make health care costs predictable for business. In fact, if they eliminate the insurance regulation in the health care reform bill then they will almost certainly be making costs less predictable.

 
What Would Happen if Physicians Left Medicare in Large Numbers? Print
Monday, 01 November 2010 05:07

The answer is that they would get significant cuts in revenue. The Washington Post, which is known for its problems with logic and economics, never made this point as it discussed the possibility of a mass exodus of physicians from the Medicare program. The Post uncritically presented complaints about Medicare's compensation schedule from Cecil B. Wilson, the president of the American Medical Association that Medicare does not pay them enough money. (The article was headlined: "Physicians Face Painful Decision on Medicare.")

While it is possible that any individual physician can make more money by taking patients from private insurers rather than Medicare patients, physicians in aggregate could only make up for the revenue lost by not seeing Medicare patients if there was a large pool of individuals with money or high-paying insurers who do not currently have access to doctors. Of course, people with money in the United States are already seeing doctors, so if physicians en masse turned away from Medicare then they would simply have fewer patients. (This may be the painful decision referred to in the headline.)

 
The Fed Has Credibility? Print
Monday, 01 November 2010 04:44

A Washington Post article discussing the risks associated with another round of quantitative easing raised the possibility that the Fed could lose its credibility if the program does not lead to the intended growth. It implies that the loss of credibility would be a major harm.

It is worth noting that the whole economic collapse came about because of the Fed's failure to notice and/or do anything about an $8 trillion housing bubble. Given this enormous failure, it is not clear how much credibility it currently enjoys among people who follow the economy.

The article also raises the risk that a precipitous fall in the dollar, "could be disastrous." It is difficult to see a scenario in which even the steepest falls in the dollar would be disastrous for the United States. U.S. exporters would suddenly become hyper-competitive (we still export $1 trillion a year in goods and services), while domestically produced goods would drive imports from the shelves. This scenario would likely be disastrous for our trading partners, which is why they would almost certainly intervene in currency markets to prevent the dollar from having a steep and sudden tumble.

 
NPR Stacks the Deck to Push Its Trade Agenda Print
Sunday, 31 October 2010 08:10

On Friday, Morning Edition featured a debate on trade between former Bush administration economist Mathew Slaughter and Thea Lee, an economist with the AFL-CIO. [Disclosure: Ms. Lee is a personal friend.] The discussion allowed Mr. Slaughter to have the last word, in which he proclaimed:

"One is most of the research to date that Thea cites has concluded that it's technology innovations of many kinds, that tend to favor demand for skilled workers that has put pressure on the wages of so many Americans.

So from a policy perspective, a question is, well, what do we want to do about that? Do you want to get rid of the computers that we've created over the past 30 or 40 years?"

Actually the economic research does not provide a compelling case that technology, rather than trade, has been the major factor driving inequality. The biggest rise in inequality between college and non-college educated workers occurred in the 80s, before the explosion of computerization and the uptick in productivity growth. In the 00s, there was no increase in the college-non-college pay gap. The only real gainers in that decade were workers with advance degree. This pattern in inequality is difficult to reconcile with a technology story.

 
David Broder Calls for War With Iran to Boost the Economy Print
Sunday, 31 October 2010 07:51

This is not a joke (at least not on my part). David Broder, the longtime columnist and reporter at a formerly respectable newspaper, quite explicitly suggested that fighting a war with Iran could be an effective way to boost the economy. Ignoring the idea that anyone should undertake war as an economic policy, Broder's economics is also a visit to loon tune land.

Broder tells readers:

"Can Obama harness the forces that might spur new growth? This is the key question for the next two years.

What are those forces? Essentially, there are two. One is the power of the business cycle, the tidal force that throughout history has dictated when the economy expands and when it contracts.

Economists struggle to analyze this, but they almost inevitably conclude that it cannot be rushed and almost resists political command. As the saying goes, the market will go where it is going to go.

In this regard, Obama has no advantage over any other pol. Even in analyzing the tidal force correctly, he cannot control it.

What else might affect the economy? The answer is obvious, but its implications are frightening. War and peace influence the economy."

Sorry Mr. Broder, outside of Fox on 15th the world does not work this way. War affects the economy the same way that other government spending affects the economy. It does not have some mystical impact as Broder seems to think.

If spending on war can provide jobs and lift the economy then so can spending on roads, weatherizing homes, or educating our kids. Yes, that's right, all the forms of stimulus spending that Broder derided so much because they add to the deficit will increase GDP and generate jobs just like the war that Broder is advocating (which will also add to the deficit).

So, we have two routes to prosperity. We can either build up our physical infrastructure and improve the skills and education of our workers or we can go kill Iranians. Broder has made it clear where he stands.

 

 

 
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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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