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Outstanding Stories of the Week

A Greener Globe, Maybe Always on the Job, Employees Pay With Health
Andrew C. R John Schwartz
New York Times, September 5, 2004, Page A1

This article examines the impact that workplace stress has on workers health. It reports the results of a recent study that finds that company downsizing, as well as rapid expansion, tends to lead to worse health outcomes for workers.

Spurred by Illness, Indonesians Lash Out at U.S. Mining Giant
Jane Perlez and Evelyn Rusli
New York Times, September 8, 2004, Page A1

This article reports on the efforts by an Indonesian village to hold Newmont Mining Corporation responsible for the harm its operations have done to the health of the people living there

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Medicare

Medicare Premiums To Rise By 17.5%
Ceci Connolly
Washington Post, September 4, 2004, Page A1

Citing Higher Costs, U.S. Plans Record Rise in Medicare Premiums
Gardiner Harris
New York Times, September 4, 2004, Page A1

These articles report on the record increase in monthly Medicare premiums that the Bush administration has scheduled for the beginning of next year. The Post article does not mention that a portion of this increase is attributable to President Bush's decision to increase subsidies to private insurers, which was part of the Medicare prescription drug bill passed last year. Private insurers wanted this additional subsidy because they are finding it difficult to compete with the traditional program, even though they already receive a subsidy. The Times article had included this information.

At one point the Times article discusses Medicare fee schedules for doctors, commenting that they "often amount to price controls." This is an inaccurate description of the situation. Medicare will inevitably be the main payer for many of the doctors' services that beneficiaries receive. Therefore there can be no regular market. Medicare must set a price for these services. The alternative would be for doctors to get a blank check from the government, which is not a market relationship either.

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The State of the Economy

Payrolls Resumed Growth In August
Nell Henderson and Amy Joyce
Washington Post, September 4, 2004, Page E1

This article discusses the Labor Department's release of employment data for August. It presents several comments suggesting that the August job numbers indicate the end of a "soft patch" for the economy.

In fact, the jobs data for August were quite weak, especially in the context of two prior months of very weak job growth. The exact month in which jobs show up in the surveys is always somewhat arbitrary, so economists usually look at averages over two or three months to get a better sense of where the economy is. (Much of the job growth reported in August was due to a change in the timing of annual layoffs for retooling in the auto industry and a bounce back from an unexplained July job loss in the social assistance sector.) The three-month average in this case is just over 100,000 per month, too slow to even keep pace with the growth of the labor force.

There are also a number of other recent indications of economic weakness, most notably the weak August sales reported by retail stores and automobile manufacturers. It would have been helpful if the article included a more balanced set of sources reflecting the diversity of views on the current state of the economy.

Help Wanted
Roger Lowenstein
New York Times, September 5, 2004, Magazine page 52

This article reports on the employment situation and the extent to which it can be affected by public policy. At one point it presents comments from a retailer who says that "protectionism is a lost cause." No conflicting points of view are presented.

In fact, protectionism in the U.S. economy is widespread and increasing in many sectors. For example, highly paid professionals, like doctors and lawyers, benefit from arcane professional and licensing restrictions that are intended to make it difficult for foreign professionals to compete with them. Also, the government is using ever more intrusive methods to extend copyright protection in new areas, in some cases even making types of software and hardware illegal because they can be used to make unauthorized copies of copyright-protected material.

While the article assesses the records of the Clinton and Bush administrations in promoting economic growth, it never mentions the stock market bubble. This was the main factor behind the boom of the late nineties and the subsequent recession and period of economic weakness.

At one point the article refers to the better jobs performance shown by the Labor Department's survey of households compared to its survey of firms. It attributes this difference in part to the increase in the number of self-employed, who are not counted in the establishment survey. In fact, the difference is due to the fact that Labor Department has deliberately added people into the household survey over the last four years to make up for the fact that it had undercounted the population over the prior decade. The household survey is not designed to measure job growth and the Labor Department regularly informs the public of this fact.

It is also worth noting that the number of self-employed, as measured by the household survey has actually declined over the last year, from 4,404,000 in August of 2003 to 4,391,000 in August of 2004.

Bush Keeps Focus on Security
Dana Milbank and Spencer S. Hsu
Washington Post, September 7, 2004, Page A8

This article reports on the competing statements by the Presidential candidates on the state of the economy. At one point it notes President Bush's assertion that the current unemployment rate of 5.4 percent is below the average of the last thirty years. It is worth noting that most economists, including those at the Federal Reserve Board, have come to rely on the employment to population ratio (EPOP) as the better measure of the labor market's health. The portion of the adult population that is employed has fallen by two full percentage points during Mr. Bush's term, corresponding to a loss of more than 4 million jobs. The Fed has repeatedly cited the drop in the EPOP as evidence of economic weakness, which has justified the extraordinarily low interest rates of the last three years.

The article also refers to claims by Senator Kerry that the new jobs being created pay an average of $9,000 less than the ones being lost. In fact, there is no data on the actual pay at these new jobs. The data refers to the average pay in the industries that are expanding compared to the industries that are contracting. Furthermore, since the economy has been creating very few jobs (there has been a net decline, but some sectors are growing), the quality of these jobs does not affect very many people.

