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Businessweek Archives

The Deficit's Virtuous Circle

Economic Trends


As it shrinks, interest is trimmed

Rising budget deficits trigger a vicious circle. They increase the federal debt, so interest expenses on the debt go up, making the deficit balloon even more. As recently as last year, the Congressional Budget Office was projecting increases in the federal debt--and in interest expenses--as far out as it could see, namely until 2007. But with the ink in the federal budget turning from red to black, the budget office sees the vicious circle changing into a virtuous one--a shrinking debt will mean steadily dropping interest payments, which will help cut the debt and make interest payments even smaller.

In fact, interest expenses could decline from 15% of the federal budget now to just 8% by 2008, according to the CBO. The result would be higher domestic investment, reduced current-account deficits, or both, says Prudential Securities Inc. Chief Economist Richard D. Rippe. And although the CBO assumes stable interest rates, Rippe says rates should fall--taking yet another bite out of debt-service costs.BY PETER COYReturn to top

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U.S. jobs aren't lost, a study says

Fears that U.S. multinationals will move factories and jobs abroad have helped to derail the Clinton Administration's efforts to expand the North American Free Trade Agreement south to Latin America. Now, U.S.-based multinationals are stepping up their counterattack with a study showing the domestic share of employment among U.S.-based multinationals has held steady at around 74% for 20 years.

The study, an analysis of Commerce Dept. data by Dartmouth College economist Matthew J. Slaughter, doesn't examine the impact of trade on overall employment patterns within countries, only on the multinationals themselves. It finds that total parent-company employment in the U.S. remained around 19 million from 1977 to 1994, while the employment of the companies in other countries actually declined from 7 million to 6.7 million.

Despite suspicion that multinationals seek mainly low-wage workers in less-developed countries, the study shows that nearly two-thirds of the overseas employees were in developed countries. Some 67% of total sales by foreign affiliates remained within the host country, and only 10% returned to the U.S. (The rest went to third countries.) The pattern indicates that sales, not wages, have been the principal motivation for establishing foreign affiliates.By Paul MagnussonReturn to top


At-home workers are on the rise

Working at home for pay has turned out to be one of the hottest employment trends of the 1990s. Between 1991 and 1997, the number of wage and salary workers who received pay for work at home nearly doubled, from 1.9 million to 3.6 million, the Bureau of Labor Statistics announced this month. Some 88% of those workers were in white-collar occupations, and they averaged nearly 15 hours of work at home each week.

Bureau economist William G. Deming speculated that an increase in corporate telecommuting programs may explain much of the increase. One hint that may be true is that there was not a corresponding increase in unpaid work done at home. Indeed, there was a decrease in the number of wage and salary workers who do work at home for which they are not paid, to 11.1 million from 12.2 million. Of those, some 2.8 million were teachers. In addition, roughly 6.5 million self-employed people do some work at home.BY PETER COYReturn to top

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