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Wednesday, June 30, 2004

Kerry Proposes Massive Tax Cut


Did you know that John Kerry's tax proposals, taken in total, amount to a tax cut of $617 billion dollars over ten years? That's the conclusion of an analysis by Urban Institute economist Leonard Burman.

Current law calls for all of Bush's tax cuts to expire by 2010. Kerry has proposed making the "middle-income" tax cuts permanent ("middle income" means less than $200,000 a year). He's also called for $230 billion in tax credits for college expenses and health care. Offsetting the cuts, he plans to repeal Bush's tax cuts for the rich.

This is probably news to you (it was news to me), because the press isn't presenting it that way. To take one example (and I'm sure I could find dozens), Ceci Connolly and Jonathan Weisman, writing in the Washington Post say:

As they prepare for the fall general election, President Bush and Sen. John F. Kerry are presenting voters with a clear choice between tax cuts and expanded health care coverage....Bush has committed...about $990 billion over a decade for making permanent the array of tax cuts enacted in 2001 and 2003.

Notice first that Kerry's health care plan is not presented as a tax cut, even though a big chunk of it is in the form of credits that will reduce tax bills.

More importantly, Bush is said to be cutting taxes by $990 billion by making the cuts permanent for both middle and upper-income taxpayers. Kerry similarly proposes to make the middle-income tax cuts permanent, but the Post doesn't describe this as a tax cut (or even mention it).

Kerry is actually said to be increasing taxes by $860 billion. But if you read Burman's report carefully (it's one of the sources for the Post article), this isn't true. Actually, Kerry is just proposing cutting taxes by $860 billion less than Bush.

(By the way, I know the numbers I presented don't add up. The main reason is that Kerry's $860 billion tax "increase" is compared to a realistic estimate of the cost of the Bush proposals, which is bigger than $990 billion).

I don't mean to say that I necessarily think Kerry's tax cut proposal is wise in the face of the current budget deficit: I'm not familiar enough with Kerry's overall plan to know what it will do to the deficit. But what Kerry is actually proposing is a big tax cut.

 Kerry Tax Proposals: 

10-Year Revenue Change Relative to Current Law
(2005-2014, billions of dollars)

Make middle class income tax cuts
permanent and repeal high-income tax cuts: -388
Modify estate tax: 0
College Opportunity Tax Credit: -52
Health tax credits
Small business: -67
Early retirees: -66
Workers between jobs: -44
Total Kerry Plan: -617 billion
Source: Urban/Brookings Tax Policy Center Analysis by Leonard Burman (table 2).
 

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Monday, June 28, 2004

Pessimistic Economist Warns: Financial "Storm" Coming


Commander-in-Chief Bush's new ad "Pessimism," contrasts the War President's sunny outlook with Kerry's:
The largest tax relief in history.
1.4 million jobs added since August.
Inflation, interest and mortgage rates low.
Record homeownership.
John Kerry's response?
He's talking about the Great Depression.

Indeed, Kerry has pointed out that Bush has presided over the "greatest job loss since the Great Depression." But for real gloom and doom, you have to turn to economist Bruce Bartlett, who predicts that Bush's huge budget deficits are going to cause a financial meltdown and the largest tax increases in history.
We've gotten ourselves just into a fiscal mess...we're just in the calm before the storm. And I don't know when the storm is going to hit, but I know it's coming. I think it's going to hit fairly soon, perhaps within the next year.

According to Bartlett, some possible risks are:

* The tiniest mistake by Fannie Mae and Freddie Mac (combined mortgage market debt of about $3 trillion) could massively disrupt financial markets.
* A slowdown in foreign Treasury purchases (foreigners now own more than 50 percent of liquid Treasury securities), perhaps due to fears of a fall in the dollar, would also be disruptive.
* A slowdown in the Chinese economy could force the Chinese to stop buying U.S. Treasury Bills and start selling them.

Pretty pessimistic and shrill, huh? Who's Bruce Bartlett? Oh, just a conservative economist who writes for the National Review, Townhall.org, and other right-wing publications. Bartlett has helpfully written a brief version of his article, a short version, and given a longer speech [beginning on page 25 of the 123K pdf] at Brookings.

The speech is the most alarmist. Here's an excerpt:
What I want to talk about primarily is what I think is going to happen if
President Bush is reelected....I think that we've gotten into a fiscal situation that is going to demand some action sometime fairly soon. And I think the main trigger for this is what's probably going to happen at the Federal Reserve next week. It's why they expect that they're going to begin to raise interest rates. They're going to have to raise rates quite a bit eventually, although they'll probably do so gradually a quarter point at a time, every six weeks for some time to come. This could be a little bit like Chinese water torture. But I think it's going to set in motion certain forces that are going to lead unavoidably to some, I'll call it a crisis of some kind, at some point in the future. The problem is, when you start from a ridiculously low-interest-rate situation, you start to raise it, you create a lot of problems in the financial sector because of the same basic forces that got us into the savings & loan problem. Banks tend to borrow short and lend long. And when they get their portfolios out of whack, it creates very, very severe problems.

And I'm very concerned--my expectation is that at some point in the future, perhaps over the next year, we're going to see something happen somewhere in the economy that's going to be a huge wake-up call, something on the order of magnitude of, say, the 1987 stock market crash.
....
So my point is I don't know when or where or how this is going to happen, but I do think that at some point there's going to be a wake-up call. And the history, I think, shows that when these things happen, the first thing that all policy makers, or at least those in Congress, latch onto is we gotta have a budget deal, we gotta do something about the deficit. It doesn't matter whether there's a connection or not. This is what they always do because it's the only thing they can do. They can't very well tell the Fed what to do, they can't very well tell the Chinese to buy more bonds, they can't do anything about inflationary expectations. There's really nothing they can do other than say let's do something about the deficit.

So I think that this is what's going to happen. So the question is what will happen when that day comes. It seems to me, regardless of the makeup of Congress, you're likely to have to see--you're going to have to have a budget deal that is large enough to get the attention of the bond markets. So how big would that have to be? I think it would have to be at least 2 percent of GDP, and I think at least 1 percent of that, half, would have to be on the revenue side. So we're looking at something like a 1 percent of GDP increase. And I pick this number, not casually, but because that was the size of the TEFRA tax bill in 1982. The largest peace-time tax increase we've ever had was about 1 percent of GDP.

