That's what the Washington Post seems to think. It tells readers that up to 900 million workers have farms to work in cities. The CIA Factbook reports that China has a labor force of 800 million, 45 percent of whom are employed in agriculture.

I don't think its too picky to ask news reports to be accurate within 200 to 300 million.

--Dean Baker

That's the word from some of the boys and girls who run run mutli-national businesses in China, according to the NYT. You have to appreciate the honesty. Did the reporters realize what they were writing?

Anyhow, the news is certainly interesting, China is putting in a place a new labor code that would substantially increase workers' rights. The real question of course is the extent to which it will be enforced.

One promising sign is the fact that the state-run media just exposed a set of coal mines and brick kilns that were using slave labor. This presumably indicates an intention on the part of the central government to crack down on the worst abuses. We shall see.

--Dean Baker

The conservative nanny state crew, the folks who don't want private insurers to be forced to compete on a level playing field with a government-run health insurance program, will still lose in the long-run. The problem is medical tourism. Expensive operations can be performed in countries like India and Thailand for a fraction of the U.S. price, and often with the same safety. As we know, you can't seal borders. If health care is unaffordable in the U.S., then people will go to where it is affordable.

The Financial Times has a good piece on the possibilities today. The protectionists are doomed -- especially once the public discovers the "free trader" pundits are shilling for the worst protectionists on the planet.

--Dean Baker

In its first report on the Commerce Department's data on May income and consumption AP told readers that "consumers bolstered their spending in May as their incomes grew solidly, an encouraging sign that high gasoline prices have not killed people’s appetite to buy."

Those are not the words I would have used to begin my article. Real consumption spending grew by just 0.1 percent in May and real disposable income fell by 0.1 percent. Maybe we are looking at different reports.

[The WSJ article was headlined "Incomes Stagnate Amid Rising Expenses." It noted that real income had fallen for the second consecutive month.]

--Dean Baker

The Washington Post is trying yet again to scare readers about the budget deficit by misrepresenting the basic facts. It reports today that the budget deficit hit an "all-time high of $413 billion in 2004." Okay, that is the highest deficit in nominal dollars ever, but their reporters and editors should know that this is absolutely meaningless. Big economies have big budgets, which can mean big deficits.

The relevant question of the size of the deficit relative to the size of the economy. The 2004 deficit was 3.6 percent of GDP. This is far below the deficit of 6.0 percent of GDP hit back in 1983. Even adding in the money borrowed from Social Security would only get you to 4.6 percent.

In short, it is simply not true that we had a record deficit in 2004 or that deficits are especially large by historical standards at present. It would be good if the Post used its budget reporting to try to inform readers about the budget, instead of advancing its editorial position that promotes balanced budgets as a first principle.

--Dean Baker

The NYT marked the 10th anniversary of the East Asian financial crisis with a piece assessing the current economic situation among the five most affected countries (Indonesia, Malaysia, Philippines, South Korea, and Thailand). The piece misses some key points.

First, it notes that growth has slowed for the five countries from the pre-crisis levels and points out that their growth is now far behind the real speedsters, China, India, and Vietnam. While this is true, it is not necessarily surprising. South Korea's per capita GDP is more than $24,000 a year, putting it close to Portugal and Spain. It would be truly astonishing if a country at this level of development could sustain growth of 10 percent annually. (Its growth rates are still very impressive at close to 5 percent.) On the other hand, it would not be unreasonable to expect the poorer countries in this group, Indonesia ($3,900 per capita GDP) and Philippines ($5,000 per capita GDP) to attain Chinese or Indian growth rates.

Second, the article misses one of the biggest enduring costs of the East Asian financial crisis: the massive reserve holdings that developing countries now view as necessary to ensure their financial security. South Korea now holds $240 billion in reserves (20 percent of GDP), Thailand holds $59.1 billion (29.9 percent of GDP), and Malaysia holds $82.3 billion (62.2 percent). Prior to the crisis, most countries' reserve holdings were less than 10 percent of their GDP.
[CEPR first called attention to this issue back in 2001. More recently Dani Rodrick has also written on the topic.]

