"The Missing Ingredient; Food Services Suffer Labor Shortage"
Carole Sugarman
Washington Post, November 20, 1999, page A1
This article reports on the increasing difficulties that restaurants are encountering in hiring and retaining workers. The article describes the situation entirely from the standpoint of employers, at one point commenting on the problem of finding restaurant workers in the Washington area: "locally, the situation is particularly grim."
Of course, from the standpoint of workers, this situation is far from grim since they are in a situation where they can expect rising real wages and improved working conditions. Such gains are usually viewed as the goal of economic growth.
The article also mischaracterizes the nature of the long-term problem, stating that "as more of the food dollar is projected to be spent outside the home, the problem will worsen." The only reason there is a shortage of restaurant workers is that employers are apparently unwilling to pay the market wage for these workers. An employer that isn't willing to pay the going wage will be unable to find workers, in exactly the same way that a consumer unwilling to pay the going price will not be able to buy a new car.
In the long term, if people are willing to spend more money to eat out, then they may have to pay higher restaurant prices to meet the rising cost of labor through time. In this case, there will be no shortage of restaurant workers. Alternatively, if they are unwilling to pay higher prices for their restaurant meals, then the demand for restaurant workers will not grow as the projections suggest. In this case, there also will not be a shortage of restaurant workers. Since there is no apparent constraint on the ability of workers to enter or leave the restaurant industry, there will be no shortages of restaurant workers, just business owners who would like pay less for their labor.
More about labor.
"Underlying Tensions Kept Congress Divided to the End"
Alison Mitchell
New York Times, November 21, 1999, Section 1 page 1
This informative article assesses the performance of Congress as it ends its session for the year. At one point the refers to the possibility that Congress would "restructure the Medicare and Social Security programs to prepare for the retirement of the baby boom generation."
While Medicare's finances are uncertain, due to projections of rapidly rising health care costs in both the private and public sector, Social Security's finances are projected to be sound until 2034, with no changes whatsoever. By that date, the whole baby boom generation will have already reached normal retirement age, and most of the generation will probably have passed into history. The real problem facing Social Security is simply the projection of longer life expectancies, which will be a bigger problem as life expectancies continue to increase throughout the century.
More about Social Security.
"Economy Proving It's More Robust Than Anticipated"
Robert D. Hershey
New York Times, November 25, 1999, page A1
"U.S. Economy Roars Ahead; Inflation Low"
John M. Berry
Washington Post, November 25, 1999, page A1
Both of these articles discuss the release of revised data on GDP growth in the third quarter. At one point the Times article notes the Federal Reserve Board's fear that the economy is growing too rapidly and comments: "One source of anxiety is the fact that inflation is creeping up in the early stages of production."
While this is true, the acceleration of inflation that has been experienced to date has almost nothing to do with the strength of the U.S. economy. The recovery of much of the world from the Asian financial crisis has raised world oil prices from unusually low levels. Also, a modest decline in the value of the dollar from a level that was clearly unsustainable has led to some increase in import prices. While these factors may eventually led to somewhat higher inflation at the consumer level, slowing the U.S. economy will have little effect on these sources of inflation.
The Post article notes the upward revision to the growth estimate in this release and comments: "Since the beginning of 1997, the booming economy has enabled American households, businesses and governments to increase the purchases of the goods and services they want at more than a 5 percent annual rate, a level of prosperity virtually unparalleled in the nation's history."
While growth clearly has been very strong in this period, it does not stand out as being exceptional. From 1949 to 1953, the annual growth rate averaged 6.1 percent, the growth rate from 1961 to 1966 averaged 5.6 percent, and the growth rate from 1975 to 1978 averaged 5.1 percent.
It is also worth noting that one of the factors that has propelled the growth in domestic consumption over this period has been a huge increase in the size of the nation's trade deficit, so that it now exceeds 3 percent of GDP. The deficit cannot continue to increase, and in fact must shrink in future years, which will be a significant constraint on the future growth of consumption.
"Electoral Setbacks Force German Chancellor to Retreat From the Lure of the Free Market"
Roger Cohen
New York Times, November 21, 1999, Section 1 page 8
"Triumphant, the Left Asks What Else It Is"
Roger Cohen
New York Times, November 21, 1999, Section 4 page 5
"Clinton a Renaissance Guy, Paints the Globe Bright"
Roger Cohen
New York Times, November 22, 1999, page A4
These articles all discuss the future prospects of the welfare state, primarily in the context of Germany. All three articles include unsupported assertions that the welfare state cannot adapt to the "new economy" being created by computer technology. For example, the first article asserts that welfare state "has proved generally ill-adapted to the speed and competitive demands of a global economy driven by information technology."
According to data from the Bureau of Labor Statistics and the Conference Board, the welfare state economies of Europe have generally experienced more rapid productivity growth than the United States over the last decade. Economists view productivity growth as the most basic measure of an economy's dynamism and the main determinant of living standards in the long run.