...we've gotten ourselves just into a fiscal mess that is--we're just in the calm before the storm. And I don't know when the storm is going to hit, but I know it's coming. I think it's going to hit fairly soon, perhaps within the next year.


 

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Friday, June 25, 2004

The Luskin Method


Although it's mostly pointless to criticize the Krugman-stalking Donald Luskin, it is amusing, and perhaps instructive about how the right-wing echo chamber operates. Watch how Luskin changes a debatable quibble into a accusation of lying, in just a few weeks.

Luskin writes,
I reported to [the opinion page editor] and Krugman a second error in that column, which remains uncorrected. Krugman stated "current projections show that under current rules, Social Security is good for at least 38 more years." This is an error. In fact, current projections show Social Security is good for only 27 years.

Since 38 years is in fact the Social Security Trustees commonly cited "intermediate" projection of the time until the trust fund is exhausted, it's hard to see what Luskin could be talking about. Luskin doesn't bother to explain, but some hunting around reveals that this is a reference to a post from a few weeks back when Luskin criticized Krugman for using the phrase "at least." Replied Luskin: "the 'at least' case is only good for 27 years."

Luskin's complaint is a picayune quibble, but it is true that the "high cost" projection shows the trust fund running out in 27 years. Presumably Krugman's used "at least" in some other sense, perhaps referring to the fact that successive projections have pushed the date of trust fund exhaustion farther and farther into the future.

Notice how when Luskin repeats the charge a few weeks later, it morphs from "the high cost projection is 27 years" into the claim that "Social Security is good for only 27 years," and that Krugman made an "error" by citing the intermediate case scenario.

Luskin complains that the editorial page editor "completely ignores" his emails. Small wonder! Poor Luskin: having cried wolf repeatedly, he whines that people have stopped listening.
 

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Teachers Call on Students to Watch More TV


In rural China, the coming of TV means more than just soap commercials, reports Peter Goodman in today's Washington Post.

Bala is so far from the road that villagers are limited in their access to the cash markets of Gonjo. Household income here hovers around $300 per year.

Still, the lone teacher at Bala's school, Lobang Tashi, sees the arrival of television as a potential force of economic ascendance. Educated in town, he is one of the only people in Bala who can speak proper Mandarin Chinese, the national language that students must master in order to pursue advanced studies. Most here speak only a unique Tibetan dialect. Now, his students -- who range in age from 6 to 11 -- are parked nightly in front of the television, absorbing entertainment in Mandarin.

"It has improved their listening comprehension and it helps them understand life outside the village," the teacher said. "They see airplanes, cars, things they would never see here. It broadens their view."


One thing I learned from a close reading of Washington Post and NY Times articles on India and China over the last few months is that few reporters venture very far from big cities. Hence they never see the very poor, who are mostly found in the countryside. And they never see the revolution in living standards that's been underway over the last few decades.

So kudos to Goodman, who drove to 200-person village of Gonjo, and then took a three-day walk to visit remote villages many miles from the nearest road.

Goodman covers the spread of electricity to progressively more isolated villages. Here's another fascinating story about how a $50 generator has revolutionized life in a poor village.
Two hours' walk farther upriver, in the village of Shuizhuang, the age of hauling buckets lingers. Electricity did not arrive here until last December. The five families of the village pitched in about $10 each to buy the tiny generator. They limit its operation to minimize wear and tear: Electricity is strictly an 8 p.m.-to-midnight affair.

Still, the changes have been significant. Once, villagers devoted about three days of every month to climbing up into the mountains and harvesting pine branches they used as torches.
 

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Thursday, June 24, 2004

Brookings on Bush vs. Kerry


The Brookings Institution presented a panel discussion yesterday titled "Assessing the Merits and Costs of the Candidates' Domestic Agendas." It's apparently part of a broader effort to evaluate Bush's and Kerry's policy proposals. It's a very interesting effort: Brookings is certainly honest, and houses a lot of smart and knowledgeable people. I'm sure this project will be worth keeping an eye on. But can you trust their spin?

As you may recall from previous posts, Brookings is a moderate think tank. I count six panelists mentioned, four of whom are Democrats (3 Clinton administration officials), one who works at a conservative think tank, and one who I suspect is a conservative but can't be sure based on his brief bio. In addition, representatives of the Bush and Kerry campaigns attended.

Despite this seeming tilt towards the (moderate wing of) the Democratic Party, the event summary (no transcript has been posted yet) seems to me to be slanted towards Bush, or at least towards more neutrality than Bush deserves. Consider health care:
Thorpe said that Kerry's proposal would provide health insurance to roughly 95 percent of the population by expanding Medicaid and the State Children's Health Insurance Program (SCHIP), and by also using the tax system and federal law to encourage greater health care enrollment among businesses and individuals. Thorpe praised as innovative a Kerry proposal that would have the federal government assume partial responsibility to pay for the health care coverage for workers with catastrophic illnesses.

So far, so good.

I had no idea that Bush has a health care proposal too (for $1,000 tax credits). He doesn't seem to be promoting it much, and I suspect it's not a big priority of his. The Brookings description makes it sound pretty good:
Bush's plan, which Thorpe estimates would cover 85 percent of citizens, would use a refundable tax credit and create tax deductions for expensive private health plans.

Thorpe is one of the former Clinton officials. I'm sure that what he's saying is true. But notice that the summary makes no mention of the current percentage with health coverage. Without this figure, the difference between 85% covered under the Bush plan and 95% under the Kerry plan doesn't seem so big. Kerry covers 10 percentage points more people, but Bush has a plan too! They both cover the large majority of people (as I'm sure we'll hear when they debate).

It turns out that the current percentage of people with health insurance is about 84%. Bush would increase health coverage by less than 1 percentage point (2.4 million people) and Kerry by 10 points (26.7 million people). You get no hint of this from the Brookings description of the event.

This isn't the only questionable implication I see in Brookings' coverage. Perhaps they need to find someone better to write their summaries.
 

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Tuesday, June 22, 2004

A Landslide Election in 2004?


In last month's Washington Monthly, Chuck Todd argued that "the next election won't be close," because "elections that feature a sitting president tend to be referendums on the incumbent--and in recent elections, the incumbent has either won or lost by large electoral margins."

As the table at the end of this post shows, incumbents usually win or lose by landslides. In 7 of the 9 post-war elections, the winner received at least 370 electoral votes, 100 more than the 270 needed to win. The winner has averaged almost 57% of the 2-party vote. Post-war elections without an incumbent have generally been closer, with 3 of 5 decided by a whisker, with the winner getting very close to 50% of the 2-party vote.

