Week of August 12 to August 18

Dean Baker is co-director of the Center for Economic and Policy Research.

THE STRONG ECONOMY 

"News on Budgets, Homeownership and Jobs Is Wonderful, but It Isn't Helping Gore
Yet," by Richard Stevenson in the New York Times, August 12, 2000, page A10. 

This article discusses the fact that Vice President Gore does not appear to be
getting much political credit for the strength of the economy. The article includes
several comments that overstate the extent to which the economy is producing
widely shared benefits. 

For example, a chart accompanying the article asserts that Gore can point to "an
array of glowing economic indicators." The article begins by characterizing the
economy as "as good as it can get." And the headline terms the news on budgets,
homeownership, and jobs "wonderful." 

While the economy is clearly healthy, and most people are doing much better at
present than they were five years ago, the gains have not been as large as these
comments imply. For example, the real hourly wage for the typical worker has risen
by about 8 percent in the last four years, but it is still only 2.5 percent above where
it was at the end of the eighties. This is not much wage growth for a whole decade.
In the 1960s, real wages often rose by this amount in a single year. Furthermore, the
latest data indicate that wage growth has virtually stopped, as prices are rising as
fast as wages. 

The article also refers to the rise in the homeownership rate. The homeownership
rate has generally risen through time as the nation has gotten wealthier. The
exception was the period from 1979 to 1998, when the homeownership rate
stagnated. In the last two years the homeownership rate has finally passed its
previous peak, but the cumulative gain over the last two decades has been just 1.2
percentage points. This compares with a 3.1 percentage point gain from 1965 to
1979. Even the limited gain in homeownership is attributable primarily to the fact that
the population is aging and homeownership rates increase with age. In every age
category, homeownership rates are below their 1979 peak. 

Most surveys continue to show very high layoff rates and a high level of job
insecurity. In addition, the number of people without health care insurance has been
rising over the last decade and now stands at more than 44 million. In short, there
are many positive aspects to the current economic situation, particularly when
compared to the eighties and early nineties. But, for most people, there is little basis
for the sort of superlatives used in this article. 


KOREA 

"Hyundai's Proposal on Debt Receives Creditors' Approval," by Reuters in the New
York Times, August 15, 2000, page C4. 

This article reports on the decision by the creditors of Hyundai Group to accept the
restructuring plan that the company put forward. At one point the article refers to
the links between the various entities that comprise the Hyundai Group and
comments "the interlocking shareholdings and loan guarantees among South Korea's
family-run conglomerates has long been considered a major problem in South Korea." 

The article does not indicate who has considered this to be a major problem. It is
worth noting that per capita GDP in South Korea has averaged over 6.0 percent in
the last forty years. There is no country which has followed the U.S. model that has
been able to maintain growth rates that were even half as fast, although other East
Asian nations with similar systems of interlocking shareholdings did achieve
comparable growth rates. Given this history, it is reasonable to believe that this
system may have contributed to, rather than detracted from, economic growth. 


SOCIAL SECURITY 

"Gore's 'Battle for the Future,'" by Ceci Connolly in the Washington Post, August 15,
2000, page A15. 

This article reports on a campaign rally for Vice President Gore and Senator
Lieberman. At one point it notes that "Gore wants to protect the Social Security and
Medicare trust funds from 'raiding' by other government agencies with a 'lock box.'" It
is impossible for other government agencies to 'raid' the Social Security and Medicare
trust funds. These funds hold government bonds. They will hold the exact same
amount of government bonds regardless of how or whether this money is spent.
When candidates pledge to protect these funds they are misleading the public since
their actions have no direct effect on these funds whatsoever. This fact should have
been pointed out in the article. 

"A Nominee Still in Search of Definition," by David Maraniss and Ceci Connolly in the
Washington Post, August 17, 2000, page A1. 

