Economic Reporting Review
By Dean Baker
August 1, 2005
In This Issue:
• Outstanding
Stories of the Week
• Trade
• Medicare
• Social
Security
• Student
Loans
• Declining
Unionization Rates
• Home
Sales
• China's
Currency
• The
Energy Bill
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Outstanding
Stories
of the Week
Bill
Wouldn't Wean U.S. Off Oil Imports, Analysts Say
Justin
Blum
Washington
Post, July 26, 2005, Page A1
This
article reports on the projected impact of the proposed energy bill on the use
of imported oil. It reports that the provision allocating subsides to ethanol
and other agricultural based fuels is projected to reduce oil imports by
approximately 0.8 percent by 2012. It also reports that the oil that is
projected to be available if drilling is allowed in the Arctic National Wildlife
Refuge would reduce imports from 68 percent of total U.S. oil consumption to 64
percent in 2025, the year of projected peak production from the Refuge.
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Accreditors
Blamed for Overlooking Problems
Gilbert
M. Gaul
Washington
Post, July 24, 2005, Page A1
This
article examines the track record of the Joint Commission on the Accreditation
of Healthcare Organizations, the private entity that approves health care
providers for receiving Medicare reimbursements. It reports that inadequate
inspections and potential conflicts of interest appear to have allowed many
poorly run facilities to continue to qualify for Medicare.
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In
Search of a New Energy Source, China Rides the Wind
Howard
W. French
New
York Times, July 26, 2005, Page A4
This
article discusses the growth of wind power in China. The article notes that wind
power is a rapidly expanding source of energy in China, which has set a target
of having 10 percent of its energy come from renewable sources by 2020.
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Job
Market in W. Va. Defies Efforts to Reform Welfare
Evelyn
Nieves
Washington
Post, July 24, 2005, Page A3
This
article examines the impact that the 1996 welfare reform bill has had on
families in West Virginia. It reports that many of the women who have been
removed from the welfare rolls as a result of the measure have been unable to
find and keep regular work. As a result, they have had considerable difficulty
paying for basic necessities like food, housing, and medical care.
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Trade
Trade
Pact Approved by House
Paul
Blustein and Mike Allen
Washington
Post, July 28, 2005, Page A1
This article reports on the vote in the House approving the Central America Free Trade Agreement (CAFTA). The article repeatedly refers to the agreement as a "free trade" agreement and asserts that it will tear down barriers to trade. Actually the agreement only would reduce barriers in limited categories of trade, and increases them in others, so it is inaccurate to call it a free trade agreement.
The pact will substantially increase protection for prescription drugs in Central America and other items subject to copyright and patent protection. Research from the World Bank indicates that such protectionism will impose substantial costs on Central American economies.
While the agreement does reduce barriers to trade in manufactured goods, making it easier for Central American workers to compete with manufacturing workers in the United States, it does little to reduce the barriers that prevent Central American professionals, like doctors, economists, or newspaper reporters, from competing with their counterparts in the United States. Licensing barriers and other restrictions make it very difficult for professionals in Central America from selling their services in the United States.
It is important to recognize that this issue is one of trade in professional services, not immigration. If a Salvadoran doctor or reporter wanted to come to the United States and work as a dishwasher or custodian, they would be able to do so. However, they would find substantial obstacles to working in their professions in the United States.
A
real free trade pact would eliminate these barriers, making it as easy for a
doctor born in Nicaragua to work in the United States as a doctor born in Long
Island. None of the proponents of "free trade" agreements has sought
to make this a goal of trade of policy, despite the fact that the gains to
American consumers would be many times greater than from the reduction of
remaining barriers to traded goods.
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Despite
Problems, Bush Continues to Make Advances on His Agenda
Richard
W. Stevenson
New
York Times, July 29, 2005, Page A16
This article assesses President Bush's standing with Congress after the passage of CAFTA. At one point the article refers to the bill as being emblematic of the "administration's economic philosophy."