Todd doesn't really offer an explanation, beyond the sentence I quoted above. The obvious beginning of a theory is that voters have more information about an incumbent, and they're better able to evaluate his competence and character. The extra information tends to push a good chunk of voters one way or another.

One problem with this theory is that not all elections with an incumbent are blow-outs: Truman/Dewey and Carter/Ford are the exceptions. I would be tempted to write these elections off as aberrations that aren't important enough to discard such a nice and simple theory. But both of these elections have something in common: Vice Presidents who ascended to the Presidency without first being elected on their own.

So why does this kind of partial incumbency make elections closer? Truman and Ford were President for several years, which I'd think would be plenty of time for voters to form an opinion one way or another. I can't think of a neat explanation. Any theories?


Votes for the Winner in Post War Presidential Elections

Electoral Share of
Votes 2-Party Vote Winner/Loser
--------- ------------ ---------------------
Elections with an Incumbent
1948 303 52.4 Truman/Dewey
1956 457 57.8 Eisenhower/Stevenson
1964 486 61.3 Johnson/Goldwater
1972 520 61.8 Nixon/McGovern
1976 297 51.1 Carter/Ford
1980 489 55.3 Reagan/Carter
1984 525 59.2 Reagan/Mondale
1992 370 53.5 Clinton/Bush
1996 379 54.7 Clinton/Dole
Average 440 56.8


Elections without an Incumbent
1952 442 55.4 Eisenhower/Stevenson
1960 303 50.1 Kennedy/Nixon
1968 301 50.4 Nixon/Humphrey
1988 426 53.9 Bush/Dukakis
2000 271 49.7 Bush/Gore
Average 349 51.9

Source: Statistical Abstract of the United States.



UPDATE:
In comments, posters emphasize the unique features of the 1948 and 1976 elections, and suggest that strong conclusions can't be drawn from a sample of two. I certainly agree that these two elections can't prove any general theories. But I think they can generate useful hypotheses that could in principle be tested with better data (say data on gubernatorial elections). Why is it that not having faced the electorate before seems to befuddle the voters so, despite the candidates' several years in office?
 

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Monday, June 21, 2004

Tomorrow's OpEd Today!


Once again, The Ragout Chef beats the OpEd pages to the analogy and the factoid.

The Enemy in Your Hands. Ragout quotes point 3 of this Vietnam-era army pamphlet denouncing prisoner mistreatment and torture on June 12. John Stuart Blackton quotes the same passage in the Washington Post , June 21.

Reagan Myths. Ragout points out that the Reagan Economic Expansion was the 3rd longest, not "the longest in history," June 9. Krugman, NY Times June 11.

Coincidence?
 

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Friday, June 18, 2004

Luskin: Distortions and Errors


Krugman-stalking Donald Luskin is still at it. Disturbingly, he's been able to find an economist (John Seater of North Carolina State University) to back up his criticisms of Paul Krugman's long forgotten 1982 memo. He's also attempting to goad Brad DeLong into arguing with him. I doubt DeLong will rise to the bait, since he's debated Luskin before. Presumably he knows that, as Paul Krugman has pointed out, arguing with Luskin is like fighting the Black Knight in Monty Python and the Holy Grail -- no matter how many limbs you hack off, he'll remain belligerent, insisting he's the better man, and crying, "it's only a flesh wound." Nonetheless, I'll rise to the Luskin's challenge.

Luskin has dug up a 1982 memo written by Paul Krugman and Larry Summers, forecasting a rise in inflation, or more specifically, he's found the first page of that memo. (It's unclear what happened to the rest it). In spite of not having read past the first page, Luskin ridicules Krugman's forecast.

In the September, 1982 memo, Krugman and Summers, then staffers on Ronald Reagan's Council of Economic Advisors, argue that "a significant portion of the slowing of consumer price inflation since 1980 does not represent a reduction in the underlying rate." To support this claim, they point out that the real exchange rate has risen by 35% since the beginning of 1980 (making imports cheaper) and that non-oil commodity prices have fallen 33% faster than inflation over the same period. Since these trends can't be expected to continue forever, they expect inflation to pick up in the future.

Seator, Luskin's economist backer, makes the same econ 101 point: "Commodity prices, an adjustment in the exchange rate, and so on cause once-and-for-all changes in the price level -- they do not permanently change the growth rate of prices (a.k.a. the inflation rate)." This is exactly right, and it's exactly what Krugman was saying: some of the 1980-1982 decline in inflation was due to temporary factors, that can't be expected to last. Oddly, Seator casts this as a criticism of Krugman. The charitable assumption here is the Seator has been taken in by Luskin's misrepresentation of Krugman's memo.

This is going to be a long post, but there's just so many problems with Luskin's critique. Not only does Luskin misunderstand Krugman's argument, but he also doesn't understand the inflation data he uses to try to rebut it, relying on a misleading inflation series rather than the one usually used by researchers.


Luskin's Distortion of Krugman's Argument.

According to Luskin, Krugman wrote the "the Fed's policies produce only 'temporary side effects.' In 1982 Krugman thought inflation was caused by the exchange rate of the US dollar, the price of commodities, and the price of oil." But the word "only" is Luskin's invention, Krugman & Summers say no such thing. They say that the Fed's policies produce temporary side effects such as high real interest rates. But they in no way argue that the Fed cannot also create permanent changes in inflation; in fact, they seem to assume this when the speak of the economy returning to its "underlying inflation rate." Krugman & Summers, on the first page of their memo anyway, don't discuss what drives the underlying inflation rate, but presumably it's related to the growth in the money supply.



Another way of making Krugman's point is that the core inflation rate (inflation excluding food and energy prices) in 1982 was higher than the overall inflation rate. Economists often focus on the core rate, because food and oil prices are notoriously volatile. If the overall inflation rate differs from the core rate, economists expect the overall rate to return to the core rate eventually. A striking example occurred in 1986, when overall inflation drops by several percentage points (due to a fall in oil prices). Following Krugman's logic (and the conventional wisdom), we'd expect the overall inflation rate to bounce back to the core rate, which it did. This kind of analysis is a staple of newspaper business sections, and it's surprising that Luskin would dispute it. Perhaps the problem is that he doesn't understand the intermediate macroeconomics jargon that Krugman and Summers couched their memo in.

