You can sign up to receive ERR and other CEPR e-newsletters at the CEPR Listserve Signup Page. You can find the latest ERR at the Economic Reporting Review Main Page. All ERR prior to August 2000 can be found at Fair.org.

Links to both New York Times and Washington Post articles require registration. To sign up for these free services, go to the NY Times Sign-up Page and the Washington Post Registration Page.


Outstanding Stories of the Week

Bailout Feared If Airlines Shed Pensions
Mary Williams Walsh
New York Times, August 1, 2004, Page A1

This article reports on the possibility that Pension Benefit Guarantee Corporation, the agency that insures defined benefit pensions, may require a bailout if United Airlines dumps its pension fund obligations on the agency.

Bill Would Raise Franchise Value of Sports Teams
Duff Wilson
New York Times, August 2, 2004, Page A1

This article reports on a provision in a tax bill that would raise the value of sports franchises by changing the rules governing the rate at which players' contracts could be written off as depreciation. This change could increase the value of many sports franchises by several billion dollars.

Back to Top of Page


The Presidential Campaign

In Hard-Hit Ohio, Bush Says the U.S. Economy Is on the Mend
Richard W. Stevenson
New York Times, August 1, 2004, Page A18

This article reports on a campaign visit to the state of Ohio. At one point it reports on President Bush's argument that "isolationism would be counter-productive." It would have been appropriate to note that no major candidate in the presidential race is advocating isolationism or any position that resembles isolationism.

The article later notes President Bush's support for coal mining, which it asserts is "an important issue in this part of the country." Actually coal-mining is virtually irrelevant to Ohio's economy. According to the most recent data from the Bureau of Labor Statistics, 0.22 percent of Ohio's workers are employed in natural resources and mining, a much broader category than coal mining alone. Even if two-thirds of the people in this category are employed in coal mining, it would still mean that coal mining in Ohio employs less than one-fifth as many people as clothing stores.

Back to Top of Page

Trade

Trade Negotiations Progress
 Paul Blustein
Washington Post, July 31, 2004, Page E1

U.S. Will Cut Farm Subsidies In Trade Deal
Elizabeth Becker
New York Times, July 31, 2004, Page B1

Accord Reached on Global Trade
Paul Blustein
Washington Post, August 1, 2004, Page A1

Trade Group to Cut Farm Subsidies for Rich Nations
Elizabeth Becker
New York Times, August 1, 2004, Page A8

These articles report on the progress of negotiations for a new W.T.O. agreement. Several of the articles include assertions that a main purpose of the agreements is helping poor countries. For example, the August 1 article by Becker describes the agreement as creating "a new framework for revising global trade rules aimed at helping the world's poorest people."

It is questionable whether the purpose of the United States and other wealthy countries in these negotiations is really to promote the interests of poor countries. They have often acted in ways that have been diametrically opposed to the interest of poor countries in trade negotiations. For example, the United States has made the extension of U.S. style patent and copyright protections to developing countries a major goal in trade negotiations. According to research from the World Bank, such protectionist measures are likely to impose greater costs on developing countries than the potential gains from the removal of trade barriers in rich countries (see "The Relative Impact of Trade Liberalization on Developing Countries").

While it is possible that the U.S. is actively pursuing trade policies aimed at promoting the interests in poor countries, even as it pursues the opposite path in another set of negotiations, it is also possible that assisting poor countries is not a major objective of the Bush administration. There are important political interests in the United States who would benefit from liberalized trade in agriculture. For example, Archer Daniels Midland, the world's largest grain trader and also a major contributor to the Republican party, would stand to benefit from increased trade in agricultural goods. It is possible that the Bush administration is more interested in benefiting powerful political backers than helping poor countries in its trade agenda at the W.T.O.

The articles also include numerous assertions that the elimination of rich country agricultural subsidies will be very beneficial to poor countries. This is not supported by research findings. According to research from the World Bank, the elimination of all rich country import barriers on merchandise trade will only increase GDP in developing countries by an average of 0.6 percent. This would mean that a country with a per capita GDP of $1000 per year at present, would see its per capita GDP rise to $1006 per year as a result of trade liberalization in rich countries. The impact of the elimination of barriers in agriculture alone would obviously raise incomes in developing countries by less than 0.6 percent according to the World Bank's models. The removal of rich country agricultural subsidies will also make many developing countries worse off, since they will now pay more for food, cotton, and other products that are currently being subsidized.

It is also worth noting that the 20 to 30 percent decline in the dollar, which will be necessary to bring the U.S. current account deficit down to a sustainable level, will almost completely offset the impact of the removal of U.S. agricultural subsidies in world markets. After the correction in the dollar, most U.S. agricultural products will sell for a lower price in world markets without subsidies than they do at present with subsidies.

The Times articles include several references to $300 billion in "subsidies and supports" that the rich countries give to their farmers. It is important to recognize that only about $80 billion of this money is in the form of actual subsidies. The bulk of the $300 billion is attributable to higher prices that consumers in rich countries pay as a result of import and domestic supply restrictions. This sort of calculation is almost never used in other contexts. For example, a comparable calculation would show that the United States alone provides close to $200 billion in annual subsidies to its pharmaceutical industry by enforcing patent monopolies. Similarly, it provides close to $100 billion annually in support to its physicians by protecting them from foreign competition. While the Times has frequently mentioned this estimate of $300 billion of direct and indirect support for agriculture, it has never mentioned estimates of the value of the support given to other industries or professions.

The Times articles also refer to estimates that this round of trade liberalization may raise world GDP by $3 trillion. The article does not indicate the time period over which this gain would be realized. Past estimates have arrived at similar numbers over a ten-year time frame. Assuming that this figure is referring to gains over a ten year period, then the $3 trillion estimate would be equal to approximately 0.5 percent of GDP over this period.

