Relevant and even prescient commentary on news, politics and the economy.

Letter to Sinclair Broadcasting

From John McCain:

I write to strongly protest your decision to instruct Sinclair’s ABC affiliates to preempt this evening’s Nightline program. I find deeply offensive Sinclair’s objection to Nightline’s intention to broadcast the names and photographs of Americans who gave their lives in service to our country in Iraq.

I supported the President’s decision to go to war in Iraq, and remain a strong supporter of that decision. But every American has a responsibility to understand fully the terrible costs of war and the extraordinary sacrifices it requires of those brave men and women who volunteer to defend the rest of us; lest we ever forget or grow insensitive to how grave a decision it is for our government to order Americans into combat. It is a solemn responsibility of elected officials to accept responsibility for our decision and its consequences, and, with those who disseminate the news, to ensure that Americans are fully informed of those consequences.

Viewers of ABC affiliates owned by Sinclair Broadcasting will not hear tonight’s Fallen, which Nightline says “will pay tribute to all the American servicemen and women who have died in Iraq by devoting the entire broadcast to reading their names and showing their photographs.”

The statment on Sinclair’s web page says, “the action [Koppel’s plan to read the names of the dead] appears to be motivated by a political agenda designed to undermine the efforts of the United States in Iraq.” For some other things Sinclair Broadcasting stands for, see this overview from the Center for American Progress.

You may now rant about media consolidation.

AB

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Postcard Update

The Easter edition of my column “Postcard from Old Europe” talked about the low level of entrepreneurship in Europe. The Blog “Small Business Trends” tackles the same question – I would highly recommend looking at the whole thing. An excerpt:

The entrepreneurs who are successful in the US are often considered as heroes. In Europe, most of them hide themselves because success is not something you can show to the same extent, because many people around them start to become jealous.

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Postcards from Old Europe – Four elections and a constitution

While much of the world has it’s eyes firmly fixed on the US election in the fall, this column looks at some of the developments coming up on the European political stage.

June will see elections to the European parliament and another chance at agreeing on an EU constitution. Some people seem to think now that Spain and Poland have dropped their opposition to the so-called double majority voting system the chances are pretty good for an agreement on the constitution. Keep in mind that agreement doesn’t mean that the constitution is ratified – some countries will elect to hold referendums. The outcome of these referendums is far from certain so it would be very premature to expect the EU constitution to sail through the ratification process.

The most interesting countries with regard to possible referendums on the constitution are the Netherlands, the UK and France. The Netherlands – formerly one of the most ardent supporters of European integration – are suffering from a bout of Euro-skepticism and are going to hold their first referendum. The UK is a special situation in which the electorate and much of the mainstream press is against most things European while the government (well at least the prime minister) is mostly for closer European integration. France is a very interesting story in this regard as the President Chirac can decide if the country will hold a referendum or not. As any election can – and will – be used to express discontent with the ruling party, the Elysee will probably try to avoid a vote if it can. The tricky thing is that UK prime minister Tony Blair has since openly called for a referendum and thereby heightened the pressure on Chriac to do the same.

The French not only face a potential referendum on the constitution but also a general election in 2007. The recent regional elections – which led to Chirac’s center-right party losing almost across the board seem to have dampened the governments reform-spirits. I doubt that the French government will attempt to cut entitlements or implement any kind of wide ranging health-care reforms before the next big elections. The only problem is that the Maastricht deficit criteria should – in theory at least – punish countries for running a budget deficit of more than 3% of GDP. As France is already above this limit it will probably have a hard time boosting government spending in a bid to enliven the economy. The smart money is on the government engaging in some creative book keeping to help “reduce” the deficit whilst at the same time borrowing and spending more.

Italy is scheduled to hold an election by mid-2006. The government of Silvio Berlusconi will probably play dead on the reform front until then and concentrate on heading off the impending challenge by the opposition. One should add that the Berlusconi government didn’t actually manage to do much in the way of reforms anyway. This disappointed quite a few voters who took the prime minister’s tough businessman persona at face-value and are now pretty disillusioned. The probable candidate, the outgoing EU Commission President Prodi is certainly no pushover.

The German situation is quite similar to the one in France. Most people will tell you that reforms are absolutely necessary – just as long as they won’t have to give up any entitlement themselves. The government’s disastrous performance in recent polls (and in regional elections) has lead to the reform caravan coming to a grinding halt. I guess the situation will have to get much worse before a broad national consensus to support reforms emerges.

The next election coming up will determine the composition of the EU parliament. Pollsters are predicting a (first time) center-right win. This could influence the makeup of the new European Commission as the old one is disintegrating as most of it’s members have jumped ship (or are going to).

What does it all mean? Most incoming governments have pushed a reform agenda and have been badly mauled for doing so. The reform window is in the process of slamming shut and the European Constitution is still a ways off. This failure to implement structural reforms will raise Europe’s Beta with regard to exports and will make any domestic recovery harder to come by. Not much good news for the old world.