During 1982, in the months before Krugman and Summers wrote their memo, core inflation had averaged 1.6 percentage points higher than overall inflation, hence it was reasonable to forecast that overall inflation would rise by 1.6 points in the future. Yet according to Luskin, they forecast a 5 percentage point increase in the inflation rate. What's going on here? One possibility is that Krugman was forecasting a small permanent increase in the inflation rate (after the import prices stop falling and return to a normal level) and a larger temporary increase (while import prices rise to their normal level). This was my initial interpretation, but Krugman's forecast is a little ambiguous (no doubt because we only have one page of his memo) and I've since changed my mind.


Luskin's Use of the Wrong Measure of Inflation.

After a little more reflection, I noticed that Krugman actually forecast a 5 point increase in consumer prices and a 2 point increase in the GDP deflator. Why would Krugman bring up the GDP deflator, which, while not exactly obscure, is a much less common measure of inflation than the CPI? I suspect the answer is because Krugman and Summers knew that in the late 1970s and early 1980s, the CPI was seriously biased, due to its treatment of housing prices. Hence, my guess is that Krugman's forecast of a 5 point increase in consumer price inflation referred to the CPI, as measured at the time. Was he right? There is no way to know, because the CPI time series underwent a major revision, bringing its treatment of housing prices into line with the GDP deflator, beginning just a few months after Krugman wrote his memo.

Luskin is apparently unaware of the change in the series, and so he uses the CPI-U as his measure of inflation. Although this is a common measure, it is not the one usually used by researchers, because revisions in the CPI-U are not incorporated retroactively, and so it is not consistent over time.

Hence, Luskin's chart showing that inflation fell after 1982, in contradiction to Krugman's forecast, is seriously misleading. Much of the fall in inflation in Luskin's chart is due to a change in how inflation was measured, not to anything substantive. In fact, a consistent series has since been published (called the CPI-U-RS). It shows inflation falling from a peak of about 11.5% to about 4% in mid-1983. In contrast, Luskin's inconsistent series shows inflation falling from a peak of about 14.5% to 2.5%. Krugman's forecast was probably wrong (he didn't foresee that oil prices would keep dropping) but not nearly so wrong as Luskin suggests.

Luskin's error is pretty egregious. Knowing the CPI underwent a major revision in 1983 sounds pretty arcane, but inflation is pretty fundamental to economics. If you flip through the inflation series in the back of the Economic Report of the President, for example, it's full of warnings about the 1983 revision: and someone who claims to be a macroeconomist ought to know how to find the standard inflation series used by researchers.


Conclusion

To sum up, Krugman and Summers presented a forecast of inflation based on widely accepted principles. The forecast was probably off, but so what? Inflation fell more than a smart economist would have predicted because oil prices kept dropping. Guessing wrong about the future path of oil prices is hardly a major error. Read today, Krugman's memo appears so incontrovertible as to be banal (though perhaps it was more cutting edge at the time).

Luskin totally misrepresents Krugman's argument, as does Seator (though perhaps he's relying on Luskin's distortion). Further, Luskin attempts to dispute Krugman's forecast of rising inflation using a measure that couldn't be more misleading if he had sought it out! It shows inflation falling sharply, right after Krugman's forecast. But Luskin's inflation measure falls much more sharply than inflation actually did, because of a major change in the measurement of housing prices that was implemented right after Krugman's forecast.

If you can't understand the theory, and you can't understand the numbers, you really shouldn't be criticizing Paul Krugman.

UPDATE: PGL at Angry Bear has an interesting post reminding us just how extreme and unusual the macro environment really was in the 1980s: tight money and big deficits caused high interest rates and an overvalued dollar: suppressing inflation at the cost of high unemployment. Not to mention wild swings in the price of oil. I bet Krugman was far from the only economist who failed to predict it!
 

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Thursday, June 17, 2004

Flowerpot Cooking and Economic Growth


Network Sociologist Ronald Burt says that the way to be creative is to steal ideas from outside your social network. "The trick is, can you get an idea which is mundane and well known in one place to another place where people would get value out of it." For example, the human resources department might benefit from adapting processes already used by the marketing department.

Economists studying economic growth, economic history, and the "agglomeration economies" that come from firms clustering near one another often make similar points. Most productivity growth comes not so much from works of genius, but from small innovations, often borrowed from other firms and industries.

I'm currently reading geeky cook Alton Brown's "I'm Just Here for the Food," which turns out to be full of fascinating examples of innovations borrowed from other fields. One of his ideas is to use a hair-dryer as a bellows, to inject oxygen into a barbecue, making a more intense fire. Another (from Alton Brown, but not this particular book) is to use an infrared thermometer, a tool developed for inspecting car radiators, to measure the temperature of a hot pan.

A third example is the dominance of the Ford auto company in the manufacture of charcoal. "Up until the 1950s, you could only buy Kingsford charcoal...in Ford dealerships," writes Brown. Apparently, Ford used to produce lots of wood chips as a byproduct of auto manufacture, many of the Ford executives liked to camp, and viola! They hit on the idea of turning the wood chips into charcoal.

Oh, and the flowerpots? They make great dutch ovens.
 

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Wednesday, June 16, 2004

Ashcroft = Palmer


Immigrant rights lawyer David Cole says Ashcroft's post-9/11 Arab roundup was just like the Palmer Raids of 1919. He urges the passage of a law to forbid jailing people without charges or a trial, even foreign nationals.

The [Civil Liberties Restoration Act] would bar the practice of blanket secret trials, reserving secrecy for cases in which the government can demonstrate a specific need. It would require that when the government locks someone up, it must inform him of the charges within 48 hours, and bring him before a judge within three days. It would limit preventive detention to situations in which the government actually has evidence that an individual poses a risk of flight or a danger to the community. And it would end "special registration," which selectively targeted men from Arab and Muslim countries for fingerprints, photographs and interrogations

Sounds like a good idea.
 

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Remember the Palmer Raids!


Paul Krugman calls John Ashcroft "the worst Attorney General in history." But surely there's some serious competition? I'm sure Donald Luskin (of the aptly named poorandstupid.com) will be fact-checking this one big time.

Or maybe not. Luskin seems to be pretty busy demonstrating that he doesn't know the difference between a five percentage point increase in the price level and a five percentage point increase in the inflation rate.
 

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Media Bias or Think Tank Bias?


