The NYT reports that there are a large number of Harry Potter books available in China, many more than in the United States. In addition to the authorized copies of the books authored by J.K. Rowling, there are unauthorized copies of these books, there are books that claim to be authored by Ms. Rowling, but in fact were written by other people, and there are Harry Potter books that were openly written by other people.

Unfortunately, the NYT article makes no effort to distinguish between these different types of unauthorized books, using the terms "piracy" and "counterfeit" in a haphazard manner. In fact, there are very important distinctions between the different types of unauthorized copies discussed in the article. The differences are important both in the sense of who is being hurt and also the enforcement issues that are likely to arise in China.

In the case of the unauthorized copies of the actual book, the only people who are directly harmed are the publisher of the authorized version and J.K. Rowling, who will not collect royalties from unauthorized copies. The readers benefit hugely from gaining the opportunity to buy the book at a lower price. The Chinese economy will also benefit, since Harry Potter readers will have more money left over to buy other goods and services.

The issue is more ambiguous when a Harry Potter book is sold that is ostensibly written by J.K. Rowling, but was actually written by someone else. This can be considered a counterfeit, if the reader really believed that the book was written by Ms. Rowling and was part of the Harry Potter series. On the other hand, if the reader bought the book knowing that it was not authored by Ms. Rowling, then it is a pure benefit to the Chinese economy that such volumes are available. It is possible that Ms. Rowling will lose to the extent that these books are substitutes for Harry Potter books among Chinese readers. Also, if people wrongly believe that she authored these books, then it could harm her reputation if these books are not very good. (Of course, if is also possible that it would benefit her, by improving her reputation, if these books are well-written.)

Finally, there are Harry Potter books that are explicitly authored by other people. These books are clearly not counterfeits, since readers are presumably well aware of the fact these books were not authored by Ms. Rowling. These books are a pure gain for Chinese readers, since they make books available that would otherwise be prohibited by Ms. Rowling's copyrights. These books could either help or hurt Ms. Rowling depending on whether they are more likely to satiate readers' interest in Harry Potter or to increase the commitment of Harry Potter readers.

It would have been helpful if the NYT had distinguished the various issues that come into play in supressing unauthorized copies. The Chinese government is presumably less likely to enforce laws when the main impact is negative for people in China. This means that a crackdown on unauthorized copies of the offical version of the book may be diffiuclt to stop, as would books that extend the Harry Potter stories in different direction, but were explicitly not written by Ms. Rowling.

On the other hand, it may be easier to enforce laws that prevent people from claiming that Ms. Rowling wrote a book that she did not in fact write. The reason is that many readers may be upset to find that the book they bought was not very good and was not actually written by Ms. Rowling. In this case, the book would be an actual counterfeit, which means that the buyer herself is harmed, not just a person who has a claim to intellectual property in the product.

--Dean Baker

I am always happy to give credit to those who acknowledge their mistakes. While David Brooks has more opportunity than most people, he deserves credit for acknowledging one of the mistakes in his "everything is great" column last week.

As pointed out in BTP, Brooks claimed that earnings for the working poor had risen by 80 percent since 1991. In fact, this claim only applied to families with children, there were no gains in earnings for low-income families without children. Brooks acknowleged this error in his column this morning, although he did not also point out that earnings for these families have fallen by 20 percent since 2001, or that the vast majority of the gains in earnings were offset by a loss in benefits. Nor did he acknowledge any of the other misleading statements in that column, but it's a start.

--Dean Baker

In Monday's paper, USA Today reports on a growing backlog of disability cases being processed by the Social Security administration. The article tells us that the aging of the baby boomers is a main cuplrit and the problem will get worse as the boomers continue to age.

Actually, the problem won't get worse, or at least the problem won't get worse because the boomers are aging. Disabled people of working age get disability benefits. When workers hit age 62, they qualify for retirement benefits, whether or not a disability keeps them from working. Over the last decade, most of the baby boomers entered the ages of high disability rates from 50 to 62. Beginning next year, the oldest baby boomers will have reached age 62, the earliest possible age to receive SS retirement benefits. This means the full impact of the wave of aging baby boomers on the disability program should be felt this year. In future years, the burden on the disability program is likely to increase less rapidly.

That is exactly what the Social Security trustees project. From 2002 through 2007, they project that the cost of the disability program will have increased at an average annual rate of 8.6 percent (@ 6.1 percent in real dollars). From 2007 through 2016 they project that the cost will increase at an average annual rate of 5.8 percent (@3.3 percent in real dollars). In other words, the worst effects of aging baby boomers on the disability program have already been felt.

--Dean Baker

That seems a reasonable question since it looks like the lobbyists might have writtenhttp://www.nytimes.com/2007/07/30/washington/30schumer.html?hp the story on Senator Schumer's support for keeping the fund manager tax break. Ar one point the article describes a bill that would subject the earnings of fund managers to the same tax schedule as that faced by other workers as a proposal that would "single out the industry with a plan that would more than double the taxes on the enormous profits reaped by its executives."

Later, it asserts that leading Democrats want to raise the tax rate on the fund managers' "investment gains." Of course this is not true. The issue is the tax rate that fund managers pay on the compensation they earn for managing funds. None of the bills being discussed would raise taxes on fund managers' income on money they actually invest in the fund.

--Dean Baker

Of course you do. The NYT must have gotten some very young reporters because they apparently don't know anything about the stock crash that began in 2000. We went flying to new highs, remember the 5000 Nasdaq? We got there about 3 months after we hit the 4000 Nasdaq. About a month later the Nasdaq was plummeting. It lost 15 percent of its value in a single day. It eventually retreated to the point where it had fallen more than 75 percent against its March 2000 peaks.

Does this mean that the market will plummet today as it did during the 2000-2002 crash? Hardly, but there is nothing in this article's efforts to reassure investors that deserves to be taken seriously. The NYT should have just printed an ad saying "we don't want you to worry about your stock falling." It would have provided every bit as much information as this article.

--Dean Baker

Farm bills are known as pork heaven. They always include subsidies that have no rationale other than benefitting favored constituents of some powerful member of Congress. For this reason, telling us that a farm bill has pork is not really news. The real question is how much pork, and is it more or less pork than the previous farm bill.

Neither the Post nor NYT articles on the new $286 billion 5-year farm bill (approximately 1.8 percent of spending or $190 per person per year) passed by the House would provide readers any basis for answering this question. Both articles notes some of the largest subsidies, but neither tries to sum them up and tell us whether the total is more or less than in the last bill. The NYT was kind enough to tell us that most of the money in the bill, $30 billion a year, goes to food stamps.)

The comparison with prior bills is essential If someone is interested in assessing the effectiveness of the Democratic Congress in restraining porkbarrel spending. No one could have thought that it would fall to zero with even the most determined leadership, so the question is are they making progress? Readers of the NYT and Post have no idea.

--Dean Baker

I just watched a segment on the market plunge on the Washington NBC affiliate. They noted the decline but then presented the opinions of analysts who told viewers that this is a great buying opportunity for people to get in and make money in the coming year. There were no bears to point out that the economy faces a considerable risk of recession and the market usually falls in a recession, or to point out that the market is currently quite high relative to the economy's trend profit growth path. (The Congressional Budget Office projects that real corporate profits will be lower in 2017 than they were last year.)

It would be interesting if investors were allowed to sue over such irresponsble reporting. That way news reports would either have to be more balanced or include a disclaimer along the lines of "we have no idea if the analysis we are presenting on the stsock market makes any sense at all." I would love to see that one on the Lehrer Newshour -- too bad they weren't required to do it back in the 90s.

