The NYT had a very interesting piece about a new laptop computer, designed for the developing world, which is supposed to sell for $150 a piece, with the price projected to drop to $100 in a couple of years. (The computer uses a Linux operating system.) While this sounds like it could potentially be a great advance for people, and especially school children, in the developing world, the article reports that the innovator behind the project insists that people in rich countries should pay $450 for Dell computers.

The reporter should have pressed this one a bit. According to the article, the manufactuer will be making a profit selling the computer at $100-$150. What's wrong with letting people in rich countries also benefit from this technology? It won't take away the benefits for the poor. A good reporter would ask this question. Fortunately, markets being what they are, the computers will find their way into rich countries regardless of the innovator's intentions, but it would seem to make more sense to just let anyone buy the computer who wants it at the going price.

--Dean Baker

Chris Farrell demonstrated the incredible contempt with which the elites view the American public in his comments on MarketPlace this morning. He assured us that "everyone" agrees on what a solution to the Social Security solvency problem looks like. At the top of his list was raising the retirement age.

All the polls that I have seen show that large majorities of the public (more than 60 percent) strongly oppose raising the retirement age beyond 67 (the age reached in 2022 in current law). This leaves one wondering who is the "everyone" in Mr. Farrell's world.

I assume that he is referring to some group of policy types who he talks to. Of course, all the policy people I talk to know that the non-partisan Congressional Budget Office projects Social Security to be fully solvent until 2046 with no changes whatsoever. Even after that date it will always be able to pay much higher benefits than current retirees receive, even if no changes are ever made. Given the distant and relatively modest shortfall projected for the program, everyone I know agrees that it make no sense to waste time changing the system now. This is an especially bad time to address the program's long-term problems because the enemies of Social Security have spread so much ill-founded fear about its future.

Maybe one day, the vast majority of the public, who strongly support Social Security, will get to be somebody on MarketPlace Radio.

--Dean Baker

We keep hearing about the failings of the U.S. education system. Economic columnists give us endless examples of such failings. Alan Sloan, a columnist for Newsweek, the Washington Post and MarketPlace radio gives us a beauty in a column that appeared in some form in all three venues (here's the Newsweek version.)

Sloan notes that Social Security is projected to need to draw on its trust fund in about a decade. He says that at this point "we'll fix Social Security by again increasing payroll taxes and trimming the benefit formula."

Now, if Mr. Sloan understood how government bonds worked, he would know that they have value, that's why people all over the world hold them and in fact are willing to hold them at a very low rate of interest. When Social Security starts drawing on the trust fund it will simply redeem its bonds at the U.S. Treasury, just as tens of millions of people, corporations, and banks have done over the years.

Of course, the Treasury will need the money to repay these bonds, just like it need money to repay the bonds held by individuals, corporations, banks and foreign governments. The bulk of the money the Treasury gets to repay its bonds comes from individual and corporate income taxes.

Now, if Alan Sloan had some basic understanding of how U.S. bonds work, he might want to point out that the debt of the government and the annual deficit are considerably larger than the conventionally used numbers which only refer to bonds held by the public (the debt an deficit are approximately $3 trillion and $200 billion larger, respectively). But, this is not an issue about Social Security financing, it is an issue about the general budget. If economics columnists knew how government bonds worked, perhaps the public would be better informed on budget issues.

--Dean Baker

Okay, you all knew that one wasn't true. Any reporter at a major newspaper who wrote an article on the prospects for the auto industry and only talked to representatives of the UAW would quickly be out of a job. The question then is why is it okay for reporters to write a story on the state of the real estate industry and only to talk to representatives of the National Association of Realtors (NAR), an organization whose members make their living by selling houses?

I should also note that one of the two sources was David Lereah, the chief economist at the NAR and the author of the 2005 bestseller Why the Real Estate Boom Will Not Bust And How You can Profit From It.

-- Dean Baker

Economists like to make very simple propositions seem very complex. (How else could they command large salaries?) Trade is one such case. Since there seems to be so much confusion, let me lay out the basic story here.

The gains from trade stem from the possibility of getting goods or services cheaper from abroad than they can be produced here. This doesn't mean that everyone or even most people gain, it just means that the economy as a whole is richer (I'm ignoring a few qualifiers here).

Suppose we find a country where people will build cars for 10 cents an hour (it doesn't matter whether these workers want the job or are slaves threatened with death). We will get cheaper cars by purchasing them from this country. Of course the wages of autoworkers in the United States will fall until they can compete with the 10 cent an hour labor, or they will lose their jobs. In other words, bad news for autoworkers, good news for all carbuyers.

Suppose we find a country where people will work as doctors for 10 cents an hour (it doesn't matter whether these workers want the job or are slaves threatened with death). We will get cheaper medical services by purchasing them from this country. Of course the wages of doctors in the United States will fall until they can compete with the 10 cent an hour labor, or they will lose their jobs. In other words, bad news for doctors, good news for all people who need health care.

For the last quarter century, U.S. trade policy has been about finding countries where autoworkers and other manufacturing workers earn 10 cents an hour. It has not sought to find countries where doctors and other professional workers earn 10 cents an hour. In other words, manufacturing workers and workers whose wages are likely to be affected by wages in manufacturing lose. Professionals win. It ain't the free market, it's selective protectionism.

The worst part of the story is that the winners are too dumb or too dishonest to acknowledge that they won because they had the government on their side, so they go around gloating about having what it takes to succeed in the global economy.

--Dean Baker

By my count, Thomas Edsall found the need to use the word "protectionist" 5 times in his attack (TImes Select) on the populist appeal of many of the Democrats who won seats in Congress this month. It's too bad that he couldn't refrain from name-calling long enough to think about the underlying issues.

The basic point is very simple: recent trade deals have been designed to put less educated workers in competition with low-paid workers in the developing world. This drives down the wages of less-educated workers (people without college degrees) in the United States. Lower wages for less educated workers benefits higher paid workers like Thomas Edsall because it means that they can buy their manufactured goods for less and pay less when they have work done on their home or garden or hire a nanny.

We did not have to design our trade deals this way. We could have sat down with the trade representatives from Mexico, India, and China and asked them what obstacles are preventing their children from being trained to U.S. levels and working as doctors, lawyers, economists and newspaper columnists in the United States. If we had done this 20 years ago, we would have an enormous supply of bright and well-trained people from the developing world who would be working in these jobs at a fraction of the pay of Mr. Edsall and his friends in professional positions. This trade policy would benefit less-educated workers because they would get lower cost health care, college education for their children, and pay lower prices for all the goods and services in which the pay of professionals is a substantial share of the total cost.

