firing all their scientists and technologists, that will show up as a drop in work-hours but not as a drop in output

TO BE NOTED: From Business Week:

"Economics Unbound
Why I don't believe today's productivity stats

Posted by: Michael Mandel on May 07

Today the BLS put out a report saying that nonfarm productivity rose by 1.8% over the past year, and at an 0.8% rate in the first quarter of 2009.

To be blunt, I don’t believe these numbers. There are two reasons, both of which I have written about in the past.

*First, the productivity statistics don’t pick up drops in intangible investments such as R&D, advertising and marketing. For example, if companies are cutting back on R&D and firing all their scientists and technologists, that will show up as a drop in work-hours but not as a drop in output. Hence, it will look like an increase in productivity—but it’s really just us eating our seed corn.

Or to use an example that hits closer to home: Advertising. Advertising is not measured as part of output (it does not show up directly in either personal consumption or business investment). Therefore a plunge in advertising, like we are experiencing today, does not show up as a decline in output—but it does lead to a lot of my journalist friends being laid off. Poof! An apparent increase in productivity.

*Second—as I have written before, the productivity statistics are being distorted by mismeasurements of real imports. In fact, in areas like furniture, electronics, and autos, the government statisticians are overestimating the drop in imports, adjusted for inflation.

Why does this matter? Because you may not realize, for most of the economy the government has no direct way of measuring production. Instead, the statisticians measure how much people and companies are buying, and then subtract out imports. For example, retail stores report furniture purchases, and importers report imports of furniture from China and elsewhere. Then by subtracting imports from consumption, the difference is production.

The problem is that all of this has to be adjusted for inflation, and there are some real problems with the import price statistics. I am going to follow up with an extended explanation—too wonky here—but it tends to make the growth of production look higher than it is."

Imports into the United States fell sharply again in February

TO BE NOTED: From EconomPic Data:

"Good News Alert! Imports Down, Exports Up, Trade Balance Crash

Marketwatch reports:

Imports into the United States fell sharply again in February and the U.S. trade deficit narrowed to $26 billion, the smallest since 1999, the Commerce Department reported Thursday. Imports of goods and services fell 5.1% to $152.7 billion, the lowest in more than four years. Exports of goods and services rose 1.6% to $126.8 billion, the first increase since July. The February deficit was much smaller than the $36.2 billion forecast by economists surveyed by MarketWatch. After adjusting for price changes, the real trade gap in goods fell in February to the lowest level since May 2001.

Trade Balance


Import / Export Breakdown by Goods / Services


Trade Balance by Goods / Services


Source: Census

Posted by Jake at 5:36 AM

"wrongly asserts that the dollar could fall because the government is printing too much money. This is simply wrong. "

Dean Baker with another good post:

"The NYT Gets the Budget Deficit and the Dollar Wrong, Bigtime

The NYT, like many politicians around Washington, seems intent on scaring people about the prospect of the dollar falling. It has an article today on the potential harm from the government printing money and borrowing, which warns that the dollar could fall in the future as a result.

This article (which relies exclusively on economists who were somehow unable to recognize the $8 trillion housing bubble) wrongly asserts that the dollar could fall because the government is printing too much money. This is simply wrong( TRUE ).

The dollar is at risk of falling because the United States has a large trade deficit. This trade deficit in turn is the result of the fact that the dollar is high. A high dollar makes imports cheap for people in the United States and makes U.S. exports expensive for people living in other countries. Because the country cannot run trade deficits of 5-6 percent of GDP indefinitely ($750 billion to $900 billion annually, at current output levels), the dollar will be falling sharply at some point in the future as part of the correction process to this bloated deficit( PROBABLY ).

The exact mechanism is that foreign investors will be unwilling to buy the dollars that the trade deficit is supplying to the world, which will cause the price of the dollar to decline. This drop in the dollar is a necessary and desirable correction for our trade deficit and would take place whether the country was printing $10 trillion or whether it was printing no money( TRUE ).

By contrast, if the country had a large trade surplus and was printing huge amounts of money, then there is no reason that the dollar would fall. The trade surplus would mean that there was large demand for our goods and services at the current price of the dollar. In this context, the fact that we had printed huge amounts of money would not matter.

The NYT could have avoided this gigantic error if it had been familiar with the experiences of a small island nation in the Pacific called "Japan." Japan has printed vast amounts of money in an effort to boost its economy since the collapse of its stock and real estate bubbles in 1990. Japan's main concern has been about the value of its currency appreciating and its government has often taken steps to bring down the value of the yen.

As the experience of Japan clearly demonstrates, it is ridiculous to assert that a currency will fall in value simply because a country has printed lots of money. The value of the currency can fall without printing money and the value can rise even if it prints enormous amounts of money."

This seems correct to me, although the recent fluctuations in the Dollar have been due to the Flight to Safety, and other conditions often factor into the value of a currency. One could argue that printing money leads to inflation, and that the value of the dollar will fall because of that. However, what follows from this inflation is also determined by the economic situation of the countries with other currencies, and the policies that they pursue to either strengthen or weaken their currency. I think, because I find the values of currencies hard to fathom.