--Dean Baker

The big story with today's GDP report is with the revisions to prior year's data. GDP growth for both 2005 and 2006 was revised down slightly. The signifiance of this is that it lowers productivity growth. With the revised data, productivity growth has averaged just 1.5 percent from the 2nd quarter of 2004 through the 2nd quarter of 2007. This is the same rate of productivity growth as we had during the long slowdown from 1973-1995. With three full years of weak productivity growth, there is reason to question whether productivity is again on the slow track.

The other noteworthy revision is a large downward revision to proifts for 2006. As a result, the increase in the profit share of corporate income from the 1997 profit peak to the 2006 peak is somewhat less than had previously been reported. The increase in profit share over this period was 0.75 percentage points. This is not trivial, but is considerably less than the rise of 1.5 percentage points between the 1988 profit peak and the 1997 peak. (Aftre-tax shares actually fell slightly between 1997 and 2006.)

This means that the redistribution from wages to profits was not the main cause of wage stagnation for most workers in recent years, rather the cause was the redistribution from lower and middle income workers to those at the top, fund managers, CEOs, and doctors and lawyers.

--Dean Baker

The NYT feels very strongly that Congress must approve further trade measures that put downward pressure on the wages of workers without college degrees. It made this case in an editorial promoting new "free trade" agreements today. At one point it presents the finding of a study from the Peter G. Peterson Institute for International Economics that eliminating all remaining barriers to trade will add $500 billion a year (@ 3.8 percent) to GDP.

Serious people might ask how the Peter G. Peterson Institute determined the remaining barriers to trade. Did it consider the patent monopolies on prescription drugs, which cost consumers hundreds of billions a year, a barrier to trade? Did it consider the copyright protection that obstructs the free transfer of music, movies, software and other material over the web a barrier to trade? How about all the restrictions that make it so much more difficult to hire a foreign doctor, lawyer or economist than to buy a foreign made car or shirt? Did the Peter G. Peterson Institute view such restrictions as barriers to trade?

The answer to all these question is "no." The Peter G. Peterson Institute has no interest in reducing or eliminating trade barriers that have the effect of shifting income upwards. The Peter G. Peterson Institute, and apparently also the NYT, only wants to eliminate the trade barriers that might benefit less educated workers. And, because they have so much influence in the media, they get to call this "free trade."

--Dean Baker

You won't see that headline in the articles reporting on today's stock market plunge. However, it is in fact true, as can be seen with a moment's reflection.

The stock market's value does not directly affect the country's ability to produce goods and services. We have just as much labor, capital and technical know how after the market plunged as before it opened. The only thing that changed was that the people who hold shares in the market now have about $400 billion less in wealth.

The market's $400 billion loss in value reduced the ability of shareholders to make claims on the economy's output, but It didn't reduce the economy's productivity ability. This means that people who own little or no stock can now claim a larger portion of the economy's output. As a practical matter, this means that the price of some items (e.g. houses) might fall, so that they will be more affordable to people who either don't own a home or would like to buy a bigger home.

[If this is hard to understand, imagine the extreme case where the stock market fell to zero. People like Bill Gates would no longer have the money to keep up their homes. They would be forced to sell them for whatever price they could get. Those without substantial stock or property are suddenly well-situated to buy a house.]

In short, the stock market is often about redistribution. When it falls sharply this is a redistribtuion from the wealthy to the less wealthy. That is not upsetting for everyone, even though the media may not report it that way.

--Dean Baker

Some folks were cheered by the modest increase (0.3 percent) reported in the median price of existing homes sold in June. This news is not as positive as it first appears for three reasons:

1) The existing home data do not control for any changes in the mix of houses as sold (unlike the House Price Index or the Case-Shiller index). If we believe that the subprime meltdown has disproportionately affected those at the lower end of the market, the median house being sold today would likely be a higher end house than the median house sold in June of last year.

2) The data rely on contracted prices. It is now common in many areas for sellers to give kickbakcs to buyers at closing in the range of 2-3 percent of sale price. This is anectdotal (the practice is of questionable legality), but I have heard enough accounts from realtors to think that it would have a measurable effect on sales prices.

3) June sales data refer to closings. The contracts are typically signed six to eight weeks earlier, so that this data is reflecting housing market conditions in April and May. The new home sales data, which is based on contracts signed, will give a more up-to-date picture of the housing market when it is released later today. [And now we have that data. The median price of a new home fell 2.2 percent, year over year.]

--Dean Baker

A Washington Post article this morning refers to plans to cut back the payments to private insurers operating in the Medicare Advantage program in order to pay for an extension of the State Children Health Insurance Program. The bill would reduce the payment to the cost of paying for beneficiaries within the traditional Medicare program.

While the excess payment has been identified by both the non-partisan Congressional Budget Office and the Medicare Payments Advisory Commission, the article asserts that cuts would be to what "Democrats call overpayments to managed care companies." It would have been helpful to point out that it is not just Democrats who have pointed out these excess payments.

--Dean Baker

NYT columnist Nicholas Kristof apparently believes that he would benefit if the United States had access to a huge supply of foreign columnists who could write as good or better than him and who would be willing to work at a fraction of his salary. That is effectively what he is arguing in his column today when he says that low-income families benefit from being able to obtain cheap imports from China.

Of course low-income families benefit from being able to buy cheaper imported goods, just as Mr. Kristof would be able to pay less for his newspaper and for the products that are advertised there, if NYT columnists would work for $15,000 a year. But, he would lose far more from having to accept a lower salary as a result of foreign competition, just as less educated workers are likely to lose out as a result of being placed in direct competition with low-paid workers in the developing world.

The column also includes gratuitous name-calling (the term "protectionist" is used repeatedly) and the use of the term "free trade" when "trade" would be more appropriate. Where are those Chinese columnists when you need them?

--Dean Baker

The Post's oped pages are always open to the voices of the suffering and the dispossesed. In the last two weeks we've heard wailing on behalf of the insurance industry, the pharmaceutical industry, and now the doctors. Doctors in the U.S. are struggling to get by on just $200,000 a year (net of malpractice insurance). This is only twice as much as doctors get in other wealthy countries. How can they make ends meet?

--Dean Baker

It is when the NYT is talking about Social Security's projected shortfall. While the Congressional Budget Office says that Social Security can pay all benefits with no changes whatsoever through the year 2046, the NYT says that it faces a "looming" shortfall.

--Dean Baker

Those are the words of Angelo Mozilo, the Chairman and Chief Executive of Countrywide Financial, the nation's largest mortgage lender, according to the NYT. As they say at the Federal Reserve Board and all the other places where the growth of the housing bubble was ignored over the last five years, "who could have known?"

--Dean Baker

Yes, this is the Outer Limits. Sorry, we still can't take comments, but the tech folks are working on it. Save those insults!

It looks like David Brooks is training for an Olympic event, he can really stuff a great volume of misinformation into a 750 word oped.

Let's see what we've got:

1) Brooks says "after a lag, average wages are rising sharply. Real average wages rose by 2 percent in 2006, the second fastest rise in 30 years." The Bureau of Labor Statistics shows that the average hourly wage is 1.2 percent higher than its year ago level and still below its December 2002 level. That's almost five years of zero growth. In the late 90s, real wages were growing 1.6 percent annually.

2) Brooks then cites Brookings economist Ron Haskins' assertion based on data from the Congressional Budget Office that "between 1991 and 2005, 'the bottom fifth increased its earnings by 80 percent'." If we turn to the CBO study (Figure 2), we find that earnings for the bottom fifth of families with children actually increased by 120 percent (welfare reform), but this was between 1991 and 2000. Earnings for this group has fallen by about 20 percent in the last five years.