This article gives an assessment of Al Gore's career on the eve of his acceptance of
the Democratic presidential nomination. The article includes a passing reference to
"his plan to save Social Security." The latest projections from the Social Security
trustees show that the plan can pay all scheduled benefits for the next thirty-seven
years with no changes whatsoever. Furthermore, the projections show that the
changes that would be needed to make the fund solvent for the entire seventy five
year planning horizon are no larger than the changes that were implemented in each
of the four decades from the 1950s through the 1980s. Given the financial health of
the program, it is irresponsible to imply, as this article does, that Social Security is in
need of "saving." 


JAPAN 

"Japanese Working Women's Dilemma," by Kathryn Tolbert in the Washington Post,
August 14, 2000, page A14. 

This informative article discusses the difficulties that many women face in trying to
both raise children and hold a job. It notes that these problems have been a major
factor in pushing down the nation's birthrate to 1.34 babies per woman. 

At several points the article asserts that this low birthrate poses a problem for the
nation. There is little reason to believe that this would be the case. A low birthrate
will reduce the labor supply, but at present, and for the foreseeable future, Japan is
likely to have a significant pool of unemployed or underemployed workers. A smaller
pool of new workers should increase the job opportunities for this group. Even once
the unemployed and underemployed are fully absorbed, a declining labor force need
not pose a problem. It simply means that the least productive jobs (e.g. valet
parking attendant at a restaurant or midnight checkout clerk at a convenience store)
will go unfilled. When the least productive and lowest paying jobs go unfilled, average
productivity and pay increase, leaving most of the population better off. 

It is also worth noting that Japan is a very densely populated country with very high
land prices and rent. A declining population will alleviate some of the pressure on land
and the environment more generally. 


THE BUDGET AND THE ECONOMY 

"On Economy, Theme Is Continuity," by Glenn Kessler in the Washington Post, August
13, 2000, page A7. 

This article examines the main themes of Vice President Gore's economic proposals.
At one point the article comments on the conflicting claims made by two major
presidential candidates: "each campaign can marshal a torrent of statistics and
budget data in an effort to prove that its approach is more fiscally responsible and
the other campaign is cooking the books." 

In principle, most of the claims being made by the candidates are either true or false.
Very few voters are going to have the time or expertise to evaluate the accuracy of
the candidates' claims for themselves. However, reporters at major national papers
should have the time and ability to do this work, since this is ostensibly their job. It
would be far more useful to readers if reporters took the time to assess the validity
of the factual claims the candidates make, and presented their findings, rather than
reporting that the candidates are using lots of numbers, as this article does. 

At another point the article notes that Vice President Gore is proposing a new
retirement savings account which would be offered to "low and moderate income
Americans." Under the plan proposed by Gore, workers earning up to $45,000 a year
would be eligible for a savings subsidy. This means that all but the wealthiest fifth of
the work force would qualify for a subsidy under his proposal. 

"Taking Credit, Passing It On," by John Harris in the Washington Post, August 15,
2000, page A1. 

This article examines President Clinton's plans for his speech at the Democratic
national convention. At one point, the article notes the nation's current prosperity
and comments that President Clinton believes it "flowed directly from his 1993 budget
plan." The main effect of President Clinton's 1993 budget plan was to reduce the
deficit from its projected levels. There is a huge amount of economic research that
examines the relationship between deficit reduction, lower interest rates, and
investment and growth. Much of this research finds no relationship between these
variables, meaning that deficit reduction doesn't increase growth at all. 

However, even the research that does find a relationship, invariably shows the
effects to be relatively small. For example, the Congressional Budget Office estimates
that the effect of cuts in the deficit, much larger than those put in place by
President Clinton, were a cumulative increase in GDP of 1.6 percent after thirty-five
years (Congressional Budget Office, 1997, "The Economic and Budget Outlook: Fiscal
Years 1998-2007"; page 90). The actual increase in growth that the nation has seen
in the last four years are larger than what could plausibly be attributed to deficit
reduction by a factor of at least ten. It is reasonable to assume that President
Clinton is at least somewhat familiar with the economic research on this topic, and
therefore does not "believe" that his budget plan is responsible for the recent growth
spurt, as the article claims. 


