To paraphrase my friend Brad DeLong, "why oh why do newspapers have to use meaningless numbers when it is so easy to provide information." Today's example is a Washington Post article about a new rule that requires people to show proof of citizenship before they can be covered by Medicaid.

The article includes much useful information and comments from both proponents and opponents of the rule. Then it tells us that the Congressional Budget Office estimates that this rule will save Medicaid $735 million over the next decade.

Great, everyone realize how much money that is? Okay, we know the Washington Post has an educated readership, but virtually none of their readers has any idea how important $735 million over the next decade is to the budget or their pocketbooks.

Let's suppose the reporters had taken a moment to look at projected spending for this period. CBO projects total spending over the next decade at $33.3 trillion, or approximately $111,000 per person. The potential savings from the tighter Medicare rules comes to approximately $2.50 per person, or 0.002 percent of projected spending over the next decade. In other words, the potential savings will have no visible impact on the budget, the deficit or the public's tax burden.

My guess is that most people who read the Post article do not recognize this fact. If the spending figure had been expressed as a share of the budget or a per person cost, readers would know this hugely important part of the story. What do newspapers have such an aversion to providing information? (Yes, I did blog on this before in reference to an NYT article.)

--Dean Baker

That's the word from the Washington Post when it comes to the WTO negotiations. Today's article on the prospects for the Doha round asserts that "unlike previous negotiations with similar aims, this set of talks has an ambitious twist: The main goal is to change rules that have put poor countries at a disadvantage in the global marketplace." Yes, and we know that because...

Look, the people structuring the Doha round are politicians. It should not be news that politicians are not always entirely truthful in their public comments. In other words, just because they say that the purpose of the Doha round is to help developing countries, this does not mean that the real purpose of the round is to help developing countries.

The evidence actually shows that the Doha round is likely to do very little for developing countries and will actually hurt some who are net importers of agricultural products. (The removal of rich country subsidies causes agricultural prices to rise, which means that these countries will have to pay more for their imports.) Based on projections of gains, a reasonable person might be led to believe that the main purpose of the Doha round is to assist politically connected grain traders like Archers Daniel Midland.

It would not be hard to redesign global trade rules in ways that actually did offer substantial benefits to developing countries. For example, not requiring them honor rich country patents and copyrights would be a huge boon to developing countries. But such obvious winners for the world's poor are not on the Doha agenda.

In any case, the simple point here is that reporters should be clear on distinguishing between what politicians say, and what is true. Politicians say that the main purpose of the Doha round is to help the world's poor. The reporter who wrote this article does not know what the main purpose of the round actually is. Therefore, the article should simply report the claims of the politicians, and identify them as claims, not truth.

--Dean Baker

The Times had one of the most convoluted articles yet on demographics. Apparently, China's slowing population growth may lead to a shortage of cheap labor, no kidding the headline is "As China Ages, a Shortage of Cheap labor Looms."

It wasn't that long ago that I learned my economics, but back then this was THE POINT of economic development. Countries wanted to have more good paying jobs relative to the size of their population so that people would not be forced to take the bad paying jobs. I am not quite sure what theory of economic development the Times has where a lack of people in low-paying jobs is a problem. (Maybe we can make Times reporters do them.)

Just about everything else in the piece is equally incoherent. It gives us the warning of the rising ratio of retirees to workers. But let's toss in some arithmetic. China's per capita GDP is growing at more than 8 percent annually. This means that in a decade, per capita income will have more than doubled. Suppose the tax burden was raised by 10 percentage points to cover the higher ratio of retirees to workers, this would leave the average worker more than 80 percent better off (assuming that income growth is distributed in proportion to current income, a very big assumption). What is the problem?

The article even warns that raising the retirement age may not help because that would mean fewer jobs for young workers. (But, wasn't the problem supposed to be a shortage of young workers?)

The ratio of confusion to information in this article is extraordinary. It would be good if the reporter and/or the editor could give this issue some more serious thought.

--Dean Baker

Here's the proof.

--Dean Baker

The New York Times apparently doesn't think so. In an article assessing the Mexican presidential campaign in its final days, there is no mention of the economic performance of the current administration. Since one of the two leading candidates is from the same party as the incumbent president, and pledges to continue the same policies if elected, the recent economic record would appear to be relevant.

For those who care about such mundane things as economic growth, the cumulative per capita GDP growth in the first five years of the current president has been approximately 2.0 percent. By contrast, Mexico's per capita GDP grew 4.0 percent annually over the years from 1960-80. In other words, in 5 years under the current president, Mexico's economy grew as much as it typically did in 6 months over the period from 1960-80. As a general rule, weak economic growth will mean weak job creation and few gains in reducing poverty, and this appears to have been the case in Mexico.

