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The Post Goes Post-Modern on NAFTA
A few days ago I beat up on the Post editorial board for yet another failed attempt at dispassionate analysis in their "ideas primary." The Post attacked the leading Democratic presidential candidates for their statements on trade. It was especially angry that they attacked NAFTA, which the Post pronounced as a great success, especially for Mexico. To support its case, the Post told readers that Mexico's GDP had more than quadrupled since 1987.
As I pointed out, this is absurd. Mexico has actually had slow growth for a developing country over the last twenty years. (NAFTA went into effect in 1994, so I'm not sure where 1987 came from in any case.) According to data from the IMF, Mexico's GDP has risen by 83 percent since 1987, which is considerably short of quadrupling by most definitions of the term.
Remarkably, my post prompted an investigation by Michael Dobbs, the reporter who runs the Post's "Fact Checker" section, which assesses claims made by the presidential candidates and their campaigns. We had several lengthy discussions in which I tried to explain the measurement issues involved. (Mr Dobbs did catch two errors in my original post. I had used a wrong number to calculate 67 percent GDP growth for Mexico, instead of the 83 percent figure obtained from the IMF numbers. I had also used dollar signs when I meant constant value pesos. Unfortunately, my proofreader doesn't come in until 7:00 A.M. and I had done the initial post at 5:00.)
Anyhow, Mr. Dobbs did a write-up of this issue yesterday in which he seemed to come to the conclusion that there are different ways to measure growth, and you get to pick the one you like best. While I tried to explain that this is not true, I apparently could not convince the Post's fact checker.
So, rather than explain the argument as to why my measure (constant prices, own currency) is the appropriate measure, let's just say that the Post should use the same measure everywhere. So, if the Post wants to use the methodology from its NAFTA editorial to report GDP growth for Mexico (purchasing power parity, measured in current international dollars), presumably it should use the same methodology to report GDP growth for other countries.
According to the Washington Post methodology, Argentina's economy has grown by 73.4 percent from 2002 to 2007, an average of 11.6 percent annually. Venezuela has done almost as well, growing 64.6 percent, an average annual rate of 10.5 percent.
We find that even the welfare states of West Europe do very well by the Post methodology, with France growing by 25.7 percent (4.7 percent annually), Germany growing 22.8 percent (4.2 percent annually), and Italy growing 20.5 percent (3.8 percent annually). Even Japan has a dazzling growth record with the Washington Post methodology, growing 26.9 percent from 2002 to 2007, an average of 4.9 percent a year.
The Post has never used these numbers in discussing growth for other countries. This is not a debatable point. The Post used an inappropriate methodology to try to convince readers that NAFTA has been a glowing success in Mexico. It hasn't been a glowing success, and it is time that the Post came clean with its readers on this point.
--Dean Baker
COMMENTS (27)
Just for complete apples-to apples, what was the annual growth rate of Mexico from 2002-2007 using this method? (I get 3.1% over the '87-'07 timeframe). How about the US?
Posted by: dgm | December 8, 2007 3:16 PM
'Blue collar workers lost bargaining power catastrophically following the peak of the 1973 cycle, and since 2000 their failure has been accompanied by a more generalized loss of bargaining power by white collar workers and all toilers below the level of top management. Employers no longer feel compelled to offer their workforce either a decent wage or the most basic of healthcare benefits, benefits which were considered sacrosanct in the social contract of 1945-73.The American dream, in which hard work can propel ordinary people into a comfortable even affluent lifestyle, is becoming ever more distant for all but a small fraction of the population.'
The hell with polite I'm approaching the pitchforks. boiling vat of tar and a goodly quantity of feathers-drag 'em from their gated enclaves and load 'em tumbrels.
Posted by: Cyn S | December 8, 2007 3:51 PM
I'm confused by the disagreement between the two methodologies. Using constant prices and the local currency clearly makes, but then again PPP in current international dollars sounds like another inflation-corrected measure to me. If I'm measuring the same thing at two time points, I should measure the same relative change no matter what unit I choose, as long as its value is held constant (no inflation). What am I missing here?
Posted by: Derek | December 8, 2007 7:31 PM
Dear Mr. Baker:
I am not an economist, but interested in the subject.
It would be great to see a little more explanation on this. How does China compare using both methods, etc.
Your post could use a little more information, for the economically uneducated like me. Can you expand on this one?
Respectfully,
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Posted by: David Dunn | December 10, 2007 7:40 AM
I suspect the David Dunn post above is spam.
Derek: Without worrying about correlation issues, ans simplifying severely, they answer two different questions. PPP is "how does the country compare to other countries on a relative basis" while GDP growth is "how has the country improved absolutely."
If the currency appreciates 3% against, for instance, the USD (or the international weighted basket), the country would have a higher Purchasing Power, even if the GDP growth fell 2%.
If you and I both make $100, and I take a 5% pay cut and you take a 10% pay cut, I am "better off" on a PPP basis. Would you then claim that I had experienced slightly-over-5% growth? I doubt it.
The WaPo's mileage appears to vary significantly.
Posted by: Ken Houghton | December 10, 2007 11:10 AM
Ken, thanks for the response. Regarding PPP, who determines the contents of the internationally weighted basket, and do those contents change over time? I imagine that also represents a big complication, since the cost of the local and internationally weighted baskets could in principle increase at different rates, as measured in the local currency.
Posted by: Derek | December 10, 2007 2:18 PM
The PPP measure in principle constructs a basket of goods and services and applies the same prices across all countries. This is useful for making point in time comparisons, however the measure is not adjusted for inflation, so if there is more inflation in the world economy, then everyone's GDP will grow more rapidly by this measure.
It is possible to adjust this measure for inflation, but the series that the Post's fact checker cites does not adjust.
Posted by: Dean Baker | December 10, 2007 2:18 PM
Thanks, Dean. These kinds of details are crucial to understanding what’s being reported. I really appreciate all your work at clarifying these things for otherwise alienated laypeople like me. (And cheers again to Ken for the quick response to my first post)
Posted by: Derek | December 10, 2007 3:04 PM
In honor of its' editorial board the Post should rename itself The Washington Plutocrat.
When they aren't slamming SSI or some other program that helps everyday Americans they endorse trading jobs away to other countries.
When was the last time they callled for an end to special tax breaks and oversea shell companies benefiting the bigggest companies in America?
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