Via Econopundit, I learn about a new study, "A Measure of Media Bias," [234k pdf] by Tim Groseclose and Jeff Milyo, recently covered in BusinessWeek (see an excerpt here). Groseclose & Milyo find a liberal bias in the media.

Groseclose and Milyo find a media outlet to be unbiased if it cites the same type of think tanks that members of Congress do. The main problem with this method is that right-wing think tanks are much more extreme than the left-wing ones. A newspaper that cites liberal and conservative think tanks just as often as diverse members of Congress do isn't centrist: it's conservative. Liberals just don't have many strongly partisan, very liberal think tanks to cite, while conservatives have a whole "vast right-wing conspiracy." Also, the farthest-right think tanks aren't just farther right than liberal think tanks are left, they're also simply less accurate and honest. No wonder the media avoids them.

Don't believe me? Look at the table of think tank ratings at the end of this post. Groseclose & Milyo would rate a media outlet as almost perfectly centrist if they cited all the think tanks equally. I think a reasonable person, though, would find such reporting strongly conservative and inaccurate. The wonky and scrupulously accurate Center on Budget and Policy Priorities just doesn't balance the strident Heritage Foundation.

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Still don't believe me? Here's my argument in great detail.

The study rates media outlets using a two-step method. First they examine favorable references to think tanks by members of Congress. Each member of Congress has an Americans for Democratic Action (ADA) rating of their voting record (0=most conservative, 100=most liberal). The think tank's rating is then the average of the ADA ratings of the Members of Congress that mention them favorably. They use two different methods, that I'm not going to describe. The thinks tank ratings are in a table at the end of this post.

The second step is to rate each media outlet based on how many times they cite particular think tanks. This step is more complicated, but is essentially similar to the first. For example, a newspaper that cited each of the 20 think tanks on the list below would get (more of less) the average ranking (38 by method 1, 41 by method 2). Since the median Member of the House of Representatives has a 39 rating, this newspaper would be almost perfectly centrist and presumably unbiased.

In the end, Fox news gets a 26, ABC News a 55, and CBS and the NY Times are the most liberal at 65. Groseclose & Milyo report several variations on their method, getting generally similar results. Since most media organizations have scores above 39, the conclude that there is a "very significant liberal bias."

But, as progressives often lament, there isn't a liberal Heritage Foundation. The Brookings Institution is sometimes cited as the liberal equivalent, but the table below ranks it (accurately, in my opinion) as centrist. According to Eric Alterman, "liberals are finally starting to take the first steps" to create their own version of the conservative propaganda machine (he cites Moveon.org and the Center for American Progress). But these are very new, and there was little like them when Groseclose and Milyo conducted their study.

The Heritage Foundation's mission statement proudly announces its ideology: "to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense"

In contrast, the mission statement of the Center on Budget and Policy Priorities, the 1st or 2nd most liberal think tank, downplays ideology, asserting that CBPP works on: "fiscal policy and public programs that affect low- and moderate-income families and individuals...Our materials are used by policymakers and non-profit organizations across the political spectrum."

Not only are the The Heritage foundation and its ilk much more ideological than their liberal counterparts, they are also a lot less credible. A report from a think tank like the Economic Policy Institute may have a liberal spin, but you can trust the numbers. I doubt the same is true of any of the think tanks to the right of the American Enterprise Institute (though I admit I'm not familiar with them all).

For example, look at Lott-watcher Tim Lambert's devastating series on the "Astroturf de Tocqueville Institute," which he charges has been hired by Microsoft to fight Linux, and by the Tobacco industry to fight cigarette taxes, using phony figures and misleading arguments. I think it's a very positive sign that this think tank doesn't get as much media coverage as the CBPP: it's just good journalism to favor sources that provide accurate information.

So perhaps that's why liberals think there's a right-wing bias in the media, and conservatives think there's a left-wing bias. Conservatives believe the lies of far-right think tanks, and want the media to report them. Liberals are frustrated that the media sometimes gets taken in by the "echo chamber" of the far-right's network of lobbyists and think tanks. The right-wing has a coherent storyline that sometimes gets through (but less often in the media than in Congress). The left just doesn't have the same infrastructure generating their own storyline, so it almost never gets through.

The closest the left has to the Heritage Foundation in the table below is the Economic Policy Institute, but they suffer the handicap of being honest, and they have one tenth the budget of Heritage.

-------------------------


The 20 Think Tanks Most Cited By Members of Congress

Average ADA Score
Citation of Congressional Mentioners
Frequency ---------------------------
Rank Method 1 Method 2
16 Family Research Council 5.7 14.0
1 Heritage Foundation 6.2 13.8
10 National Right to Life Committee 7.2 15.2
17 Center for Security Policy 8.7 17.7
14 Nat. Fed. of Ind. Businesses 12.5 20.3
13 Alexis de Tocqueville Institute 14.2 13.0
7 Citizens Against Govt. Waste 18.4 29.5
6 National Taxpayers Union 21.0 27.5
8 American Enterprise Institute 24.9 29.8
12 Cato Institute 25.6 28.5
2 American Civil Liberties Union 35.0 42.7
3 Brookings Institution 50.0 46.2
9 RAND Corporation 53.6 52.6
15 Common Cause 54.5 61.3
5 Amnesty International 55.3 50.0
11 AARP 60.4 58.3
19 Economic Policy Institute 71.7 70.7
20 Children's Defense Fund 76.9 73.9
4 Cent. on Budget & Policy Priorities 80.1 80.0
18 Council on Hemispheric Affairs 84.2 76.8

Average 38.3 41.1

Source: Groseclose & Milyo, "A Measure of Media Bias."


UPDATE: This post has been getting a fair amount of attention, so I decided to correct the typos. Sorry for misspelling your name, Jeff!
 

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Monday, June 14, 2004

Update: Krugman covers Reagan's "longest economic expansion"


Krugman politely blames the Washington Times rather than the New York Times for this "right-wing legend."
 

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Sunday, June 13, 2004

Economists Say: Who cares what they say?


Lydia Polgreen, covering the "high price of milk" story that has been in every newspaper, apparently decides that a NY Times reporter should dig deeper, and investigate whether rising prices are harming New York City's growth.
Economists are watching inflation closely to see whether it will threaten the city's nascent economic recovery. Most say rising prices are a sign of a healthy economy; pent-up demand and confidence that buyers can afford to pay more has led businesses to pass on increases they might have otherwise absorbed.