This weak economic performance probably explains much of the support for the main challenger, Lopez Obrador. As it is, the article contains very little of substance. It can probably be best described as a careful examination of the "swift boat" allegations of Mr. Obrador's opponents. It would be great stuff for the National Inquirer, but we should expect better from the New York Times.

--Dean Baker

When the government imposes restrictions that artificially raise prices above the competitive market level, economic theory predicts that producers will engage in anti-social rent-seeking behavior to maximize their rents. Drug patents, which raise drug prices by several hundred percent above the competitive market price (sometimes several thousand percent), lead to all sorts of corruption, just as economic theory predicts.

Unfortunately, economists show relatively little interest in this interference with the free market. Fortunately, the NYT shows more interest. It has a good article on doctor run foundations that receive large payments from drug and medical supply companies. These foundations tend to produce research that shows the effectiveness of their donors' products.

--Dean Baker

The Times ran an informative article on the Bush administration's new rules requiring states to impose more stringent work requirements on welfare recipients. However, the piece fell short in telling readers the cost of welfare. It reports that welfare is blockgranted at $16 billion annually between 2007 and 2010. It would have been helpful to tell readers that the cost of the program will fall from 0.6 percent of total spending in 2007 to 0.5 percent of spending by 2010. Alternatively, government spending is projected to be approximately $50,000 for every person in the country over the next five years, of this $270 will be spent on welfare.

--Dean Baker

I have complained in the past about reporters' willingness to accept corporate numbers uncritically. My favorite example is the widely reported claim that the compensation of Delphi's unionized workers averaged $65 an hour. This implied a benefits package worth more than $70,000 a year. Anyone believe that?

We have another example from the Times today. Its article on GM's buyout offer to workers reports that getting rid of 35,000 workers will save GM $8 billion a year. Hmmmm, my calculator puts that at a savings of just under $230,000 per worker.

If you think this number sounds a bit high, you would get confirmation by the end of the article. The last paragraph reports the assessment of a stock analyst that GM earnings will rise $1.25 a share for each 10,000 workers who accept the offer. With 565.6 million shares outstanding, this implies additional earnings of $707 million for each 10,000 workers, or $2.47 billion for the 35,000 workers who accepted the buyout. That comes to a more pluasible gain of $70,700 per worker.

I am not an expert on the auto industry and cannot assess how much GM will actually benefit from this buyout (the net gain will depend on whether GM can lose one-third of their workers and still produce the same number of cars, or will have to hire replacement workers), but the $8 billion figure reported in the Times article is obviously ridiculous. Someone involved in the publication of this article should have been able to recognize this fact.

--Dean Baker

The May data for new home sales came in somewhat higher than expected. It is important to keep in mind that the home sales data record contracts, not completed sales. In the boom period a year ago, broken contracts were rare. Now that prices are weakening in many of the formerly hot markets, broken contracts are becoming common.

To my knowledge, no one keeps data on the percentage of contracts that are broken, but there have been reports from some builders in California and Florida of cancellation rates in the range of 20-30 percent. If the nationwide rate of cancellation is even 5 percentage points higher than last year, it would conceal a sharp falloff in actual sales.

One key measure that gets around this issue is the number of unsold homes. This was 556,000 in May, essentially the same as April's record high of 560,000, and more than 100,000 higher than the inventory of 450,00 reported in May of 2005.

--Dean Baker

For reasons that I will not pretend to understand, newspaper editorial boards are huge proponents of trade agreements as a remedy to world poverty. They endlessly promote these agreements on their editorial and oped pages. Papers like the New York Times and Washington Post are as likely to print an oped critical of recent trade agreements, as Pravda would have been to print an anti-communist diatribe back in the days of the Soviet Union.

Today's piece in the NYT is a great example. It touts a new W.T.O. agreement which would raise world income by $54 billion annually. Even better, the piece tells us that the lowest income countries, which have just 1.2 percent of world income, would get 1.9 percent of the gains.

Before anyone celebrates this prospect, let's have some context. World income is approximately $50 trillion. So, the prospect of $54 billion in annual gains comes to 0.1 percent of world income. If the poorest countries get 1.9 percent of these gains, that comes to just over $1 billion a year. I'm not sure of their list of poorest countries, but if their total population is 500 million, then they will get $2 per capita annually from this deal.

Even this may be an exaggeration. There are many reasons for criticizing these trade models (the assumption of full employment ranks high), but I will only mention my favorite. These trade models all assume that lost tariff revenue is replaced by a lump sum tax.

