Fact Checking Kudlow’s Latest
While Andrew Samwick has joined the cottage industry of those who parse every word from Paul Krugman, I like this standard:
Challenge every assertion of fact, provide evidence to support it, or change the language to reflect alternative explanations. If the Times won’t do that, then who needs the Times?
But why stop with applying this to the New York Times as we can explore whether the National Review applies this standard to Lawrence Kudlow:
While the trade gap has narrowed, raising overall GDP growth, there are actually signs of a somewhat slower economic pace inside the basic economy. Wall Street economist Joe LaVorgna points out, however, that first-quarter wages and salaries were revised up by a huge $163 billion, with the measure growing 7.5 percent over the year-ago pace. That explains double-digit federal tax-collection returns: Lower tax-rates have expanded incomes, which are in turn throwing off more revenues. This, of course, is the Laffer-curve effect.
So Kudlow starts talking about how economic growth may slow but then gives some obscure reference to suggest workers are earning a lot more. I tried to find what Mr. Lavorgna may have written and this is all I could find remotely similar to what Kudlow claimed:
Incomes probably increased about 0.7% in April as wages and salaries surged on higher hourly wages and a longer workweek.
As far as the average wage rate per hour, BLS reported that it fell to $8.16 in 1982$, which compares to $8.29 at the end of December 2003. The average workweek did rise from 33.7 hours as of March 2005 to 33.9 hours in April 2005 – but this is below the 34.2 hours in January 2001. So with lower real wages, a pedestrian performance as to the average workweek, and an employment to population ratio still at only 62.6%, only Kudlow could consider this a roaring economy for workers. But he says profits have never been better:
As for the all-important business sector, strong corporate profits, in particular, signal the health of this economy. Profits on an IRS income-tax basis, as reported in the national income accounts, have moved up to 10.9 percent of GDP – the highest level since 1968.
“Profits on an IRS income-tax basis” is an odd concept and once again Kudlow gave his readers no clue what he was babbling about. Searching BEA’s NIPA tables, the closest that I could find is table 7.16 (Relation of Corporate Profits, Taxes, and Dividends in the National Income and Product Accounts to Corresponding Measures as Published by the Internal Revenue Service), which reconciles to NIPA table 6.16 (corporate profits). Of course, corporate profits are only a subset of total profits. A more comprehensive measure would be line 12 of table 1.10 (net operating surplus: private enterprises). The following table shows both measures as share of GDP. By either measure, the profit to GDP ratio is the highest since 1997 – not since 1968.
But then Kudlow is rarely honest with his readers. Maybe I’m holding the National Review to too high of a standard.