While the articles all point to Europe's high unemployment rate, none of them mention the most obvious cause, the contractionary monetary policies being pursued by the European Central Bank. The European Central Bank recently raised the short-term real interest rate in Europe to 2.0 percent; by contrast, the Federal Reserve Board left the short-term real interest rate at essentially zero for two years when the United States was recovering from a far more mild slump in 1992.
The only comment on monetary policy is a quote from Sidney Blumenthal, a Clinton advisor who is not an economist, which appears in the second article: "Reflate? Nobody among these center-left leaders is doing that because everybody knows it leads straight to disaster." To which the article adds "true." Many of the world's most prominent economists differ with the view offered by Blumenthal and the article. They identified the tight monetary policy of European central banks as one of the main causes of Europe's slow growth and high unemployment. (see "An Economists' Manifesto on Unemployment in the European Union," BNL Quarterly Review, # 206, 9/98.)
Much of the discussion of the U.S. economic record is misleading. For example, the creation of 19 million jobs in the Clinton years is presented as incontrovertible evidence of the success of the U.S. model. Actually, job creation was considerably more rapid in the 1970s (2.8 percent annual rate in the '70s, compared to a 1.7 percent rate in the '90s), a decade which is generally viewed as a period of stagnation.
The last article includes a quote from President Clinton in which he supposedly explains to President Henrique Cardosa of Brazil: "We are now the parties of fiscal discipline, because that brings interest rates down, creates jobs, lowers interest rates on car loans, and so helps ordinary people.... If we all run a surplus, that makes it that much easier for Enrique to get money in Brazil." To which the article adds: "Simple really. If only everyone on the center-left understood."
Actually, it's a bit more complicated. The only factor that could conceivably affect the ability of Brazilian's to get money is total national savings in the United States. While government savings in the United States has risen dramatically, as the nation has gone from running large budget deficits to large surpluses, there has been a more than offsetting decline in private savings. Therefore over the last decade, national savings has actually fallen when measured as a share of GDP. This is why the United States is now running a trade deficit that exceeds 3 percent of GDP.
It is only the net lending position of the United States that could conceivably affect a borrower's ability to get money in Brazil. Since the United States is at present the world's biggest net borrower, according to standard economic theory, it is making it much more difficult for Brazilians to borrow money.
"Creditors Approve Plan to Rescue German Firm"
Associated Press
Washington Post, November 25, 1999, page A35
This articles discusses the German government's plans to bail out a large construction firm. At one point the article asserts that the German economy "suffers from huge debt and high wage costs that are hobbling its ability to cope with global competition."
It is worth noting that in spite of its debt and high wages, Germany continues to run a modest trade surplus, in contrast to the United States, which has a trade deficit of more than 3 percent of GDP. This evidence suggests that Germany is doing relatively well in coping with global competition.
More about Europe.
"China Deal Adds a Sour Note to Gore's Sweet Labor Tune"
Katherine Q. Seelye with Steven Greenhouse
New York Times, November 25, 1999, page A1
This article discusses how the Clinton administration's agreement with China on entering the WTO has affected labor's support for Al Gore. At one point the article notes that, while labor has strongly opposed this agreement, other constituencies like business and farmers stand to gain from it.
The only way that farmers stand to gain from this agreement is if it leads to an increase in the world price of various farm products. Insofar as such a price increase takes place, U.S. consumers will be losers. While on net, the nation may still gain from additional sales of agricultural products to China, according to standard trade theory, most of the farmer's gains will be losses to consumers.
More about Asia.
"At Amazon.com, Service Workers Without a Smile"
Mark Leibovich
Washington Post, November 22, 1999, page A1
This article examines the quality of "new economy" jobs from the perspective of the employees of Amazon.com. It points out that many workers feel constant pressure to meet narrowly defined service targets.
"When Shelters Aren't Aboveboard"
Albert B. Crenshaw
Washington Post, November 23, 1999, page B1
This article examines how the effective corporate tax rate has declined over the last five years, as industry lobbyists have managed to persuade Congress to create dozens of new tax shelters.
"The Mania of Momentum and the Cost of Trading"
Gretchen Morgenson
New York Times, November 21, 1999, Section 3 page 1
This analysis discusses the findings of recent research in financial markets, which shows that the growing volume of trading is leading to increasing volatility in stock prices. The article notes the finding of other research which shows that frequent traders typically lose money as a result of their transactions, compared with an alternative of just holding a major market index.
"Stock Option Bonanzas Vs. Stagnant Paychecks"
Louis Uchitelle
New York Times, November 21, 1999, Section 3 page 4
This article discusses new research from the Federal Reserve Board on how much money workers have received in recent years from stock options. The article notes that while the amount of money received in options has been significant, most of this has gone to high-end workers. The article also notes that options are not counted as an expense on corporate balance sheets, and therefore lead to an overstatement of corporate profits.
Dean Baker is an economist and the co-director of the Center for Economics and Policy Research (CEPR). His latest book (co-authored with Mark Weisbrot) is Social Security: The Phony Crisis (University of Chicago Press). ERR is a joint project of FAIR and CEPR.
ERR is edited by Jim Naureckas.
Recent articles can be found on the websites of the New York Times and Washington Post.
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