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Home Publications Blogs Beat the Press The How Many Wrong Statements Can You Find In Thomas Friedman's Column Game

The How Many Wrong Statements Can You Find In Thomas Friedman's Column Game

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Wednesday, 17 October 2012 07:11

It's always fun when Thomas Friedman writes a piece on economics. He likes to play a game with readers. He slips a number of false assertions into the column and readers are supposed to find them. (He probably does this with his columns on foreign policy also, but I don't have time to read through those columns.)

Today's column is just chock full of these false assertions. Early on Friedman tells us:

"many Americans understand something is very wrong, that we could go the way of Greece or Japan if we don’t shape up, and that they will embrace a candidate who trusts them with the truth, that is, an honest diagnosis of where we are and how we get out of this mess."

That was really neat, go the way of Greece or Japan? That's kind of like going the way of Bernie Madoff or Warren Buffet. Greece's economy is being systematically destroyed by the conditions imposed by the European Central Bank and the I.M.F. It's unemployment rate is near 25 percent and virtually certain to go higher as virtually everyone projects at least another year of economic contraction. By contrast, the unemployment rate in Japan is just over 4.0 percent. While Greece is clearly a disaster, Japan's economy has done better in many respects than the U.S. economy over the last two decades.

His next big whopper comes one paragraph down when Friedman tells readers:

"This merger [of globalization and technology] makes old jobs obsolete faster and spins off new jobs faster, but all the good new jobs require higher skills."

This is the structural unemployment story. This one can be easily disproved because none of the facts fit. There are no major sectors of the economy with rapidly rising wages, with longer workweeks and with large numbers of job openings relative to the number of unemployed. These are all characteristics of markets with labor shortages -- the jobs requiring higher skills story that Friedman is telling. It's a cute story, there's just no evidence for it.

It's also worth noting the other error in this assertion. Globalization eliminates the jobs we want it to eliminate. If we had negotiated trade agreements that made it easy for foreign doctors, lawyers and other professionals to work in these professions in the United States, then globalization would have led to large numbers of unemployed professionals in the United States.

Instead our trade agreements focused on putting manufacturing workers in direct competition with their low-paid counterparts in the developing world. This has eliminated millions of manufacturing jobs and put downward pressure on the wages in the jobs that remained. The decision to direct globalization on a path that hurt manufacturing workers was a policy choice, not an inevitable historical process. 

His next error is a couple of paragraphs down when he said:

"our generation also overdosed on debt and credit entitlement."

Actually, there would have been nothing wrong with the levels of debt incurred if the price of the assets that provided the basis for this borrowing (stocks and housing) had not been inflated by bubbles. If Bill Gates were to borrow a million dollars the debt would be no big deal. That's because he has billions of dollars in assets. By contrast for most of us, $1 million in debt would be a disaster. The problem was not the borrowing per se, the problem was the bubble wealth. Unfortunately, major news outlets didn't have the room for warnings of the risks posed by these bubbles because they were filling their space with columns like this one from Thomas Friedman.

Friedman then notes the "hole" created by the collapse of the housing bubble then tells us:

"That hole requires us to now cut spending, raise and reform taxes; stimulate the economy by investing in infrastructure, research and teachers; spur more start-ups; and offer more people postsecondary vocational or college education."

Huh, cut spending? No, that's 180 degrees backward. The hole is the lost demand from construction and consumption due to the collapse of the housing bubble. That hole is filled by more spending.

As far as tax reform, yes we have a messed up tax code that could be improved, but we also had a messed up tax code in the quarter century following World War II when the economy experienced its strongest and longest period of sustained prosperity. In short, a better tax code is desirable, buy hardly essential.

Anyhow, I'm sure that Friedman put more errors in his piece, but that's all I have time for today. Wasn't that fun?

Comments (13)Add Comment
Quick, somebody tell Obama
written by David, October 17, 2012 9:45
In last night's debate, PotUS seemed to side with the structural argument, pushing education for high skill jobs. The problem with that is many people don't like to think: it's hard and they're not particularly good at it.
...
written by skeptonomist, October 17, 2012 10:18
"..there would have been nothing wrong with the levels of debt incurred if the price of the assets that provided the basis for this borrowing (stocks and housing) had not been inflated by bubbles."

This is a claim that Dean repeatedly makes, but is unproven. It is bad science to claim causation on the basis of a correlation without ruling out alternate hypotheses. In this case I can suggest at least two major alternate hypotheses: increased credit-card borrowing and reduced real income. Banks have gone to enormous effort to expand consumer credit and generally the media and economists have ratified the idea that spending rather than thrift is a social good. Everyone agrees that real household income and especially real individual wages have stagnated or declined since around the time (70's and 80's) since savings started declining; how could this not have an effect on debt? How does Dean rule out these or other possible causes of the decreased savings rate and increased debt since around 1980?

I'm sure Dean agrees that something should be done about lack of increase of real wages and the vastly increased powers and influence of banks, combined with their irresponsibility. It is likely that action on these things would have an effect on savings and debt. I can't agree that what we need is some kind of bubble policeman, who is empowered to raise interest rates or take some other kind of monetary-policy action when he thinks there is an asset bubble. We know that Fed chairmen do not actually exercise the powers they have, but they also do not really have any tool that could surgically deflate an asset bubble - buying and selling bonds is certainly not such a tool. The main way to prevent asset bubbles is probably to restrain speculative leverage by regulation.
Something is Very Wrong - With Thomas Friedman
written by Last Mover, October 17, 2012 10:23
"This merger [of globalization and technology] makes old jobs obsolete faster and spins off new jobs faster, but all the good new jobs require higher skills."