[I am reminded by Mark Greenberg that Brooks refers to all households, whereas the CBO analysis only examines families with children. The CBO analysis found no income gain for the bottom quintile of families without children. Also, the income gain for families with children over the whole period from 1991-2004 was 35 percent, not 80 percent. Most of the increase in earnings was offset by a loss in benefits. More work also means higher work related expenses (e.g. child care and transportation), so the picture even from 1991 to 2000 is not as bright as Brooks leads readers to believe.]

3) Brooks comments that "the third complicating fact is that despite years of scare stories, income volatility is probably not trending upward. A study by the C.B.O. has found that incomes are no more unstable now than they were in the 1980s and 1990s." This is partly right in the sense that CBO did not find an upward trend, although it did find that income has been more volatile in the post-1980 era than in the pre-1980 era.

4) Brooks asserts that "that recent rises in inequality have less to do with the grinding unfairness of globalization than with the reality that the market increasingly rewards education and hard work. A few years ago, the rewards for people earning college degrees seemed to flatten out. But more recent data from the Bureau of Labor Statistics suggests that the education premium is again on the rise."

I haven't seen data for the last month, but between 2001 and 2005, analysis from the Economic Policy Institute (EPI) there was a considerable rise in wage inequality, but no increase in the gap between workers with college degrees (but not advanced degrees) and without degrees.

5) Brooks tells us that the increase in inequality is due to the more frequent use of "performance pay" -- yes, like the $200 million that Home Depot CEO Bob Nardelli got paid to leave after mismanaging the company for two and a half years.

6) He tells readers that "inequality is also rising in part because people up the income scale work longer hours." Actually, most of the economists I know focus on the increasing inequality in hourly earnings, as in pay per hour, not total pay (see EPI's State of Working America).

7) The filthy rich are hedge fund managers and not CEOs, and therefore the problem is not a breakdown in social norms. Actually, my bet is that once the current bubble bursts, and it turns out that many hedge fund managers were paid hundreds of millions of dollars for some really poor returns, there will be an effort to string up the bozos who run pension funds for giving away vast sums of money for nothing, talk about a breakdown in social norms.

8) "Globalization boosts each American household’s income by about $10,000 a year." What does this mean? Is this compared to a world in which we can't get coffee from Brazil or oil from the Middle East, but rather have a completely autarkic economy?

It will be great when the proponents of the current trade agenda stop arguing against straw men in making their case. No one is advocating autarky. Suppose we had globalization with complete free trade in intellectual products (e.g. no more patent and copyright protection) and huge efforts to eliminate the barriers that sustain the wages for highly paid professionals in the United States (e.g doctors, lawyers, accountants, and economists). This would lead to huge economic gains and greater equality.

In his celebration of the economy Brooks doesn't mention the $700 billion trade deficit, the housing bubble and meltdowns in the mortgage market, and the productivity slowdown that the Fed is now projecting to continue at least through 2008. No doubt these items will appear in Part II.

--Dean Baker

NPR noted that the minimum wage will increase today for the first time in almost ten years. The news item mentioned the dispute over the impact of the higher wage, saying that "some economists" argue it will cost jobs and therefore hurt the poor, while "advocates" say that it has little impact on employment and will give poor workers more money.

The problem with this description is that there is now a vast body of research by many of the country's most prominent labor economists that shows that increases in the minimum wage have little or no impact on employment. In other words, while there are economists on both sides of this issue, the majority of economists who have researched the topic would take the position that NPR attributed to "advocates."

--Dean Baker

The Fed's latest Monetary Policy and Economic Outlook projects GDP growth in the 2.5-2.75 percent range for 2008, with the unemployment rate essentially holding constant. This implies approximately 1.0 percent labor force growth (@1,400,000 jobs). If the labor force grows by 1.0 percent and output grows by 2.5-2.75 percent, then productivity would be growing at between a 1.5-1.75 percent annual rate. This is pretty much back to 1.5 percent annual rate of the 1973-1995 slowdown.

The Fed may be assuming that cyclical factors are temporarily depressing productivity growth now and through 2008, so that there will be an upswing in later years, but this projection warrants more attention than it has received.

[Update: Greg Ip was on top of this on the front page on the WSJ last week. He is the one of the few economics reporters who has been paying attention to the recent trend in productivity data.]

--Dean Baker

The Congressional Budget Office (CBO) is generally viewed as a reliable source of non-partisan budget and economic analysis. Apparently, the Post does not view CBO this way.

In an article on a letter from the National Governors Association calling for an expansion of the State Childrens Health insurance Program (SCHIP), the Post notes criticisms of President Bush's proposed reauthorization plans for SCHIPs. It reports that "supporters of the program say [Presidnt Bush's proposed spedning level] is too small to cover even the 6.6 million children who are currently receiving help."

That assertion comes from the analysis done by CBO. It would have been useful to readers to point out that it is not just supporters of the program who believe that President Bush's proposal would lead to reduced coverage.

--Dean Baker

The Post reports that that Government Accountability Office uncovered $1.1 billion paid out in farm subsidies over seven years to deceased farmers. While it is useful to inform the public about these presumably improper payments, it would have been useful to put this figure in some context.

The payments averaged approximately $160 million a year. This is a tax burden of 52 cents per person per year, or approximately 0.006 percent of total spending. While it is important to expose improper payments of this sort, readers should not be given the impression that they are a major factor in the budget. They are not.

--Dean Baker

Many proponents of recent trade agreements have been trying hard to find something to give losers that appears to make a difference. Of course anything that really made a difference would be very costly so the focus is on appearances.

At the top of this list is trade adjustment assistance. The Post has an article on plans to expand trade adjustment assistance to provide benefits to workers that lose their jobs in the service sector. Of course workers who lose their job directly due to trade are a small minority of the workers who are harmed by trade. The vast majority of workers who are harmed by trade are workers who earn lower wages as a result of the patterns of trade promoted by recent trade agreements. These are disproportionately workers who do not have college degrees.

The proposals for trade adjustment assistance do nothing to help these workers. Since the current appropriation is just $1 billion a year (0.03 percent of federal spending), it iis far too small to offset more than a tiny portion of the impact of trade on the wages of non-college educated workers. The article should have included the views of an economist who could have made this point for readers.

The article also refers to recent trade agreements as "free-trade" pacts. While proponents of the pacts use this term, it is not accurate. The pacts preserve protections that keep highly paid professionals such as doctors and lawyers from being subjected to international competition. They also increase protection for items like drug patents and copyrights on recorded music and video material. It would be more accurate to simpy refer to these pacts as "trade" agreements.

--Dean Baker

Okay, it is probably just a messup by the home team, but the website is not currently taking comments. I do want people to be able to share their words of wisdom, but for the moment that does not seem to be possible, or at least not here.

--Dean Baker

I generally don't go for conspiracy theories. Usually the conspiracy story quickly devolves to the point that half of the world must be in on it, and somehow managing to avoid leaks to the other half. However, conspiracies do sometimes exist. In the case of energy pricing, we need only go back to the manipulations by those clever boys at Enron that earned the company hundreds of millions of dollars and sent electricity prices soaring in California back in 2001.

For this reason, a NYT piece reporting on an extrodinarily high number of oil refinery shutdowns is too dismissive of the possibility of any coordinated activity. The article notes conspiracy theories circulating on the Internet, but then tells us that "experts point out that the companies have little incentive right now to hold back on fuel supplies." It follows through with a reassuring comment from an analyst at Goldman Sachs.

Of course any individual refinery would certainly benefit from pumping out more gas at the current price. But if there was a wink and nod agreement by a few of the biggest companies not to rush repairs, they all would benefit more from the higher prices that result from these refineries being kept off line.

