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Outstanding Stories of the Week
An
Oil Enigma: Production Falls Even as Reserves
Rise
Alex
Berenson
New
York Times, June 12, 2004, Page
A1
This article examines the status of
the oil industry. It reports that most major firms
are reducing their production levels, in spite of
the fact they report growing reserves.
By a
Back Door to the U.S.: A Migrant's Grim Sea
Voyage
Ginger
Thompson and Sandra Ochoa
New
York Times, June 13, 2004, Page
A1
This article examines the process
through which workers from Ecuador try to gain
entrance to the United States outside of legal
immigration channels. The research involved
traveling on a boat to Mexico with hundreds of
other would be immigrants.
Healthier and Wiser? Sure, but Not
Wealthier
Mary
Williams Walsh
New
York Times, June 13, 2004, Section 3 Page
1
This article examines the financial
situation of households who are approaching
retirement. The article reports that this cohort
is likely to fare less well than current retirees,
primarily because relatively few of them have
defined benefit pension plans.
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Clinton's Political
Orientation
Clinton's Memoirs Ushers In Different
Wave of Nostalgia
John F. Harris
Washington
Post, June 13, 2004, Page A8
This article examines the course of
Democratic Party politics since the Clinton
administration. It includes assertions from
Clinton allies that the party has moved to the
center since this time and that there is a solid
consensus behind this position. As evidence it
cites the failure of Clinton's health care plan
and the defeat of Howard Dean's presidential
campaign.
While
the assertion cited in the article describes
Clinton's health care plan as one of Clinton's
"bold and ambitious positions on one wing of
the ideological spectrum." This is
inaccurate. The Clinton plan was quite
deliberately designed to be very centrist,
including many important concessions to business
and the health insurance industry. At the time,
every major Democratic party candidate had
supported a proposal to extend health care
coverage, as had President Bush in his campaign.
In this context, the failure of the Clinton plan
cannot be realistically described as a failure for
the progressive wing of the party.
The
extent to which the defeat of the Dean campaign
can be defined as a rejection of liberal views is
also questionable. It is extremely unlikely that
any significant segment of voters had a clear idea
of Mr. Dean's perspective on major issues, since
the media provided almost no coverage of
candidates' positions, and much of the coverage
that was given was uninformative or wrong (e.g.
see "Sharp Policy Divisions Absent as Race
Narrows," Washington Post, February 9, 2004,
Page A4 or ERR
2-17-04; " Kucinich Makes
President Bid Official," Washington Post,
October 14, page A6 or ERR
10-20-03). The media
gave far more coverage to issues of style, such as
Howard Dean's speech to his campaign workers after
the Iowa caucus (i.e. the "Dean
Scream"). Except for those voters who
independently investigated the candidates'
positions, instead of relying on media sources
like the New York Times and Washington Post, most
were largely ignorant of candidates' positions
when they cast their votes.
The
media may have also contributed to result of the
campaign. According to a Center for Media and
Public Affairs press release, from January 1 to the night before
the Iowa caucuses, 98 percent of the network TV
coverage of John Edwards and John Kerry was
positive, as opposed to only 58 percent for Howard
Dean.
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Social Security
Social Security Shortfall
Disputed
Associated Press
Washington
Post, June 12, 2004, Page A9
This
article reports on a new report that is about to
be released from the Congressional Budget Office,
which will show that Social Security's projected
shortfall is "about two-thirds the $3.7
trillion estimated in March by the bipartisan
trustees who oversee Social Security."
It
would be more informative to readers to express
the projected shortfall as a share of GDP over the
relevant period, since very few readers can attach
importance to a number over a seventy-five year
time horizon. The trustees projected the Social
Security shortfall at 0.73 percent of GDP over the
planning horizon. The new report from CBO will
place the shortfall at less than 0.5 percent of
GDP. By comparison, the increase in annual defense
spending since the war in Afghanistan is equal to
1.0 percent of GDP.
It
is also inaccurate to describe the trustees as
"bipartisan." Four of the six trustees
are political appointees of the president,
including the secretaries of the Treasury, Health
and Human Services, and the Department of Labor.
The other two trustees are supposed to be
independent, but not necessarily representatives
of the other political party.
Social Security Faces Less Trouble Than
Forecast, New Report Finds
Robert
Pear
New
York Times, June 15, 2004, Page
A19
Published online with title "Social Security
Better Off Than Forecast, Study Says"
This article reports on a new
analysis from the Congressional Budget Office
which showed that the Social Security program can
pay all scheduled benefits until 2052 with no
changes whatsoever, and that the shortfall over
its seventy five year planning period was less
than 0.4 percent of GDP.
The
article quotes Representative Clay Shaw Jr., the
chairman of the House Social Security
subcommittee, saying that "Social Security's
Depression-era pay-as-you-go financing cannot
sustain the program for future generations."
It would have been helpful if this quote were put
in a fuller context, because it is incoherent as
written.
As
reported in the article, the study indicated the
precise opposite -- Social Security's current
system of financing can sustain the program long
into the future. Even the tax increases that would
be needed to support the program beyond 2052 would
be smaller than the tax increases put in place in
the fifties, sixties, seventies, or eighties.
While it is possible that Mr. Shaw's statement
really did not make sense (in which case this fact
warranted further comment), it also possible that
a fuller version of his statement would have
explained what he meant, given the report's
findings.
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The
Economy and the
Election
Kerry Will Hit Bush Harder on
Economy
Jim VandeHei and Jonathan
Weisman
Washington
Post, June 15, 2004, Page
A3
This article reports on how President
Bush and Senator Kerry are attempting to
characterize the economy's performance in their
presidential campaigns. The article twice asserts
that wages are currently growing, at one point
noting that the average hourly wage rose 5 cents
in May, which it describes as "a faster gain
than the average monthly wage increases in the
boom years of 1999 and 2000."
