Economic
Reporting Review
By Dean Baker
February 17, 2004
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Chinese Workers Pay for
Wal-Mart’s Low Prices
Peter S. Goodman and Phillip
P. Pan
Washington Post, February 8, 2004, Page A1
http://www.washingtonpost.com/wp-dyn/articles/A22507-2004Feb7.html
This article reports on how Wal-Mart’s insistence that
suppliers provide the lowest possible prices translates into low pay and poor
working conditions in Chinese factories.
In Bush’s Policies, Business
Wins
Thomas B. Edsall
Washington Post, February 8, 2004, Page A5
http://www.washingtonpost.com/wp-dyn/articles/A21990-2004Feb7.html
This article reports on a pattern of policy decisions in
the Bush administration, in which the interests of large corporations – who are
often major campaign contributors – appear to win out over other
considerations, including those of social conservative or free market
ideologues.
MARKET Watch; Executive Pay,
Hiding Behind Small Print
Gretchen Morgenson
New York Times, February 8, 2004, Section
3 Page 1
http://www.cepr.net/Economic_Reporting_Review/nytimesarticles/execpay.htm
This
article reports on some of the tricks that top corporate executives are using
to hide the true value of their compensation from stockholders. For example,
compensation can be hidden in supplemental retirement packages or special
contingencies can provide large payouts in the event of a merger. This
information is extremely difficult for shareholders to obtain.
U.S. Job Creation Improves Slightly
Nell Henderson and Kirstin Downey
Washington
Post, February 7, 2004, Page A1
http://www.washingtonpost.com/wp-dyn/articles/A20313-2004Feb6.html
Job Growth Picks Up But Misses Forecasts
Eduardo Porter
New York Times, February 7, 2004, Page B1
http://www.cepr.net/Economic_Reporting_Review/nytimesarticles/jobgrowthpicksup.htm
These
articles report on the release of the Labor Department’s employment report for
January. Both articles refer to the boost that this spring’s tax refunds are
expected to give to the economy. This is because last year’s tax cuts were
retroactive, which means that many taxpayers had too much money withheld from
their paychecks in the first half of the year. While the tax cut would increase
the size of the average refund, the impact is likely to be largely offset by
higher capital gains tax collections.
Capital gains tax
collections plummeted the last two years as a result of the stock market crash.
Most investors with capital gains had losses that they could write off against
their gains. This is less likely to be the case after the sharp run-up in stock
prices in 2003. If capital gains tax revenue rises just half way back to its
2000 level, then it would imply an additional $37 billion in tax revenue
compared with 2003, which would largely offset the expected boost from the tax
cuts.
The Post article
noted that the length of the average workweek reportedly rose to 33.7 hours in
January, from 33.5 hours in December. It comments that is “a trend analysts
view as a precursor to future hiring.” It is not clear that there is any trend
in this data. December’s hours data was a sharp falloff from the 33.8 hours
reported as the length of the average workweek in November. Monthly data is
always somewhat erratic. It is likely that quirks in the survey or the seasonal
adjustment process led to the reported falloff in December. There is no basis
for believing that there is any upward trend in the length of the average
workweek at this point.
At
one point, the Times article notes that the Labor Department’s household
survey shows much more rapid job growth than the establishment survey. This
discrepancy is not unusual. In the eight years from December of 1992 to
December of 2000, job growth in the establishment survey exceeded job growth in
the household survey by a total of 4.4 million. Most economists attribute this
gap to the fact that the rate of immigration was much faster than had been
assumed in the population basis for the household survey. (The rate of
immigration cannot be obtained by the survey; it must be imputed based on other
data.) It is likely that the current assumptions on immigration in the
household survey are too high, since the weak economy and increased hostility
to immigrants in the wake of September 11th have probably slowed the
pace of immigration substantially.
President Offers Defense On Iraq And the Economy
Richard W. Stevenson
New York Times, February 9, 2004, Page A1
http://www.cepr.net/Economic_Reporting_Review/nytimesarticles/presidentoffersdefense.htm
This
article reports on President Bush’s efforts to defend his economic policies. At
one point it comments that the 112,000 new jobs that the Labor Department
reported for January was a “respectable performance in the view of economists.”