TRADE POLICY 
"Ever a Student of Politics and Policy," by Melinda Henneberger and Katharine Seelye
in the New York Times, August 17, 2000, page A1. 

This article examines Al Gore's upbringing, career, and political views. At one point
the article comments, "some of his most deeply felt positions -- in support of both
free trade and the labor unions, for example -- create political contradictions." The
article does not indicate the basis for describing these positions as "deeply felt." The
Vice President's public record suggests the opposite. 

In the case of free trade, the vice president has been far from a consistent
supporter of free trade. The Clinton administration, presumably with Mr. Gore's
approval, implemented restrictions in 1997 on the number of foreign doctors who
could enter the country (see "A.M.A. and Colleges Assert There is a Surfeit of
Doctors," by Robert Pear, New York Times, March 1, 1997, page A7 and "U.S. to Pay
Hospitals Not to Train Doctors, Easing Glut," by Elisabeth Rosenthal, New York Times,
February 15, 1997, page A1). These restrictions on trade in professional medical
services have raised the cost of health care to consumers, although they have
undoubtedly also raised the income of doctors. 

Last year, Mr. Gore took the lead in trying to impose U.S.-style patent protection on
drugs exported to South Africa. This form of protectionism would have raised the
price of drugs by several hundred or even several thousand percent, making many
drugs unaffordable to people in South Africa. 

On the other hand, Mr. Gore has consistently supported trade agreements like NAFTA
and the extension of PNTR to China. One of the main purposes of both these
agreements, as supporters acknowledged after the congressional votes, was to
facilitate foreign direct investment by U.S. corporations (see, for example, "For
Many, China Trade Bill Isn't About Exports," Washington Post, May 27, 2000, page
E1). There is a large body of economic research which finds that the movement of
production overseas, or the threat to move production, has been a major factor in
weakening unions and lowering wages in the last two decades. Mr. Gore must be
aware of this evidence, since the article discusses at length the vice president's
intellect and studiousness. 

The fact that he consistently supports anti-labor trade agreements, and has never
been in forefront of a drive for any pro-union legislation, seems to contradict the
assertion that "support for labor unions" is one of the vice president's deeply held
positions. However, since he is counting on support from unions to win the election,
it is understandable that he would want to convey this impression. 

"Democrats Try to Shore Up The Pillar That Was Labor," by B. Drummond Ayres, Jr.,
in the New York Times, August 18, 2000, page A17. 

This article discusses efforts by the Gore campaign to gain support from labor unions.
At one point, it comments about union opposition to the recent trade agreement with
China: "they remain implacably convinced that the agreement, which organized labor
bitterly fought, threatens American jobs." This phrasing implies that the threat of job
loss is only a subjective fear among union leaders, not a real world phenomenon. In
fact, there is no serious basis for questioning the fact that the China trade
agreement has put a large number of manufacturing jobs in danger (see, for example,
"For Many, China Trade Bill Isn't About Exports," Washington Post, May 27, 2000,
page E1). It is possible to argue that the net effect of the agreement will be
beneficial for the nation's workers, but the fact that it threatens many workers' jobs
is not in doubt. 


THE EURO 

"Yes, the Euro Will Rebound. Someday," by Jonathan Fuerbringer in the New York
Times, August 13, 2000, Section 3 page 7. 

This analysis examines the continuing weakness of the euro relative to the dollar. At
one point the piece asserts that the euro "received help from the United States in
the last year, as the Federal Reserve has lifted its benchmark interest rate by 1.75
points, aiming to put a break on American economic growth. A slowing United States
economy should make a rebounding Europe more attractive." This discussion
completely reverses economic logic. 