Got that? "Economists" are worried that inflation may be harmful to NYC, but at the same time "most" say that it isn't harmful. I'm quoting the entire paragraph; it isn't that the next sentence clarifies the contradiction.

As far as I can tell from the rest of the article, what this paragraph means is that Polgreen thinks inflation might choke off the city's growth, but can't find an actual economist to agree with her. Polgreen worries that retailers won't be able to pass along price increases to consumers, writing,
Small business owners...say the price increases are narrowing profit margins and tempering the feel-good aura of recovery. High prices for everyday items like rent, gas, transportation and, yes, milk are making them reluctant to add employees or expand even as the economy improves, some merchants say.

Most of the article is devoted to discussing national and international price spikes in the price of gasoline, milk, and even vanilla. Polgreen quotes some figures for NYC inflation in March and April, which was high, but doesn't seem to realize that these are figures for the prices that consumers pay (it's the consumer price index), undermining her theory that price increases aren't passed on to consumers.

To her credit, she does talk with some actual economists, but none agree with her theory. "I don't think it is much of a threat to the city's economy at all," says one.

Well who cares what the economists think? Polgreen finds plenty of small business owners to whine about the high cost of purchasing supplies. The funniest example is the bagel shop that she opens and closes the article with.
"It is very simple," [a Brooklyn bagel shop owner] explained, barely looking up from a newspaper at an empty counter in his shop. "The price of cream cheese goes way up. I still need all my employees. The rent stays the same. People don't want to pay more for bagels. So what can I do?"

At the end of the article, the bagel shop owner reappears, but this time it turns out there is something he can do, after all.
Mr. Roy, the Brooklyn bagel shop owner, reluctantly raised his prices by a nickel after the price of 150-pound tubs of Philadelphia cream cheese rose to $270 from $210, more than 25 percent. Now a $1.55 bagel with cream cheese costs $1.60, and a 75-cent small coffee costs 80 cents. But Mr. Roy said he was afraid to go any higher.

He's raised prices! The price of a bagel with cream cheese has gone up by 5 cents.

Some simple math shows the cost of cream cheese has gone up by 2.5 cents an ounce. How many ounces of cream cheese go on a bagel? My local bagel shop provides me with sliced bagels, but requires me to smear on the cream cheese myself, offering a choice of one or two 1-ounce packets. I usually buy one, thought I'd probably prefer about 1.25. I consider 2 ounces of cream cheese excessive, but many bagel shops do put on an excessive amount. So, assuming 2 ounces of cream cheese per bagel, Mr. Roy's costs have gone up 5 cents per bagel, or maybe a little less, and he's raised prices by 5 cents.

So not only have economists told her she's wrong, but much of the evidence she's gathered (plus a little math) should also tell her she's wrong: higher prices of inputs are being passed on to consumers.

Now, there are many reasonable ways Polgreen could have covered this story. She could had examined how national price spikes (for example, gas price increases) might harm the national recovery. She could have focused on costs that were specific to NYC, especially rents for housing and commercial space. Rising rents could indeed slow economic growth in the city. She could have written about the hardships caused by rising gas and milk prices: she does this to some extent, but it's not the main focus. She could have examined the effect of price increases on some important NYC industries other than retail, with tourism being the most obvious. But she's no economist, so writing about effects on the national or NYC economy aren't her thing. Writing about the effect of rising prices on consumers, the poor, or the tourism industry would play to her strengths, but probably seems too pedestrian. So instead she overreaches, trying to invent her very own economic theory.

 

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Saturday, June 12, 2004

Abu Ghraib Torture Kills Americans


Blogger prodigy Matthew Yglesias worries that opposition to torture isn't a good issue for Democrats, writing that "running as the defender of the rights of accused terrorists...doesn't seem like a winning game plan to me." His point is that although we of course ought to stop torturing prisoners, lots of voters will see the Bush administration as merely combating terrorism with somewhat excessive but still commendable zeal.

I'm not so sure. The fact is that torturing and mistreating prisoners is bad tactically as well as morally. An especially clear explanation can be found in a brief leaflet titled "The Enemy In Your Hands" that was issued to every U.S. soldier during the Vietnam War.
Mistreatment Of Any Captive Is A Criminal Offense. Every Soldier Is Personally Responsible For The Enemy In His Hands.

It is both dishonorable and foolish to mistreat a captive. It is also a punishable offense. Not even a beaten enemy will surrender if he knows his captors will torture or kill him. He will resist and make his capture more costly. Fair treatment of captives encourages the enemy to surrender.

The leaflet says that prisoners, whether suspects, civilians, or soldiers, are to be treated without violence, degradation, or even any insults. Why? Because it's dishonorable and because "fair treatment of captives encourages the enemy to surrender."

To take just one example, remember how soon after the war, many Iraqi weapons scientists on the Coalition's 55 most wanted list turned themselves in? Remember how a few months later, having heard about the treatment of those who had surrendered, they began to go into hiding, many fleeing the country, taking with them their skills in creating chemical, biological, and nuclear weapons?

Fortunately, there's a lot of people who get it. In fact, polls show that a large majority oppose torture, or even humiliating and abusive treatment, in all circumstances.

Unfortunately, Americans (especially the military) are being put at risk by our clueless leaders.
 

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Friday, June 11, 2004

Smash!


Blogging will be light, or maybe heavy, hard to say.

I was just in a serious hit and run car accident. Fortunately, it was only serious for my car, which no longer has an enclosed trunk, and not for me. I'm fine, although the cops tell me that I can expect my muscles to seize up tomorrow, and my friends urge me over the telephone to see a doctor, just to be sure.

Anyway, I'm blogging this for four reasons: (1) to play for sympathy, (2) to report on the amusing aspects of being rear-ended, (3) to discuss important public policy implications, and (4) because I've been slacking off on the food-blogging.

I was rear-ended by a big SUV, while stopped at a red light. The light had just turned green, and I was getting into gear, when I noticed a giant SUV bearing down on me. The SUV hit me and took off.

The amusing aspects:
(1) Me fumbling for the emergency blinkers while simultaneously trying to move out of the way of oncoming traffic, not realizing that since my car no longer had a rear end, the tail lights were unlikely to be effective. Really, had you been there, looking over my shoulder, you would have found it hysterically funny.
(2) The hit and run driver, having smashed my car so badly that onlookers phoned for an ambulance, decided to make a run for it, not realizing that there was a police car behind him! The hit-and-runner was caught within a mile.