My guess is that there is no such agreement and the basic story of refineries being down for needed repairs is true. However, the conspiracy theory folks were right in California in 2001, and the dismissive experts were wrong.

--Dean Baker

BTP generally stays away from commenting directly on political contests, but today's NYT column by Gail Collins does warrant mention. The main point of the column is that Representative Dennis Kucinich, who is running for the Democratic Presidential nomination, is wrong to complain about efforts by John Edwards and Hillary Clinton to exclude him (and other "miinor" candidates) from future debates. The basic argument in the column is that no one wants to hear what Kucinich has to say.

Of course one of the main things that Kucinich has to say is that the war in Iraq was a terrible mistake and that the country should withdraw its troops as soon as they can be safely loaded onto planes and brought home. Unlike two of the three "major" candidates, Kucinich recognized that the war was a bad idea back in 2002 and was one of the leaders of the congressional opposition at the time. In fact, Senators Clinton, Edwards, and the rest owe the fact that they had the opportunity to vote for the Iraq war in 2002 to Representative Kucinich. He led a contingent in Congress who insisted that the authorization for the war in Afghanistan in 2001 be restricted to Afghanistan. President Bush had requested a blank check that would have sanctioned any future military action in the War Against Terrorism. Given the polls, it's not obvious that the country does not want to hear what Kucinich has to say on this topic, although the other candidates may not want the country to hear what Kucinich has to say on the topic.

But the immediate issue that Kucinich was addressing that seemed to prompt the calls for exclusion was his proposal for a universal Medicare system. Kucinich is the only candidate to support a universal Medicare system. It is not clear that the public does not want to hear about a universal Medicare system, many polls have shown considerable support for the idea. It is clear that reporters do not like to talk about plans for a universal Medicare system. For example in its coverage of a presidential forum devoted to health care held in March, the NYT insisted that Edwards was the only candidate who had a detailed health care proposal, even though Kucinich's plan was spelled out in detail right on his website (see BTP, March 25th).

When covering the 2004 election, in which Kucinich also ran supporting universal Medicare, both the NYT and Post seemed to go to great lengths to ignore this proposal. For example, charts detailing the candidates' proposals told readers that Kucinch had not explained how he would finance his plan, a fact that any reporter who visited Kucinch's website would immediately recognize as untrue.

As a practical matter, a universal Medicare program is a longshot primarily because of the enormous power of the interests who would be harmed (first and foremost the insurance and pharmaceutical industries). By virtue of the fact that his campaign threatens these and other powerful interests, Dennis Kucinich is very much a longshot for the presidency. In horserace coverage of the campaign (which dwarfs the coverage of the issues), it is understandable that Kucinich would be overlooked.

But there is something really crass about a columnist using the enormous megaphone of the NYT oped page to belittle a person for trying to educate the public about ideas that the media have largely buried. Kucinich's efforts may prove futile, but he no more needs to apologize for trying to interject his health care plan into the presidential debate than he does for having tried to stop the war back in 2002.

--Dean Baker

Don't know, are you stupid or something? The NYT is again obscuring its budget reporting by using numbers that are meaningless to almost all of its readers. It reported that the Senate Finance Committee voted to expand the State Children's Health Insurance Program in a measure that will cost $60 billion over the next five years. This would have the same meaning for the vast majority of readers if the number were $6 billion or $600 billion, the vast majority of people (including the NYT's educated readers) have no idea of how much the federal government will spend over the next five years.

I have never had a reporter claim that these numbers are meaningful to anyone other than a tiny group of budget wonks. Why can't they express the numbers in a way that is meaningful? The proposed spending is equal to about 0.4 percent of projected spending over this period. Alternatively, the government is projected to spend approximately $10,000 per person annually over the next five years, $40 of this moeny would go to this health care program.

[NPR committed the same sin in its reporting. What's the problem with these people?]

--Dean Baker

That's not a joke. The Post identified the person who wrote an article on the progress of a new farm bill as " contract writer for the newspaper and a fellow with the German Marshall Fund, a nonpartisan public policy institution that promotes understanding between the United States and Europe."

This raises a whole set of questions that I will leave others to consider (e.g. is the German Marshall Fund paying this person's salary? If so, can other institutions pay to get someone on the staff of the Post, such as the Heritage Foundation or the American Petroleum Institute?).

I will try to be positive on this one. Let's hope that our German Marshall Fund fellow is genuinely committed to being a good reporter. In that case, they will try to write their articles in ways that conveys information to readers. This means that they will express budget numbers in ways that are meaningful to readers. For example, the $1.8 billion in subsidies to fruit and vegetable growers over the next five years (which means the same to most readers as $18 billion or $180 million -- it's a big number), could be expressed as 0.012 percent of projected spending or approximately $1.20 per person per year.

Most people have no idea where their tax dollars go and the budget reporters deserve most of the blame. They write their stories in ways that provides no context to readers. It is easy to do better.

--Dean Baker

The NYT article on the United Auto Workers' negotiations with GM, Ford, and Chrysler included a quote from a history professor, comparing the problem of paying for retiree health care benefits with the problem of Social Security: too few workers and too many retirees.

Fire that professor. This is not the story with either. The problem with paying for health care is the explosion of health care costs over the last three decades. No one anticipated that health care costs could run $15,000 to $20,000 per year per retiree thirty years ago. That's the reason that there is no equivalent to the Pension Benefit Guarantee Corporation for health care benefits -- health care costs were not a big deal 35 years ago when the PBGC was established.

We can cover the cost of an increase in the ratio of retirees to workers in both the auto industry and Social Security (we've been living with a rising ratio for 7 decades). We can't cover the cost of a broken health care system.

--Dean Baker

The index for owners' equivalent rent (OER) has risen at just a 1.9 percent annual rate over the last three months. This fact does not seem to be getting any attention in the coverage of the Labor Department's release of the June consumer price index (CPI).

It is important for two reasons. First, the low rate of inflation in this index is helping to keep down the core rate of inflation because OER is a huge chunk (almost 30 percent) of the core index. The annual rate of inflation in the core CPI would have been 2.5 percent over the last quarter without the OER component.

The other reason why the drop in OER is so important is that it throws yet more cold water on the argument that the house price run-up of the last decade was driven by fundamentals. If fundamental conditions of supply and demand in the housing market explained the run-up in house sale prices, then we should expect to see comparable increases in the rental and ownership market.

In fact, while real house prices rose by more than 70 percent, real rents rose by less than 10 percent. And now rents are falling in real terms, making the divergence even greater (at least until house prices start plunging). This fact warrants some attention from the media -- even busy reporters should have time for $8 trillion in housing bubble wealth.

[addendum: Lou Uchitelle is on the right track in the NYT.]

--Dean Baker

USA Today reported that the homebuilders' index of confidence fell to its lowest level since the 1991 recession. Given the downturn in construction that isn't surprising. It is surprising that the only source cited in the article is David Seiders, the chief economist for the National Association of Homebuilders. It would be useful to find a source who is not an interested party and who was not surprised by this downturn in the housing market.

--Dean Baker

It seems that the answer to that one appears to be whichever one shows a lower rate of inflation. The headline in USA Today for the story on the June producer price index was "Falling Gas Costs Send Wholesale Prices Down." In the same vein, the NYT article was headlined "U.S. Overall Producer Prices Fall in June." The underlying story here is that the overall finished goods index fell by 0.2 percent in June, but the core index rose by 0.3 percent.

Last month, the story was reversed, with the overall index showing a sharp 0.9 percent rise, but the core index rising by a more modest 0.2 percent. The NYT did headline the overall index, "Gasoline Pushed Up Producer Prices in May," but the very first sentence pointed out the modest core increase: "A double-digit jump in the price of gasoline pushed inflation at the wholesale level up in May, but tame increases for most other goods suggested that price increases were largely contained and businesses would not react by raising prices." The core index did not appear until the 4th paragraph of both the NYT and USA Today article time around.

