Economic Reporting Review
By Dean Baker
January 26, 2004
Outstanding Stories of the Week
A Smoother Road to Free Markets
Jon Jeter
Washington Post, January 21, 2004, Page E1
http://www.washingtonpost.com/wp-dyn/articles/A33881-2004Jan21.html
This article reports on Chile’s development course over the last three decades. Chile is the only country in Latin America that has sustained substantial GDP growth over this period. While this success is often attributed to "free market" policies, the article points out that Chile’s government has intervened in important ways in the economy during this period, including the imposition of capital controls, promoting the growth of key industries, and, more recently, substantially increasing the minimum wage.
Workers Assail Night Lock-Ins By Wal-Mart
Steven Greenhouse
New York Times, January 17, 2004, Page A1
This article reports on a practice at many Wal-Mart stores, of locking workers in overnight. The article reports that many stores lock their doors in order to minimize the possibility of theft or workers taking breaks outside of the store. Workers are warned that using emergency exits for anything other than a fire will lead to dismissal.
Social Security
Bush Promotes Earlier Proposals for Tax-Advantaged Savings Accounts
Edmund L. Andrews
New York Times, January 21, 2004, Page A17
This article discusses a proposal to increase the amount of money that people can place in tax-sheltered savings accounts as an alternative to Social Security. The article asserts that the program faces "eventual insolvency as the nation’s 75 million baby boomers reach retirement age over the next several decades."
This is inaccurate. According to the Social Security trustees report, the program will be able to pay all scheduled benefits until 2042, with no changes whatsoever. At that point, the oldest of the baby boom generation will be age 96, while the youngest will be age 78. This means that the vast majority of the baby boomers’ retirement can be covered by Social Security without any changes.
The program faces problems over the longer term simply because people are projected to live longer. Longer retirements will eventually require higher tax rates – as was the case in the past – but the current financial situation of the program is better than it has been at any point in the first four decades of its existence.
This article also includes a comment from an economist, suggesting that the build-up of funds in the new tax sheltered accounts that President Bush is proposing will reduce dependence on Social Security. It is worth noting that only 3-4 percent of workers are contributing at the limits of the tax sheltered accounts already available. This means that the vast majority of workers will not increase their retirement savings as a result of these accounts.
Investing in the Future, and Mortgaging It
Edmund L. Andrews
New York Times, January 18, 2004, Section 4, Page 4
This article discussed the country’s long-term budget situation. It notes that the country faces large long-term deficits as a result of the retirement of the baby boom generation. It would have been helpful to note that most of the projected rise in costs is attributable to rising health care costs, not demographics. If per person health care costs in the United States were comparable to those in countries that enjoy longer life expectancies, then the budget burden presented by the aging of the baby boomers would not be very different from the burden faced due to aging in prior decades.
Patents and Copyrights
Software Piracy Is in Resurgence, With New Safeguards Eroded by File Sharing
Douglas Heingartner
New York Times, January 19, 2004, Page C9
Argentine Soy Exports Are Up, But Monsanto Is Not Amused
Tony Smith
New York Times, January 21, 2004, Page W1
A Reprise Of Lawsuits Over Piracy
Frank Ahrens
Washington Post, January 22, 2004, Page E1
http://www.washingtonpost.com/wp-dyn/articles/A36795-2004Jan21.html
Music Industry Returns to Court, On File Sharing
John Schwartz
New York Times, January 22, 2004, Page C1
These articles report on the difficulties of enforcing patents and copyrights in various areas. It would have been helpful if the articles had included some economic analysis of these methods of financing innovation and creative work.
Patents and copyrights are property forms left over from the feudal guild system. While they may have been effective means of supporting innovation 500 years ago, it is questionable whether they are the most efficient mechanisms in the Internet Age, as demonstrated by the enforcement problems discussed in these articles.
These government-imposed monopolies raise the price of protected products far above the actual cost of production. Economists view this as a major source of inefficiency – as, for example, when trade barriers raise the price of domestic goods above the international price. However, the inefficiencies created by patents and copyrights are far larger than those associated with trade barriers. Existing tariffs and quotas rarely raise the price of items by more than 10 to 20 percent. By contrast, patents raise the price of prescription drugs by 300 to 400 percent. Copyrights on software and recorded music make these items costly to transfer, whereas they can otherwise be exchanged at no cost over the Internet.
When assessing efforts to enforce patents and copyrights, it is important to recognize that there are alternative methods of supporting innovation and creative work, which do not require extensive enforcement powers by the state (e.g. see "The Artistic Freedom Voucher: Internet Age Alternative to Copyrights").
The Dollar
Report Shows Consumers Are Optimistic
Bloomberg News
New York Times, January 17, 2004, Page B2
This article discusses a new report on consumer confidence. At one point the article reports that foreigners increased their holdings of U.S. assets by $87.6 billion in November, which it describes as "a sign they may view the American economy as a better place to invest." It is worth noting that a large portion of current foreign demand for U.S. assets is coming from central banks. These banks are not interested in high returns – they are mostly buying up short-term deposits that pay almost no return -- their motivation is to keep their currencies from rising against the dollar.