While
nominal wages have been growing in recent months,
it is standard practice to adjust wages for the
rate of inflation, in order to see whether
workers' purchasing power is increasing. Adjusted
for inflation, wages have actually been falling
quite rapidly, with real hourly wage falling at a
2.5 percent annual rate over the last six months.
By contrast, the real wage was growing at a 2
percent annual rate in 1999 and 2000.
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Global
Warming
Alarm
Sounded on Global Warming
Juliet
Eilperin
Washington
Post, June 16, 2004, Page A9
This article reports on the views of
several prominent scientists that the United
States is being negligent by failing to take steps
to prevent global warming. The article includes a
response by a White House spokesperson that the
Bush administration has committed $4 billion to
researching climate change and new technologies.
It is worth noting that this money is a ten year
expenditure equal to approximately 0.014 percent
of projected spending over this period.
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Greenspan and Inflation
Fed's Rate Increases May Come
Quickly
Nell Henderson
Washington
Post, June 12, 2004, Page
A17
Inflation Doesn't Worry
Greenspan
Nell
Henderson
Washington
Post, June 16, 2004, Page
E1
These
articles report on the Alan Greenspan and the
Federal Reserve Board's assessment of the state of
the economy. Both articles note Greenspan's view
that inflation is relatively modest and does not
pose much of a problem. It is worth noting Mr.
Greenspan's assessments of the economy have not
proved very accurate in recent years.
In
2000 he missed the onset of the recession,
repeatedly telling Congress and other audiences
that the economy was just entering a soft spot. In
January of 2001 he told Congress that tax cuts
were a good idea, because otherwise the government
would pay off the national debt too quickly. And,
as recently as March, he argued that the economy
faced equal risks from inflation and deflation. In
the three months since March, inflation has been
running at a 5.5 percent annual rate, the fastest
pace since the fall of 1990.
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The Trade Deficit
U.S.
Trade Deficit Set Another Record in
April
Paul
Blustein
Washington
Post, June 15, 2004, Page E1
Trade Gap Widens in April
As Car Imports Set Record
Bloomberg News
New
York Times, June 15, 2004, Page C2
These
articles report on the Commerce Department's
release of data showing that the trade deficit hit
a new record in April. The April data implies that
the trade deficit is running at annual rate of
more than $570 billion. This would put the current
account deficit (the broadest measure of trade) at
more than $600 billion, which is how much the
United States must borrow from foreigners to
sustain its current consumption patterns.
The
effects of the current account deficit and the
budget deficit on future generations are
comparable. While much less significant stories on
the budget deficit regularly appear on the front
page of both papers, these articles only appeared
in the business section. (The Times article was
not even written by a staff reporter.) There is no
economic rationale for giving so little attention
to the trade deficit, while giving such extensive
coverage to the budget deficit.
The
Post article includes a comment from John
Williamson, an economist at the Institute for
International Economics, in which he warned of a
sharp drop in the dollar as a result of the
deficit. According to the quote, Williamson said
that a gradual decline in the dollar would be
acceptable, but that a sharp drop would lead to a
spike in interest rates and a world recession.
Actually,
a steady decline in the dollar is more likely to
lead to a jump in interest rates than a sharp
drop. Investors care about the future direction of
change in the value of a currency, not its past
movement. If investors expect the dollar to fall 3
percent annually against other major currencies,
then they will demand a 3 percentage point
interest premiums on bonds issued in dollars. By
contrast, if the dollar suddenly plunged 30
percent against other currencies, then they have
no reason to demand an interest premium because
there is little reason to believe that the dollar
will fall still further.
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Prescription Drugs
Bush Admits Drug Discount
Card Concerns
Amy
Goldstein
Washington
Post, June 15, 2004, Page A2
Bush Lauds New
Prescription Discount Cards
Richard W. Stevenson
New
York Times, June 15, 2004, Page A17
Group Is Said to Seek Full
Drug-Trial Disclosure
Barry Meier
New
York Times, June 15, 2004, Page A1
These
articles report on issues related to prescription
drugs. The first two articles discuss the impact
of the new discount cards available to seniors as
a result of the Medicare prescription drug bill
passed last year. The third article reports on an
effort to ensure that the results of all trials of
prescription drugs are made public, not just the
ones whose results support the interests of the
companies paying for the research.
It
is worth noting that the problems that are the
basis of these articles - high and varying drug
prices and incomplete disclosure of scientific
research - are all predictable results of
government-granted patent monopolies. If the
government allowed prescription drugs to be sold
in a competitive market, and used an alternative
mechanism to support prescription drug research
(such as increasing funding for the National
Institutes of Health), these problems would not
exist. Prescription drug prices would fall 70 to
80 percent in a competitive market, and there
would be no incentive for concealing and
distorting research findings.
The
Post article includes a quote from President Bush
in which he praises the government's new discount
card program by saying, "one of the things I
believe is that markets have got a fantastic way
of rewarding people with better quality and better
price." This would seem to be an
extraordinary gaffe, since he is clearly referring
to a non-market solution (a government authorized
discount card in a market where the government
grants firms monopolies). Given the importance of
the issue of prescription drug prices, this gaffe
deserved more attention than it received.
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Child Care
Kerry Boosts Child
Care
Lois
Romano
Washington
Post, June 17, 2004, Page A7
This article reports on a proposal by
Senator Kerry to increase a child care tax credit
by $20 billion over the next ten years. It would
have been helpful to place this proposal in some
context. The projected increase in spending of $2
billion annually is equal to approximately $100 a
year for each child under age 5. The cost is equal
to approximately 0.08 percent of projected
spending over the next decade.
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