This can get heavy into econ nerdism, but let me try to make the point simple. In economic modeling, taxes typically lead to economic distortions that reduce output. Tariffs are one such tax. If we reduce tariffs, then by definition, we will be raising GDP in these models.

Of course, tariffs provide revenues to government. If a government wants to make up this revenue (which it must do in the real world) then it must raise some other tax to offset the loss of tariff revenue. In these models, it is assumed that governments offset the lost tariff revenue by raising lump sum taxes.

A lump sum tax means that the government just sucks a specified sum of revenue from the economy. It is of course a fictitious concept. In the real world, governments must impose specific taxes, income taxes, sales, taxes, value-added taxes, etc. However, a lump sum tax is a useful fiction from the standpoint of those promoting these trade agreements, because it does not lead to any economic distortions.

In other words, the economic modeling shows what happens when we replace a tax that leads to economic distortions with a fictional tax that does not lead to economic distortions. Excuse me if I am not impressed.

--Dean Baker

Since there have been some interesting comments on two separate posts from last week, I thought I would pull them together. To get up to speed, NPR ran a piece last week which decried (slight exaggeration) the low pay of doctors. I also commented on the failure of reporting on a minimum wage hike to note the extensive research showing that modest increases in the minimum wage (like the ones being debated) have no significant effect on employment.

The responses have raised issues about the appropriate wages for doctors and people who work at the type of jobs that get the minimum wage. The point that I wanted to make is that these two are linked. The wages of people working at low paying jobs are a cost to doctors, and doctors' pay is a cost to those earning low wages.

The logic of this is simple. While some wage increases may be absorbed in lower profits, and may also be offset by higher productivity, at least some part of any wage increase will be reflected in the prices of the goods or services that worker produces. This means that, other things equal, if we want minimum wage earners to get more money, then we want doctors to get less. Alternatively, if we join NPR in the drive to raise doctors' pay, then we want minimum wage workers to get less. This is basic economics/accounting; I doubt that any economist anywhere on the political spectrum would dispute this logic.

To me, the main economic story of the last 3 decades has been that those in high paying professions (e.g. doctors, lawyers, dentists, accountants, economists etc.) have managed to drive up their wages by sustaining and increasing barriers against competition (both foreign and domestic), while less-skilled workers, like autoworkers, textile workers, dishwashers, and custodians have been deliberately placed in direct competition with low-paid workers in the developing world.

The wages in these latter categories have generally been flat or declined over this period, while workers in most of the high-paid professions have seen substantial pay increases (e.g. the OECD reports that the real wages of doctors in the United States increased by 55 percent from 1964-1995 [sorry, it's not free data, so I can't link to it]). If this pattern is to be reversed, then the wage increases for workers at the middle and bottom will have to come at least partly at the expense of the real wages of high-end workers, just as the wage gains of high-end workers have come partly at the expense of those at the middle and bottom over the last three decades.

This is all accounting; one can debate the merits of specific policies to reverse the upward redistribution of income, but there really is not much room to debate the accounting. (My favored policy is free trade in professional services, so that doctors, lawyers, accountants and economists can enjoy international competition in the same way as autoworkers, textile workers and dishwashers, see chapter 1 of The Conservative Nanny State.)

--Dean Baker

NPR did a piece this morning on doctors' pay that leaves you wondering why they get taxpayers dollars. The basic point was that doctors, especially primary care physicians, are struggling. The news hook was a new survey that showed that doctors' net (after malpractice) pay is not keeping pace with inflation.

The survey showed that average net compensation for all physicians in 2003 was just over $220,000 a year (in 2006 dollars). This is down by 7.1 percent (adjusted for inflation) from the 1995 level. Of course there are big differences by specialty. (The decline in pay is partly explained by a 4.1 percent shortening of the average workweek.) While the survey found that surgeons average almost $300,000 a year, primary care physicians average just $160,000 a year.

The NPR story chose to focus on the latter, highlighting the difficulties of making ends meet. However, instead of finding a typical primary care physician, NPR found a doctor who claims to be making just $50,000 a year, less than one third of the average.

The doctor in the story sounded like an impressive person. According to the piece, she specialized in caring for pregnant women in the inner city. It sounds like hard work for very modest pay. According to the piece, she is being forced to change jobs (taking a position at Georgetown University) because she still has $300,000 in loans from medical school hanging over her head.