Uh huh. Higher skills that include:

Choosing your parents.

Creating market power to undermine competition.

Depending on government while railing against it.

Training to be a winner-take-all.

Framing economics as a gee whiz wow horse race for the latest bells and whistles.

Framing unemployment as a supply side technology skills push problem rather than a demand side pull problem.

Framing government debt as the debt of an average household.

It's true, something is very wrong. While old jobs like Friedman's column have become obsolete, for some strange reason as advocated by the simple minded economics of Friedman himself, these jobs haven't been replaced by the rapid evolution of new jobs with higher skills.

Why can't Thomas Friedman compete under his own standards?
.
written by jerry, October 17, 2012 10:52
"That hole requires us to now cut spending, raise and reform taxes; stimulate the economy by investing in infrastructure, research and teachers; spur more start-ups; and offer more people postsecondary vocational or college education."

It's always great when someone tells us we have to cut spending, and then - farther along in that same sentence - recommends that we actually spend some more by investing in research and teachers, or offering more people an education.

I'm not positive, but I think that is a sure sign of someone who has no god damn idea what they are talking about.
Jeffrey Dahner of Mother Teresa?
written by Frankly Curious, October 17, 2012 11:22
This is the second morning in a row when you made me laugh. It is a whole new game: how many example pairings can you find. "We could go the way of Jeffrey Dahmer or Mother Teresa." Fun!

http://franklycurious.com/index.php?itemid=2519
...
written by Chris, October 17, 2012 12:00
I have long wondered who is the "brighter": Friedman or Brooks? Some contest!
Wage stangnation and savings
written by Dean, October 17, 2012 12:13
Skeptonomist,

the link between wage stagnation and saving is not going to work. Stagnation began in the 70s, a decade when the saving rate rose. In fact, we didn't begin to so a noticeable decline in the saving rate until the late 80s when the stock market was getting above its normal valuation. Savings rates plummeted in the late 90s, when wages actually were growing a decent pace, but the stock bubble was peaking. And the saving rate, by remarkable coincidence hit an all-time low in 2004-07 at the peak of the housing bubble.
So we have competing theories, one fits the data like a glove, one which doesn't fit at all. I don't find it hard to choose.
Manufacturing Jobs Aren't Coming Back
written by Stephen, October 17, 2012 1:14
Check out this load of garbage on NPR Dean:
http://www.npr.org/blogs/money/2012/10/17/163074704/manufacturing-jobs-arent-coming-back-no-matter-whos-president?#
...
written by Kat, October 17, 2012 1:20
Nice paper on structural employment. It is clear and easy enough for Tom Friedman to understand. It would be nice if he would read it. But, I suppose you have to be CIO of Infosys to get his ear. Or a Bangalorean taxi driver with a sideline selling mobile devices. At any rate, I don't think his employers pay him to tell the truth.
...
written by skeptonomist, October 17, 2012 1:27
Dean: What the savings and debt show is a gradual turndown roughly around 1980 and then overall decline until the crash after 2006. You think the details fit the asset story, but I say that is dubious, especially since the stock-market peak and decline in the 70's are not reflected in the savings rate. I don't think a single cause has to be selected from the possibilities, and don't claim that wealth effects don't contribute - probably lots of things did, which is the typical case in economics. But ruling out effects from things other than wealth effects could be a big mistake, if it leads to neglect of those things.
I had to laugh at the image...
written by diesel, October 17, 2012 4:34
"Huh, cut spending? No, that's 180 degrees backward. The hole is the lost demand from construction and consumption due to the collapse of the housing bubble. That hole is filled by more spending."

...of making the hole "disappear" by lowering the level of the ground surrounding it!
Oh, please Dean...allow me to retort to skeptonomist
written by economist wannabe, October 18, 2012 3:45
I'll call it, "I'm sure Dean agrees #52547".

Or maybe not. Who cares if it is credit card debt or mortgage debt if it has the same origin, namely a perceived income increase from an inflated asset. Nobody's arguing that flat wage growth didn't put the squeeze on the middle class, but we're talking about the rug being pulled out from under. So no, we don't need bubble policemen...just a central bank with with integrity and cojones. Let's not forget that in this case it wasn't a matter of "we think there is an asset bubble", "we" knew it. Dean has in fact argued that in either case, cognizance or ignorance, dumping the bums was the appropriate response because neither are acceptable.

Am I wrong in thinking that interest rates although maybe not "surgical" are "good enough" to at least not inflate an asset bubble?
The one place there is structural unemployment
written by Sam Bell, October 18, 2012 8:45
Okay, obviously our current crisis was not caused by structural unemployment. As a recent graduate I have lots of high-skill friends who are unable to fund good jobs because most are now looking for people with fancy degrees and work experience, not just fancy degrees. Every single person from my graduating class I know who got a real job got it through connections.

But there's one place there absolutely is structural unemployment. There's one field with rapidly rising wages, longer workweeks, and lots of unemployed positions. That's medical professionals. There absolutely is a doctor shortage, and it makes a real contribution to unemployment--probably at least half a percent. Of course, this was the case before the crisis, too.

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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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