Reserve holdings are an enormous waste of resources for developing countries. The real return on these reserves is close to zero (they are mostly held as short-term dollar and euro deposits). The opportunity cost of the reserves is in principle the return on capital in these countries, which is in the 10-20 percent range.

The buildup of reserves serves two purposes. First, it is a source of security for these countries, assuring foreign investors that their central banks will be in a position to deal with any financial crisis. Second, the reserves are an outcome of a deliberate effort to depress the value of national currencies, in order to sustain strong exports.

The East Asian crisis is a central part of both stories. It showed these countries that relying on the IMF to sustain stability was a bad strategy. They were determined to build up enough reserves so that it would never again be necessary to have an IMF "bailout." The insistence of the IMF that developing country debts be repaid (as opposed to requiring rich country creditors to take a hit on their bad loans) also set in place this pattern of development based on massive trade surpluses. It has created the perverse situation of poor countries lending capital to rich countries over the last decade. That is not a success of the international financial system.

There is one final point missed in this piece. In 1997, the financial press was full of denunciations of the "crony capitalism" of these countries. This seemed rather perverse, since some of the countries (notbaly South Kore and Taiwan) has managed to grow from Sub-Saharan levels of poverty to Southern European levels of prosperity in four decades. Anyhow, the financial press boasted that the crisis was finally going to force these countries to reform. It then complained that South Korea, Malaysia, and Thailand were backsliding. Now that these countries are back on their feet, with systems that are not very different from their pre-1997 systems, we don't hear very much about "crony capitalism."

--Dean Baker

That is the only thing that one can conclude from reading its article reporting that there is a large backlog of immigrants waiting to enter the country. Canada allows 250,000 immigrants a year to enter the country (twice the per capita rate of the U.S.), with preference given to highly skilled workers. The article attributes the backlog to the fact that immigrants are not required to have job offers from Canadian employers, which it claims requires the government to assess their skills. (Congress is debating a similar provision.)

It is not surprising that there is a backlog of applicants. No doubt tens of millions of people in poor developing countries would love the opportunity to work in Canada. The question that the article never answers is whether Canada is hitting its quota. If so, then the 8-year wait for the worker highlighted in the article is primarily a result of an excess supply of immigrants, not bureacratic bungling.

The article also gives the mournful tale of the president of a construction materials company who can't get enough immigrant workers through this system. Life's tough. Maybe he should try offering higher wages, then he could get Canadian workers.

--Dean Baker

David Leonhard pronounced the death of the Employee Free Choice Act [ECFA] (it was stopped by a Senate filibuster) a good thing. He missed two key points.

First, he worried about the fact that the bill could allow unions to be formed without a secret ballot. Actually, unions can already be formed without a secret ballot, if employers agree to recognize a union based on a majority of workers signing cards requesting a union. Unions can also be decertified through this same process. So there is no guarantee at present that workers will have their union status decided by secret ballot.

Second, the ECFA still guaranteed workers the right to have an election with a secret ballot, if 40 percent of the workers requested it. So, if workers were being intimidated by union thugs into signing cards that didn't reflect their real attitude, they still could petition to get a secret ballot.

Finally, while Leonhardt notes the unfair tactics that employers often use to defeat union organizing drives, he missed the most obvious one -- they fire the organizers. My colleagues at CEPR, John Schmitt and Ben Zipperer, estimated that one in five organizers on average get fired in a union drive. The reason is simple. While it is against the law to fire a worker for union activity, the penalties for breaking the law are so trivial, that employers routinely dump everyone they think is leading a union campaign. It's good business practice.

--Dean Baker

Is there a reason that reporters cannot speak to someone who does not have a direct stake in promoting home sales when they report on home sales data? The NYT again committed this sin when it published an AP story on the May drop in existing home sales. Would the NYT rely on the United Auto Workers as its exclusive source in talking about the auto industry?

--Dean Baker

There is a common refrain in policy debates that our budget deficit is the cause of the trade defict. The NYT is at the forefront of those arguing this position. Last week (while I was away), they again made the case in attacking a Senate proposal to deliberately lower the value of the dollar against the Chinese currency and other countries in which currency misalignments have led to large trade deficits.