This is a good human interest story, but it has nothing to do with the pay of doctors. Why on earth would NPR talk to a primary care physician, who apparently earns less than one-third the average for primary care physicians, to find out about the financial difficulties facing primary care physicians? This would be like talking to an autoworker getting $7.00 an hour to find out about the situation facing the typical UAW autoworker who earns close to $20 an hour. Competent reporters do not do this.

The gist of this story was that we should be paying doctors more. If doctors get more, the custodian getting $7.00 an hour gets less. That's the way the economy works, one person's income is another person's cost. Maybe there is a case to be made that the average physician can't make ends meet on $220,000 a year, and the government should intervene to raise their wages. But that case must be made based on the situation of the typical doctor, not some hardworking dedicated physician who works for one-third of the average wage.

--Dean Baker

Suppose that the senators who support a quick withdrawal from Iraq got in the habit of saying that the United States should get out of Iraq because losing 100 U.S. soldiers a day is an unacceptable price for the occupation. Would the media simple report this claim without comment? Or, would they point out that these senators apparently don't realize that the fatality rate is approximately 2 per day?

My guess is that every story that noted the claim that 100 soldiers a day are being killed would correct this assertion based on an authoritative source on the causality count. The media would probably also run numerous stories that reported on the fact that the proponents of a hasty withdrawal have no idea what they are talking about. This would be good journalism.

The question is why it is not applied to the debate over the minimum wage. Reporters routinely quote claims from politicians opposed to raising the minimum to the effect that it would lead to a large loss of jobs and will slow economic growth. Well, we have evidence on this one. Economists have done numerous studies of the impact of modest increases of the minimum wage, like the one currently being debated. Berkeley economist David Card and Princeton economist Alan Krueger have done some of the most famous studies, but many other economists have approached the topic from different angles (including my colleague at CEPR John Schmitt [sorry, not available on-line]), and nearly all of them have found that the minimum wage has little or no effect on employment.

If talking to experts in the economics profession is too difficult for the country's top reporters, perhaps some simple arithmetic would be sufficient. The minimum wage bill currently being pushed by Senator Kennedy would raise the minimum wage to $7.25 by 2009. By comparison, the minimum wage was almost $8.00 an hour (in 2006 dollars) in the late sixties. This means that if Kennedy's bill were approved, the real value of the minimum wage in 2009 would still be more than 10 percent lower than it was in the late sixties, even though productivity will have increased by more than 120 percent over this period.

For those not old enough to remember, the late sixties was one of the most prosperous economic periods in U.S. history. The economy grew rapidly, wages grew rapidly, and the unemployment rate eventually fell to 3.0 percent. Clearly, the minimum wage could not have done too much damage.

The idea that the minimum wage hike being debated would have a substantial impact on employment and growth is absurd on its face. The media has the obligation to point this out, if they don't, maybe opponents of the Iraq war should start saying that the fatality rate of 100 a day is unacceptable.

--Dean Baker

The Washington Post reported on former Treasury Secretary, and soon to be former Harvard President, Larry Summers' suggestion that the foreign central banks of developing countries begin to unload some of their huge dollar holdings. As someone who has been writing on this issue for almost five years (see here, here, and here), I am glad to see that it is now getting attention from some prominent economists.

Unfortunately, the article (and perhaps Summers) confuses cause and effect. The article implies that the central banks acquire these huge holdings because of their countries' vast trade surpluses with the United States. It suggests that the banks buy up dollar reserves because they don't know what else to do with their money.

While there be some holdings due to simple confusion of this sort, this is probably the least important factor in the huge build-up of reserves. Part of the reason is that developing countries do not want to end up in financial crises where they can then be subject to the dictates of the I.M.F., as happened when Summers was running the show at the Treasury Department in the nineties.

However, the main reason is that foreign central banks are consciously trying to maintain the high value of the dollar relative to their currencies in order to sustain their large trade surpluses with the United States. How else could China sustain its under-valued exchange rate, if it did not buy up dollars? In other words, the cause and effect runs in the opposite direction from what is indicated in this article. Foreign central banks have decided to keep their currency under-valued against the dollar, which requires massive purchases of dollars.

This strategy can be an effective way to boost exports, but presumably there are better ways to stimulate demand over the long-term. In any case, it is important to recognize that it is the high value of the dollar that causes the trade deficit, a fact that is largely obscured by the discussion in this article.

--Dean Baker

You won't see this headline in the newspapers. You should ask why. Newspapers have repeatedly reported on the hundreds of billions of dollars that the rich countries give to the agricultural industry. (See the Financial Times for the latest example.) While the wording of the headlines, and often the articles themselves, would lead readers to believe that this money is being paid directly from rich country governments to farmers, the vast majority of this money takes the form of higher prices that result from trade barriers of various types.