Mr. Edsall would know this if he ever gave any thought to what he writes about, instead of just calling people names.

--Dean Baker

The Washington Post just won't give it a rest. Just after a new Congress was elected, in part in response to President Bush's effort to privatize Social Security, the Post editorializes that it is now a great time to "reform" Social Security. Columnist Sebastian Mallaby also threw in another diatribe for good measure.

The Post is more honest than usual in today's column, noting that the program is solvent for the next 35 years according to President Bush's Social Security Trustees (40 years according to the non-partisan Congressional Budget Office) and that the projected explosion in health care costs implies that Medicare is a much bigger problem, but then argues that workers need time to plan for their retirement.

While time for planning is great, one might think that 20 years is plenty. Furthermore, the Post's editorialists were unconcerned about the impact that the impending collapse of a stock market bubble would have on people's retirement plans in the late 90s and they also seem unconcerned about the impending collapse of the housing bubble at the moment.

I continue to adhere to the old-fashioned view that we should focus on big and immediate problems rather than distant and minor problems. Unfortunately, there is no place for this view on the Post editorial pages -- when was the last time they had a peice defending SS on their oped page? Even worse, the Post regularly allows it editorial position to creep into its news reporting. News articles routinely refer to the need to "fix" Social Security.

There is no objective need to do anything for many years into the future. Remember, Congress and the President literally allowed the program to run out of money in 1982, we are 40 years away from this date at the moment. Congress was not negligent in the 60s when it created Medicare, Medicaid, and Head Start, even though the Post's editors would have insisted that it focus on the Social Security crisis that was less than 2 decades away at the time. (Actually, just a decade away , they had to raise taxes in the 70s as well.)

--Dean Baker

It is unfortunate that a debate over the economic agenda of the Democratic party seems to be starting from the Clintonites' framework. There are many important issues about economic policy at stake, but the question of a free market and free trade verse government intervention is not one of them.

Trade has played an important role in distributing income upward over the last quarter century not because it has been "free," but because it hasn't. The Clintonites, along with the Republican administrations that preceded and followed them, structured trade agreements that had as a goal putting manufacturing workers in direct competition with low-paid workers in the developing world. The predicted result of such competition is to drive down the wages of manufacturing workers in the United States. Since manufacturing has historically been a source of high wage jobs for less-educated workers (i.e. the 70 percent of the workforce that lacks a college degree), this pattern of trade had the effect of lowering the wages of large segments of the middle class.

If the Clintonites had really been interested in free trade and economic efficiency they could have designed trade agreements that put highly paid professionals (e.g. doctors, laywers, accountants and economists) in direct competition with their much lower paid counterparts in the developing world. Instead, the Clintonites preserved and in some cases even increased the protectionist barriers that limited such competition.

There are many other ways in which the Clintonites supported protectionist measures (yes, enhanced patent and copyright protection top the list), as always you can get the fuller story in my free e-book The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer.

There is an important debate here, but if it takes the form of a battle between supporters of the free market versus supporters of government intervention, then it is a debate that is hugely stacked in favor of the Clintonites and the real issues will never be discussed.

--Dean Baker

The NYT business section had a column today urging cautious optimism about the economy's future. While the case for pessimism is clear enough (crashing housing market leads to continued declines in housing related sectors, which are soon amplifed by falling consumption, as consumers lose the ability to borrow against homes that have lost value) the article does not make much of a case for optimism.

The article notes that capacity utilization has been falling for the last three months. I thought this was going to be an argument for pessimism, since firms are less likely to invest when they have considerable excess capacity. Instead, this is cited as a basis for optimism (room for expansion -- no inflation). In fact, the story on utlization is even worse than the data in the article suggest. The recent increase in utilization has been mostly in the mining sector, utliization in the manufacturing sector is just 1.3 pp higher than its year ago level and down 0.7 pp from its August peak.

The article also provides reassurances that consumers will continue to support the economy. This is a nice thing to say, but where do they get the money when they can no longer borrow against their homes? Job growth is slowing, and even if gas prices level off, real wage growth will only be in the 1 percent range. Less borrowing means a rising savings rate, which means that consumption growth trails income growth. Add this to a collapsing housing market and weak investment and you get sustained growth? Not where I come from.

--Dean Baker

Lobbyists and politicians often try to obscure issues when they advocate positions favored only by relatively small special interest groups. They did their job well in helping to frame a Washington Post piece on the Medicare drug benefit.

The article discusses the possibility of having Medicare negotiate drug prices directly with the industry, a position strongly opposed by the Washington Post editorial board. One would be hard-pressed to figure out what is at issue after reading this piece.

For example, the article raises the possibility that if Medicare negotiated prices directly with the industry, it “could drive prices higher.” Yes, this must be why the industry is lobbying so hard against having Medicare negotiate prices. They are worried that it would cause them to charge higher prices and get higher profits.

The article then raises the other potential downside of negotiated drug prices “it could significantly lower drug-company profits and discourage medical innovation.” Okay, let’s check reality here. Absolutely every person I know who supports having Medicare negotiate prices with the drug industry believes and hopes that such negotiation will lower industry profits. This is not a negative side effect of the policy – it is the point.

Will lower profits reduce innovation? Well, let’s postulate that it will have a non-zero effect. But, lower prices may also mean less marketing (the industry spending approximately as much on marketing as it does on research). It might also mean less copycat research (according to industry’s own analysis, approximately two-thirds of its research spending goes to developing copycat drugs). And, it might mean that the annual compensation of the top execs in the pharmaceutical industry falls back into the low millions.

The serious question is not whether research spending will be reduced; the question any serious person would ask is by how much. If the country saved $40 billion a year on drug prices and the industry therefore cut spending into innovation drugs by $100 million would this be a bad deal? Perhaps it would be at the Washington Post, but not in the real world.

The article also gets one very important thing wrong. It claims that patients of the Veterans Administration can only get drugs on the VA formulary. This is not true; they only get very large discounts on the formulary drugs. If their doctors specifically prescribe a drug not on the formulary, then they can get this drug, they just have to pay a price comparable to what they are charged now under the Medicare prescription drug plan.

The facts on this one are simple; the industry can profitably sell drugs to Medicare at the same prices that it sells to the Veterans Administration, Canada, or every other rich country in the world. The industry makes money on all these transactions or they would not make them. Will the industry lie, cheat, and buy politicians to try to avoid lowering their prices in the huge U.S. market? Of course, welcome to the real world.

