ECONOMICS: The Ink-Stained Glass House
Wesbury, Brian S.
ECONOMICS BRIAN S. WESBURY The Ink-Stained Glass House N A RECENT TRIP TO NORTH DAKOTA I was not surprised to find an Associated Press (AP) analysis of the national economy, titled "Income...
...Living in a glass house, it should be careful before tossing bricks...
...The Facts According to the CBO, the Bush tax cuts made the income tax system more progressive...
...This performance exceeds the 0.1 percent annual average growth rate during President Clinton's first three and a half years in office and the 0.2 percent annual average gain in real hourly earnings over the past 20 years...
...The structural changes sweeping the world today, driven by globalization and technology, have accelerated rapidly in the past 20 years...
...In fact, according to a recent report by the Census Bureau, 38 percent of those in the bottom quintile of income earners in 1996 had progressed to a higher quintile by 1999...
...Corporate spending on benefits hit a record high in the second quarter...
...The Facts P This statement is based on non-farm payroll data, which are a flawed estimate of true job gains...
...The tractor 40 THE AMERICAN SPECTATOR OCTOBER 2004 eliminated many agricultural jobs, but led to lower prices, more abundant food, and an increase in manufacturing jobs...
...If outsourcing jobs is so bad for America, why is it good for newspapers...
...Print-shop employment has declined from a peak of 830,000 in June 1998 to 665,000 in July 2004—a loss of 165,000 jobs...
...AP: The new jobs are concentrated in health care, food services and temporary employment firms—all lower-paying industries...
...Strope, Sedensky, and the AP benefit because work can be replicated and used simultaneously in many places...
...Moreover, 85 percent of 1,100 surveyed by American Research Group said that their own personal financial situation is good, very good, or excellent...
...AP: New government data show that President Bush's tax cuts have shifted the overall tax burden to the middle class from the wealthiest Americans...
...The newspaper industry is a case study on the benefits of outsourcing and the use of technology...
...Since the AP story hits all the current "hot button issues," let's address them one at a time...
...P Housing costs have gained an annualized 2.6 percent compared to the 20-year average of 3.1 percent...
...The litany of problems addressed in the out-sourced AP piece covered virtually every talking point of the John Kerry campaign...
...For years newspapers, instead of adding expensive reporters to the payroll, have been using wire service reporting to reduce costs, boost profits, and expand coverage...
...up from 64 percent in 1990...
...The Bismarck Tribune version quoted two economists as support for the authors' point of view, but offered no dissenting arguments...
...A BLS study found that when grouped by job-type, 64 percent (744,000) of the jobs created in the 12 months ending in June were above average pay, while 36 percent (408,000) were below...
...income...
...But the cost-cutting does not stop there...
...According to the Congressional Budget Office (CBO), all taxpayers faced a lower effective tax rate after the Bush tax cuts...
...All other income levels now pay a lower share...
...I There is a great deal of movement up and down the income ladder...
...In the real world this means that jobs will be eliminated (or never created), and in most cases vanish for good...
...More than a million jobs have been added back to the 2.6 million lost since Bush took office, but they pay less and offer fewer benefits...
...While structural changes are causing turmoil and uncertainty for many families and communities across the country, increasing productivity is creating more opportunity than ever before...
...Well, think again...
...Income quintiles are not stagnant...
...Outsourcing is a good idea...
...I Food prices have increased an annualized 2.5 percent compared to the historical average of 3.0 percent...
...While in 2002 the top 20 percent of all taxpayers earned 50 percent of the income (Census Bureau), they also paid 82 percent of all federal income taxes (CBO...
...experienced its first bout of deflation since the 1930s, terrorists attacked on 9/11, corporate scandals swept across the world and politicians reacted with more regulation, the U.S...
...According to a 2001 Federal Reserve survey, 52 percent of families had direct or indirect ownership of stock...
...Nonetheless, society as a whole is better off because increased productivity increases are akin to getting something from nothing...
...Incredibly, despite these developments, real GDP has increased 4.7 percent in the past year and 3.6 percent at an annual rate in the first half of 2004...
...The Facts P Comparing the share of total income earned in each quintile does not provide any information on how people have actually fared...
...Unlike the days when typesetters would receive final newspaper copy and prepare plates for printing, new digital processes today allow the article to go "direct to plate" from the editor's desktop computer (soon the printing process will skip the plate altogether...
...But research shows that the BRIAN S. WESBURY vast majority of those in the lower quintile of incomes are young and inexperienced, while the majority of those in the upper quintile have been working for years...
...According to the Household Survey, 3.3 million jobs have been created since the recession ended in November 2001, and employment is 1.8 million higher today than when President Bush moved OCTOBER 2004 THE AMERICAN SPECTATOR 39 ECONOMICS into the White House...
...Worldwide, in addition to the Bismarck Tribune, at least 100 other newspapers ran a version of the article, including the San Francisco Examiner, the Chicago Tribune, the Miami Herald, and the UK-based Guardian...
...The highest 20 percent of income earners now pay a larger share of federal income taxes than they would have without the tax cuts...
...In the three and a half years since President Bush took office, real average hourly earnings have climbed an average of 0.7 percent annually...
...Moreover, owning a home is not just for the "rich...
...has fought two wars, and energy prices have hit an all-time high...
...According to the Census Bureau, 69 percent of American families owned a home in Q2 2004...
...Other industries are finding out what newspapers learned a century ago...