The policy implications:
(1) I blame the system. The traffic lights on the road were timed such that the light behind me turned green before my light. This leads to a fast-moving wave of traffic rushing towards stopped cars, such as mine.
(2) I hate SUVs. A lot. If Bush proposed banning SUVs and implementing a federal program to properly time traffic lights, I would vote for him, or at least seriously consider it. Why isn't this a national issue (along with traffic congestion)?

The gustatory implications:
Austrian "Gruner Veltliner" wine produced by Berger and available from Fresh Fields (a moderately dry white wine) is an excellent nerve tonic after an auto accident. And it comes in 1 liter bottles! Wine in liter bottles is very rare, but when you can find it, it's always excellent.

 

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Wednesday, June 09, 2004

"The Longest Expansion in History"


American prospector Nick Confessore writes [thanks for the link, Nick!],
I see via the blog Ragout that the New York Times obituary for Reagan incorrectly credits his tenure with the "longest economic expansion in history." According to the National Bureau of Economic Research, it was the third-longest since they began measuring, with the Clinton expansion first and the 1960s boom second. I really doubt this was intentional deception. More likely it was sloppy reporting. But the Times is the paper of record. They should issue a correction.

He raises a good point: just why did the NY Times exaggerate Reagan's economic record? I googled this claim and looked at the first 20 google hits, (plus two other links). Many correctly credited Clinton with the longest economic expansion in U.S. history. Among those that referred to Reagan, the pattern I found suggests that variations on the claim that Reagan's expansion was the longest have been a right-wing mantra for at least a decade.

The older references are careful to include the qualifier peacetime expansion, ruling out the 1960s expansion due to the Vietnam War. So, to my surprise, Rush Limbaugh, Haley Barbour, and Steven Moore were making true claims in the 1990s:
"The Longest Peacetime Expansion in History"
Rush Limbaugh, Writing in 1993.
Haley Barbour, RNC Chair & Governor of Mississippi, speaking in 1993.
William A. Niskanen and Stephen Moore, supply side economists, writing in October 1996. In a footnote, they acknowledge that Clinton's expansion may last longer.

The National Review falls into a category of craziness all its own, with John O'Sullivan writing as if the recession of 1990-91 never happened, "the longest peacetime expansion in history has now lasted, with only the briefest interruption, for 17 years," (October 25, 1999).

The most recent references find Republicans dropping the "peacetime" qualifier, and failing to notice that the Clinton economic expansion was more than two years longer than Reagan's. I guess "the second-longest peacetime expansion" doesn't sound so impressive.
"The Longest Expansion in History"
James Miller III, Reagan's Budget Director, writing in February 2004.
Reagan Legacy Project, headed by Republican operative Grover Norquist; no date, but apparently quite recent.

So should we excuse the NY Times, assuming that they couldn't avoid being taken in by right-wing propaganda? Maybe, but even the conservative American Spectator wasn't fooled. They recently described the Reagan expansion accurately as "at that time the second-longest expansion in history," (Brian S. Wesbury, 3/30/2004).

In 1993, Haley Barbour complained, "We do talk about Reagan's record, but the media won't report it." Well, the media still isn't reporting Reagan's record, but I bet Barbour has stopped complaining.
 

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Reagan Myths


According to his obituary in the NY Times, Ronald Reagan "presided over the longest economic expansion in history."

The Times is said to write obituaries years in advance, and at first I thought this was why they ignored the Clinton expansion, which was several years longer than Reagan's. But then I looked up the figures, and found that the Kennedy-Johnson expansion of the 1960s was longer too.

Reagan's expansion was indeed long, the third longest in U.S. history (not "history"), but no matter no many times the "liberal media" tells us that it was the longest ever, it just ain't so.

Length of Expansion
Feb. 1961 - Dec. 1969: 106 months (8 years & 10 months)
Nov. 1982 - Jul. 1990: 92 months (7 years & 8 months)
Mar. 1991 - Mar. 2001: 120 months (10 years)

Source: National Bureau of Economic Research (NBER).
 

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Tuesday, June 08, 2004

Economists Say: The Reagan Years


Another installment in the continuing series about the foolish things that follow the words "Economists say" in the NY Times...

Marilyn Berger's obituary for Ronald Reagan contains following, which I imagine is supposed to be a balanced assessment of his economic policies.
After the 1981-82 recession, Mr. Reagan presided over the longest economic expansion in history, one that saw the creation of 16 million jobs. By his seventh year in office the stock market was reaching an all-time high. Inflation had dropped and the prime interest rate was down, partly a result of the collapse of oil prices and partly from the policies of the Federal Reserve.

But Mr. Reagan got the credit, just as he had gotten the blame for the recession and the deficit. Economists noted that foreign capital pouring into the country had shielded the United States from the consequences of the deficit, but warned that it would be only a matter of time before that buffer disappeared.

The very widely accepted view, espoused in economics textbooks from Stiglitz's to Mankiw's, is that deficits raise real interest rates, lowering investment, and reducing national income in the long run. (Of course, during recessions, deficits can raise income in the short run). Berger doesn't mention this fundamental point.

It's hard to be sure what prediction Berger is garbling when she speaks of "economists" noting that foreign investment shields the U.S. from the "consequences of the deficit." I suspect she means that some economists warned of a currency crisis if foreign investors lost confidence in the U.S. and pulled out their funds. Later in the article, Berger says that the deficit was one of the causes of the October 1987 stock market crash (which is hard to believe). Although deficits have caused financial crises in some countries (and Paul Krugman warned a few years ago that it could happen here), this is not the only consequence of the deficit, and certainly not the most obvious or most common consequence.

Berger mentions that the prime rate fell during the Reagan years, but this is the nominal interest rate: economists focus on the "real interest rate" (meaning adjusted for inflation). Real interest rates were very high under Reagan, higher than at any time since at least 1963, and investment fell steadily. We were hardly "shielded from the consequences of the deficit."

The graph below shows that the macroeconomists really are on to something. As deficits soared under Reagan, so too did real interest rates, and the predictable consequence was falling investment.

I don't mean to speak ill of the recently dead, so let me join with Paul Krugman in giving Reagan credit for correcting his errors. Faced with a soaring budget deficit, he quickly rolled back some of his tax cuts, and began reducing the deficit.



 

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Friday, June 04, 2004

A Vaccine for the The Obesity Epidemic?