Are there downsides from these sorts of price cuts – yes and these should be discussed. But we can’t have a serious discussion until the real facts are on the table.

-- Dean Baker

Serious newspapers try to separate their editorial pages and their news reporting, but not the Washington Post. As regular Post readers know, the editors desperately want to cut and/or privatize Social Security. The program's overwhleming popularity, coupled with the fact that the Congresssional Budget Office's projections show Social Security to be fully solvent for the next 40 years, with no changes whatsoever, makes the Post's position difficult to sell. So, the Post never misses an opporttunity to try to impugn the financial health of the porgram.

A short article on the front page of the business section refers to both "the rising costs of Social Security and government health-care programs" and "the escalating costs of Social Security, Medicare and Medicaid" which are projected to double in the next fifty years.

Of course, the problem here it is with Medicare and Medicaid, whose costs are driven by projections of rapidly rising private sector health care costs. But, the Post isn't interested in fixing the country's health care system, it wants to cut Social Security, so its reporters lump Social Security in with the other two programs and imply that the problem is demographics.

--Dean Baker

I know that I shouldn't waste time beating up on Thomas Friedman, but hey, it's fun. Today he is back in classic Thomas Friedman form, drafting the memo (Times select) that Nancy Pelosi should send to China's President Hu Jintao.

Speaker Pelosi's memo begins with some incoherent commitments on energy efficiency: "First, China has committed to a 20 percent reduction in energy consumption for every 1 percent of G.D.P. growth by 2010." This one requires a very big "huh?"

But the really good part is the economic bargain. Ms. Pelosi goes on to propose that Mr. Hu invest his trillion dollars of foreign exchange reserves in U.S. factories devoted to green power technologies. She then tells Mr. Hu that the United States has some great engineers who can design cleaner motorcycle engines for China.

Now, let's all draft Mr. Hu's memo responding to Ms. Pelosi's note.

Dear Speaker Pelosi:

First, my congratulations on your victory in the November elections.

While I share your desire to increase energy efficiency, I am afraid that I don't understand the targets described in your note, therefore I am not in a position to respond to your proposals on this issue.

As far as your suggestion that I invest $1 trillion in factories producing clean technologies in the midwest, I have to remind you that production costs are far lower here in China. That is why so much of your industry has been moving here over the last decade. Insofar as we choose to develop these technologies, clearly China would be the lowest cost location in which to manufacture the products.

While I am glad to hear that the United States has engineers who know how to produce cleaner motorcycle engines, China also has such engineers. In fact, we are producing engineers at a faster rate than the United States and they work for much lower wages.

So, I appreciate your suggestions, but I think that we will be pursuing other options for the moment.

Best Regards,

President Hu

-- Dean Baker

The Wall Street Journal features a long piece today noting the growth in inequality and what the Democrats might do about it. Remarkably, the article never once examines how the government, under both Democratic and Republican administrations, has structured the market in ways that shift income upward.

Can a Wall Street Journal reporter really not have noticed that U.S. trade and immigration policy has been focused on putting less educated workers in competition with the developing world, while largely protecting highly paid professionals like doctors, lawyers, and Wall Street Journal reporters from having to compete with their counterparts in the developing world? Do Wall Street Journal reporters think that the patents and copyrights that made Bill Gates and the Silicon Valley kids rich came from god?

Posing the question as one where the government is trying to redress inequality generated by the market is stacking the deck. The government structured the market in ways that lead to massive inequality. The market can be structured other ways. Yes, this is yet another pitch for the Conservative Nanny State. But, remember, the book can be downloaded for free, and once you read it, you will never be as ignorant as a Wall Street Journal reporter again.

--Dean Baker

Washington Post columnist Sebastian Mallaby rivals Thomas Friedman as a cheerleader for the U.S. trade agenda. He made yet another appeal on Monday, using arguments that he shoud know are fallacious.

One of these ranks high on my list of all-time favorites for fallacious arguments. He makes the case that growth is the key for reducing poverty (this is true) and then argues that trade is essential for increasing growth:

"And growth, in turn, is highly correlated with trade openness. One World Bank study showed that poor countries whose trade grew as a share of the economy recorded gains in income of 5 percent per year in the 1990s; by contrast, poor countries whose trade did not expand had no income gains whatever."

The problem with this one is simple. Every country uses trade as a mechanism to promote growth. Some are successful, some are not. The ones that are more successful in increasing trade are also more successful in growing. In other words, increased trade is an outcome variable, not a policy variable. Research that has focused on the relevant policy variables (e.g. reductions in tariffs and quotas) has found much more ambiguous results.

Mallaby also notes the efforts of anti-poverty groups to target farm subsidies as a way to help the world's poor. While there are good reasons for cutting these subsidies (many subsidies are corporate welfare for large farms and bad on environmental grounds), the evidence actually shows a very mixed impact on the world's poor. Some of the poorest countries will actually be hurt if subsidies for agriculture are cut. (They are net consumers of agricultural products, they are hurt when prices rise.)

The Post seems to have endless space for diatribes that support U.S. trade policy. It would be nice if the Berlin Wall on this issue could be opened and they would occasionally print something critical of U.S. trade policy.

-- Dean Baker

The commentary on Mitlon Friedman's passing reminded me of the permanent income hypothesis, one of his most important theoretical contributions. The basic argument is that people will plan their annual consumption based on their expected income over their lifetime, not their income at a point in time.

There is a simple logic in this. If someone has a temporary falloff in income, for example if they lose their job, we don't expect their consumption to fall by the same amount. Similarly, if someone has an especially good year (lots of overtime or big gains in the stock market) we don't expect them to spend all this money at once. So the idea that consumption would not respond to transitory changes in income in the same way as permanent changes in income seems intuitively reasonable.

However, there is a stronger version of this story that Friedman and some of his followers sought to promulgate. This was the view that consumption was largely unresponsive to temporary changes in disposable income, like temporary tax cuts. Therefore, there is no point in using temporary tax cuts as a way to boost the economy out of a recession. In this view, only permanent changes in the country's tax code have an impact on consumption.

I will admit to not being up-to-date on the latest research on the topic, but I recall in grad school reading an article by Stanford University Professor Robert Hall that sought to support Friedman's case. Professor Hall regressed changes in consumption against changes in disposable income. In support of the permanent income hypothesis, he found that only permanent changes in income had a significant impact. Temporary changes in taxes did not affect consumption.

