Pundits have agreed that one of the big casualties of the flip in congressional leadership will likely be U.S. trade policy. Under the new leadership, President Bush, whose Trade Promotion Authority expires midway through next year, will face a very serious challenge in trying to enact free trade agreements.

Today's Detroit News reports on the protectionist impulse of some of the Michigan delegation. These lawmakers have urged Ford, GM, and DaimlerChrysler to "be blunt" with the Bush administration when discussing the struggles of Michigan's auto industry.

"There have been no steps taken by this administration to support manufacturing. They need to understand, and I hope the Big Three will be blunt and direct with the administration, that their competitors are not companies overseas. Their competitors are countries overseas," Carl Levin said.

Levin's statement represents the all-too-common protectionist argument that, when it comes to international trade, it's an us-against-them affair. But, as Daniella Markheim and Anthony Kim explained recently, that's not the case:

Because today’s global economy offers unparalleled opportunities for the U.S., it is in America's economic interest to continue to expand trade by lowering barriers to trade in goods and services....

Trade has been a driving force behind America’s high living standards and promises even more if trade barriers can be broken down further. Gary Clyde Hufbauer of the Institute for International Economics estimates that trade liberalization over the last fifty years has brought an additional $10,000 per year to the typical American household. If all trade barriers were eliminated and global trade and investment became truly free, Hufbauer estimates that American households would gain an additional $5,000 per year. According to a University of Michigan study, if today’s international trade barriers were reduced by just a third, the average American family of four would enjoy $2,500 per year in additional income.

Freer trade enables more goods and services to reach American consumers at lower prices, giving families more income to save or spend on other goods and services. Moreover, the benefits of free trade extend well beyond American households. Free trade helps spread freedom globally, reinforces the rule of law, and fosters economic development in poor countries.

Markheim and Kim's analysis should be kept in mind during the tough battles of trade that will ensue during this Congress.

Posted by J. Lawrence Scholer at 11:29 AM | Permalink | TrackBacks (0)

Well, no, it isn't, but we still wouldn't be surprised to see some accusing the President and others of somehow manipulating labor markets to wind up with this impressive result:

Unemployment rate lowest in nearly 5-1/2 years

WASHINGTON (Reuters) - The U.S. unemployment rate dropped to its lowest in nearly 5-1/2 years during October as 92,000 more jobs were added and hiring in each of the two prior months was revised up, a government report on Friday showed....

The unemployment rate fell in October to 4.4 percent from 4.6 percent in September. It was the lowest unemployment rate since 4.3 percent in May 2001 and was likely to fan concerns that labor markets are growing tight and could contribute to inflation pressures.

Average hourly earnings rose 0.4 percent to $16.91 - higher than the 0.3 percent that analysts had anticipated - while the average work week edged up to 33.9 hours from 33.8. Over the year, average hourly earnings have risen by 3.9 percent, the department said.

We will have a paper out looking at earnings later in the day.

Posted by Andrew Grossman at 09:41 AM | Permalink | TrackBacks (0)

Economic growth has cooled due to the long anticipated slow down in the real estate market. Housing prices have not only stopped rising quickly but have begun to fall, causing a drop-off in investment in new housing. Residential housing investment dropped at a 17.4 percent annual rate in this quarter.

Also, the increase in imports exceeded the increase of exports in the third quarter. An increase in imports lowers measured GDP, but it does not signal an economy that is less productive.

Outside the housing sector, business investment continues to grow at a strong clip: 8.6 percent, almost twice the rate it grew at in the second quarter and faster than at any point in 2005. Business investment should continue as energy prices recede and inflation becomes less of a worry.

The U.S. economy will surmount the housing slowdown and continue to grow in the future. The U.S. growth rate, while slower than it has been since the 2003 tax cuts, still exceeds the growth rate of other developed countries, such as those comprising Old Europe. The countries that adopted the Euro experienced a collective annual growth rate of only 1.3 percent between 2004 and 2005.

Posted by J. Lawrence Scholer at 09:43 AM | Permalink

In a piece in this morning's Examiner, Stuart Buck and Megan McArdle explain how the Detroit Free Press screwed up in its map purportedly showing that household income across the country fell off a cliff:

If the journalists had checked the helpful section of the Census Bureau Web site called “Using the Data”, they would have discovered this warning: “Users should exercise care when comparing income figures from the American Community Survey with those of Census 2000.”

They might also have found another Census Web page warning that “[E]stimates from any one survey will almost never exactly match the estimates from any other (unless explicitly controlled), because of differences such as in questionnaires, data collection methodology, reference period, and edit procedures.” Or had they Googled “Comparing the ACS and the Census,” they’d have discovered a helpful document on the comparison problems, available from multiple state governments. It calls the two income numbers “not comparable.”...

What does this mean? Simple: If you start with income from the 2000 census, and then compare it to income from the 2005 ACS, which we know tends to be much lower because of survey differences — you’ll find a much greater decline than really was the case.

McArdle and Buck, on their respective weblogs, did yeoman's work in figuring this one out. And Heritage's Rea Hederman and James Sherk made a few good points on the matter, as well.

Posted by Andrew Grossman at 08:24 AM | Permalink | TrackBacks (0)

A map in the Detroit Free Press has been making the rounds among economic naysayers. The map purports to show major drops in nearly every state's median household income between 1999 and 2005. Income is down 12 percent in Michigan, for example, and 3.6 percent in California. If these statistics were accurate, they would paint a compelling picture of a troubled economy.