For the record, I always look at both measures. The non-core elements are costs to businesses and consumers, so they can't just be dismissed, especially if there is reason to believe that changes are not just random fluctuations, but instead part of a longer trend. But the non-core components are more erratic, so it is important not to be misled by short-term movements.

--Dean Baker

David Leonhardt makes the obvious point that one should always adjust stock prices and anything else for inflation before declaring record highs.

This piece also announces a new schedule of columnists for the Sunday business page. One very wlecome addition is Yale economist Robert Shiller, one of the first economists (after me) to recognize the housing bubble.
(I'm calling it a tie on the stock bubble.)

--Dean Baker

The NYT had yet another piece giving the conseravtive line in which policies that redistribute income upward are defined as being the "free-market," while policies that prmote equality are seen as government intervention. For example, the article touts the usual nonsense about "free trade" agreements implying that a system that subjects less educated workers to competition with people in the developing world, while largely protecting highly paid professionals, has anything to do with free trade.

The article also implies that negotiating drug prices with manufacturers is interferring with the market, while allowing them unfettered patent monpolies is a free market policy. And of course, having special low tax rates for private equity and pension fund managers appears also as free market policy.

It will be nice when the media will just tell us about the policies that politicians support and their implications and stop giving us their ideological spin.

--Dean Baker

CNN took another shot at establishing its credibility in its battle with Michael Moore with a set of detailed responses to issues that Moore raised about its coverage. I will skip a blow by blow assessment, and just address two of the key points that were raised.

1) CNN sought to question Moore's credibility by charging that he was wrong in saying that U.S. health care expenditures are $7,000 per person compared to Cuba's $251 per person. CNN claimed that U.S. expenditures are just $6,000 per person, while somehow getting a figure (aknowledged as an error) that Cuba spends $25 per person. Moore has supported his number with projections from the Center for Medicare and Medicaid Services (CMS) that per person spending for 2006 was $7,000 and $7,500 for 2007.

CNN claims that they were being straight and that Moore is guilty of comparing apples and oranges because he has different sources and is comparing projections for the U.S. with actual data for Cuba.

Actually, CNN's response is rather scary since it suggests that CNN has no one familiar with social science research on their staff. It is common to use data from different sources, when data from the same source is unavailable. If there is reason to believe that there are important differences between the methodology used by the different sources, then this should be noted.

In this case, there do not appear to be any important differences in methodologies, only the year for which the estimate/projection is made. The data for Cuba is from United Nations Development Report. It is for 2003. It shows U.S. spending in that year at $5,711 per person. This is very close to the $5,952 figure shown by CMS for 2003, which suggests that there are no important differences in methodology between the two series. (The UN probably gets its data for the U.S. from CMS.)

The main reason for the difference between the $5,711 figure from 2003 and the $7,000 figure for 2006 and the $7,500 figure for 2007 is due to the year, not the methodology. It is perfectly understandable that Moore would want to use the most recent year for his movie -- highlighting the fact that health care costs in the U.S. are exploding -- and projections from CMS are generally viewed as being fairly reliable.

Moore can be faulted for not pointing out, if not in the movie at least in the subsequent debate, that the data for Cuba are four years out of date. It is almost certainly the case that costs in Cuba have also risen in this period. However, since Cuba is not experiencing a similar explosion in health care costs (at least not that I have heard), the increase in costs over this period was almost certainly much less. If we assume a figure of a 4 percent annual increase in costs, then the figures for 2007 would look something like U.S. $7,500, Cuba $294.
Point--Moore

2) In a subsequent Moore-Gupta exchange on the Larry King show, Dr. Gupta said that Medicare is going bankrupt. Moore pointed out that, according to CMS, per person health care costs are actually growing much more rapidly in the private health care system than in Medicare. CNN stands by Dr. Gupta, pointing out that Moore does not dispute the fact that funding for the program is not assured beyond 2019.

As I said in a previous post, it is not clear what Dr. Gupta could mean by his assertion that Medicare is going bankrupt, except to inaccurately imply that there is a problem with the Medicare program that is distinct from the rising costs of the U.S. health care system.

While CNN is correct in saying that funding for a portion of Medicare (Part A) is not assured under current law beyond 2019, funding for most government programs is not even assured beyond the current fiscal year. Yet, CNN's analysts have probably never asserted that the Defense Department or the Justice Department face bankruptcy because their funding for next year is not assured.

It is understandable that a partisan in the debate to privatize Medicare would claim that the program faces bankruptcy. It is difficult to see why an ostensibly neutral news outlet would make this claim, since it conveys no information to viewers.

Point -- Moore

--Dean Baker

Yes, it's health care policy time, and the Washington Post is again telling readers that the effort to extend coverage to more children is "mired in an ideological fight over the proper role of government in health care." The immediate issue is extending coverage under the State Children's Health Insurance Program (SCHIP), with the revenue coming from in part from higher cigarette taxes and partly from the elimination of subsidies for private insurers operating in the Medicare program.

It seems that the question is whether we want to tax cigarette smokers more, a move that will also hurt the tobacco industry, and cut subsidies to insurance companies, in order to give more children health insurance. One might think that Republicans are opposed to such measures because they get substantial campaign contributions from the tobacco and insurance industries.

But, no, the Post tells us right in the second paragraph that this is a debate about ideology. Those great political philosophers in the House, Senate, and White House are debating the proper role for government in the provision of health care. How does the Post know that these politicians are motivated by ideology and not the source of their campaign contributions? Well, that's what the politicians said.

Is it too much to ask a newspaper reporter to simply be agnostic? They don't have to tell readers that politicians are working for their campaign contributors, but where do they get off telling readers that the politicians are not taking political positions to suit their contributors? The reporters do not know this and they are misleading their readers when they make such assertions.

--Dean Baker

An article on the front page of the Washington Post business section today was headlined, "Retail Sales Numbers: Which Ones Do You Buy?" The mystery described by the article stems from the fact that the June retail sales reported by the Commerce Department had fallen sharply from the May level. This negative picture supposedly presented a stark contrast from the data reported by department stores on year over year sales, which the article asserts propelled the markets to record highs.

As the article eventually points out, the 3.6 percent year over year gain reported in the Commerce Deparment data is virtually identical to the gain reported by the department stores. So the problem is simply comparing year over year data with monthly changes in sales. And that is pretty much where the Post article leaves it.

But, since they took the time to write the article, let's look a hair deeper. First, we are comparing nominal sales data that are not adjusted for the effect of inflation. If we assume that the goods in question rose in price by 2.0 percent year over year, then we are looking at just a 1.6 percent growth in real sales. That is not very good.

Now, we have to be a bit more precise about the recent changes. Real consumption expenditures grew at an average rate of 3.3 percent for the last 3 quarters. This means that if real consumption expenditures are just 1.6 percent higher in June than they were a year ago, then real consumption expenditures have been falling in the last three months.

To be sure, there are some differences in coverage between retail sales (primarily goods) and total consumption which includes services like rent and medical care, but the June data suggests consumption spending has likely been very weak lately, and that conclusion doesn't change regardless of which data series you use.

--Dean Baker

The most basic measure of economic health is growth. It is not the whole story -- sometimes growth is very uneven so that all the benefits go to those at the top, or it could be associated with so much environmental degradation that a country may actually be better off with less growth -- but growth is usually a good place to start when examining an economy.