Unfortunately, there was a big problem in Professor Hall's test that was pointed out by one of the students in the class. Professor Hall excluded durable goods like cars and dishwashers from his analysis because these items provide a flow of services over a period of time. They are not consumed in a single quarter or year.

While this move may be reasonable on conceptual grounds, it completely undermined the policy conclusion that Hall drew from his evidence. If consumers rush out and buy durable goods in response to a temporary tax cut, it will give a boost to demand just as the Keynesians would argue. In other words, if we don't know how purchases of durable goods respond to temporary tax cuts, we have no basis for assessing the impact of temporary tax cuts on the economy.

Again, I can't speak for the subsequent research, but the policy conclusions drawn from article would appear to be a case of irrational exuberance by one of Mr. Friedman's followers.

--Dean Baker

I feel so old. Back when I learned economics, they taught you that in free markets prices adjusted to bring supply and demand into line. But, these days we keep hearing about how there are labor shortages that can only be addressed by finding lower paid workers in other countries to take the jobs. According to the NYT, the latest case is Poland, where apparently all the construction workers have gone to work in Western Europe.

What makes this story especially annoying to those of us who learned the old economics is that the wages of workers in the occupations facing shortages have been falling relative to the wages of workers in occupations not facing shortages. Many economists have sought to explain the relative decline in wages for less-educated workers as the result of skill-biased technical change (i.e. computer technology reduces the relative demand for less educated workers), but how do we reconcile a story of skill-biased technical change with recurring shortages of the workers who we supposedly don't need any more?

-- Dean Baker

I am a bit slow commenting on the passing of Milton Friedman because I was travelling and having connectivity problems (in Montainview, CA, the homeland of Google), but I will now chime in with my two cents.

First, I would take issue with claims about him being proven right on macroeconomic questions. Milton Friedman was the author and main promulgator of the money growth rule. His gospel was that we did not need the Fed, we just needed a computer that would increase the money supply by 3 percent annually. While central banks did experiment with this approach (including the Volcker Fed), I don't think that anyone in the world (not even Milton Freidman at the time of his death) still believes that this is a good way to manage monetary policy.

One can view the current inflation targeting fad as a variant of the money rule, but even here there are few advocates of a strict target. Most proponents of inflation targetting support targetting with a human face, which is little different than monetary policy with a goal of maintaining low rates of inflation.

His natural rate of unemployment hypothesis also ran into serious trouble in the late nineties. I won't repeat my diatribes following the awarding of the Nobel Prize to Edmund Phelps, but a "natural rate" of unemployment that seems to move around frequently and unpredictably (and possibly in response to actual rates of unemployment), is not very natural.

I will give Friedman more credit on the political economy front. His views here certainly did have a huge influence on the world and I would agree that we should all think long and hard about a situation in which we are going to have the government tell people that they can't engage in some economic transaction in the manner in which they choose.

Having said that, I think he and his followers are far too willing to accept government interventions that have the effect of shifting income upwards as just the natural working of the market. Regular readers of BTP know my shtick on this topic. The natural workings of the market don't give us patent and copyright protection -- that comes from the government: Bill Gates owes his good fortune at least as much to the government as his talent and hard work.

Corporations are also creations of the government. It is the rules created by the government that make it easy for CEOs and other top management to rip off shareholders and other stakeholders, not the market. Similarly, the Wall Street folks get rich because they can use their political power to ensure that they are allowed to run gambling casinos without paying any taxes. (Imagine a Las Vegas casino that didn't have to pay the Nevada state gambling tax.) And of course, doctors, lawyers and other highly paid professionals earn so much more than dishwashers and custodians because of government protection (actually Friedman agrees with me on this one).

I would also note that in my "free market" utopia, workers have the right to organize unions and bargain collectively. This right is absent in Mr. Friedman's world, hence his association with Chilean dictator Augusto Pinochet, who imprisoned tortured and killed people for union activity. As always, you can get my story free on-line in The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer.

I only saw Milton Friedman in person once, but it made a lasting impression on me. About a decade ago, I stumbled into the wrong session at the American Economics Association Convention. Milton Friedman was weighing in on the impact of various presidents' councils of economic advisors. He was pointing out that many measures of considerable economic importance often get little scrutiny. The particular example I remember him discussing was the Americans With Disabilities Act, which requires businesses to make reasonable efforts to make their places of business accessible to employees and customers with disabilities. I stayed long enough to hear Mr. Friedman argue that this act imposed enormous costs on "normal people." I am afraid that I do see some important things differently.

-- Dean Baker

Yes, that is what the NYT headline said about the 0.2 percent decline in sales reported for October. The consensus forecast was a 0.4 percent decline. Of course, September sales were revised down from a drop of 0.4 perrcent to a drop of 0.8 percent. This means that October sales were 0.2 percent below the consensus forecast. This is beating expectations?

--Dean Baker

Educated people know that protectionism is bad -- free trade is the way of the future, protectionism is the Neanderthal past. But, of course protecting intellectual property is good, and people who don't support protecting intellectual property are bad. And, by the way, we never talk about the cost of protecting intellectual property.

If anyone cared about consistency, we would have some problems here, but fortunately we have the NYT to guide us through this slippery terrain. Take this gem that appeared in an article on enforcing protection for intellectual products in China:

"Protectionists in the United States have become an increasingly vocal group, he said in a speech to business executives, adding,'and they point to the lack of robust I.P. protection in China as a top reason why we should put protectionist policies in place.'"

Without the help of the NYT how would we ever be able to distinguish the good protectionists from the bad protectionists?

--Dean Baker

In an article discussing the prospect for new trade deals with the Democratic Congress, the Post again uses the term "free trade" to describe these agreements. As BTP readers know, these deals are not really free trade agreements -- they generally do little to reduce the barriers that protect the highly paid professionals (e.g. doctors, lawyers, economists) and they increase protection for intellectual products -- so it is inaccurate to call them "free trade" agreements.

This is not just semantics. The Post, and other media outlets, are actively misleading the public about the purpose of these trade agreements. At one point the article comments that the discontent with trade follows "more than a dozen years of efforts by the Bush and Clinton administrations to boost trade by opening foreign markets to U.S. goods while allowing greater access to imports from China, Latin America and elsewhere."

Well, it is very questionable as to whether the prime purpose of these agreements "open foreign markets to U.S. goods" and "allowing greater access to imports." Large chunks of NAFTA were devoted to investment rules and tightening patent and copyrighgt protection in Mexico. It would be more accurate to describe the agreement as a plan to facilitate the shift of U.S. manufacturing capacity to Mexico and increase profits for producers of intellectual products.