To those who might say that it doesn't matter whether the money comes from government coffers or through higher prices to consumers, I will point out that this is not how the media generally treat the issue. The media have never run a story about the hundreds of billions of dollars in government subsidies to the pharmaceutical industry. These subsidies take the form of patent protection, government granted monopolies that raise the price of patent protected drugs by several hundred percent above the free market price. We can also talk about the hundreds of billions of dollars in subsidies to the software and entertainment industry through copyright protection. These subsidies serve a purpose, they provide incentives for innovation and creative work, but that doesn't change the fact that they are subsidies.

Another type of subsidy that the media don't discuss is the high wages of doctors, lawyers, economists, and journalists, which are artificially inflated by restrictions on foreign competition. This subsidy would also run into the hundreds of billions annually.

The NYT had a piece this morning reporting on how Europe is heavily dependent on coal, despite its "green image." While the article had much useful information, it never mentioned the fact that Europe emits approximately 50 percent as much greenhouse gas per capita as the United States. In the numerate world, this is an important piece of information.

At one point the article discusses how much Europe will have to reduce its emissions if it is to compensate for growing emissions in China and India "to say nothing of the United States." As far as I know, none of the people running European countries are morons, nor are the environmentalists who promoted the Kyoto agreement. If China, India, and the United States do nothing to contain their emissions of greenhouse gases, then whatever Europe does or does not do will be completely irrelevant. There would be absolutely no point in Europe absorbing substantial economic costs in a futile attempt to stop global warming.

The proponents of the Kyoto agreement assume that at some point China, India, and the United States can be persuaded/coerced to reign in their emissions. If this does not happen, few, if any, will insist that Europe continue to try to reduce emissions even when they know it cannot have any qualitative impact on global warming.

--Dean Baker

The Post has a piece this morning about the non-enforcement of laws against hiring undocumented workers. The article includes several statements, including one from Homeland Security Secretary Michael Chertoff, to the effect that native born citizens will not do the jobs that are filled by undocumented workers. Believers in markets would say that if wages rose, then plenty of native-born citizens would be willing to fill the jobs.

Interestingly, meat processing is one of the industries discussed in the article. Thirty years ago, this was an industry with relatively high-paying (albeit extremely unpleasant) jobs. It was also relatively highly unionized. Plenty of native born citizens wanted these jobs.

The Times had a much more insightful piece on the same topic. It reports on the growing use of undocumented workers as custodians and how this has been associated with a decline of wages in the occupation.

--Dean Baker

It is remarkable that ostensibly intelligent people can be made to fear the possibility that Europe and Japan will be less crowded places in the years ahead. The Financial Times has an article that reports on a warning from "top fertility experts" over "Europe's chaotic response to its demographic crisis."

It is hard to find the evidence for the crisis in the story. The article reports that health care spending as share of GDP is projected to rise from a Europe-wide average of 6 percent at present to 8 percent by 2050. Since the U.S. currently spends 15 percent of its GDP on health care, it is difficult to get too concerned about this prospect.

The article gives the usual hype about the rise in dependency ratios, there will be fewer workers for every dependent. Those who have mastered arithmetic know that the projected increases in productivity swamp the impact of rising dependency ratios on living standards. For example, if productivity growth averages a very modest 1.5 percent annually, by 2050, before-tax wages will be nearly twice what they are today. This means that even if taxes increased by 15 percentage points over this period, workers would have far higher after-tax incomes in 2050 than they do today.

The best way to deal with Europe's "demographic crisis" would be to teach arithmetic to the top fertility experts and the reporters who cover their press statements.

--Dean Baker

The New York Times reported on Saturday that China's central bank is adopting a more contractionary monetary policy in order to slow its economy and reduce inflation. If China's central bank is concerned that inflation is getting out of control, then it would be an ideal time for the country to begin to raise the value of its currency against the dollar.

This would have two beneficial effects from the bank's standpoint. First, a more valuable Chinese currency will make Chinese exports more expensive. This will slow China's export growth, and thereby help to slow its economy. The other effect is that a higher valued currency will make imports cheaper. Lower priced imports will help to alleviate domestic inflation by making cheap goods available as inputs into production, and also by allowing workers to consume more without pay increases.

A higher valued Chinese currency will be a mixed story for the United States. On the one hand, it will make U.S. goods more competitive, both in the United States and elsewhere in the world. (I will preempt an inevitable comment. If China goes this route, other countries will also raise the value of their currency against the dollar, as they have done in the past. So we will not just be shifting the place of origin of U.S. imports.) This will be a step towards a more sustainable trade deficit.