There is no direct relationship between the value of a nation's currency and its rate
of economic growth. It would make no more sense for investors to put money in
dollars because the U.S. economy is growing rapidly, than it would for a firm to
locate its business in New York City, because the Yankees won the World Series.
Investors put their money where they expect the greatest return. The most
important effect of the Federal Reserve's actions was to increase the interest rate
on U.S. bonds, making them relatively more attractive than European bonds and
other financial assets. As investors opt to hold more U.S. bonds, it would be
expected that the value of the dollar would rise, as it did. 


ARGENTINA 

"Former Argentine President Warns of Economic Peril," by Clifford Krauss in the New
York Times, August 16, 2000, page C4. 

This article reports on criticisms by former Argentine President Carlos Saul Menem of
the government's current economic policies. According to the article, Menem claimed
that the nation "faces a devaluation and a depression" unless the government
changes its economic policies or adopts the dollar as its national currency. It is
worth noting that one of the main causes of the economy's current problems is the
decision by Menem to tie the Argentine currency to the dollar earlier in the decade.
When Brazil, Argentina's major trading partner, devalued its currency last year, it
made Argentina's goods much less competitive. If Menem had not staked the
credibility of Argentina's economic policy on maintaining the link to the dollar, it would
have been relatively simple for Argentina to devalue its currency to maintain its
competitiveness. This point has been noted in previous articles on Argentina (see, for
example, "One-Day National Strike Freezes Much of Argentina," by Clifford Krauss,
New York Times, June 10, 2000, page A3; ERR 6-19-00). 


OUTSTANDING STORIES OF THE WEEK 

"Investigations Uncover Little Harassment by I.R.S.," by David Cay Johnston in the
New York Times, August 15, 2000, page A1. 

This article reports on new data from the Treasury Department which showed that
incidents of I.R.S. abuses of taxpayers were extremely rare. The data were collected
by I.R.S. investigators and the Treasury Inspector General for Tax Administration in
response to a law passed in 1998 to crack down on I.R.S. harassment of taxpayers.
At that time, several Republican members of Congress led hearings in which it was
implied that such harassment was common. The new report suggests that taxpayer
harassment may never have been a serious problem. However, as a result of new
constraints placed on I.R.S. agents, it has been much more difficult to collect taxes
in many instances. 

It is worth noting that the Post article on this topic ("Probe Finds Little IRS Abuse,"
Washington Post, August 16, 2000, page E1) was much shorter and appeared in the
business section, as compared to the front page of the Times. 

"Companies' Influence on Medical Studies Is Feared," by Robert O'Harrow, Jr., in the
Washington Post, August 16, 2000, page A8; "U.S. Weighs Changes in Rule on Drug
Research Conflicts," by Phillip Hilts in the New York Times, August 16, 2000, page
A24. 

These articles discuss a conference where a group of scientists and public officials
debated tightening restrictions on researchers who get money from the
pharmaceutical industry. A recent article in the New England Journal of Medicine
suggests that conflicts of interest are affecting the quality of research. The article
found that in cases where research was sponsored by a drug company, the drug
being tested was found to be more effective than alternatives 89 percent of the
time. When scientists were not being paid by drug companies, new drugs were found
to be more effective only 61 percent of the time. 

"When 'May I Help You' Is a Labor Issue," by Mary Williams Walsh in the New York
Times, August 12, 2000, page B1. 

This article reports on the working conditions for customer service agents at Verizon.
The article points out that resentment over these conditions has been one of the
factors prompting the strike against the company. 

"Bingo, Blood and Burial Plots In the Quest for Food Stamps," by Nina Bernstein in the
New York Times, August 12, 2000, page A1. 

This article reports on the obstacles that many states have in place, which prevent
people from getting food stamps. The number of people receiving food stamps has
fallen by more than 25 percent in the last four years, a decline that is far sharper
than the reduction in the number of families that qualify. In the wake of the 1996
welfare reform bill, many states have erected barriers that have kept eligible families
from getting food stamps.

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