The Bush administration (like its predecessors) is run by politicians, not political philosophers. Politicians respond to powerful political interests, like pharmaceutical companies and the entertainment industry. There is no reason to believe that politicians have a coherent economic philosophy, although they usually justify actions taken on behalf of powerful interests based on an appeal to some greater principle.
In
the case of CAFTA, even though the bill was called a "free trade"
agreement, it substantially increased protectionism in the form of patent and
copyright protection, raising prices for consumers in Central America and posing
a drain on the economies of the region. It also did virtually nothing to reduce
protectionist barriers that inflate salaries for highly educated workers in the
United States.
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A
Third-World 'Farm Aid,' So to Speak
Melanie
Warner
New
York Times, July 29, 2005, Page A1
This article reports on an ad campaign by Oxfam America that focuses on reducing U.S. farm subsidies. The group argues that lower subsidies would aid farmers in the developing world by reducing competition from U.S. agricultural products, thereby raising prices.
It is worth noting that the main source of increase in world production of many commodities, such as cotton, in the last two decades has been the developing world. Aid agencies like the World Bank have encouraged farmers in the developing world to switch from producing food crops to producing export crops. The decision of millions of farmers around the world to make such a switch has led to considerable downward pressure on the prices of these products.
It is also worth noting that the effect of U.S. subsidies is largely offset by the over-valuation of the dollar. The dollar is over-valued by approximately 30 percent, which is equivalent to the imposition of a 30 percent export tariff on U.S. agricultural products. If the U.S. government eliminated all its agricultural subsidies and the dollar fell to a sustainable level, most U.S. agricultural producers would be in roughly the same position in the world market as they are today.
It
is also important to note that insofar as reduced U.S. agricultural subsidies
lead to higher agricultural prices, developing countries that are not producers
of the affected products would be saddled with higher import prices, which would
lower standards of living. In such cases, the loss of these subsidies would slow
growth and impede development.
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Medicare
Bad
Practices Net Hospitals More Money
Gilbert
M. Gaul
Washington
Post, July 24, 2005, Page A1
This informative article examines some of the sources of waste in the Medicare system. It notes that the current system effectively rewards bad practices. Hospitals that improperly treat conditions will generally receive more compensation from Medicare than those who provide proper treatment. This is due to the fact that Medicare pays for the services delivered, and patients who do not get proper care are likely to need more services.
It would have been useful to note that this is a problem in the U.S. health care system, not a problem unique to Medicare. Most private insurers would also pay more money to hospitals that provide improper care than to those that provide proper care. There is no effective quality control in the U.S. health care system, so there is little effective sanction for poor care.
While
private insurers are no better in preventing poor quality care than the Medicare
system, they do add another layer of bureaucracy and costs. This is why studies
by the Government Accountability Office and other researchers have found that
private insurers raise the cost of the Medicare program.
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Social
Security
Mother
and Son Bush Talk Medicare to Seniors
Jim
VandeHei
Washington
Post, July 23, 2005, Page A2
Bush
Urges Retirees to Get Behind His 'Senior Security Package'
David
E. Rosenbaum
New
York Times, July 23, 2005, Page A30
These
articles report on a meeting in Atlanta at which President Bush appeared with
his mother to promote his Medicare prescription drug bill and his Social
Security privatization plan. According to the articles, Barbara Bush said that
if nothing were done, her grandchildren would not receive their Social Security.
This is not true. According to the projections from both the Social Security
trustees and the Congressional Budget Office, Ms. Bush's grandchildren can
expect to see a considerably higher real (adjusted for inflation) benefit than
current retirees receive, even if nothing is ever done to improve the program's
finances. It would have been helpful to readers if the articles had corrected
this error.
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Student
Loans
House
Panel Approves Bill To Upgrade Student Loans
Michael
Janofsky
New
York Times, July 23, 2005, Page A8
This
article reports on the House education committee's approval of a bill that would
restructure student loan and aid programs. At one point, the bill notes the
inclusion of a provision that would increase the maximum size of Pell grants
(aid given to low income students) by approximately 1.2 percent a year. It is
worth noting that tuition has been rising at an annual rate of more than 5
percent. This means that after five years, the maximum value of a Pell grant
will have fallen by more than 20 percent relative to the cost of college
tuition.