Trade
4 at the Top; 3 Days to Go
Jim VandeHei and John F. Harris
Washington Post, January 17, 2004, Page A1
http://www.washingtonpost.com/wp-dyn/articles/A23667-2004Jan16.html
In S.C. Edwards Talks Job Growth
Darryl Fears
Washington Post, January 17, 2004, Page A6
http://www.washingtonpost.com/wp-dyn/articles/A23619-2004Jan16.html
‘Old-Style’ Democrat Sees Time, Voters Pass Him By
Lois Romano
Washington Post, January 20, 2004, Page A9
http://www.washingtonpost.com/wp-dyn/articles/A30273-2004Jan19.html
These articles report on the Democratic presidential campaigns. All three define the term "free trade" in reference to NAFTA, the FTAA, and other recent or perspective trade agreements. While these agreements did or would liberalize some categories of trade, they would also increase some forms of protectionism, most notably patent and copyright protection. Given the mixed nature of these agreements on trade policy, it would be more accurate to simply describe them as "trade" agreements and identify their proponents as supporters of recent trade agreements. It is inaccurate to describe these people as proponents of "free trade."
Tort Laws
Congress Reconvenes Tuesday To Open Election-Year Session
Helen Dewar
Washington Post, January 18, 2004, Page A4
http://www.washingtonpost.com/wp-dyn/articles/A26058-2004Jan17.html
This article discusses the congressional agenda for 2004. A box accompanying the article has a category headed "lawsuit limitations," in which it asserts that Republicans want to restrict what they "see as excessive awards." It is worth noting that Republicans have received a disproportionate share of corporate contributions over the last decade. It is possible that their main interest in changing tort laws stems from a desire to serve their corporate backers, rather than any real concern about the improper size of jury awards.
The Budget
Bush to Seek More For AIDS Programs
Amy Goldstein
Washington Post, January 17, 2004, Page A10
http://www.washingtonpost.com/wp-dyn/articles/A23684-2004Jan16.html
This article reports on President Bush’s plan to request an additional $38 million in next year’s budget for funding for programs intended to slow the spread of AIDS in the United States. According to the article, this request represents a 4.7 percent increase over the current year’s funding, the smallest increase in this area since President Bush took office. The increase is equal to approximately 0.0015 percent of federal spending for 2005. It is difficult to see why a modest increase in spending in a small government program warranted a full article. The size of the article, together with the headline, is likely to lead readers to believe that the proposed increase in spending is of more consequence than is in fact the case.
Holiday Over, Congress Braces for Partisan Year
Sheryl Gay Stolberg
New York Times, January 19, 2004, Page A10
This article discusses the major legislative items that are likely to come before Congress in 2004. At one point it discusses a highway bill which it asserts would "increase federal investment in road, mass transit and other transportation infrastructure by $375 billion over the next six years." This figure is the total appropriation, not the increase in spending.
The article also notes that "proponents say it would create 1.7 million jobs." This estimate of job creation is a gross measure – it does not take account of job loss due to spending being diverted from other sources, higher taxes, or higher deficits. It is unlikely that any net job creation from these bills would be even 1.0 percent as large as the 1.7 million cited. In fact, it is entirely possible that this bill will on net lead to a loss of jobs.
Health Care
Bush Goes back to a Balky Congress
Amy Goldstein
Washington Post, January 20, 2004, Page A11
http://www.washingtonpost.com/wp-dyn/articles/A30269-2004Jan19.html
Bush Looks at New Health Care Initiative, Advisors Say
Elisabeth Bumiller and Sheryl Gay Stolberg
New York Times, January 17, 2004, Page A12
Bush Address Will Put Focus on Health Care Proposals
Richard W. Stevenson
New York Times, January 20, 2004, Page A17
These articles report on a health care initiative being considered by President Bush, that would reportedly give $89 billion in tax credits over the next decade to help cover uninsured people. It would be helpful to put this proposed level of spending in some context. For example, there are currently about 43 million uninsured people in the United States. This plan would provide $8.9 billion in spending each year (approximately $7 billion in 2004 dollars) towards providing insurance to these people. This spending level is equal to approximately $210 per uninsured person per year, or $190 per uninsured person per year, measured in 2004 dollars.
Insurers to Get 10.6% Increase From Medicare
Robert Pear
New York Times, January 20, 2004, Page A1
This article reports on the Bush administration’s plans to increase the fees paid to private insurers within the Medicare program by 10.6 percent in 2005. At one point the article reports Democratic Representative Pete Stark’s complaint, that this increase is a "sweetheart deal for H.M.O.’s." The article also quotes Stark’s complaint that the compensation received by H.M.O.’s is already larger than the cost of treating the same people in the traditional Medicare program.
It would have been useful to point out that this is not just the view of a Democratic member of Congress. The General Accounting Office has studied the relative cost of providing health care through H.M.O.’s and the traditional Medicare program and concluded that serving people through H.M.O.’s increases Medicare’s costs.
AARP, Eye on Drug Costs, Urges Change in New Law
Robert Pear
New York Times, January 17, 2004, Page A17
This article discusses AARP’s plans to lobby for a series of changes in the recently passed Medicare prescription drug benefit. At one point the article asserts that "Republicans and some Democrats insisted on that ban [on government negotiations with drug companies over prices] as a way to avoid any hint of federal price controls." It is possible that these members of Congress were motivated by a philosophical objection to price controls. However, many of these members of Congress have also been the beneficiaries of large campaign contributions from the pharmaceutical industry. It is certainly possible that the desire to please powerful political backers was at least as important to members of Congress as their views of price controls in determining their vote on this issue.