TCS Daily


Paul Krugman, Your Paper Needs You

By Tim Worstall - April 12, 2005 12:00 AM

Like all good bloggers and writers I delight in the errors and mistakes of my enemies, enjoy bringing such to the attentions of the masses and thus hear the lamentations of their women. Actually, like all bad bloggers and writers as well, so I'll leave the choice of which class I belong to to you.

Anyone who reads the mainstream press regularly can find these sorts of errors, simple things, where there is a typographic error, perhaps some inadequate fact checking. Writing in the Guardian Terry Eagleton referred to, well:

        "The Catholic church had lived through its own brand of flower power in 
        the 60s, known as the Second Vatican Council; and the time was now ripe 
        to rein in leftist monks, clap-happy nuns and Latin American Catholic 
        Marxists. All of this had been set in train by a pope -- John XIII -- whom the 
        Catholic conservatives regarded as at best wacky and at worst a Soviet agent."

Hey, who knew? Commies in the 10th century?

Pope John XIII. 965 to 972.
Pope John XXIII
1958-1963.

This has of course been corrected in the on line version as it is simply a matter of impaling the copy editor on his blue pencil until he sees the error of his ways.

There's a second set, type of error if you wish, which is slightly more difficult to spot. One has to have at least a minimal understanding of the subject under discussion in order to see the mistake. The Observer ran a report on a report from the activist organization Action Aid, in essence about how multi-nationals are so huge that they can swamp democratically made decisions by small countries. Perhaps they are but they didn't quite prove it:

        "The profits of Wal-Mart, which owns supermarket chain Asda, are, for 
        example, bigger than the economies of Mozambique and Ghana combined."

WalMart profits for 2004....$8.9 billion.

Size of the economy of Ghana....$41.25 billion at Market Exchange Rates (MER) or $37.9 billion at the more correct Purchasing Power Parity (PPP) rate.

Mozambique? $19.5 billion MER and $15.1 PPP.

I have to say that these things don't actually worry me all that much. We all make mistakes (I've proved that myself here in these pages) and the answer when found out is to do exactly as your Mother tried to teach you. Say sorry and try not to do it again. The only thing that remains is for us to jeer at the MSM when they complain that bloggers do not do enough fact checking.

What does worry me is when a paper makes major pronouncements on an issue but manages to misunderstand the very basics of what they are talking about. My apologies as this New York Times editorial is now in the archives but they were talking about the twin evils of the trade and budget deficits. Now there may very well be problems here but not the ones that they were complaining about, at least not in the way they were complaining.

        "That's a precarious position. To close its trade gap, which must be financed 
        by foreigners, and its budget gap, most of which is covered by foreign 
        investors, the United States will need to attract a projected $1 trillion in 
        2005 alone -- an unprecedented sum."

That looks entirely logical, that a $600 billion trade deficit and a $400 billion budget deficit add up to $1 trillion. It's also entirely wrong. Yes, certainly, part of the budget deficit is covered by foreigners buying US Treasuries. Indeed, that's something that worries people (rightly or wrongly), that people might stop buying them, dump the ones they already have and thus sink the dollar and send interest rates screaming up. But the part that's wrong is that those purchases are included in the $600 billion of foreign money that is necessary, by definition, to close the trade gap. If the US deficit on goods and services is $600 billion then there must be $600 billion of foreign money coming in and $600 billion only. It is possible (it's always possible, of course) to forgive such an error if the rest of the piece showed more knowledge about the subject at hand. Unfortunately not:

        "So far, the trade deficit has only grown, even as the dollar has fallen."

Now that, to econ geeks (I'm only an honorary member of the group, not a fully paid up member, my apologies), looks as if they have never heard of J-Curves. When a currency is declining, as the dollar has been, we actually expect the trade deficit to get worse before it gets better. So what they are noting is what someone with a grounding in basic trade theory would expect to be happening. Things are not really looking good for this particular piece of the editorialist's art now are they? Unfortunately, it gets worse:

        "Last month, the government reported that the United States' deficit in 
        international transactions, mainly trade, reached an 
        unprecedented $666 billion in 2004."

I'm sorry, but this is pure gibberish, nonsense on stilts. A country cannot have a deficit in international transactions. It can indeed have a deficit in trade in physical goods. It can also have a surplus in them, just as it can have a deficit or surplus in trade in services. It can also have a surplus or deficit on the capital account, the amount of money flowing in or out in debt and investment. But you cannot have a deficit in all of these transactions when added up together for by the very definition of the subject they always balance. If the US is spending more on imports than it exports then by definition foreigners must be sending in more money to the US than the US is sending out. It cannot happen any other way.

Now even the fact that the (self-declared) newspaper of record gets things so horribly wrong is not what really bothers me. All sorts of people get confused outside of their own specialties. What is really worrying is that this newspaper employs one of the great international and trade economists of our time. I know that I snarl at him and his political views from time to time but please believe me, he is regarded as one of the greats in this specialty, one who would spot and correct these errors in moments.

Doesn't it worry you that the New York Times editorial writers don't have the phone number of their own star columnist, Paul Krugman? Or the wit to call him if they do?

Scary I call it.

More of Tim Worstall's writings can be found at www.timworstall.com

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