This isn't being nitpicky, the public should understand that the loss of manufacturing jobs to the developing world and the resulting downward pressure on the wages of workers without college degrees is not an accidental outcome of these trade deals, it is the point. Economists can still argue that these deals are beneficial to both the United States and the developing world, but it would be nice if the media could be more honest about what is at issue.

--Dean Baker

John Tierney did a little hit and run job, tossing out a few more outlandish claims in what is his last NYT column. While I ordinarily am inclined to ignore him, since we apparently won't have John Tierney to kick around anymore, I will highlight one of his errors.

Tierney claims that the Democrats proposed expanding several programs, " but they’ve been vague about how to pay for them." Well, the biggest program on this list is the Medicare prescription drug benefit. The Democrats have proposed reducing the size of the "doughnut hole" gap in coverage by having Medicare negotiate prices directly with the pharmaceutical industry, in the same way that the Veterans Administration does. This is not a vague concept, it is very clear what the commitment is (whether the Dems follow through is another question).

Anyhow, BTP wishes Mr. Tierney well in his new job as writer for the NYT Science section.

--Dean Baker

For those who think that I hate the NYT, I have a big surprise; some gushing praise. An editorial in today's paper hits a real home run, trashing efforts to water down the corporate accountability rules in Sarbanes-Oxley.

The editorial gets it exactly right, putting Wall Street's quest for weaker rules in the context of global competition for business. As the editorial notes, Wall Street is losing market share, not because of accountability rules, but because it charges too much. (Ever wonder where those $100 million paychecks come from?)

Corporate management decides where to list shares, arrange mergers and buyouts, and carry through other financial business. Wall Street hopes that by weakening rules that protect investors against management abuses, it can make itself a relatively more attractive market to corporate management. This is a protectionist move in the same vein as the steel industry's efforts to get higher tariffs back in 2001.

[I previously had said in this post that former Treasury Secretary Robert Rubin was one of the people behind the effort to weaken SOX (now removed). I have now re-read the original NYT article, after seeing a comment by DRR, and can find no reference to Robert Rubin and his support for weakening SOX. I am not quite sure how I could have imagined his name appearing in an article, but I will assume that I somehow misread the piece. I apologize to Mr. Rubin and BTP readers for spreading inaccurate information on this one.]

-- Dean Baker

The Post had yet another piece attacking plans to reform the Medicare drug benefit, although they at least had the decency to put their latest shot on the editorial page.

Recognizing the artistic license that such pieces enjoy, this one still exceeds the bounds. The writer, an economist at a right-wing Italian think tank, warns against Italy's mistakes in regulating drug prices. For example, he claims that the regulation of drug prices makes it difficult for people to get reliable information about drugs. Well, in the United States, the incentives created by unrestrained patent monopolies has created a massive industry designed to deceive patients and doctors about the effectiveness of drugs.

We are also told that regulation of drug prices has led to rapid medical care inflation in Italy over the years from 1998-2003. Yep, it's been more rapid in the United States over the same period (about 25 percent, according to the OECD).

Then we are told that the pharmaceutical companies have moved their research out of Italy because of the price controls. If this is true, then it means that the industry is trying to use its investment decisions to affect politics, it has the exact same protection for its research regardless of which country it is done in. A profit maximizer finds the lowest costs for research, it is irrelevant what the price drugs sell for in the country.

Finally, he implies that in a free market drug prices are expensive. WRONG, in a free market drugs are cheap -- Wal-Mart sells them for $4 per prescription. It is only government granted patent monopolies that make drugs expensive.

--Dean Baker

The NYT has an article today about the University of Alabama's efforts to prevent an artist from painting pictures of their football players. Its case includes a request to prohibit his use of the school's "famous crimson and white color scheme."

This is intellectual property rules gone crazy. It is also an extreme form of protectionism. Unfortunately, the NYT reporter never mentioned the economic angle here. If you impose a 10 percent tariffs on shoes, the Thomas Friedman crew start foaming. But, if you put an outright ban on a whole form of art (it ain't my bag, but people apparently buy it), they don't even think it's worth mentioning. If only we could require some minimal level of consistency among columnists (and economists).

--Dean Baker

The Washington Post editors, along with most of its columnists, have long advocated cutting and/or privatizing Social Security. Unfortunately, this position infects their news reporting as well, as illustrated with a front page story discussiong the alternative minimum tax. The article lists a set of "ticking time bombs set to explode soon after the 2008 presidential election." Yes, this list includes Social Security.

Well, if anyone at the Post had access to the CBO website they would know that the program will be running an annual surplus of more than $200 billion at that point and is projected to continue to running large surpluses for more than a decade after 2008. And, its accumulated surplus is projected to be suffiicient to keep the program fully solvent until 2046 with no changes whatsover.

I guess the Post is trying to give new meaning to the word "soon."

--Dean Baker

The New York Times continues its crusade to cut and/or privatize Social Security by again referring to efforts to restore the long-term solvency of the program. Since the program already has long-term solvency (through the year 2046, according to the Congressional Budget Office), this is a phony problem.

Of course it's fine that people want to restructure the program, but it is simply not true that there is any need to do so over any reasonable time horizon. It would be nice if the Times reporters could be a bit more honest in their discussion of the topic.

-- Dean Baker

You've heard it here before, but those who want to hear my rant again can find it at Lame Duck Hunt.

--Dean Baker

I have been told by people who know such things that the Dems are looking at ways to allow Medicare to negotiate prices with the drug industry, without offering its own plan, that actually would be meaningful. For example, it could negotiate a set of prices that would apply to all the insurance plans included under Part D. This seems unduly complex, but it could lead to lower drug prices.

Whether they end up going this route and designing something that actually reduces drug prices, or whether they do something that is purely symbolic, remains to be seen. The moral of the story is that everything will depend on the details of how any reform measure is structured. If the public is not informed of these details, it will not be able to distinguish between a substantive measure and a purely symbolic one until it is time to pay the bills.

--Dean Baker

One of the items on the Democrats' "100 hours" agenda is reforming the Medicare prescription drug bill. The bill passed by the Republican Congress prohibited Medicare from offering its own plan. This denied seniors the benefits of Medicare's lower administrative costs (@ $5 billion annually, or $200 per enrollee, according to CBO) and it means that drugs cost almost twice as much as if Medicare bargained directly with the industry and secured the same prices as the Veterans Administration or the Canadian government. The Republicans also added a seemingly gratuitous clause that explicitly prohibited Medicare from negotiating prices with the industry.