The bad side of the story is that higher import prices will add more fuel to inflation. Higher prices goods from China and elsewhere will be yet another factor pushing the inflation rate higher in the months ahead, if China goes this route.

--Dean Baker

"The Fed chairman may be appointed by the president and confirmed by the Senate, but his real bosses are on Wall Street." This isn't the ranting of some crazed radical; it is a line from a column in the Washington Post's Outlook section, by Richard Yamarone, an investment analyst.

While I probably never would have phrased it so bluntly, I think that Mr. Yamarone is largely correct. It is worth reflecting on this one. The interests of Wall Street investors are not necessarily the same as the interests of the public as a whole. For example, big wage increases, that come out of corporate profits, would be very welcome news to the vast majority of the population, since they depend on wages for the bulk of their income. Needless to say, lower profits are not welcome news on Wall Street.

The fact that we have an arm of the federal government that answers to the special interests on Wall Street, rather than the larger public, should be cause for concern in a democracy.

--Dean Baker

Laurent Guerby made a post on the prior topic about European-U.S. unemployment comparisons, I was just at a conference sponsored by the OECD where exactly this issue came up. The basic point is that proponents of the U.S. model want to add people in employment training programs and disability roles in Europe to their official unemployment rates for purposes of international comparisons.

This seems bogus on several grounds. First, the employment training programs are obviously heavily subsidized by the government (often 100 percent), but there are many situations in the U.S. where jobs enjoys substantial government subsidies. The EITC peaks at more than 35 percent of wages, throwing in work related child care benefits can easily push the subsidy to more than half of the wage. At what point do we say that the job is simply concealing unemployment, a 60 percent subsidy?, an 80 percent subsidy?, or does it have to be 100 percent? Furthermore, what if the government paid the full wage, and the person did absolutely nothing, but we didn't call it a training program? Then is the person unemployed? Suppose we can keep a person from looking for work by paying for their school and a small stipend (or a low interest loan). Should this person be counted as unemployed?

I don't think that there is a consistent definition under which people in European training programs can be counted as unemployed which would not require people in other subsidized employment (both in Europe and the U.S.) from being counted as at least partially unemployed. (Subsidies also don't have to go through the government. Prohibitions on age discrimination mean that younger workers subsidize the purchase of employer provided health insurance for older workers.) In short, this seems like a bogus measure of unemployment.

Similarly, if we grant that the people on Europe's less strict disability programs are at least somewhat less able to work on average than the non-disabled, then the question becomes the determination of disability. There is no basis for saying that the U.S. definition is the correct one, and it is an entirely reasonable decision on a society's part that they would be willing to pay more in taxes so that people who have some impediment that makes it difficult to work, do not have to work. It is reasonable to have a more strict standard as well, but no one made the U.S. Congress god, so that its rules should be the universal standard of who is disabled.

There is a reasonable question to be asked about the overall sustainability of a given situation, but if the comparison is with the Nordic countries, the U.S. loses badly. They have small budget deficits or surpluses and current account surpluses. The U.S. has a large budget deficit and clearly unsustainable current account deficit.

On the other side, the U.S. prison population (2 million) is approximately 1 percent of our working age population (15-65 for international purposes). Also, our official data probably overstate the employment rates by about 1.5 percentage points because people who are likely to be unemployed do not respond to the survey. (The coverage rate for young black men is about 70 percent.) My colleague John Schmitt recently did a "paper" on this.

In short, I think it's great to try to look at the unemployment/employment data more closely when making international comparisons, but I'm not convinced that a closer look improves the relative standing of the U.S.

--Dean Baker

There is an interesting aspect to the recent rise in the inflation rate that the media have not really explored. The biggest factor in the higher than expected May measure was a jump in rent. (The two rental indices, owners' equivalent rent and rent proper, account for nearly 40 percent of the core consumer price index [CPI].)

One explanation for more rapid increases in rents is that people who cannot afford to buy houses, due to higher mortgage rates, are now looking to rent. The Census Bureau's data on vacancy rates gives us evidence to support this position. Rental vacancy rates have fallen by almost a full percentage point from their record high 10.4 percent in the first quarter of 2004. At the same time, the vacancy rate in ownership units has increased from 1.7 percent to 2.1 percent over this period. (There are twice as many ownership units as rental units, so the overall vacancy rate is basically the same over this period.)