While this argument can be a convenient weapon against the Bush administration deficits, it doesn't make a great deal of sense. First, the numbers don't add up. We're looking at budget deficits of around $250 billion and trade deficits of close to $800 billion. There is no economic theory that will explain how a $250 billion budget deficit can cause an $800 billion trade deficit. (You're welcome to add in the $200 billion borrowed from Social Security, and it still does not come close to adding up.)

Then we need a mechanism. High budget deficits are supposed to cause high interest rates. But U.S. interest rates are low by historical standards. With inflation around 3.0 percent, we should expect to see an interest rate on the ten-year treasury bill of close to 6.0 percent. Instead, it is just over 5.0 percent.

Of course, the high interest rate is supposed to be what attracts foreign investors to put money in the U.S., which in turn drives up the value of the dollar. This is always the immediate cause of the trade deficit. People buy foreign produced goods at Wal-Mart because they are cheap, not because the U.S. is running a budget deficit.

Anyhow, the NYT should find more legitimate grounds for bashing Bush's budget policy. The trade deficit is a first and foremost a dollar problem, requiring a dollar solution (which will not be pretty). It is not a budget deficit problem. The Senate bill addressed the reaal issue.

--Dean Baker

The NYT perpetuated the silly debate on whether H-1B visas lower the wages of highly-skilled U.S. workers. For those of us who believe in markets this is a straight no-brainer. If you increase supply, you lower the price, in this case the wages of highly skilled workers.

But, the NYT does the old Keystone cops routine. It presents the different sides of the debate. It tells us, "the Government Accountability Office, an investigative arm of Congress, said that thousands of H-1B workers have been paid less than the prevailing wage." Can we get a big "duh" here?

The article also reports that some "high-tech companies said that the wage standards in the Durbin-Grassley proposal would, in effect, require them to pay some H-1B employees more than some equally qualified American workers who are performing the same duties." That seems to invite the obvious -- put the measure into effect and see if the high-tech companies continue to hire people with H-1B visas. If they are being truthful, then these high-tech companies would stop using H-1B visas.

To those of who believe in markets, the debate over H-1B visas is very simple. Are we going to put more downward pressure on the wages of workers who are allowed to enter the country under these visas? It would be good if the NYT could report on this issue more clearly. (BTP readers know that I do not object to seeing computer scientists subject to the same competition as custodians and textile workers.)

--Dean Baker

I'm out of here until Monday, June 25th. In the meantime, don't believe anything you read in the paper.

--Dean Baker

It's contract time for the United Auto Workers and the Wall Street Journal is working hard to build the case for big pay cuts. The paper tells us that compensation for UAW members is in the range of $70-$75 an hour.

Well that's serious money. At that rate, with overtime, an autoworker can earn as much in a year as an incompetent CEO gets in a day. Clearly things are out of line.

Seriously, $70-$75 an hour is pretty good pay, but it is also not really what UAW members earn. The base pay for these workers is around $25 an hour. To get to $75 an hour, you would have to believe that autoworkers get $100,000 a year in benefits. Is that plausible?

Assume that they get $15k for their pension and $25k for their health insurance, that gets you to $40k. Where is the rest of the $100k? Well, what the auto industry does to get this figure is they average in their health care and pension costs for their retirees. These are real expenses for the industry, but they have nothing to do with the compensation received by current workers.

News reporting on the UAW contracts should clearly distinguish between the compensation received by current workers and the legacy costs from retired workers. UAW members are well-paid, but averaging in the legacy costs hugely exaggerates their earnings in the mind of readers.

--Dean Baker

My guess is that they can and will, but the NYT doesn't seem to agree. In a bit over a month, the 10-year treasury rate has gone from around 4.6 percent to more than 5.25 percent. This rise will be passed on almost one to one in higher mortgage rates. With many people already stretching to the limits to buy homes at their current bubble inflated prices, my guess is that this rise in rates, if it sticks, will be a huge hit on an already weak housing market.