During the campaign, the Democrats had promised that they would reform the drug bill to allow Medicare to offer its own drug plan. On NPR this morning, it was reported that the Democrats now are just planning to remove the gratuitous clause prohibiting Medicare from negotiating prices with the drug industry, while not allowing Medicare to offer its own plan.

Removing this prohibition by itself will mean nothing. What would Medicare negotiate over, if it doesn't offer its own plan? This could lead cynics to believe that the Democrats are trying to pull in some of the campaign contributions from the pharmaceutical and insurance industries which have disproportionately gone to Republicans in recent election cycles.

Fixing the prescription drug benefit to save seniors and taxpayers money was one of the main promises made by the Democratic Party during the campaign. If they instead pursue a purely symbolic measure, with no practical significance, millions of people who voted for them on Tuesday will rightfully feel betrayed.

The media have the obligation to be sufficiently educated on this issue so that they can at least inform the public if such a betrayal is taking place. NPR's reporter was not.

-- Dean Baker

In a short piece on the Democrats' top agenda items, one of their reporters discussed their plan to raise the minimum wage. In noting the objections of small businesses, he said that they are worried that a higher minimum wage would raise costs and force them to lay off workers.

Well, maybe they are concerned about having to lay off workers (a large body of economic research shows little or no employment impact from modest increases in the minimum wage), but it is reasonable to believe that they are also concerned about the prospect of lower profits. Is it too radical on National Public Radio to say that small business owners care about profit?

--Dean Baker

It just keeps getting worse. The NYT's "Economic Scene" is giving advice on investment based on the assumption that income tax rates may increase by 80 percent (that's percent, not percentage points) in the future. What is the basis for this projection? The basis is deficit projections that assume that per capita health care costs rise to 4 or 5 times the level in countries like Canada and Germany.

While this is not impossible, the best investment advice to give people planning retirement under such circumstances is to move to a country with a working health care system. Arghhhh, why does the NYT print such nonsense?

-- Dean Baker

The NYT told readers today that reducing the alternative minimum tax (AMT) would "involve a loss of hundreds of millions of dollars in revenue." Hmmm, where could we find that money?

Actually, they meant hundreds of billions -- that's what the bill would be over a ten year budget horizon. Depending on the exact fix, you're talking in the neighborhood of 1-2 percent of projected revenue.

The more important mistake is that the article doesn't really explain what is going on with the AMT. The AMT was put in place in the 80s to ensure that wealthy taxpayers could not abuse tax shelters to completely escape tax liability. It was intended to only apply to the highest income taxpayers, however it was never indexed to inflation. Congress has always voted to raise the levels at which the tax kicks in, but on the books, it is fixed indefinitely at its current level. This means that when the Congressional Budget Office (CBO) projectes revenue, they make their projections assuming that the AMT cutoff level is never increased. This means that CBO is projecting revenue that no one expects the government to actually receive.

This problem became worse with the passage of President Bush's tax cuts since the gap between taxpayers' liability with the new lower tax rates and under the AMT became even larger. Of course, the real issue here is that the CBO projections actually understate the deficit (brave BTP prediction-- Congress will adjust the AMT), not the cost of fixing the AMT. Under the law, CBO must make projections assuming current law continues into the future, but reporters should recognize reality and it is silly to assume that Congress will ever allow the AMT to apply to large segments of the middle class. And, yes our friends at the CBO make this information readily available (Table 1-4).

--Dean Baker

One aspect of the election that the media have largely ignored thus far is the fact that Republicans who were prominently associated with Social Security privatization took a beating on Tuesday. At the top of this list is Rick Santorum, who actively embraced President Bush's proposals. Last year, Santorum held town meetings around Pennsylvania touting the benefits of Social Security privatization. Last night, the people of Pennsylvania voted to send him out of town by a double-digit margin.

Clay Shaw, one of the leading proponents of Social Security privatization in the House, was also sent packing by his Florida constituents. Chris Chocola, an Indiana congressman who briefly flirted with Social Security privatization, was also soundly defeated in what had previously been a safe district.

After Tuesday's vote, the only politicians who are likely to be pushing Social Security privatization are those looking for a change of career.

--Dean Baker

New York Times economic columnist David Leonhardt seems to do a Jekyl and Hyde routine, alternating insightful analysis with painful renditions of the conventional wisdom. Mr. Hyde is out in all his glory today.

First, he talks about the solution to the Social Security crisis (while correctly noting that Medicare poses a much bigger problem). Well, who told him that it's a problem? Yes, the projections show that we will have to do something in the next 40 years to change the program to fully fund projected benefits. But, it really isn't that hard to sit down and make up modest shortfalls, the Greenspan commission figured out a solution in less than a year back in 1983. There is no obvious reason that we can't put off these decisions for 20 or 30 years when we have a better idea of what the future looks like, After all, the country does have real problems today.

Second, he goes through the story about health care costs requiring restrictions on expnesive drugs and procedures. In a world of big thinking we might ask why the drugs and procedures are expensive? The answer in most cases is government patent monopolies. In the absence of patent monopolies, Wal-Mart could be selling almost all drugs for $4 per prescription. The same applies to many medical procedures. In the 21st century, there are better ways to finance innovation than patent monopolies, a relic of feudal guild system.

Third, we have the discussion of global warming and the prospect of higher gas taxes or higher mileage standards. These are both reasonable measures, but is pay-by-the-mile auto insurance too bold to be considered by NYT columnists?

Finally, we have the possibility of an immigration policy that is designed to put downward pressure on the wages of highly paid professionals like doctors and lawyers instead of depressing the wages of less-educated workers, like the current immigration policy. This policy is now being advocated by Harvard Professor Benjamin Friedman, which just goes to show that if you say something long enough, someone important will think of the same idea. (Okay, I give Leonhardt credit for noting this one.)

Anyhow, we could hope for bolder ideas in a column that takes politicians to task for their lack of boldness.

--Dean Baker

We've all heard about the problem posed by "takings," when the government passes regulations that prevent property owners from developing their land. Well, the NYT has a piece about efforts by Maine residents to prevent a property owner from doing what she wants with her land, but it never discusses it in the context of takings. That is because the property owner is an environmentalist who wants to turn the land that she has bought into a park and exclude uses like logging and snowmobiling.