But as economics journalist for the Economist Megan McArdle explains, the analysis is bogus. The problem is that the baseline numbers, from 1999, are from the Census, while the more recent ones come from a new report called the American Community Survey. But the two datasets are basically incompatible--they're measuring slightly different things. McArdle decided to use the Free Press's methodology to look at the difference in incomes between 1999 and 2000. The results are shocking, reflecting how broken the methodology is:

I went to the 2000 Census (which tracked 1999 income) and compared it to the figures from the 2000 ACS state ranking table of median income. You can see my results in this spreadsheet. Even in nominal dollars, using this methodology, most states experienced a drop in median income in 2000. If I inflate the 1999 figures by the 3.36% inflation figure derived from the BLS's inflation calculator, all but three states saw median household income fall. If you look at the CPS page, by contrast, it alleges that median income for the United States as a whole rose by about $1,300, or roughly 3.2%, which is more in line with what most of us remember from those halcyon days (sigh). Indeed, as Stuart discovered, the Census itself noted this disparity.

The bottom line:

Given that there was huge divergence between the 1999 income figures from the Census, and the 2000 figures from the ACS--a rather obvious spot check--I personally would never have dared make such a comparison in print, even with footnotes. All their graph really tells us is that the new ACS produces lower estimates of median income than the Census long form. The ACS may well be more accurate. But it doesn't matter; you can't compare apples to oranges just because the apples are prettier.

Exactly.

Posted by Andrew Grossman at 12:29 PM | Permalink | TrackBacks (0)

Chicago's city council has passed a minimum wage law that would double the cost of labor for large businesses. Targeted at “box stores” like Wal-Mart and Target, the “living wage” legislation would increase the minimum wage in the city from $6.50 per hour to $10 per hour plus $3 in benefits.

Just like Maryland's pointless health care law targeted at Wal-Mart (overturned by the courts last week), the bill will cause large businesses to cut payrolls, reduce their operations in the city and reconsider future investments in Chicago. A Wal-Mart spokesman has already said the company would “redirect our focus on our suburban strategy,” which hurts not just urban consumers but urban workers as well. This law is aimed squarely as those it is intended to help, the urban poor, who will face the double blow of lost jobs and higher prices.

Posted by Nathaniel Ward at 04:24 PM | Permalink | TrackBacks (0)

Yesterday evening, the House Appropriations Committee took a short a break from its busy schedule of loading up the federal budget with wasteful earmarks and voted to attach a $2.10 hike in the minimum wage to the health and education appropriations bill. Supporters says that this will help the poor make ends meet. In reality, minimum wage increases are ineffective, unnecessary, and counterproductive tools in the fight against poverty, argues Heritage's James Sherk:

Minimum wage increases don’t fight poverty because most of those who earn the minimum wage are not from poor households, and most workers in poor households do not earn the minimum wage. The average minimum wage worker’s household earns over $45,000 per year – well above the poverty level. More workers with incomes close to the minimum wage come from households earning over $80,000 per year than from poor families. Similarly, very few poor Americans earn the minimum wage—only one in every fifty earns wages close to the minimum. If Congress wants to pass programs targeted at helping poor Americans, raising the minimum wage is wide of the mark.

A higher minimum wage is not necessary to raise workers’ wages because most minimum wage workers’ incomes rise without government intervention. Minimum wage jobs tend to be entry level positions for people with little experience in the workforce. As workers gain experience and skills, becoming more productive, they earn raises. That is why Prof. David Macpherson of Florida State University found that approximately two-thirds of all workers hired at the minimum wage were earning more than that within a year.

This fact also makes minimum wages counterproductive in the fight against poverty. Entry level jobs teach workers skills essential to success in the workforce. They train employees in such basic skills as showing up to work on time and relating with customers. Workers need these skills to move up the job ladder. But when the minimum wage rises, businesses create fewer entry level positions, preferring to hire experienced workers who are more productive than their entry-level counterparts. This leaves some workers without experience and training and unable to start their climb up the job ladder. That is one reason that researchers have documented significant negative long-term effects from minimum wage increases. Prof. David Neumark of Michigan State University has found that minimum wage increases reduce earnings and employment over a decade after they go into effect. By removing the opportunity for many workers to develop basic skills, the minimum wage actually reduces incomes.

As it now stands, the Appropriations Committee’s minimum wage increase will probably fall on a parliamentary point of order: congressional rules do not allow policy changes in spending bills. However, Congress should not reject this minimum wage hike (just) because it violates budget rules. Congress should reject it because raising the minimum wage is a bad idea.

Update>: More from Cato's William Niskanen, who calls this "The Dumbest Bill of the Year (So Far)":

An increase in the minimum wage has long been a symbolic issue for the Democrats, however inconsistent with their other professed political values. House Republicans should challenge the Democrats on this issue, pointing out that an increase in the minimum wage would most hurt those that they claim to help. To do this, the House Republicans should split off the minimum wage provision from the appropriation bill, allow a separate floor vote on this provision, and demonstrate the absurdity of this proposal by a defeating this measure by a large margin. I’m waiting for a demonstration of good sense, in part, to determine whether there is any remaining reason to favor a Republican majority in the House.

Posted by Andrew Grossman at 01:18 PM | Permalink | TrackBacks (0)