...AP: The income gap has steadily increased between the richest Americans, who own homes and stocks and got big tax breaks, and those at the middle and bottom of the pay scale, whose paychecks buy less...
...The U.S...
...The Facts ^ The income gap has always existed...
...Clearly, the quality of jobs is improving...
...14?, Brian S. Wesbury is chief economist at Griffin, Kubik, Stephen & Thompson, Inc., a Chicago-based investment bank...
...European unemployment rates are at or above 10 percent, and U.S.-trained European scientists are choosing to stay in the States, creating a damaging brain drain for many European countries at a time when technological advancement depends on smart and well-trained people...
...Tax cuts are not just for the "rich...
...AP: The wealthiest 20 percent of households in 1973 accounted for 44 percent of total U.S...
...The stock market collapsed, the U.S...
...The Facts - This analysis groups the data by industry and not by job-type (supervisory vs...
...Between 1973 and 2002 the first, second, third, fourth, and fifth quintile of households saw their incomes rise by 11 percent, 14 percent, 19 percent, 28 percent, and 55 percent respectively (Census Bureau...
...AP: The U.S...
...While there are no general statistics that specifically measure workers with, or without, benefits, benefit costs to corporations have risen by an average of 6.3 percent per year since the end of the recession, and an annualized 8.6 percent in 2004...
...In addition, some costs have fallen since the end of the recession (apparel down an annualized 1.5 percent, motor vehicles down 2.8 percent, telephone rates down 1.5 percent, and computer prices have plummeted...
...It is hard to understand the rampant pessimism and "falling sky" newspaper articles that we read on a daily basis...
...As workers age and gain experience, they begin to reap the rewards of their hard work—incomes rise and assets are accumulated...
...The Bismarck Tribune paid the AP for it, sending hard-earned local dollars outside the state and forcing University of North Dakota journalism majors to look elsewhere for jobs...
...system of mostly free market capitalism has created the most productive economy in the world...
...Moreover, a USA Today analysis found that "what students [actually] pay on average for tuition at public universities has fallen by nearly one-third since 1998, thanks to new federal tax breaks and a massive increase in state and federal grants to most students and their families...
...One cost of these changes has been a loss of manufacturing jobs...
...Leigh Strope from Washington, D.C., and Matt Sedensky from Kansas City, the authors of the story, used their piece to argue that outsourcing is hurting American workers...
...Owning stock is not just for the "rich...
...These newspapers are making the right decision...
...The housing market is booming, incomes are rising, and retail sales stand at an all-time record high...
...Their share jumped to 50 percent in 2002, while everyone else's share fell...
...Yes, the higher quintile incomes have expanded faster than lower income quintiles, but each and every quintile has seen an increase in income...
...The Facts According to Bureau of Labor Statistics (BLS), in the 32 months since the end of the recession: - Healthcare costs have risen an annualized 4.4 percent compared to the 20-year average of 5.5 percent...
...AP: Technology has eliminated many U.S...
...I Tuition costs have risen 6.7 percent compared to the 20-year average of 6.9 percent...
...These changes are inevitable...
...They admit that jobs have been added since "Bush took office," but argue that those jobs "pay less and offer fewer benefits such as health insurance...
...AP: Prices for healthcare, housing, tuition, gas and food have soared...
...Nothing wrong with that, right...
...non-supervisory...
...Other systems have not worked as well...
...The unemployment rate is 5.4 percent, well below the 1990s average of 5.9 percent...
...Personal income, disposable personal income, wages and salaries, and many other measures of income are rising faster than inflation...
...Moreover, according to the Organization for International Investment, U.S subsidiaries of foreign companies (in-sourcing) employ 6.4 million Americans and pay, on average, 19 percent higher wages than U.S...
...T HE FACT OF THE MATTER IS that the U.S...
...In fact, news services were ahead of the pack in the outsourcing game—the AP was founded in 1848...
...But technology increases productivity, creating jobs in new industries and increasing living standards...
...jobs market is soft...
...Since the late 1960s, except for a few random years, the gap has always been expanding...
...The Facts - According to the BLS, only 1 percent of the layoffs in 2003 can be attributed to outsourcing...
...economy is performing admirably given the developments of the past five years...
...Don't misunderstand me...
...This number was just 37 percent in 1992...
...Today, even more than in years past, technology is allowing 38 THE AMERICAN SPECTATOR OCTOBER 2004 intellectual property to move seamlessly around the world...
...ECONOMICS BRIAN S. WESBURY The Ink-Stained Glass House N A RECENT TRIP TO NORTH DAKOTA I was not surprised to find an Associated Press (AP) analysis of the national economy, titled "Income Gap: Still Expanding," on the frontpage of the local Bismarck paper...
...jobs as has global competition, particularly from low wage countries such as China...
...The irony is that the article was itself outsourced...
...According to the reporters, the income gap is expanding, the "rich got big tax cuts," and the "jobs market is soft, sending wages down...
...While oil prices have "soared," most other prices have increased at less than historical averages...
...Trying to stop them would halt progress...
...In addition, according to the Tax Foundation, the Bush tax cuts removed 7.8 million from the tax rolls altogether...
...companies...
...Outsourcing boosts productivity and lowers costs...
...These changes have eliminated thousands of high-paying jobs...
...Productivity growth, by definition, means that output can increase with less labor input...
...It is true that technology has eliminated many jobs, as it has for centuries...
...Labeling these changes an economic problem is a mistake, and reflects an inability of many to understand the macroeconomic picture...
Vol. 37 • October 2004 • No. 8