Of course the link between "takings" and environmental regulation is nonesense. The government takes actions all the time that raise or lower the value of property. Adults understand these risks when they buy property. Unfortunately, the media has chosen to treat the "anti-takings" crew as a serious property rights movement, instead of just a new approach to undermining environmental regulation.

--Dean Baker

The NYT had an article on projections showing that China is about to pass the U.S. as the leading emitter of greenhouse gases. While the article does point out the near complete failure of the world to do anything to stem the threat posed by global warming, it is almost deliberately uninformative.

For example, it notes the refusal of China and other developing countries to agree to restrictions on their greenhouse gas emissions, commenting that "China says rich countries bear responsibility for the increase in global carbon dioxide levels that has already taken place."

Well, this is not just something that China says, it happens to be true. The world would have no global warming problem had it not been for greenhouse gas emissions for the last two centuries by rich countries. This is important, because there is no possibility of a solution unless greenhouse gas emissions in developing countries are curtailed. In turn, this will not happen unless rich countries pay developing countries to curtail their emissions.

This information is essential; poor countries will not agree to incurr the cost of reducing emissions to prevent a problem caused by rich countries. That should be apparent to anyone with any commonsense. This means that the issue is not China, India and other developing countries. The issue is whether the rich countries are going to cough up the money to pay these countries. Anyone in the rich countries who does not support such payments (Al Gore, where are you?) is not serious about stopping global warming. Of course, no one reading this article would get any idea of the issues involved.

The article gives readers the aboslutely useless information that it will cost around $20 trillion to meet the world's energy needs over the next quarter century. Where does this $20 trillion estimate come from and how is it measured? On its face, the number is big and scary, but on a purchasing power parity basis, world GDP is already over $60 trillion. Cumulative world GDP over this period will likely be over $2,000 trillion (in 2006 dollars). Is this $20 trillion estimate in addition to current rates of spending or just projecting these rates into the future? I have no idea whether this projected cost is big or small and I doubt that any other readers of this article do either.

-- Dean Baker

I didn't do it. Besides, it was an accident. Yes, that appears to be the drug industry's line on allowing Medicare to offer its own prescription drug plan and negotiate prices directly with the industry.

The NYT gives us the official line from the drug industry's allies in the Bush adminisitration. Allowing Medicare to offer its own benefit would not save any money because the prices paid by the private insurers are already so low. It then cites the complaint from Ken Johnson, senior vice president at Pharmaceutical Research and Manufacturers of America that "allowing Medicare to negotiate directly would be unfair because the government had too much market power." It then quotes Mr. Johnson, “The government doesn’t negotiate prices -- it dictates prices."

Well either the Bush administration is right or the drug industry is right, but they can't both be right. (Yes, a good news story would have made this contradiction clear to readers.) I vote with the industry. Barring illegal collusion by the drug companies, Medicare would be able to negotiate prices comparable to what they pay in Canada. This would make it possible to eliminate the doughnut hole for beneficiaries and save the taxpayers some money as well.

--Dean Baker

In an earlier note I referred to a Wall Street Journal article that pointed out the large gap between the employment growth reported in the Labor Department's household survey and the job growth reported from its establishment survey. I took a quick glance at the recent data on Social Security tax collections and concluded that the proponents of the household survey may have a case.

I looked at the data more closely and must come down on the side of the establishment survey. The simple arithmetic looks like this. Social Security tax collections were up 5.35 percent in fiscal year 06 compared to fiscal year 05. The average weekly wage rose by 3.9 percent, which implies job growth of 1.4 percent. Reported job growth in the establishment survey matches this closely, at 1.44 percent. However, we know that the Labor Department will add in 810,000 jobs to its March 2006 number in its benchmarked revision (these additional jobs are wedged in over the prior 12 months). When the data is adjusted for these additional jobs, the establishment survey shows job growth of 1.9 percent for the fiscal year, substantially more rapid growth than is implied by the growth in Social Security tax receipts.

There are complicating factors here -- self-employed workers pay SS taxes, but are not counted in the establishment data, many government workers don't pay into SS -- but these are not likely to change the basic story. It is implausible that the establishment survey is understating job growth, and it may well be overstating it.

-- Dean Baker

Wal-Mart Starts Discounts Early

Yes, that is what the Post had to say about yesterday's drop in the unemployment rate. The Post article asserted that: "considering that some workers lack the education and skills to be readily employable, economists regard any unemployment rate below 5 percent as striking." It then quoted Mark Zandi (generally a reasonable economist) as saying that "we are beyond full employment."

Let's imagine that economics was a discipline where evidence mattered. In the 90s, the unemployment rate first fell below 5% in May of 1997 and didn't cross 5% again until October of 2001. During this four and a half year period, there was only a modest uptick in the inflation rate, much of which was attributable to a sharp rise in oil prices in 1999-2000.

Back in the 90s, the Post would tell the public that economists believed that the unemployment rate could not get below 6.0 percent without generating inflation. This was the consensus within the profession. The low unemployment of the 90s proved that the mainstream consensus within the economics profession was wrong. But, rather than expand its array of sources to include economists who were not wrong about this issue, the Post simply goes back to the same folks who now use the same disproven economic theory with 5% as the magic number instead of 6%.

What was that line about workers lacking the skill and education to be employable?

-- Dean Baker

Yesterday's employment report showed far more growth in employment in the household survey than in the establishment survey. Most economists view the establishment survey, which is much larger, as being the better gage of employment, but there are doubters (many of whom are not Republicans).

I have examined this issue in the past and generally concurred with the establishment view. (It's worth noting that the establishment survey actually showed far more rapid job growth in the 90s.) I am more agnostic now, because a quick glance at Social Security tax collections suggests a more rapid pace of growth than is consistent with the wage growth and job growth reported in the establishment survey. (It's late, I could be missing something).

There is an important sidebar to this argument. If job growth is actually more rapid than is being reported by the establishment survey, then productivity growth is lower than BLS is now reporting. BLS uses the establishment survey for hours data when it calculates productivity growth. If the establishment survey has understated job growth, then BLS is understating hours growth in its productivity growth calculations, and therefore overstating productivity growth (unless GDP growth is also understated).

--Dean Baker

Okay, that's not quite right, the Wall Street Journal came though with a front page story. But the reporting on the latest productivity data was buried near the end of a story on retail sales in the NYT and nowhere to be found in the Post or on National Public Radio.