Insofar as this story is true, it implies a very interesting dynamic. We have the Fed raising interest rates to combat inflation. This effort leads people to switch from homebuyers to renters, thereby placing upward pressure on rents. Since rents appear in the CPI, and home sale prices don't, this switch raises the measured rate of inflation, which in turn puts pressure on the Fed to raise interest rates even more. The unraveling of the housing bubble can create these sorts of vicious circles.

--Dean Baker

In his New York Times column today, "Changing Bedfellows", David Brooks did a far better job describing the nanny state conservatives' framing of economics than I could ever hope to do in my book. Of course, he ostensibly was saying how the world actually is, rather than how the nanny state conservatives want us to see it.

According to Brooks, we have the populist nationalists who argue against immigration and trade, and want to ensure workers' security through Social Security and national health care insurance. This group includes Pat Buchanan, Lou Dobbs, Al Sharpton and Kevin Phillips.

On the other side, we have the progressive globalists, who want to expand trade and allow immigration in order to promote economic growth. This group includes Hillary Clinton, Mark Warner, John McCain and Rudy Giuliani.

It's great caricature, a perfect example of the framing that I criticized in my book, The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer [cheap plug]. While the conservative nanny state crew wants us to see the political breakdowns this way, this picture is completely inaccurate. In reality, the "progressive globalists" are scared to death of international competition. This is why they do nothing to eliminate the barriers that prevent doctors, lawyers, accountants and other highly paid professionals in the United States from being forced to compete with their counterparts in the developing world.

The "progressive globalists" believe that international competition should be reserved for less-skilled workers. They don't want their friends and campaign contributors to suffer the same fate as textile workers and autoworkers. It would be nice to just once see a more honest discussion of trade policy from a columnist in the Times, Post, or any other major media outlet.

--Dean Baker

Washington Post columnist E.J. Dionne is a decent person, whose views on many issues I share, but his column today is almost a caricature. It perfectly demonstrates why liberals/progressives are so lost on economic policy.

Dionne notes the collapse of good-paying jobs in the auto industry, the manufacturing sector, and increasingly other sectors due to trade and outsourcing. He then cites a recent article by Princeton University professor and former Fed Vice-Chairman Alan Blinder (identified as "no protectionist") warning that the trend toward declining wages due to competition with the developing world is likely to spread to more sectors in the future. The implicit question that Dionne then poses is "how can we maintain middle class living standards without being hoary protectionists?"

The answer of course is that Alan Blinder, Bill Clinton and the other "free traders" referred to in the article are in fact protectionists. They just don't own up to it. The competition that our manufacturing workers face from low-paid workers in the developing world is the result of trade policies that were explicitly designed to place them in competition with workers in the developing world. Trade pacts like NAFTA did not just reduce tariff barriers (these were already low) they established a whole set of rules that made it very simple and secure for U.S. corporations to set up manufacturing operations in developing countries and to ship their products back to the United States.

Instead of placing U.S. manufacturing workers in direct competition with low-wage workers in the developing world, our trade negotiators could have designed trade pacts that placed doctors, lawyers, economists and others in the highest paid professions in direct competition with workers in the developing world. This would mean standardizing licensing and education requirements so that smart kids in Mexico, India, and China could train to work as doctors in the United States just as do kids in New York or Los Angeles. (We can tax the earnings of professionals from developing country professionals working in the United States. Sending this revenue back to the country of origin would allow them to train 2-3 professionals for every 1 that works in the U.S., thereby reversing the "brain drain.")

This pattern of trade would have two effects. First, there would be enormous gains from trade as the price of medical care and other services provided by highly paid professionals plummeted, raising living standards for all but those in the directly affected professions. Second, this pattern of trade would lead to increased equality rather than increasing inequality.

But, the designers of U.S. trade policy (both Democrats and Republicans) chose not to go this route. While they profess to be free-traders, they are in fact protectionists when it comes to the jobs of people in the highest paying professions. Until people like E.J. Dionne can recognize such basic facts, it will be difficult to design economic policies that benefit broad segments of the population.

--Dean Baker

"Experts" get away with saying almost any nonsense they like when it comes to talking about the stock market and the economy, but I think that we may have hit a new high today. A Times article today quotes Mark Cliffe, global head of financial markets research at ING Group in London, saying that the U.S. stock market has fallen 5-6 percent this year. The expert adds that if it falls another 5 percent, it could affect consumer spending and "‘Joe-Six' could start to cut back his stock portfolio."

Okay, there could be a wealth effect from lower stock prices on consumption, but this usually takes some period of time. Furthermore, wasn't the purpose of supply-side tax cuts (as in President Bush's tax cuts) to increase saving? In other words, we are supposed to believe that less consumption is bad when it happens because the stock market falls, but good when it is due to a tax cut. (More savings MEANS less consumption.)