In this respect, it is interesting to see that the Washington Post considers Brazil to be enjoying a wave of prosperity, not based on its economic growth, but based on low inflation, a soaring stock market, and a strengthening currency. None of these measures bears any direct relationship to prosperity for most of the population. Low inflation is often associated with weak economic growth, The vast majority of Brazilians own little or no stock, so they don't benefit in any obvious way from a soaring stock market. A rising currency does make imports cheaper for people in Brazil, but it also hurts workers in industries that are subject to international competition.

If the Post had examined Brazil's growth rate, it would have a mixed story to tell. The IMF estimates per capita GDP growth in Brazil at 2.3 percent in 2006 and projects that it will be 3.0 percent this year. This is respectable, but certainly not very good for a developing country. By comparison, the NYT indicated that the economy would pose a problem for the incumbent party in the presidential election this fall. The IMF estimates Argentina's per capita GDP growth in 2006 at 7.4 percent and is projecting a 6.4 percent growth rate for 2007.

--Dean Baker

Under the tax code, wages are taxed as ordinary income. Moderate income workers typcially get taxed at a 10-15 percent marginal rate. More middle class workers, like school teachers, firefighters, and truck drivers, typically face a 25 percent marginal tax rate on their wages. Higher income professionals like doctors and lawyers will typically pay a 35 percent marginal tax rate on their income. In general, the tax rate is determined by income, not occupation. A truck driver and a librarian owe the same tax, if their income is the same.

Of course things are different if you manage a hedge fund. Under current law, hedge fund managers are allowed to treat their compensation as capital gains. This allows them to pay just the 15 percent tax rate on capital gains. Furthermore, unlike the ordinary schmucks who get their taxes deducted directly from their paychecks, they get to defer the tax until they actually sell off their interest in the fund.

There are several bills now before Congress that would tax fund managers like other workers. There doesn't really seem to be much of an argument on the merits of this one. The fund managers say that they are risk takers and the government shouldn't stifle their activities. Of course, firefighters, police officers, and poultry workers are also risk takers, no one says that this means that they shouldn't pay taxes. Wages are supposed to compensate for risk taking. In the case of fund managers, who often earn more than $100 million a year, it seems like they are being adequately compensated already for whatever risk they incurr.

While the fund managers may not have much of an argument, they do have lots of money, which they have lavished on politicians of both parties. As a result, the prospect of bills changing this provision of the tax code is uncertain.

The NYT did its part for the fund managers when it described one of the bills as raising the taxes on the "investment gains" of fund managers. This is not true. There is no question that the gains on any money that fund managers invest themselves in the funds will be taxed at the capital gains rate of 15 percent. The issue is how the compensation that they earn from managing the fund will be taxed. This is a very simple issue. The media should not obscure it for the public.

--Dean Baker

According to a new study from the Manhattan Institute they do. Proving the old adage that you can fool all of the people some of the time, but you can fool the Washington Post all the time, the Post ran a column yesterday by Frank Lichtenberg, the author of the Manhattan Institute’s study.

Lichtenberg’s main point was that new drugs are big life savers and therefore we should be generous with our spending on drugs. Lichtenberg analyzed data on the increase in life expectancy by state between 1991 and 2004. He compared it with the rate at which states adopted newer drugs. This was measured by the average year in which the FDA first approved the active chemical compound in drug prescribed for Medicaid or Medicare patients.

Lichtenberg finds a strong correlation between the use of newer drugs and increases in life expectancy. He also finds that productivity (measured as output per worker) grew most rapidly in states that adopted newer drugs more rapidly. And, best of all, there is a negative and insignificant relationship between total per person health care expenditure and the rapid adoption of newer drugs. In other words, it seems that any additional spending on new drugs is more than offset by lower medical costs elsewhere – a real free lunch.

Before we start celebrating these great new findings, a closer look is in order. The study also finds a very strong positive relationship between per person nursing home and home health care expenditures and new drug use. It also finds a negative, but insignificant, relationship between education and productivity. (Maybe we really are wasting our money sending our kids to college.)

Confronted with these mysterious findings, I did a quick regression which related Lichtenberg’s index of new drugs to the median age of state population. Bingo! There is a very strong positive relationship between the newness of drugs in Lichtenberg’s index and the median age of a state’s population. In other words, if you have an older population, then you would have been more likely to adopt newer drugs. This is presumably because most new drugs were developed to meet the needs of an older population. (Lichtenberg’s measure of newness actually doesn’t correspond well to new drugs as approved by the FDA. Most new drugs do not use new chemical compounds. This lead to the wonderful result that the Lichtenberg’s measure of the newness of drugs in Medicare is actually associated with less spending on drugs. Maybe if we restrict spending on drugs we will force doctors to make better choices, which will lead to longer life expectancies.)

The age story also explains Lichtenstein’s finding that education has no effect on productivity. The youngest cohorts are the most educated. People in their twenties are far more likely to have a college degree than people in their forties. However, productivity increases with age, at least until workers reach their forties. This means that if we don’t control for age, it is entirely possible that a state with a more educated workforce will actually be less productive.

Lichtenstein’s study probably bears somewhat closer examination, but the lesson for Washington Post should be to talk to someone who knows something about the topic before rushing a column into print. The editors are on record as being big supporters of high drug prices, but they should not be cherry-picking research to publicize that supports their position.

--Dean Baker

Investment banker Peter Peterson is probably best known for his efforts to warn of the country's long-term fiscal problems. He was one of the founders of the Concord Coalition and has published several books that purport to show how entitlement spending (Social Security and Medicare) will break the budget.

This background makes David Cay Johnston's article on the tax tricks of Blackstone Group especially entertaining. Johnston reports on a loophole that will allow the partners in the Blackstone Group to deduct $3.7 billion in depreciated "goodwill" over the next 15 years at the 35 percent tax rate assessed on ordinary income. By contrast, when the partners in the Blackstone Group took their partnership public, they were taxed at the 15 percent capital gains rate. As Johnston points out, this means that the partners will actually get back $200 million more from the government than what they paid in taxes.

Oh yes, Peter Peterson is one of the partners in the Blackstone group. He is walking away both with a big haul from his Wall Street deal, plus the frosting from his tax scam. As he has said publicly many times, he doesn't need his Social Security.

--Dean Baker

I'm a big fan of the Mortgage Bankers Association index of weekly mortgage applications. It is a timely measure of the strength of the housing market and the demand for refinancing. However, the data lately may be somewhat skewed because of the collapse of the subprime market.

The index covers roughly half of all loan issuing institutions, but it is probably reasonable to assume that the institutions specializing in subprime loans are under-represented in this sample. This means that as these institutions have closed or cutback their lending, more of their customers would be showing up at the financial institutions covered in the survey, leading to an upward bias. In other words, the data must be viewed with more caution than usual.

--Dean Baker

CNN’s health care analyst is now telling people that Medicare is going bankrupt. What does this mean? Medicare’s costs are projected to exceed its revenue and drain the surplus from its trust fund in a bit over a decade, but this has been true at several points in the past. Did Congress tell tens of millions of beneficiaries to get lost? No, Congress appropriated the money needed to keep the program going.

Is Congress going to be likely to scrap Medicare a decade from now when beneficiaries are going to be a far larger share of the voting population than they were in the past? That doesn’t seem likely. So the idea that Medicare will actually run out of money, as Dr. Gupta’s claim that Medicare is going bankrupt would seem to imply, is just not plausible.

If Dr. Gupta meant to imply that Medicare, as a government program is uniquely inefficient, then he is way off the mark. According to the Center for Medicare and Medicaid Services (Table 13) per beneficiary costs have risen in nominal dollars by 519.5 percent since 1980. By contrast, the cost per enrollee of private insurance has risen by 676.6 percent over this same period. In fact, with administrative costs that are just 2 percent of spending, Medicare is the most efficient part of the U.S. health care system (with the possible exception of the Veterans Administration health care system). Eliminating Medicare would raise health care costs, not lower them.