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The Budget

$2.3 Trillion In New Debt Expected by 2014
Jonathan Weisman
Washington Post, September 8, 2004, Page A2

Deficit Analysis And Bush Differ
Edmund L. Andrews
New York Times, September 8, 2004, Page A1

These articles report on new deficit projections for the next decade from the Congressional Budget Office (CBO). It is worth noting that these projections do not incorporate the effect that the projected current account deficit will have on the budget.

While the CBO projections explicitly assume that the current account deficit will stay roughly constant over the decade, they do not incorporate the resulting loss of tax revenue. When the U.S. runs a current account deficit, it means that foreign investors or central banks are buying up U.S. financial assets. In most cases, foreigners will not be paying tax to the U.S. government on the interest or dividends that these assets pay. The CBO projections assume that foreigners will buy roughly $5 trillion in U.S. assets over the next decade. The lost tax revenue (including interest) from having the earnings on these assets go to foreigners will be approximately $600 billion over this period (see "The Current Account Deficit and the Budget Deficit: Is $600 Billion Missing?" ).

The CBO made a comparable error in 2001, when its capital gains tax revenue projections effectively assumed that the stock bubble would persist indefinitely. This also led to an understatement of the ten -year deficit of approximately $600 billion.

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Outsourcing

Kerry Urges Voters to Look Past Bush's 'Last-Minute Promises'
David M. Halbfinger
New York Times, September 4, 2004, Page A1

This article reports on Senator Kerry's campaigning in Ohio in which he focused on the theme of job loss. At one point it refers to comments by Labor Secretary Elaine L. Chao that outsourcing creates jobs because the number of jobs lost to other countries "was far outweighed by the number of jobs in the United States at foreign-owned companies."

The number of jobs at foreign-owned companies in the United States is irrelevant to the debate over benefits of outsourcing. The vast majority of jobs at foreign-owned firms were not created by foreign investment, but rather are the result of the decision of foreign companies to buy up existing U.S. companies. For example, when Daimler-Benz bought up Chrysler, it did not create new jobs in the United States, but it did increase the number of U.S. workers employed by foreign-owned companies. The net direct job impact of outsourcing and "insourcing" is best measured by the trade deficit, which is running at close to a $600 billion annual rate.

It would have been appropriate to correct the Labor Secretary, just as the next paragraph in this article corrects a reference by Senator Kerry on the jobs lost during the Bush administration.

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Germany

European Economies Slow As Consumers Stay Home
Carter Dougherty
New York Times, September 8, 2004, Page W1

This article reports on weak consumption demand across the euro zone region. At one point the article notes the sharp increase in the savings rate in Germany over the last four years. It attributes this increase to a perception that the adoption of the euro in 2002 was associated with a rise in the inflation rate.

This explanation is highly implausible. There was no measurable uptick in the inflation rate at that time, and in subsequent years, inflation has been close to zero in Germany, raising concerns about the possibility of deflation. Furthermore, the predicted response to inflation is to spend more money - before it loses value.

The more plausible explanation for the rise in savings in Germany is the government's efforts to cut back pension benefits for workers. The government has already pushed through some cuts and many advisors to the government, including the IMF and the OECD, actively advocate further cuts. The predicted, and presumably intended, response to cutbacks in public pensions is an increase in savings rate. In other words, the rise in saving is presumably the intended outcome of the government's pension cutbacks.

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Flex Time and Overtime Rules

How 'Flex Time' Became a Republican Idea
Pam Belluck
New York Times, September 5, 2004, Section 4, Page 4

This article discusses views towards legislation that would weaken current laws governing overtime hours. Current rules require that most workers be paid at 150 percent of their standard pay, if they work more than 40 hours in a week.

The article notes that Republicans have been the leading proponents of changes in the rules, which would allow workers the "flexibility" of working more than 40 hours in some weeks in order to work less than 40 hours in other weeks. The article notes that workers in most other rich countries, as well as federal employees, typically have this option.

A key piece of information which is not mentioned is that, unlike workers in other countries or federal employees, most workers in the United States can be fired at will. This means that an employer can request that a worker adjust his or her schedule for the employer's convenience (not the worker's), and then fire the worker if he or she refuses.

This is the main reason that many people have opposed the changes proposed by the Republicans. Under current labor law, it only guarantees increased flexibility for employers, it does not guarantee any increase in flexibility for workers.

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Taxes

Bush Reiterates Call for a Simpler Tax System
Mike Allen
Washington Post, September 6, 2004, Page A4

This article discusses President Bush's comments at a speech in West Virginia, in which he said that he wanted to make the tax system simpler by reducing or eliminating taxes on savings. The article then quotes a spokesperson for the Kerry campaign as saying that this would shift the tax burden from the wealthy to the working class.

It is worth noting that this point is not a matter of political debate. There is no dispute that rich people save a higher share of their income than poor people. This means that almost any conceivable tax that partially or completely exempts savings will require a higher tax rate on income that is not saved. Therefore it is not simply an allegation of the Kerry campaign that President Bush's tax plans would raise tax burdens for the working class - it is a logical outcome of the sort of tax system he is proposing.