The NYT did not mention the potential impact on the housing market in this discussion of the surge in interest rates.

--Dean Baker

The Washington Post headlined a front page business section article "Blue Dogs Take Aim At Record Deficits." The article tells us how a group of conservative Democrats are unhappy with the budget deficit and hope to place new restrictions on spending.

Let's hope that they are better at arithmetic than the Washington Post. Measured as a share of GDP, the 2007 deficit is projected at 1.3 percent. The 2008 deficit is projected to be just 0.7 percent of GDP. This is far below the post-war record of 6.0 percent of GDP reached in 1983. Even adding in the money borrowed from Social Security (which is appropriate for this purpose), the deficits for 2007 and 2008 would be just 2.7 percent of GDP and 2.1 percent of GDP for 2007 and 2008, respectively.

These deficits are arguably too high, but they are not close to be records. Readers of the Post opinion pages are aware of the editors strong distaste for budget deficits, but serious newspapers do not make things up in the news section to support their editorial positions.

--Dean Baker

Those of us old-fashioned types think that doctors should be prescribing drugs based on the health needs of their patients. But hey, what do we know? According to the NYT, the pharmaceutical industry thought it was very important that doctors know exactly how much they could profit from prescribing their drugs for different types of patients.

Good reporting, how much more of this corruption do we need before there is discussion of replacing the patent system for financing prescription drug research?

--Dean Baker

Robert Samuelson is back pushing the case for inequality. He tells Newsweek readers that "the economy that produces these growing inequalities outperforms the one that created more statistical equality."

He must be using some new math in this claim, because the old math doesn't support his claim. While the period 1973-1980 does look very bad, it is ridiculous to take this period as representative of the larger period of equality, 1947-80. There were two major oil shocks in this seven year period. In addition, the country was adjusting to the correction from an over-valued dollar (we'll see how our unequal economy deals with this adjustment in the years ahead), and there was a quirk in the consumer price index that likely added to inflationary pressures. (The CPI used what is generally viewed now as a mistaken measure of housing costs, leading to a large overstatement of inflation. I did a paper almost a decade ago showing that this mis-measured inflation seemed to feed into actual inflation. Alan Blinder and Janet Yellen made a similar case about the impact of far more modest changes in measurement in the 90s.)

Anyhow, serious people would compare the larger 1947-80 period with the 1980-2006 period. This comparison is unambiguous. Productivity, as conventionally measured, was around 0.6 percentage points higher in the first period. A measure of "usable productivity" growth, that measures the extent to which gains in productivity growth translate into gains in living standards, was about 1.3 percentage points higher in the period of equality.

So, the facts on this one are pretty straightforward, the economy that produces these growing inequalities underperforms the economy that created more statistical [sic?] equality. Had something in the world changed in 1980 so that we had to live with greater inequality? Perhaps, but Samuelson does not present any evidence that this is the case.

--Dean Baker

The Washington Post tells us that farmers in Texas are having trouble getting enough workers because of restrictions on immigration. It then reports one farmer's warning that if Mexicans can't come over the border to work on farms here, then the produce will just be produced in Mexico and shipped over the border.

This invites the obvious response "so what?" I don't see a problem with importing produce from Mexico. I also think it's probably better in general for Mexicans to have the opportunity to work in their own country than have to come to the United States to get a decent job. I realize that the farmer in the story may be out of business, but the government does not exist to guarantee farmers access to cheap labor.

--Dean Baker

David Leonhardt tells us that Larry Summers is a really smart guy. If that's true, then why can't he figure out that if we removed the barriers to international competition in highly paid professional services (e.g. doctors, lawyers, accountants and economists), we can have both globalization and greater equality. It seems pretty simple to me.

If there is a problem with this story, it's due to the political power of Mr. Summers' protectionist friends. It is not an economic problem.

--Dean Baker

Question: where do copyrights come from? Roger Lowenstein at the NYT tells us that copyrights come from the market, as in "If Bono sells a lot of CDs [and thereby gets very rich] ... It’s simply the market."