Most people, I think, believe that obesity is caused by a lack of willpower. I've always thought that this view was based more on self-righteousness than on evidence: "Don't eat so much, fatty!" For one thing, I know that many diseases that were once thought to be caused by poor life styles or poor behavior are now known to be caused by infectious agents.

Ulcers, once thought to be caused by stress, are the most prominent example ("Mellow out, dude, you'll give yourself an ulcer. And don't drink so much"). We now know that ulcers are caused by a bacterium in the vast majority of cases. Amazingly, studies show that about half of doctors still don't prescribe antibiotics for ulcers, despite correctly answering questions about their cause, and despite the consensus recommendation of prestigious medical organizations that antibiotics should be the first line of treatment. I attribute this to a deep-seated desire to blame misfortune on sin.

Similarly, schizophrenia used to be blamed on poor parenting. This is so despite the fact that has long been know that the disease can be caused by a bacterium (syphilis). Scientists are now pursuing several tantalizing leads suggesting a viral cause.

It has also long been known that certain types of heart disease (viral myocarditis) are caused by a virus. But scientists now think that common viruses may play a role in many other types of heart disease and stroke as well.

Through the magic of google, I learn that obesity too, may be caused by a virus. Certain viruses have been shown to cause large weight gains in animals. For example, marmosets infected with the adenovirus-36 virus gained 12% of their body weight over six months, compared to 3% for uninfected animals. In humans, the virus causes colds and diarrhea. But its effects may linger. One study found that 30% of the obese have antibodies to adenovirus-36 compared to 5% of the non-obese.

Interestingly, the researcher most prominent in this area has patented the virus, the antibody test, and a possible vaccine. Perhaps he's working on an obesity cure?

 

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Wednesday, June 02, 2004

No More Compassionate Conservatism


A reader directs me to an article from a few months back by Cabinet escapee Robert Reich, who predicts that a second Bush term could make his first look like compassionate conservatism. "Knowing that voters can no longer turn them out, and that this will be their last shot at remaking America, the radical conservatives will be unleashed," warns Reich.

Some of Reich's predictions seem likely: more tax cuts for the rich, privitization of social security, and a second Patriot act. Others seem more like worst fears rather than serious predictions: Charles Pickering on the Supreme Court, "the transformation of America into a one-party state" via rigged voting machines.

Reich also forecasts war with North Korea and Iran and says he has evidence. "A friend who specializes in foreign policy and hobnobs with subcabinet officials in the Defense and State departments told me that the only thing that's stopped the Bushies from storming into Iran and North Korea is the upcoming election." Wesley Clarke and others also say they've heard about such plans.

At first I was skeptical. Even though Bush officials probably would like to invade some more of the Axis of Evil, most of the Army is tied down in Iraq and things have only gotten worse since Reich wrote the article (probably in March). The Army is short on bullets, is rushing to retrieve artillery from ski resorts, and is generally in a low state of readiness.

But then I remembered the Navy and the Air Force. These services haven't been much involved in Iraq since the "end of major combat operations." In fact, even though the Navy and Air Force have lots of military police, prison guards, engineers, and others who could be useful on shore, sailors and airmen have been held back. Perhaps this is due to interservice rivalry.

Or perhaps the Bush administration really is planning a blockade of North Korea, as was bandied about by Pentagon officials last year, and more recently by administration defense advisor Richard Perle. For this operation, the Navy and Air Force would be just the ticket. It could work too, at least as long as the North Koreans are bluffing when they threaten to respond by invading South Korea and leveling Seoul...
 

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Tuesday, June 01, 2004

Economists Say: Imploding from Employment Pressure in China


In a recent NY Times Article, Jim Yardley offers us the tale of a casual laborer and a college student in China, interspersed with economic analysis.
With China's leaders struggling to engineer a soft landing for the country's overheating economy, Zhao Guangxi and Zhou Ruidong face a problem more typical of a country mired in a deep recession. Neither man can find a job.
...
The prospect that China's torrid economy could crash-land is spawning fears of a real estate bust, a banking bailout and a wave of inflation rippling around the world. Most experts discount such predictions, but even if China does land softly, such good news is still bad news in terms of unemployment.

By putting the brakes on economic growth, even gently, China is slowing an economy that must roar just to keep unemployment from rising. Employment pressures are so great that even as growth neared double digits in the last 12 months, urban unemployment still rose. In the countryside the situation is far worse.

Economists Say.
I would hope most experts discount the possibility that rapid slowdown in China's economic growth could sent "a wave of inflation rippling around the world!" Usually, slower growth is associated with lower inflation, which is one reason why China's leaders hope to slow down the economy. I won't even touch "inflation rippling around the world."

And why does the economy "have to roar just to keep unemployment from rising"? We're later told that "economists say" this, but Yardley doesn't really explain. The implication he seems to draw from this that China is in pretty big trouble, bowed down under the weight of tons of "employment pressure." This might make some sense if "employment pressure" meant population growth, but China's population and labor force growth are about 1-1.5%, not especially rapid. So I think Yardley just means that 7% (the rate to which China is hoping to decelerate) is very rapid growth and he doesn't understand how China can keep it up, so he expects doom.

A much better explanation is simply that China is experiencing very rapid productivity growth, which is why its economy is growing so fast. "Productivity growth" is an abstract way of saying that inefficient factories are being shut down and agriculture is being mechanized, leading many to lose their jobs. Most find better jobs (which is why productivity is rising) but with so many in transition, not everybody is doing well. The day laborer, a migrant from the countryside, is an example of a very real problem.

The College Student
The central conceit of the article is that the problems of the day laborer and the college student are in some way parallel, caused by the same grand economic problems, but they're pretty clearly not. The college student is a month from graduation but hasn't found a job, a situation that used to be uncommon. Yardly quotes an economist who tells us the reason for this: it's because China's college enrollment has quadrupled over the last six years.

Enrollment has quadrupled! That seems a pretty straightforward explanation for why college students are finding it harder to get a job. There's a glut of college students on the market. For some reason Yardley continues to offer other explanations such as "employment pressures" and "the job market is more competitive, particularly since traditional employers like state-owned enterprises are trimming down," but the real story is pretty obvious.

Ultimately this article tells me something interesting that I didn't know: China's been hugely expanding college enrollment. But it's surrounded by so much pseudo-economic analysis that the nugget of news is pretty hard to find.
 

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