Alan Reynolds

It is a familiar complaint that newspapers only report the bad news. But that applies to economic news, too -- particularly with a presidential year coming up. By all objective indicators, the news about the American economy has been remarkably good since the summer. But what is good news for ordinary people can be bad news for politicians, just as good health is bad news for morticians.

For some strange reason, recent Democratic candidates have been looking for the dark cloud behind every silver lining. They seem to think voters always want to hear that the U.S. economy is fundamentally rotten and brutally unfair, creating conditions that can only be remedied by making even more people even more dependent on taxes extracted from someone else.

This has created a demand The New York Times has long been eager to fill by making up new facts. Loyal Lou Uchitelle took up this task once again with "A Recovery for Profits, but Not for Workers."

"Profits, it turns out, never stopped rising as a share of national income all through the 2001 recession and in the months afterward of weak economic growth," Uchitelle reports. "New data from the Bureau of Economic Analysis erases all doubt on this point." If it's blues, it's news. Uchitelle alludes to "pretax profits," yet that new data show pretax profits falling by as much as 9.9 percent in 2001. Even after making some adjustments for depreciation and inventory, profits fell from $833 billion in the second quarter of 2000 to $713.6 billion in the fourth quarter of 2001. Perhaps not as deep a decline as Uchitelle would have liked, but down just the same.

Employee compensation rose from $5.78 trillion in 2000 to $5.9 trillion in 2001 and $6 trillion in 2002. After adjusting for inflation, real compensation per hour rose by 3.6 percent in 2000, but by only 0.8 percent in 2001 and 1.2 percent in 2002. The gains were fairly weak in 2001-2002, but so was the economy. Real wages and benefits rose at a 3 percent rate in the second quarter of this year, but the preliminary third quarter figure shows only a 0.7 percent rise. Looking at the volatile second and third quarters together, it would be distinctly unkind to claim, as Uchitelle does, that "the economic recovery is distinctly unkind to workers."

Uchitelle could not and did not claim the new data "erase all doubt" about profits not falling. On the contrary, they prove profits fell. What he said was that profits did not fall as a share of national income. Labor failed to grab a larger share of the pie when the economy stumbled. Even if that were true (it isn't), that certainly would not mean "labor's share is shrinking."


Alan Reynolds

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