Just to get people's eyes on the ball, productivity growth is a big deal. In the long-run, it determines the size of the pie that we have to cut up. I take distribution very seriously (a bit less for Bill Gates and friends is a lot more for everyone else), but the world looks much better, both in ensuring decent living standards and dealing with environmental problems like global warming, if we can sustain strong rates of productivity growth.

The Labor Department reported that 3rd quarter productivity growth was flat. The quarterly numbers are very erratic, but looking back over a year productivity growth was just 1.3 percent. Since the big upturn in productivity growth in the 2nd half of 1995, there were only two quarters in 1997 when productivity growth was this slow over a 4-quarter period.

While the reported productivity numbers are bad, the true numbers may prove to be even worse. As many have noted (including me), it appears that 3rd quarter GDP was overstated by as much as 0.8 percentage points by a faulty seasonal adjustment to production in the auto industry. Any overstatement in output growth would translate pretty much one to one into an overstatement in productivity growth. Also, we know that the Labor Department will be adding 810,000 jobs in its benchmark revision to the establishment survey. This will raise the number of hours worked, and thereby lower reported productivity growth over the last year by 0.2-0.3 percentage points.

The point here is that we have some important evidence that we are seeing at the least a very serious cyclical downturn in productivity growth (you get cyclical downturns in a recession) and possibly the end of the upturn in productivity growth that began in 1995. Either way, this is front page news.

--Dean Baker

I know that I usually comment on the news after it's been reported, but I don't want to have to write tomorrow about how reporters missed a big story. The Bureau of Labor Statistics reported today that productivity growth for the 3rd quarter was zero. I am always the first one to point out that quarterly productivity is poorly measured and highly erratic, but the rate of productivity growth over the last year was just 1.3 percent. This number will be revised down by another 0.2-0.3 percentage points when the 800,000 additional jobs from the benchmark revision to the establishment survey are included in the data.

The continuation of the economy's strong productivity growth over the last five years had been the big story of this recovery. At the least, the recent data point to a serious cyclical downturn in productivity growth. This should be front page news tomorrow. I don't want to have to write about what is not there.

--Dean Baker

A Washington Post editorial today warns us that allowing Medicare to negotiate prices directly with the pharmaceutical industry would be "a sure way of flooding the political system with yet more pharmaceutical lobbyists and campaign spending."

Those of us who live in Washington know that the industry already floods the political system in order to preserve and strengthen the government granted patent protection that allows them to charge monopoly prices. Taking the money away will reduce, not increase, the number of lobbyists.

--Dean Baker

It is hard to run a restaurant profitably. It is a crowded and heavily competitive market. This is why most new restaurants go out of business within a few years of opening.

Rather than blame their failure on market conditions or their own lack of business acumen, restaurant owners would much rather blame government regulation. Minimum wage laws are featured front and center in this story.

Unfortunately, almost any story a restaurant owner tells is likely to be treated seriously by reporters. The Times gives us an account of restaurant owners facing crises because of the prospect of a higher minimum wage. The poster child is a restaurant owner in Montana who explains that the problem is that his wait staff get tips, but the state minimum wage laws provide no exemptions for tipped employees. This means that the higher minimum wage will require him to pay more to workers who he claims are already earning four times the minimum wage. (He also complained that the minimum wage would be tied to the national inflation rate, which means that it would be affected by the price of cappuccino in New York and Los Angeles. Is there any evidence that the price of cappuccino in New York and Los Angeles rises more rapidly than the price of gas in Montana?)

Okay, let's do the arithmetic. If a tipped employee earns three times the minimum wage in tips (approximately $15 an hour), and we assume that the tips average 15 percent of the tab, then the restaurant's gross revenue for each waiter is equal to approximately $100 per hour. If the minimum wage goes up by $1 an hour, this implies an increase in labor costs equal to approximately 1 percent of gross revenue. If our intreprid restaurant owner is able to raise his prices by an average of 0.5 percent (his $10 meal rises to $10.05), then he will have to swallow a decline in profits equal to 0.5 percent of his gross revenue. That doesn't sound like a business killer.

Of course, this is still better than the Las Vegas restaurant owner who is worried about the higher payroil taxes he will have to pay. With employer side payroll taxes at 7.65%, an increase in the minimum wage of $1 an hour will imply a rise in payroll taxes of less than 8 cents per hour or $2.30 a week for an employee working 30 hours a week. Will this put the guy out of business?

--Dean Baker

Some of us expect intelligent commentary from Bill Moyers. Well, we didn't get it today. Instead Moyers gives a whole array of deceptive statistics. The worst of course is combining the projected shortfalls from Social Security, Medicare and Medicaid, ignoring the fact that the vast majority of these liabilities stem from a projected explosion of health care costs.

As BTP readers have heard me say many times, if health care costs follow this trajectory, then the economy will be devastated even if we shut down Medicare and Medicaid completely. Alternatively, if we get our health care costs more in line with costs in every other country in the world, there is no big problem. The point is that we have to fix our health care system, not gut Social Security or even Medicare and Medicaid.

The second major sin in the Moyers piece is to report the projected deficits in trillions of dollars. This sounds very scary, which is presumably the intention. Well, this should be taken as seriously as if Moyers were giving his talk in a Halloween mask -- he wants to scare the audience. The honest way to talk about these numbers is express them in a way that is meaningful to the audience. This means expressing them relative to the projected size of the economy.

As can be readily discovered from examining the Social Security trustees report, the $4.6 trillion dollar projected deficit through the 75 year planning period can be expressed as 0.7 percent of projected income. For anyone who feels the need to add in the projected costs after 2080, assuming the country never changes the program (are you on drugs?), the $13.4 trillion deficit over the infinite horizon can be expressed as 1.3 percent of GDP. In other words, the additional tax revenue that will be needed to pay every penny of projected Social Security benefits through the year 2080 is equal to 70 cents of every hundred dollars of projected income. The tax increase that would be needed to cover the shortfall for all future time is equal to $1.30 of hundred dollars of projected income.

Let's hope that Mr. Moyers takes off his Halloween mask and returns to focusing on the country's real problems.

--Dean Baker

I have railed in the past about the uselessness of the consumer confidence index. It basically gives us a measure of where the economy is today and tells nothing about where it will be tomorrow. For this reason, I was not especially impressed by the news that the index had fallen slightly last month. It is worth noting that the drop was driven by a substantial decline in the current conditions index, from 128.3 to 124.7. This component, which does tell us about how people are feeling today, tells us that people are becoming more pessimistic, in spite of the drop in gas prices.

--Dean Baker