In order to just absorb the new entrants to the work force, the economy must
create 150,000 jobs per month. Since it has lost more than 2 million jobs over
the last three years, it would be reasonable to expect considerably faster job
growth to absorb the large number of unemployed or underemployed workers. The
article does not identify any economists who view the current rate of job
growth as respectable.
Edmund L. Andrews
New York Times, February 8, 2004, Page A11
http://www.cepr.net/Economic_Reporting_Review/nytimesarticles/g-7statement.htm
This
article reports on the meeting of G-7 finance ministers in Florida. Much of the
article discusses the problems created by the United States’ current account
deficit and the recent fall in the dollar. At one point the article discusses
the United States budget deficit and asserts that “the budget deficit increases
the need for foreign borrowing.” This is not necessarily true, and certainly
not in the direct way that is implied in the article. The need for foreign
borrowing is determined by the size of the U.S. current account deficit. With a
current account deficit of specific size, the United States would need to
borrow the same amount from abroad regardless of whether it had a large federal
budget surplus or a large budget deficit. (This is definitional; the current
account deficit plus the capital account surplus sum to zero in a system of
floating exchange rates.) The budget deficit can only increase the need for
foreign borrowing indirectly, for example through stimulating the economy and
thereby increasing the demand for imports.
David S. Broder
Washington
Post, February 9, 2004, Page A4
http://www.washingtonpost.com/wp-dyn/articles/A23936-2004Feb8.html
This
article presents a short analysis of the Democratic presidential candidates’
positions on several major issues. An accompanying chart presents candidates
views on five key issues. In its discussion of health care, the chart reports
that representative Dennis Kucinich and Reverand Al Sharpton both favor the
establishment of a national single-payer system. It would have been more
informative if the chart had described the system as being an extension of the
Medicare program to the population as a whole, since most readers are at least
somewhat familiar with the Medicare system. (Kucinich actually calls his plan
“Enhanced Medicare for All.”) In assessing the cost of the Kucinch (and
Sharpton) proposal, the chart asserts that the cost is “unavailable.” This is
not true. A detailed discussion of the costs of this proposal is available on
Representative Kucinich’s campaign site [http://www.kucinich.us/issues/universalhealth.php].
It would have been helpful
if discussion of the candidates’ stands on major issues had been featured
prominently in earlier reporting. Instead, most campaign coverage has focused
on poll standings and style. Even careful readers would have difficultly
knowing most of the candidates’ positions on major issues.
Mike Allen
Washington
Post, February 12, 2004, Page A17
http://www.washingtonpost.com/wp-dyn/articles/A35306-2004Feb12.html
This
article reports on House Speaker Dennis Hastert’s criticisms of comments by
Gregory Mankiw, President Bush’s top economic advisor, that outsourcing of
services overseas is simply another form of trade. It would have been useful to
include the views of an economist on this issue. Virtually all economists would
agree with Mr. Mankiw’s assessment. Anyone who supports freer trade as a matter
of principle should be as supportive of X-rays being read by Indian
radiologists, as they are of apparel being produced in China. In fact,
according to standard trade theory, the gains to the U.S. and world economy
from shipping the radiologists’ jobs overseas are far larger, since the savings
per worker is much greater.
Paul Blustein
Washington
Post, February 9, 2004, Page A17
http://www.washingtonpost.com/wp-dyn/articles/A24182-2004Feb8.html
U.S. and Australians Reach Wide-Ranging Trade Accord
Elizabeth Becker
New York Times, February 9, 2004, Page A5
http://www.cepr.net/Economic_Reporting_Review/nytimesarticles/usandaustralians.htm
THE 2004 CAMPAIGN: THE OVERVIEW; Democrats See
Unified Party For November
Adam Nagourney
New York Times, February 9, 2004, Page A1
http://www.cepr.net/Economic_Reporting_Review/nytimesarticles/democratsseeunified.htm
TECHNOLOGY; Indians Fear Repercussions Of U.S.
Technology Outsourcing
New York Times, February 9, 2004, Page C4
http://www.cepr.net/Economic_Reporting_Review/nytimesarticles/indiansfearing.htm
These
articles all discuss trade issues. All four articles use the term “free trade”
in contexts in which it is not accurate. For example the article by Rai refers
to Senator John Kerry as “a strong supporter of free-trade.” While Senator
Kerry has supported NAFTA and other recent trade agreements, these pacts often
increase protectionist barriers. For example, NAFTA and the most recent WTO
round substantially increased patent and copyright protection, thereby raising
the price of many protected products in developing countries by several hundred
percent above the competitive market price. Senator Kerry has also not objected
to professional barriers that prevent foreign professionals from working in the
United States. It is therefore wrong to describe him as a strong supporter of
free trade.
