February 28, 2006

How The Economic News Is Spun—And Why

By Paul Craig Roberts

Readers ask me to reconcile the jobs and debt data that I report to them with the positive economic outlook and good news that comes to them from regular news sources. Some readers are being snide, but most are sincere.

I am pleased to provide the explanation. First, let me give my reassurances that the numbers I report to you come straight from official US government statistics. I do not massage the numbers or rework them in any way. I cannot assure you that the numbers are perfectly reported to, and collected by, the government, but they are the only numbers we have.

Here is how to reconcile my reports with the good news you get from the mainstream media:

(1)   When the US Department of Labor, for example, releases the monthly payroll jobs data, the press release will put the best spin on the data. The focus is on the aggregate number of new jobs created the previous month, for example, 150,000 new jobs.

That sounds good. News reporters report the press release. They do not look into the data to see what kinds of jobs have been created and what kinds are being lost. They do not look back in time and provide a net job creation number over a longer period of time.

This is why the American public is unaware that higher paid jobs in export and import-competitive industries are being phased out along with engineering and other professional "knowledge jobs" and replaced with lower paid jobs in domestic services. The replacement of higher paid jobs with lower paid jobs is one reason for the decline in median household income over the past five years. It is not a large decline, but it is a decline.

How can it be possible for the economy to be doing well when median household income is not growing and when economic growth is based on increased consumer indebtedness?

Many economists mistake offshore outsourcing with free trade based on comparative advantage. As a result of this mistake, ideology speaks instead of economic analysis. For example, Matthew J. Slaughter, an economics professor at Dartmouth, commits a huge error when he writes: "for every one job that US multinationals created abroad in their foreign affiliates they created nearly two US jobs in their parent operations." If Slaughter had consulted the BLS payroll jobs data, he would have realized that his claim could not possibly be true.

Slaughter did not come to his conclusion by examining aggregate job creation. Instead, he measured the growth of US multinational employment and failed to take into account the two reasons for an increase in multinational employment: (A) multinationals acquired many existing smaller firms, thus raising multinational employment but not overall employment, and (B) many firms established foreign operations for the first time and thereby became multinationals, thus adding their existing employment to Slaughter’s number for multinational employment.

ABC News’ John Stossel, a libertarian hero, recently made a similar error. In debunking Lou Dobbs’ concern with US jobs lost to offshore outsourcing, Stossel invokes the California-based company, Collabnet. He quotes the CEO’s claim that outsourcing saves his company money and lets him hire more Americans.

Turning to Collabnet’s web page, it is very interesting to see the employment opportunities that the company posts for the US and for India.In India, Collabnet has openings for 8 engineers, a sales engineer, a technical writer, and a tele-marketing representative. In the US, Collabnet has openings for one engineer, a receptionist/office assistant, and positions in marketing, sales, services, and operations.

Collabnet is a perfect example of what Lou Dobbs and I report: the engineering and design jobs move abroad, and Americans are employed to sell and market the foreign made products.

(2) Wall Street economists are salesmen. The companies that employ them want to sell stocks and bonds. They don’t want bad news. A bear market is not good for business.

Similarly, business associations have the agenda of their members. Offshore outsourcing reduces their labor costs and boosts their profits and performance-based bonuses. Therefore, it is natural that their association reports put a positive spin on outsourcing.

The same organizations benefit from work visas that allow them to bring foreign workers in as indentured servants to replace their more fractious and higher paid American employees.

Thus, the myth of a US shortage of engineers and scientists. This myth is used to wheedle more subsidies in the form of more H-1B visas out of Congress.

(3) Official US government reports are written to obfuscate serious problems for which the government has no solution. For example, "The Economic Report of the President,"written by the Council of Economic Advisers, blames the huge US trade deficit on the low rate of domestic savings. The report claims that if only Americans would save more of their incomes, they would not spend so much on imports, and the $726 billion trade gap would close.

This analysis is nonsensical on its face. Offshore outsourcing has turned US production into imports. Americans are now dependent on offshore production for their clothes, manufactured goods and advanced technology products. There are simply no longer domestic suppliers of many of the products on which Americans depend.

Moreover, many Americans are struggling to make ends meet, having lost their jobs to offshore outsourcing. They are living on credit cards and struggling to make minimum payments. Median household real incomes are falling as higher paid jobs are outsourced while Americans are relegated to lower paying jobs in domestic services. They haven’t a dollar to save.

As Charles McMillion points out, the February 28 report from the Bureau of Economic Analysis shows that all GDP growth in the fourth quarter of 2005 was due to the accumulation of unsold inventory and that consumers continued to outspend their incomes.

Matthew Spiegelman, a Conference Board economist, claims that manufacturing jobs are only slightly higher paid than domestic service jobs. He reaches this conclusion by comparing only hourly pay and by leaving out the longer manufacturing work week and the associated benefits, such as health care and pensions.

Stossel simply does not know enough economics to be aware that he is being used. The bought-and-paid-for-economists are simply earning their living and their grants by serving the interests of corporate outsourcers.

(4) Policy reports from think tanks reflect what the donors want to hear. Truth can be "negative" and taken as a reflection on the favored administration in power.

Consider, for example, the conservative, Bruce Bartlett, who was recently fired by the National Center for Policy Analysis for writing a truthful book about George Bush’s economic policies. Donors to NCPA saw Bartlett’s truthful book as an attack on George Bush, their hero, and withheld $165,000 in donations. There were not enough Bartlett supporters to step in and fill the gap, so he was fired in order to save donations.

When I held the William E. Simon Chair in Political Economy at the Center for Strategic and International Studies, I saw internal memos describing the grants CSIS could receive from the George H.W. Bush administration in exchange for removing me from the Simon chair.

In America "truth" has long been for sale. We see it in expert witness testimony, in the corrupt reports from forensic labs that send innocent people to prison, and even in policy disputes among scientists themselves. In scholarship, ideas that are too challenging to prevailing opinion have a rough row to hoe and often cannot get a hearing.

Even the president of Harvard University, Larry Summers, an academic economist of some note and a former Secretary of the Treasury, was forced to resign because he offered a politically incorrect hypothesis about the relative scarcity of women in science.

The few reporters and columnists who are brave or naive enough to speak out are constrained by editors who are constrained by owners and advertisers. For example, it is impermissible to examine the gaping holes in the 9/11 Commission Report. Publications and editors are intimidated by the charge of "conspiracy theory," just as criticism of Israel is muted for fear of being labeled "anti-Semitic."

All of these reasons and others make truth a scarce commodity. Censorship exists everywhere and is especially heavy in the US mainstream media.

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