Remember to visit Curryblog for more news and views!

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Something to Hide

Bush, after today’s meeting with the 9/11 Commission:

If we had something to hide we wouldn’t have met with them in the first place. We answered all their question. I came away good about the session because I wanted them to know how I set strategy, how we run the White House, how we deal with threats” Bush said.

This reasoning must explain — straight from the President himself — why the administration is fighting so hard to keep the Energy Commission records closed and still hasn’t released all of Bush’s military records, and [insert description of act of secrecy here] …

I suppose Bush’s inadvertent candor also sheds some light on why they resisted testifying for so long, and did so only without recordings or transcripts, why Dr. Rice initially wouldn’t testify under oath, why the administration fought against extending the deadline for the Commission’s report, and [insert act stonewalling the 9/11 Commission here] …

AB

UPDATE: Over at Tapped, Matt Y. noticed the same quote that I did and fills in some of the blanks:

… in the real world of course, Bush did refuse to meet with the commission, only to back down in the face of public pressure. Then he refused to meet for more than one hour and, again, he wound up backing down in the face of public pressure. Finally, he agreed to let the commission ask their questions, but only on the dual condition that Cheney be at his side and that no transcript of the meeting be released. That doesn’t sound at all like the pattern of behavior of a president who’s trying to hide something. Why, it’s been “unprecedented cooperation” from the get-go. And we all remember how eager Condoleezza Rice was to testify. . . .

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Unimpressive GDP Numbers

From today’s BEA release of the advance estimates of first quarter GDP growth:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 4.2 percent in the first quarter of 2004, according to advance estimates released by the Bureau of Economic Analysis. In the fourth quarter [of 2003], real GDP increased 4.1 percent.

…The slight acceleration in real GDP growth in the first quarter primarily reflected a deceleration in imports, an upturn in government spending, and an acceleration in PCE that were largely offset by decelerations in exports, in inventory investment, and in residential fixed investment.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 3.2 percent in the first quarter, compared with an increase of 1.3 percent in the fourth. Excluding food and energy prices, the price index for gross domestic purchases increased 2.3 percent in the first quarter, compared with an increase of 1.5 percent in the fourth.

This is a solid number, but nothing that will wow anyone — and it’s certainly not as impressive as a lot of people thought it would be. At first glance, one of the more surprising bits about it is the relatively fast rate of inflation included in the report: core inflation accelerated to a 2.3% annual rate, which strikes me as an unexpectedly large increase in inflation.

More on this report later.

Kash

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What’s Causing High Gasoline Prices?

The US Senate Republican Policy Committee has spent some time and effort investigating the cause of rising gasoline prices. Yesterday they published a policy report explaining their findings. The conclusion: rising gasoline prices are largely due to Federal regulations, such as those established by the Clean Air Act. Among their recommendations of things that will help bring down the price of gasoline:

  • “The EPA should have the authority to temporarily suspend clean-fuel requirements…”
  • “Congress should eliminate the Clean Air Act’s oxygenate requirement for reformulated gasoline…”
  • “Congress and the Administration should reform other regulations (known as the New Source Review requirement) under the Clean Air Act that have resulted in the halt of construction of new refinery capacity.”

Huh, who would have imagined that gas prices were so high in recent months simply because of those pernicious environmental regulations?

Actually, let me propose an alternate hypothesis: gas prices have been rising because crude oil prices have been rising. It sounds crazy, I know. Why do I propose such a theory? In part it’s because of graphs like this one, showing crude oil and wholesale gasoline prices since January 2, 1990:


Source: data from the Energy Information Administration, US Dept. of Energy.

I think that I can detect a relationship between gasoline prices and the price of crude oil that would pretty much explain why gas prices are currently so high. But apparently the Senate Republican Policy Committee doesn’t see it that way, and would rather use high gas prices as an excuse to change the Clean Air Act. I guess the only bit about it that surprises me is that they didn’t also find a way to suggest that another tax cut would be the cure for high gas prices.

Kash

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Today’s Howler

Somerby reads David Ignatius so you don’t have to. Here’s Mr. Ignatius explaining why, despite the information being readily available from military experts, the press failed to predict that the Iraq War and subsequent occupation would be tough:

The uniformed military privately had serious questions about the Iraq mission, but these only occasionally made their way into print.

… In a sense, the media were victims of their own professionalism. Because there was little criticism of the war from prominent Democrats and foreign policy analysts, journalistic rules meant we shouldn’t create a debate on our own. And because major news organizations knew the war was coming, we spent a lot of energy in the last three months before the war preparing to cover it — arranging for reporters to be embedded with military units, purchasing chemical and biological weapons gear and setting up forward command posts in Kuwait that mirrored those of the U.S. military.

Investigating? No. Fact-checking claims? No. Waiting idly by the fax machine for your next story to arrive courtesy of the RNC or DNC? Yes. The party that writes the most stories for the press will apparently get the best coverage. Sweet Republican Jesus!