But part 2 of this quote is the real fun -- Joe Six-Pack's stock portfolio? First, even in the era of 401(k)s only about half of the population hold any stock at all, even through their 401(k) accounts. The median stock ownership among the people who own stock is less than $30,000. So, what is the economic consequence of a large portion of the people who own $15-$30k of stock selling off a quarter or a third of their stock? As best I can tell, just about zero. Why does the NYT print such nonsense? Does the reporter think about what he is writing?

--Dean Baker

Folks, I am off for a weeklong vacation. I will not be back at my blogging duties until Monday, June 12th. In the meantime, my colleagues at CEPR, Heather Boushey, David Rosnick, John Schmitt, and Mark Weisbrot will be intermittently filling in.

I should also warn that there may be somewhat more delay before your comments get posted. Comments to the blog are moderated, and I can't guarantee the pace at which items get posted in my absence.

I am sorry to leave in the middle of a lively debate on the Social Security trust fund. I am sure that there will be no difficulty reaching consensus on this issue in my absence.

--Dean Baker

Nothing like some comments on the trust fund to get the blogging juices flowing. It is amazing how metaphysical these discussions on the trust fund get. I don't really see anything very complicated here. I am simply referring to the law as it stands.

Under the law, Social Security can only pay benefits out of the money that it has in its trust fund. Yes, that means it has a separate account from the rest of the budget. If the budget has an enormous surplus, but the trust fund is empty, then no benefits get paid, that's the law. On the other side, if the government has an enormous deficit, but the trust fund still holds bonds, then Social Security benefits still get paid, that's the law. I have not commented on whether I like the law or not, I am simply describing the law. (By the way, Medicare is currently being financed in part by the bonds held in its trust fund, and I have not heard a single politician make an issue of this.)

Under the law, there is absolutely nothing that would suggest the bonds held by the trust fund are fictional. They are legal obligations, just like the bonds held by banks and private individuals. As President Bush rightly pointed out last year, they are "sheets of paper." That is true of other bonds, stock certificates and most other claims to wealth in a modern economy. Maybe there are a lot of folks out there who carry around gold, but for my part, I don't know of any.

Could Congress change the law? Of course, Congress passed the law and it has the legal authority to change it. My guess is that any Congress that voted to default on the bonds held by the trust fund would be massacred at the polls, but that is just speculation. I will say that I do not know of a single member of Congress who has publicly called for defaulting on the debt.

In any case, if people are trying to understand Social Security's finances, they should understand what those finances are under the current law, not the law that some oped writer or Washington Post editor would like to exist.

--Dean Baker

One of the disadvantages of having a public Social Security system is that people are free to make all sorts of untrue statements about it without facing any consequences. For example, an oped in the Washington Post this morning described the Social Security trust fund as "largely an accounting fiction." This statement is of course absurd. The trust fund consists of U.S. government bonds, which the government is obligated to repay under the law. There is no sense whatsoever in which it can accurately be described as fictional.

Because Social Security is an agency of the government, the author is free to impugn the soundness of Social Security's financial situation with impunity, and the Post need not fear any consequences from printing this libel. On the other hand, if the author had made similarly untrue claims about the financial status of General Electric or Microsoft, the paper would be quickly greeted with an angry call from some honcho corporate lawyer. The correction would already be up on the website and ready to run in tomorrow's paper. Maybe privatizing Social Security wouldn't be a bad idea.

--Dean Baker

Gretchen Morgenson had a good piece in the Times documenting some of the ways in which corporate boards manage to dish out bonuses to CEOs even when they miss performance targets. With all the scandals in CEO pay over the last decade, it is remarkable that this sort of nonsense persists unchecked. Clearly there is a structural imbalance, with top executives being able to pilfer corporate coffers to enrich themselves at the expense of shareholders.

It would be a simple matter (legally, if not politically) to change some of the rules of corporate governance to redress this imbalance. For example, how about requiring that the compensation of packages get sent out for shareholder approval at regular intervals? Suppose the rules also require that shareholder proxies that don't get returned don't count? (The standard practice now is that unreturned proxies are counted as supporting management.) How about also making corporate directors personally liable for not using proper care in setting CEO pay? (See the chapter on corporations in the Conservative Nanny State.)

Inflated CEO pay is not just a question of taking money from shareholders. These outsized salaries set standards that infect pay scales throughout the economy. It is now common to see university presidents pulling down salaries in the high six figures. Even heads of charities often draw salaries in this range. Restoring the balance in pay for corporate CEOs could reverse this recent trend.

--Dean Baker