Okay, wash Lowenstein's computer out with soap. It is not the market that allows Bono to get very rich by selling CDs, it is the government which tells people that it will arrest them and throw them in jail if they make copies of Bono's music without his permission.

This is not the only whale size misrepresentation in Lowenstein's piece on inequality. He tells readers that "when it comes to raising the bottom in the short term, Washington basically has two choices: it can try to change market outcomes or it can redistribute after the market results are in. The first method is more intrusive. It includes limiting trade, regulating the workweek or restricting access to certain jobs..."

This is about as wrong as you can be without burning a hole in the paper. You can restructure the market in all sorts of ways that reduce inefficiency and lead to greater equality. Adopting more efficient mechanisms than copyrights to support creative work is one obvious example. But, there is an endless list. Instead of restricting trade, we can remove the protectionist barriers that lead to high salaries for doctors, lawyers, economists, and reporters. My book, The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer [the download is free] details a long list of ways in which the wealthy have rigged the rules to redistribute income upward. Altering these rules is not intruding into the market, in many cases it is removing barriers put in place to benefit the wealthy.

The line being pushed in this article -- that the mechanisms that have redistributed income upward over the last quarter century are somehow natural and that they are efficient -- is simply not true. Such an assertion should not appear in a serious newspaper, except on the opinion page.

--Dean Baker

The NYT has a very nice feature in today's paper, a calculator that allows you to see how wages have grown over the last four decades. You can make comparisons for a wide variety of demographic characteristics, occupations, and industries. You can even plus your own info in and see how you're doing compared to your peers.

This is nice, it's giving people real information. That's what newspapers are supposed to do.

--Dean Baker

The WSJ tells us that "economists are giving up on the idea that the U.S. housing slump will be quick and relatively painless." It is good to see that economists' forecasts are moving closer to reality.

However, the question remains why did so many economists fail to recognize the severity of the housing slump (they are still seriously underestimating it)? And, the important question for the WSJ and other major media outlets is why do they rely almost exclusively on economists who were wrong as sources for their articles on the topic?

--Dean Baker

Washington Post reporter Dan Balz worries about the message that the Senate's failure to pass immigration reform will send to the country. He is concerned they will ask if Washington can't solve the problem of immigration, "what hope is there for progress on health care, energy independence, or the financial challenges facing Medicare and Social Security?"

I read this piece and worried about how many more people the Post has managed to convince that the problems of rising health care costs are actually problems with Medicare and Social Security. As Congressional Budget Office Director Peter Orszag has managed to demonstrate with a simple chart, the long-term budget problems that are so widely advertised in the Washington Post and elsewhere are the result of a projected explosion in health care costs. If we fix our health care system, there is no real long-term budget problem, and the financial challenges facing Social Security and Medicare would be relatively minor.

A reporter who was really concerned about leadership would make an effort to convey this information to his readers.

--Dean Baker

David Brooks is yet again touting the merits of the current path of globalization in the NYT. While he's welcome to embrace a policy that has led to wage stagnation for the bulk of the U.S. workforce and weak growth for most of the developing world (although the growth story for those who ignore conventional liberalization policies such as China, India, and more recently much of South America, is good), he doesn't get to label himself an advocate of free markets and populists as opponents of free markets.

Brooks and people like him benefit from the fact that the United States has a large number of protectionist barriers that prevent the most highly educated workers (e.g. doctors, lawyers, economists, journalists etc.) from having to directly compete with their less highly paid counterparts in the developing world. Because these people largely control the media, they can get away with denying that such barriers exist and claiming that they are doing well simply because they are so highly skilled. (I would get arrested for setting up the Wal-Mart Times, which would hire very smart Indian reporters and pay them half the wages of the NYT reporters. That would still be many times as much as they could earn in India.)

Brooks also supports patent protection for prescription drugs which leads to enormous economic waste and bad medicine. He supports copyright protection for Bill Gates and other rich software entrepreneurs, as well as his buddies in the entertainment industry. These are huge departures from a free market.

It would be great if the NYT would get a columnist who would go beyond name-calling and debate the real issues, but hey, that could undermine its protection from the market.