Free Trade Debate in Australia
James Brooke
New York Times, August 4, 2004, Page W1

This article reports on the debate in Australia over a new trade pact with the United States. The article describes the trade pact as a "free trade" pact eight times, including in the headline. This is inaccurate. While the trade agreement does reduce some trade barriers, it raises others, most notably by increasing patent protection for prescription drugs. It would be more accurate to simply describe the agreement as a "trade pact."

Back to Top of Page


The Economy

U.S. Economy Slows After Winter's Splurge
Nell Henderson 
Washington Post, July 31, 2004, Page E1

This article reports on the release of data showing that the economy grew at a 3.0 percent annual rate in the second quarter, considerably slower than most economists had expected. While the article notes that most economists were surprised by the slow growth, it might have been appropriate to present the views of an economist who was not surprised.

The article also presents the views of Federal Reserve Board Chairman Alan Greenspan, who described the economy as hitting a "soft patch," but said that he expects it to pick up soon. It is worth noting that Mr. Greenspan used very similar language in describing the economy at the end of 2000, just as it was sinking into a recession.


How Does it Feel in the Middle?
Edmund L. Andrews
New York Times, August 1, 2004, Section 3, page 1

This article discusses the economic situation facing middle class families. At one point the article reports on the rapid growth of profits at the expense of wages in the recent recovery. It includes a chart that shows profit rising from 8 percent of national income at the trough of the recession in 2001 to 12 percent at present. It is worth noting that the Commerce Department has substantially revised down its measure of profits for the last two years. According to the most recent data profits were equal to 11.5 percent of national income in the first quarter of 2004, more than a half percentage point below the peak hit in 1997.

In discussing the economy's near-term prospects the article refers to a recent rise in measures of consumer confidence. Consumer confidence is an extremely poor predictor of future economic performance. The consumer confidence measures were also very strong in the spring of 2002, a period when the economy was experiencing weak growth and was still shedding jobs.

Consumer Spending Drops as Income Stalls
Nell Henderson
Washington Post, August 4, 2004, Page E1

Consumer Spending Dropped 0.7% in June
Associated Press
New York Times, August 2, 2004, Page C2

These articles report on data from the Commerce Department showing a sharp drop in consumer spending in June. Both articles include cites from two different experts who express surprise at the size of the reported decline.

Actually, the data on spending in June was already publicly available. The GDP data released on Friday includes data on consumption spending for the quarter from April through June. Since spending data had already been released for April and May, it is possible to calculate spending data for June, based on the GDP data, through simple subtraction.

It is reasonable to expect that experts would take advantage of publicly available information in such an important area (consumption expenditures account for approximately 70 percent of GDP). Any expert who does not take the time to familiarize him or herself with this data is probably not a good source for an article on the state of the economy.

Back to Top of Page


The Budget

White House Predicts 2004 Deficit Of $445 Billion - the Biggest Ever
Dana Milbank
Washington Post, July 31, 2004, Page E1

This article reports on new estimates from the Bush Administration on the size of the deficit. The headline describes the deficit as the largest ever. While this is true, when the deficit is measured in nominal dollars, it is not true when measured as a share of GDP - the only meaningful measure. The deficit measured as a share of GDP is 3.8 percent, compared to the post-war record of 6.0 percent in 1983. This information is noted in the article, although it is only mentioned in the context of a comment from Joshua Bolten, the head of the Office of Management and Budget.

It is worth noting that the deficit discussed in the article ignores the funds borrowed from Social Security and the retirement accounts for government employees. When this borrowing is included, the deficit would be approximately $700 billion. This fuller measure of the deficit is close to the 6.0 percent record hit in 1983. For many purposes, such as the burden placed on future taxpayers, this fuller measure of the deficit is the appropriate standard.

Bush Talks to an Appreciative Catholic Crowd
Elisabeth Bumiller
New York Times, August 4, 2004, Page A14

This article reports on a campaign appearance by President Bush in front of the Knights of Columbus, a major Catholic organization. President Bush touted the fact that he had secured $188 million in social service spending, which would be routed through religious organizations.

This sum amounts to approximately 0.007 percent of federal spending. While this spending may have symbolic importance, and be important to the groups receiving the money, it has almost no consequence in terms of the federal budget or even in the context of the social needs being addressed. If the sum were expressed as a share of the budget, this fact would be clearer to readers.

Back to Top of Page


Social Security

Kerry Makes Stop in 'City of Presidents' In Wisconsin
David M. Halbfinger
New York Times, August 4, 2004, Page A14

This article reports on a campaign appearance in Wisconsin by Democratic Presidential candidate John Kerry. At one point, the article refers to a claim by Mr. Kerry that borrowing from Social Security could leave the program in jeopardy.

Under the current law, this is not true. Social Security is completely unaffected by whether or not the government spends the money it borrows from the program. Under the law, the Social Security surplus is automatically lent to the government through the purchase of government bonds. The value of these government bonds would only be affected if the government at some future date proposed defaulting on the national debt, or the portion held by Social Security. At present, no prominent political figure has suggested such a default. The political prospects for such a default seem even less likely in the future, when a larger segment of the voting population will be dependent on Social Security.

Back to Top of Page


Dominican Republic

Dominican Republic on the Edge of Default
Simon Romero
New York Times, August 6, 2004, Page W1

This article reports on the prospects that the Dominican Republic will default on its debt. At one point it asserts that its currency had "tumbled in value more than 100 percent since last year." This is inaccurate, the decline has been in the neighborhood of 50 to 60 percent. (If the currency lost more than 100 percent of its value, then people would be paid to hold it.) While the article includes several comments from experts on the dire consequences of default, it should have also included some analysis of the potential benefits.

Back to Top of Page