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Declining
Unionization Rates
Leadership
Challenge Could Rend AFL-CIO
Thomas
Edsall
Washington
Post, July 24, 2005, Page A7
This
article reports on the dissension within the AFL-CIO. At one point it notes that
unionization rates in the United States have fallen from 35 in 1955 to 12.5
percent last year. The article then comments that most industrialized countries
have seen a similar pattern of declining union membership. While most
industrialized countries have experienced a decline in unionization rates over
the last half-century, the falloff has not been nearly as sharp as in the United
States. As a result, the unionization rate for other industrialized countries is
still more than 30 percent of the work force, on average.
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Labor
Split Centers on Failure to Organize
Amy
Joyce
Washington
Post, July 27, 2005, Page D1
This
informative article examines the problems facing the U.S. labor market. One
important fact that it did not include is that it is now standard practice for
employers to fire workers who are involved in organizing. While this violates
the law, even if the employer is found guilty, the penalties are trivial. For
this reason, many employers view it as a sound practice to simply fire union
organizers in order to ensure that their workforce does not become unionized. A
comprehensive investigation by Human Rights Watch found a "culture of near
impunity" among U.S. employers and concluded that the right to organize
unions barely exists in the United States.
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Home Sales
Home
Sales Still Rising To Records
Vikas
Bajaj
New
York Times, July 26, 2005, Page C1
This
article reports on new data showing that existing home sales hit a new record in
June. It is important to realize that home sales are reported at the point where
a sale is completed. This typically takes place 6 to 8 weeks after the contract
was first signed. Therefore this data is revealing more about the state of the
national housing market in April and May than in June.
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China's
Currency
Don't
Expect Yuan to Rise Much, China tells World
Peter
S. Goodman
Washington
Post, July 27, 2005, Page D1
This article reports on a statement by the Chinese central bank that it is not likely to raise the value of its currency further in the near future. At one point the article asserts that even if the currency were to rise a great deal, it would have little impact on U.S. manufacturing, "because most of China's export growth is in products that have not been made in the United States in large scale in years."
Actually
China is rapidly moving into areas such as aircraft engines and parts and
automobile production that are considered to be top end manufacturing. These are
areas in which they will directly compete with high end U.S. manufacturing jobs.
There are still more than 800,000 workers (approximately 5 percent of all
manufacturing workers) employed in the U.S. in some area of textile or apparel
manufacturing. In addition, an important effect of a revaluation of China's
currency is that it will likely lead to a revaluation of other currencies
against the dollar. This is exactly what happened when China first announced
that it was removing its peg to the dollar; the dollar fell against virtually
all currencies.
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The
Energy Bill
Congressional
Negotiators Near Agreement on a Broad Energy Measure
Carl
Hulse
New
York Times, July 25, 2005, Page A15
Provisions
to Curb Oil Use Fall Out of Energy Bill
Carl
Hulse
New
York Times, July 26, 2005, Page A16
Congress,
After Years of Effort Is Set to Pass Broad Energy Bill
Carl
Hulse and Michael Janofsky
New
York Times, July 27, 2005, Page A1
These
articles report on the progress of the energy bill being debated in Congress.
Both articles refer to provisions in the bill which would promote the use of
renewable forms of energy such as solar or wind energy. It is important to note
that the amount of money designated for this purpose is extremely small and is
likely to have no appreciable effect on the development of alternative energy.
At
one point the July 26th and July 27th articles refer to plans to spend $11.5
billion on various tax breaks and incentives, including those for alternative
energy use. It is important to note that this spending would take place over a
10-year period. The proposed level of spending in this bill is equal to
approximately 0.04 percent of projected spending over this period.
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Dean Baker is Co-Director of the Center for Economic and Policy Research in Washington, D.C.