So what does Dr. Gupta mean when he says that Medicare is going bankrupt?

--Dean Baker

Economists usally believe that relative prices matter a great deal. That is why they go into near hysterics when people suggest various forms of government intervention in the market, such as trade tariffs. Yet, when it comes to trade with China, the NYT found an economist who said that he doesn't think that relative prices matter.

Andy Rothman, a business economist located in Shanghai, asserted that the value of the yuan was not a big factor in the trade deficit that the United States has with China. In other words, if the dollar fell by 20-30 percent against the yuan, and the relative price of Chinese imports to the United States rose by a similar amount, (and the price of U.S. exports to China would fall by a comparable amount), Mr. Rothman believes that there would be little impact on trade.

This is an interesting position but it would have been useful if the NYT had also presented the view on the trade deficit of an economist who believes that relative prices matter.

--Dean Baker

CNN decided to have its health care expert, Dr. Sanjay Gupta, go after Michael Moore's new movie Sicko. One of the facts that he claimed the movie got wrong was its assertion that health care spending in the United States is $7,000 per person. Dr. Gupta said it was only $6,000.

Well, this is an easy one. We go to the Center for Medicare and Medicaid Services National Health Care Expenditure projections and find on Table 1, line 3, that projected per capita health care expenditure for 2007 is $7,498.

Along with Michael Moore, BTP eagerly awaits the apology for getting such a simple fact completely wrong. (Actually, they should make a double apology, since the point was to show that Moore was sloppy with his numbers. What exactly does CNN's health care expert get paid for if he can't read a simple table before presenting his stories to the country?)

--Dean Baker

Here's the bad news -- tight labor markets, higher wages, who knows how bad things can get?

--Dean Baker

The Washington Post reported on the emergency mobilization of the nation's leading lobbyists to thwart bills that would tax the compensation of equity and hedge fund managers at the same rates as the wages of school teachers and firefighters. Currently, these managers get to defer taxes on their compensation by rolling it back into the funds they manage, and then eventually just pay the 15 percent capital gains tax rate.

The Post apparently decided to join the lobbying effort. It described the compensation of these fund managers as "profits." Of course the issue is not how profits that these managers earn on their investments will be taxed (they would pay the 15 percent capital gains rate on profits), the issue is how the money they earn from their management fees will be taxed.

--Dean Baker

To be more precise, it called offering a Medicare type government-run health plan to all Americans a "potentially radical idea." It's not clear why extending a 40 year-old program on a voluntary basis should be viewed as a radical proposition.

Admittedly, it is possible, if not likely, that it will undermine the current system of private insurance, if the vast majority of workers and employers opted into the public plan, but what is so radical about giving people a choice? Isn't that what conservatives always advocate?

The article is also kind enough to tell readers that "some health experts argue that it is hard to imagine the savings the Democrats are touting without some painful measures, such as allowing insurance companies to restrict the kind of procedures or the choice of doctors that Americans have." Of course there are some health care experts who say such things, but there are also many health care experts who point to the fact that United States spends more than $200 billion a year administering its private health care system (including additional administrative costs incurred by providers as a result of dealing with multiple insurers). There are also health care experts who point to the fact that the United States could save close to $100 billion annually if it paid the same prices for prescription drugs as people in other wealthy countries. The Post article did not present the views of these health experts.

--Dean Baker

Regular BTP readers are familiar with Delphi, the country's largest auto parts manufacturer that was formerly a division of General Motors. Delphi has been noted here in the past because it was regularly reported that the compensation of their UAW members was $75 an hour. Delphi got this figure by averaging its costs for pensions and health care benefits for retirees over the hours worked by its current work force. In other words, the $75 an hour figure had nothing to do with the current workers were actually earning.

Delphi got bad news yesterday when its private equity suitor, Cerebus Capital Management, apparently backed out of a takeover plan for the bankrupt company. According ot the NYT article, Delphi's managers are not worried, because they expect that another buyout plan will quickly be put forward.

I have no secret line into the negotiations at Delphi, but it's reasonable to believe that Delphi's management would express confidence in another buyer coming forward, whether or not such confidence is warranted. The company's ability to sustain credit lines from banks and suppliers depends on their confidence that Delphi will emerge from bankruptcy as a viable company. This means that Delphi's management has a strong incentive to exaggerate their confidence in reaching a takeover agreement. It also means that the NYT should have been more skeptical than to simply assert in a headline "Delphi Drops Finance Plan But Expects Another Soon."

--Dean Baker

The White House doesn't want to see the State Children's Health Insurance Program (SCHIP) expanded at the cost of eliminating government subsidies for private insurers in Medicare. While this might look bad to the public (poor kids generally garner more sympathy than health insurance companies), the NYT is quick to tell readers at the beginning of the article "the seemingly uncontroversial goal of insuring more children has become the focus of an ideological battle between the White House and Congress. The fight epitomizes fundamental disagreements over the future of the nation’s health care system and the role of government."

How do we know that this is a battle over ideology and not just a case where the White House is doing the bidding of its campaign contributors in the insurance industry? Well, according to the article, Alan Hubbard, assistant to the president for economic policy, said that White House opposition to expanding SCHIP is “philosophical and ideological.”

I guess that settles it. Hey, if the assistant to the president for economic policy said it, it must be true.

--Dean Baker

The NYT has a piece this morning reporting on the surge in foreclosures in Georgia. This one is interesting because Georgia is not a state with a depressed economy like other states with high foreclosure rates. This one is simply driven by the reversal of an overheated housing market, although this market certainly did not stand out as a center of the bubble. In those cases, the wave of foreclosures will hit somewhat later (people have accumulated more equity), but considerably harder.

This piece should have included comments from David Lereah (former chief economist of the National Association of Realtors) or some of the other experts who were regularly cited during the housing boom. It would be interesting for readers to learn why they apparently ended up being so wrong about the state of the market.

--Dean Baker

We all know how Halliburton has prospered under the reign of Dick Cheney (as VP, not CEO). While this could be just coincidence, it is reasonable for reporters to point out the company's political ties to the Bush administration when discussing its success in landing government contracts. Similarly, it might have been reasonable for AFP to mention that Alberto Aleman Zubieta, the director of the Panama Canal Authority, was the former head of CUSA, a construction company that just won the first major contract in the $5.2 canal expansion project in its article on the topic. Maybe this is coincidence (perhaps CUSA had the best bid), but readers should be given this information.

Thanks to my old friend Eric Jackson for this tip. Eric runs the Panama News and currently faces a libel suit for his efforts to expose government corruption.

--Dean Baker

In addition to missing the story about the productivity slump now reaching the three year mark, news reporting on yesterday's job data seems to have largely missed the story on sagging employment rates. While the unemployment rate stands at a relatively low 4.5 percent, the employment rate, the percentage of the population with jobs, has been inching lower.

This is not a demographic story. The declining employment rate [EPOP] is being driven by prime age workers. The employment rate for workers ages 25 to 54, has fallen from 80.3 percent in January to 80.0 percent in June. Because these data are erratic, one month's numbers should never be regarded too seriously, but it was also 80.0 percent in May and 79.9 percent in April. This seems to be a real drop. At present, the the EPOP for prime age workers is down 1.8 percentage points from its peak of 81.8 in February of 2000. By comparison, it is only 1.3 pp above its trough of 78.7 percent in March of 2004.

