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?