The
article by Becker asserts that the United States “pays 10 times as much as
Australia does in tariffs in the joint trade between the two countries.”
Actually, tariffs in Australia on imports from the United States are currently
much higher than U.S. tariffs on imports from Australia.
Social Security and Alan Greenspan
Nell Henderson
Washington
Post, February 13, 2004, Page E1
http://www.washingtonpost.com/wp-dyn/articles/A38260-2004Feb12.html
Greenspan, With a Big ‘if,’ Backs Bush Tax Cuts
Edmund L. Andrews
New York Times, February 13, 2004, Page C3
These
articles report on Alan Greenspan’s testimony before the Senate Budget
Committee. The articles note that Mr. Greenspan suggested cutting Social
Security benefits as a way to reduce the budget deficit.
It
is worth noting that Social Security is currently running a large surplus and
is projected to continue to run annual surpluses for more than two decades into
the future. The Social Security trustees projections show that the fund’s trust
will be able to support all scheduled benefit payments for nearly forty years
into the future. If Social Security benefits are cut, without any corresponding
reduction in the tax rate (which is exactly Mr. Greenspan’s recommendation),
then this would mean that Social Security taxes are being used to finance the
general budget, not Social Security.
This
point is especially important in this context, since Mr. Greenspan had chaired
the 1982 Commission that proposed a set of Social Security tax increases that
were designed to build up a large surplus to help defray the costs of the baby
boomers' retirement in later years. In other words, Mr. Greenspan’s argument
was that it was desirable to raise Social Security taxes above the levels
needed to support the program in the eighties, nineties, and zeros, so that the
tax rate would be somewhat lower than would otherwise be necessary in the
twenties and thirties. If benefits are now cut below the levels that had been
scheduled, then it breaks the link between Social Security taxes and Social
Security benefits. Social Security taxes were simply used to finance the
general budget.
The Social Security tax is highly regressive because it only applies to wage income and it is capped at approximately $85,000, so that wage income above this level is not subject to the tax. It is extremely unlikely Congress ever would have approved such a regressive tax to support the general budget. It would have been appropriate to note, in describing Mr. Greenspan’s proposal, that the cumulative surplus in the trust fund is now approaching $2 trillion. This would give readers an idea of the extraordinary deception involved in proposing to cut Social Security benefits as a way of reducing the federal budget deficit.
The Stock Market
Americans Pour Money Into Stock Funds in Near Record Amounts
Jonathan Fuerbringer
New York Times, February 13, 2004, Page C1
This article reports on the rapid inflow of money into stock funds in the last few months. The article attempts to assess whether the current optimism about stocks is justified; however it never looks at the price-to-earnings ratios in the stock market. This is the only meaningful measure of whether the market is properly valued. Currently, the ratio of stock prices to trend earnings is approximately 23 to 1, approximately 50 percent above the historic average of 15 to 1. This means that either investors are willing to accept a much lower return on stocks than historically been the case, or that stocks are currently over-valued by a substantial margin.
At one point the article comments on optimism about the state of the economy, “there is reason for the renewed faith. No less than Alan Greenspan, the chairman of the Federal Reserve, said this week that the economy should grow at a brisk pace this year.” It is not clear why anyone would be very impressed by Mr. Greenspan’s assessment of the economy’s strength. According to published transcripts of Federal Reserve Board open market committee meetings, in June of 1990, after the economy had already sunk into recession, he expected the economy to continue to grow strongly for the foreseeable future. In November of 2000, just before the onset of the most recent recession, he told Congress that he expected strong growth, after a brief slowing. In January of 2001, he told Congress that the Bush tax cut was a good idea in order to avoid paying off the government debt too quickly. Mr. Greenspan also failed to give a clear public warning on the last stock bubble, the largest financial bubble in the history of the world. This track record indicates that Mr. Greenspan’s views are not a good guide for investors interested in trying to forecast future economic trends.