This drop is being driven primarily by workers ages 35-44. Their EPOP has fallen from 81.5 percent in January to 80.6 percent in June. This is 2.1 pp below the peak of 82.7 percent in Jan-Feb of 2000 and 1.2 pp above the trough of 79.4 percent in July of 2003.

It is very difficult to think of any reason why hundreds of thousands of prime age workers (both men and women, the declines are roughly equal) would suddenly drop out of the labor market, other than limited job opportunities. While this situation is not disastrous, the data on EPOPS is not consistent with a strong labor market.

--Dean Baker

The June jobs numbers came in somewhat better than expected largely due to the government adding 40,000 jobs. The health care sector accounted for 42,300 of the 92,000 jobs created by the private sector. Over the last three months the health care sector has accounted for 131,000 of the 345,000 jobs created by the private sector or 38 percent.

The better than expected job growth implies another quarter of weak productivity growth. With hours growing at a 2.3 percent annual rate, productivity for the quarter will be approximately 1.0 percent if GDP comes in near the consensus forecast. That means that we will have had three full years with average productivity growth of less than 1.5 percent. This has to raise serious questions about whether the post-1995 productivity upturn has come to an end.

--Dean Baker

The Washington Post lead editorial bemoans that the fact that Congress might oppose trade deals in order to protect workers other than doctors, lawyers, accountants and other highly paid professionals. The Washington Post feels strongly on this -- less educated workers must compete in the global economy. Only the most highly educated workers get protection.

--Dean Baker

The Washington Post has a piece today about how pay for accountants is exploding, with entry level positions paying $50,000 to $70,000. If the proponents of NAFTA and other recent trade agreements had put as much effort into standardizing rules on accounting and eliminating barriers to a free flow of accountants as they did to eliminating barriers to trade in manufactured goods, we would be paying much less for accounting services and enjoy a stronger economy.

My guess is that the "free traders" are more likely to have friends and relatives who are accountants than they are to have friends or relatives who are auto workers or textile workers. Hence the trade deals are explicitly designed to put the auto workers and taxtiles workers into direct competition with low paid workers in the developing world, while the accountants remain largely protected.

--Dean Baker

The NYT had a piece on the health care plans being put forward by the presidential candidates that seemed determined to frame the issues in a set of caricatures, where Democrats push for big government while Republicans like the market. It makes this assertion at several points, at one point even telling readers mockingly that "Democrats are competing furiously among themselves over who has the bigger, better plan to control costs and to approach universal coverage.”

But is this government/market distinction accurate? Do the Republicans favor ending the subsidies for the private insurers operating within the Medicare program that the Medicare Payments Advisory Commission estimates at 12 percent per beneficiary? Isn’t a government subsidy a form of government intervention?

Do the Republicans favor eliminating government granted patent monopolies that raise the price of prescription drugs and medical supplies to levels that are many times the free market price? Aren’t government imposed monopolies a form of government intervention?

In short, the NYT piece is written entirely from the Republican perspective in which the interventions they support, which have the effect of redistributing income upward and making health care more expensive, are disguised as being simply the natural workings of the market. On the other hand, the efforts of the Democrats to restructure the market to make it more workable (e.g. mandating coverage to eliminate the problem of adverse section) are mocked as “big government.”

[Btw, the NYT article does not mention once the Medicare for All, single-payer proposal put forward by Representative Dennis Kucinich. This is the only health care reform plan that has any mass-based support. Maybe one of their investigative reporters could track down Kucinich’s website and uncover some of the details of this proposal.]

--Dean Baker

USA Today reported the results of a survey of employers' hiring plans' but managed to misrepresent the results of its own survey. While the article was headlined "more employers plan to hire than fire," and presented a positive picture of the labor market, the survey results actually suggest a further weakening of the labor market.

The survey found that only 35 percent of employers expect to increase staffing in the third quarter, down from 41 percent in the second quarter. (The percent expecting to decrease staffing fell from 8 percent to 5 percent.) This suggests that hiring will slow from a second quarter pace that was already fairly weak, with the private sector adding less than 100,000 jobs in each of the first two months of the quarter.

The survey also indicates that wage growth will slow further, with fewer employers expecting to give wage increases to their workers, and the size of the wage increases expected to be slower. Nominal wage growth has been close to 3.2 percent in recent months, down from 4.0 percent last year. Wages did not keep pace with inflation earlier this year because of the rapid run-up in energy costs. If wage growth slows further, workers will just be keeping pace with inflation even if energy prices stabilize.

Given the relatively low rate of unemployment, this is the time when it would be expected that workers start to receive healthy gains in real wages. This survey suggests that such gains are not likely in the third quarter.

--Dean Baker

The NYT had an article today on the increasing delays in air travel. There have been other pieces in recent months about other ways in which service has deteriorated, such as increased crowding and dirtier, less sanitary planes.

I find this especially interesting because I remember back in the days when there was a debate over the accuracy of the consumer price index (CPI), all the big honchos in the profession argued that the CPI overstated inflation because it didn't fully pick up improvements in quality. I was arguing the other side, pointing out that there were also cases where the CPI missed deteriorations in quality. Air travel was one of my main examples.

One of the reasons that air travel has come down in price is that airplanes are almost completely filled. This is obviously efficient from the standpoint of the airlines, because the marginal cost of carrying an additional passenger is close to zero as long as there are empty seats.

However, it makes a big difference to the passengers whether a plane is filled or one third empty. On a plane that is one-third empty, everyone has a vacant seat next to them (or a wiindow/aisle seat). How much more would you pay to be guaranteed a vacant seat next to you?

Anyhow, the CPI picks up the price decline allowed by fully booked planes, it missed the deterioration in quality associated with more crowded planes. In this area at least it clearly overstates inflation. For some reason, the honcho economists were not interested in looking at this one.

--Dean Baker

The Post had an article this morning reporting on an experimental cancer treatment in China which a pharmaceutical company in the United States claims is "stolen." While there is an important issue about safety standards (China is almost certainly far more lax than the United States), this is an interesting example of how patents can impede the development of new drugs.

Assuming the the U.S. firm is correct in its claim that the Chinese company is infringing on its patents (this is disputed), then effective patent enforcement would have prevented the Chinese firm from advancing research on this form of treatment. Science advances most quickly when results are fully public and all researchers are allowed to carry through research that they deem important. In a world where the quest for patent monopolies closes off large areas to researchers, medicine will almost certainly advance less quickly than in a world in which all research is fully public.

--Dean Baker

The Washington Post has a piece on hedge funds today which notes the recent problems with two funds operated by Bears Stearns and then comments that “the system may not be as crash-proof as once thought.”

This comment raises the obvious question, why on earth would anyone think that hedge funds are crash-proof? Haven’t they heard of Long Term Capital (mentioned later in the article)? How about Amaranth?

Hedge funds are distinguished from other funds by the fact that they have virtually no disclosure requirements. They can be investing in anything, taking enormous risks, and no one would know it. Furthermore, the compensation structure for managers gives them huge incentives to take enormous risks. Anyone who thinks this is likely to produce a crash-proof system must be on some really wild drug.

I don’t care if rich people want to gamble in these funds (although I want to see their gambling taxed in the same way that gambling at casinos and state lotteries is taxed – a modest financial transactions tax will do the trick). However, it is outrageous that many private and public pension funds are getting into the act, quite likely in many cases having no idea what they are doing. (The public has grounds for concern about the private funds, because we guarantee the pensions.) If these bets go bad, as many no doubt well, I hope that the pension fund managers are held personally liable if they made investments in hedge funds where they did not understand how they money is being invested. These pension fund managers get good salaries – we can hire high-school kids at the minimum wage if the point is to throw money in the garbage.

--Dean BakerPosted at 11:23 AM | Comments (9)