--Dean Baker

The Wall Street Journal told readers that same store retail sales rose by 2.5 percent this May compared with May of 2006. The Journal describes this as a modest gain.

That is generous. This is a year over year nominal increase in sales. The rate of inflation in the items sold in these stores was in the 1.0-2.0 percent range, which implies a real year over year increase of 0.5 to 1.5 percent. That is very modest.

--Dean Baker

Unlike the Wall Street Journal, the NYT still has not noticed the productivity slowdown of the last three years. When the revised first quarter data were reported yesterday, the paper described the 1.0 percent annual rate as "in part a statistical aberration because of stagnant growth during the winter."

For the year, productivity growth was 2.1 percent in 2005 and 1.6 percent in 2006, so it's hard to describe a 1.0 percent rate for a single quarter as an aberration. The quarterly data are highly erratic, so no one should expect productivity growth to stay this slow, but this rate is certainly close to the average over the last three years. (As noted in earlier posts, recent growth is likely to be revised upward, if job growth is revised down, as I expect.)

This article also commits the sin of referring to multiplies of small numbers, telling readers that in the revised data "labor costs rose three times faster than first calculated." The increase was from an initially reported 0.6 percent rate of growth to a revised 1.8 percent rate. While the revised rate is three times the originally reported rate, it would be more informative to tell readers that the rate increased by 1.2 percentage points from the initially reported rate. After all, the tenfold increase from 0.1 percent to 1.0 percent really is not that scary.

--Dean Baker

David Leonhardt's column on the cost of health care in yesterday's NYT included a very nice little chart produced by Peter Orszag, the new director of the Congressional Budget Office (CBO). The chart shows the projected growth of Medicare and Medicaid spending under the assumption that the cost of these programs only rises due to aging. The chart shows a very modest increase over the next two decades.

Then the chart shows the baseline projections, which assume that per capita health care costs will continue to rise at the same rate as they have been. The difference is about 5 percentage points of GDP, which would be about $700 billion a year at current output levels. This is the budget crisis.

It's good that we have a director of CBO who sees it as part of his job to educate the public about the nature of the budget problems facing the country. Now if we can just get the reporters who cover the topic to listen to him.

--Dean Baker

The National Association of Realtors (NAR) are not neutral commentators on the nation's housing market. Isn't that obvious? Realtors make their money by selling homes. People will not buy a house if they expect the price to fall from its current level. Therefore the NAR will have a strong incentive to paint an overly positive picture of the housing market.

This leaves the question, why does USA Today print the NAR' predictions for the housing market without presenting any alternative perspectives?

--Dean Baker

The NYT continues its excellent coverage of abuses in the prescription drug industry. It pointed out that several doctors questioned whether a new study by GlaxoSmithKline, that was supposed to demonstrate the safety of one its diabetes drugs, in fact showed that the study was safe.

It's great that the NYT has devoted so much of its resources to uncovering efforts by the drug industry to mislead the public about the safety and effectiveness of its drugs. However, it would be even better if it devoted attention to the nature of the patent system that provides such enormous incentives for such abuses. There are alternative methods for financing prescription drug development. Until we adopt an alternative model, we can expect to see many more pieces exposing the abuses of the current one.

--Dean Baker

That's pretty much what he said on Marketplace Radio this morning. He touted his support of immigration generally, and of course he has always been a strong supporter of more open in trade , but he said that if employers can hire high-skilled immigrants then they won't have to raise wages for the jobs they fill.

This was a beauftiful statement of what I call "loser liberalism." Reich wants trade and immigration policies that depress the wages of less-educated workers. [addendum -- I was unfair to Robert Reich here. The implied trade and immigration policy does have the effect of redistributing income upward, but Reich has been a strong advocate of other policies, notably labor law reform, that have the opposite effect.] He would then toss them a few crumbs to lessen the pain for these losers. But when it comes to policies that could tilt the playing field the other way, so that less educated workers benefit from immigration (lower wages for highly-educated workers, means lower prices for the goods and services they produce and therefore higher real wages for those in the middle and bottom) Reich gets on Marketplace Radio to denounce them.