Or, in Somerby’s words,

Why did they bungle the run-up to Iraq? We were just too professional, Ignatius says! Has history ever rewarded a nation which allows such fops to serve in high places? Disaster awaits if these people aren’t countered. That’s why decent people like E. J. Dionne must stand on their hind legs—and fight.

AB

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Labor’s Share, Part II

Following up on my post from the other day, I’m still thinking about the recent divergence between labor productivity and the income that labor gets. In the process of thinking about this, I’ve been looking at some more data.

The table below shows labor productivity and labor compensation in several countries compared to levels in the US. In each case, productivity and compensation is measured relative to the US level, so a productivity score of 50 would mean that workers in that country produce 50% of what US workers produce in an hour, and so forth.


Source: UNCTAD, Trade and Development Report, 2002.

Next, here’s a graph showing the relationship between productivity and compensation within the US since 1985.


Source: BLS.

Both of these point to the same conclusion: typically, the income that labor receives follows the productivity of labor. There are some exceptions, of course. Internationally, the relationship between productivity and compensation is true in a rough and general way, though with some variation from country to country. And over time in the US, there have been periods in recent history when either compensation or productivity has grown faster than the other. But in general, when productivity rises, so does labor income.

The last 3 years seem to be one of those times when compensation does not track productivity, however. As the graph shows, a relatively large gap has opened up between worker productivity and compensation. This is another reflection of labor’s shrinking share of national income.

Numerous good possible explanations were offered in the comments on my earlier post on the subject. Let me address about a couple of them. First of all, international trade seems an unlikely culprit here. Imports grew most rapidly during the period 1996-2000, which corresponds exactly with the period with fastest compensation growth in the US. On the other hand, imports into the US actually shrank in 2001 and grew very slowly in 2002, when wages diverged from productivity.

What about union power? I agree that, in theory, weaker unions should cause workers to receive a lower share of a firm’s rents. In this case, however, I think that there’s something else going on. Unions have been steadily losing power for the past two decades. I would therefore have expected workers to receive a steadily decreasing share of national income since the early 80s, not just something that has happened over the past 2 or 3 years.

Finally, what about this just reflecting the normal workings of the business cycle? There’s probably something to that — we do typically see a big increase in profits at this stage of the business cycle, and in part that serves as a signal to investors that it’s time to start expanding businesses and building new businesses to take advantage of new profit opportunities. However, the fact remains that labor’s share in national income has fallen more dramatically and to lower levels than anytime in the last 30 years. It’s plausible to think that such extreme movements in labor income may be due to more than just the recovery from what was otherwise an unusually mild recession.

So I come back to my hypothesis. If anti-trust oversight has diminished in recent years (the change in Microsoft’s fate at the hands of the Justice Department provides one example of what I’m talking about) then firms have increased their ability to keep out competition. Industries move closer to oligopoly. Output is restricted by the oligopoly, leading to lower output and employment than would otherwise be the case, with stronger competition. The labor market is therefore weaker. Workers lose, and the owners of corporations gain. I’m still persuaded by this story.

Kash

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More WTO Troubles for the US

The US has apparently lost another ruling in the WTO. This one was against US agricultural subsidies in the cotton industry, in a case levied by Brazil. Brazil had argued that US cotton subsidies were excessive, and thus violated WTO rules. In a preliminary ruling, the WTO agreed.

There are a couple of points to take notice of here. First, if the WTO finds that the US’s cotton subsidies contravene WTO rules, then there may be broader implications for other types of US agricultural subsidies. Those subsidies are substantial, and form a major sticking point in numerous ongoing trade negotiations, not least of which is the Doha round of WTO negotiations.

Second, if this case establishes a precedent of any sort, other countries could be next in the sights of the developing world. Specifically Japan, Korea, and the EU are among the world’s biggest agricultural subsidizers, and they all must be watching this case closely.

Finally, note that this is a good example of how economic integration necessarily involves some loss of sovereignty. The Bush administration argued that the cotton subsidies were purely domestic in nature (and it’s true that they do not explicitly have anything to do with trade), and therefore are exempt from WTO oversight. But of course, despite the fact that the subsidies were not specifically enacted to have any impact on international trade, all production subsidies have the effect of distorting international trade. So according to WTO rules, Brazil did indeed have every right to complain about the US’s subsidies. But the tension between the right to make domestic policies and their possible conflict with international agreements will only continue to grow, undoubtedly making many people unhappy.

The WTO’s final ruling won’t be out for another 6 weeks. But personally, I think it would be great if the WTO forced the US to reduce its agricultural subsidies, since (thanks largely to the Bush administration’s craven dependence on campaign donations from agribusiness) American politicians haven’t been able to do it by themselves. The WTO could be providing help for all of us who aren’t cotton growers in the US – which was exactly what it was intended to do.

Kash

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