Maybe one day Marketplace will have a commentator who doesn't think it's bad to allow the market to reduce income inequality.

--Dean Baker

We all know that the Washington Post editors and most of it columnists want to cut Social Security, but serious papers try to keep a separation between these editorial views and the content of news stories: not the Washington Post.

According to an article in today's paper, the country faces a severe budget crisis: "At the heart of the debate is a reality inescapable for either side: Even without the war, spiraling health-care and Social Security costs have stressed the nation's finances to the breaking point."

A statement like this just leaves a reader wondering, what on earth are they talking about? The unifed budget deficit is projected to be 1.3 percent of GDP in 2007 and 0.7 percent in 2008. One can argue that this is too high, but "stressed the nation's finances to the breaking point"? Give me a break, the deficit was larger as a share of GDP in almost every year from the late sixties to the late nineties.

And what does Social Security have to do with this? Social Security has an annual surplus at present of almost $200 billion (approximately 1.4 percent of GDP). How is this surplus pushing the nation's finances to the breaking point? Would the budget look better if we didn't have the Social Security surplus, or does the Post think that we should be taxing workers $300 billion more than we pay out in Social Security benefits?

Clearly the Post doesn't like Social Security, but it should do a better job of keeping its editorial views from dominating its news reporting.

--Dean Baker

That's the word from an immigration lawyer quoted in an NYT article on immigration reform. According to the lawyer, because of Canada's point system, which favors more highly educated immigrants "we have some professionals, like doctors, who perform low-skill occupations such as driving taxis until they can find more appropriate work. "

Wow, Canada has so many doctors that they have to drive taxis to find work! I seem to remember reading somewhere about how Canada's health care system was collapsing, in part because they have a shortage of doctors. Hmmmm, where was that article? Let's see, here's a quote, "With the population aging, waiting lines for care growing and doctors and nurses becoming sparse, especially in rural areas, opinion polls indicate that satisfaction with medical services has declined in the last decade."

Yep, that was from a NYT article a bit more than three years ago. So the NYT is telling us that both Canada has a doctor shortage, but because of the skills preference in its immigration system, it has too many doctors. That doesn't seem to fit.

--Dean Baker

The Washington Post had an editorial on immigration today telling readers that "immigration equals growth." Well, duh, other things equal, if immigration increases the U.S. workforce by 10 percent, it would be really amazing if it didn't increase GDP by at least a little.

The questions that serious people would ask is whether it increases per capita GDP (India is richer than Germany in terms of having a larger GDP, its per capita GDP is less than one quarter the size), and how the gains are distributed.

The serious economic argument against the current pattern of immigration (in my view) is that it tends to lower the wages of low and moderate income workers. We can redirect immigration to favor the entrance of high-end workers which would lower wages of doctors, lawyers, economists and people who write for the Washington Post. (The proposed legislation takes modest steps in this direction.) This would produce large gains for the economy (lower prices for health care and other services provided by highly paid professionals) and greater equality.

--Dean Baker

A NYT column on the impact of illegal immigrant workers on the economy framed the question as:

"To some people, they represent a black-market work force that is lowering the wages of legal immigrants and native-born Americans. To others, they are an essential part of several big industries. What’s the truth?"

Well it seems to me that for the first to be true the second would also have to be true. Suppose that illegal immigrants were only a peripheral part of a small number of industries. It would be difficult to make a case that they were having a substantial effect on wages. If illegal immigrants have a big effect on wages, then it must be because they play a large role in the economy.

As the article rightly points out, many industries would have to be reorganized if they did not have access to a large flow of immigrant workers. I'm not sure why anyone should care. (Isn't that what happens all the time in a capitalist economy?) Near the end, the article presents an ominous warning from a public policy professor that, without illegal immigrants "over all, the U.S. would be poorer.” That might be true, and those hiring nannies, housecleaners, and garderners would suffer the most. But those who might fill some of these jobs if the wages rose by 50 percent (recognizing that many fewer would be hired), might not care too much that the country as a whole is poorer.

--Dean Baker

The coverage of the May employment numbers put far too bright a spin on the data in the report. For example the NYT article was headlined "Several Signs the Economy is Reviving." The Post told readers that "Job Growth Strengthens the Economy."

Admittedly this was a tough report to read -- 157,000 jobs isn't bad -- but reporters should be doing their homework. There is good reason to believe that the establishment survey (the one showing 157,000 new jobs) is now overstating employment because its imputuation for job growth in new firms not captured in the survey. As I pointed out in my jobs byte, the Labor Department is imputing more jobs in new firms this year than in 2006, when the economy had been growing very rapidly. The possibility of a substantial overstatement of job growth in the establishment survey was brought home by the release of Business Employment Dynamics (BED)data for the 3rd quarter of 2006. These data are a near census of employers, since they are based on unemployment insurance filings. The BED showed private sector net job creation of just 19,000 in the 3rd quarter. This compares to almost 500,000 jobs reported in the establishment data. (Thanks to Nouriel Roubini for keeping an eye on this one.)

There are other important items suggesting weakness in this report. The average hourly wage grew at just a 3.2 percent annual rate over the last three months. It had been growing at nearly a 4.0 percent rate last fall. It is unusual to see such a rapid deceleration of wage growth in a strong job market.

Finally, the household survey is certainly showing real signs of weakness. The employment to population ratio has fallen from 63.3 percent in March to just 63.0 percent in the April and May data. This corresponds to 600,000 fewer people having jobs. That doesn't happen in a strong labor market.

The long and short is that this report showed serious evidence of economic weakness, which is why some of us bears are now thinking we may have been right all along.

--Dean Baker

The May employment report showed that the economy added 157,000 jobs for the month, somewhat more than most economists (myself included) had expected. Given the weakness of the economy in the first quarter, and mostly weak data in the subsequent two months, this number should be viewed with some suspicion.

The most obvious cause of a problem is the Bureau of Labor Statistic's (BLS) imputation for job growth in new firms that are not included in the sample. This imputation is based on past growth and therefore will miss turning points in the economy, understating job growth during an upturn and overstating it in a downturn.

So, what the's story this time? BLS imputed 529,000 jobs into the establishment data in the first five months of 2006. It imputed 591,000 jobs, or 62,000 more in the first five months of 2007. The economy grew at a 5.6 percent rate in the first quarter of 2006. It grew at a 0.6 percent rate in the first quarter of 2007. It looks to me like they've overstated job growth in new firms this time around. Of course, the good news is that productivity growth is slightly better than the data indicate.

As always, you can get the story on the employment report from CEPR's jobs byte.

--Dean Baker

Washington Post columnist Steven Pearlstein gets much of the story right in his column on electricity deregulation, although he is too generous to its proponents. Deregulation can perhaps best be seen as a case of consumer fraud concealed as "free market" ideology.

The basic story is that the existing regulatory structure had locked in a cross-subsidy with big industrial users paying more than the cost of providing them with electricity, thereby subsidizing residential and small business users who paid less than cost. In standard economic models, eliminating this sort of cross-subsidy will increase economic efficiency, although it will also redistribute income from resiential users and small businesses, who will pay higher prices, to large industrial users, who will pay lower prices.

That may be good policy, but it was preposterous to sell deregulation as benefitting typical residential users, which is exactly what proponents did. In fact, they managed to pull off an even bigger scam when they got low-cost states like Montana (cheap hydropower) to deregulate and let their prices rise to regional levels.

In response to the chaos and undersupply resulting from a deregulated market (there is little incentive to build idle excess capacity, which leads to shortages at peak demand) most states have turned to long-term contracts with utilities. This is essentially the same thing as regulation, but it makes the "free-marker" types feel better.

--Dean Baker

The NYT tells us that "most economists agree that the economy probably bottomed out in the first three months of the year and they have forecast a rebound." That is a bit less reassuring that it may first sound, since these same "most economists" never expected growth to dip to 0.6 percent in the first quarter. It would be useful if the NYT presented the views of some of the economists who were not surprised by the weakness in the first quarter.

--Dean Baker