Economic Reporting Review
By Dean Baker
November
14, 2005
In This Issue:
• Outstanding
Stories of the Week
• Immigration
• Trade
• Internet
File Sharing
• The
Arctic Wildlife Refuge
• The
Budget
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Outstanding
Stories
of the Week
Passport
to Health Care At Lower Cost to Patient
Sonya Geis
Washington
Post, November 6, 2005, Page A3
This article reports on the increasing
tendency of people in the southern United States to go to Mexico for medical
services. The same services often cost less than half as much as in the United
States. The article also reports on the successful effort by doctors in Texas to
prevent HMO’s from using Mexican doctors, because they worried that the
competition would reduce their pay.
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Is a Bird Flu
Drug Really So Vexing?
Andrew Pollack
New
York Times, November 5, 2005, Page B1
This article examines the potential obstacles to mass production of Tamiflu, the
most effective drug for treating the Avian Flu. Roche, the company that holds
the patent for Tamiflu, has repeatedly claimed that technical obstacles would
prevent the mass production of Tamiflu, even if Roche did not use its patent
monopoly to restrict production. The article shows that many of the claims made
by Roche are not true.
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A Pension
Accounting Rule, Sometimes Murky, Is Under Pressure
Mary Williams Walsh
New
York Times, November 8, 2005, Page C1
This article discusses the possibility
that the Financial Accounting Standards Board will change pension accounting
rules that give companies enormous leeway in projecting rates of return on their
pension fund assets.
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Immigration
Migrant
Worry
David Reiff
New
York Times, November 6, 2005, Magazine, Page 15
This article discusses the future prospects for immigration policy in the rich
countries. At one point, it claims that the argument of pro-immigration
activists is that globalization “cannot mean the free movement of capital and
of middle class professionals alone.” Actually, there are much tighter
restrictions on the movement of middle class professionals (for purposes of
employment) than there are on the movements of less-skilled workers.
In the United States there are virtually no real legal sanctions preventing
foreigners from working in the United States as custodians, dishwashers,
nannies, or in other relatively low-paying occupations. On the other hand,
professionals like doctors and lawyers have erected protectionist barriers that
make it very difficult for foreign professionals to work in the United States.
Comparable, albeit less restrictive, barriers also protect other relatively
skilled workers.
The article goes on to assert that the issue over immigration boils down
to “culture and politics versus economics.” It would more accurate to say
that it boils down to redistributive economics. Professional and high-paid
employees (doctors, lawyers, executives) are anxious to bring in more less-
skilled immigrants so that they can benefit from getting the services provided
by these workers at a lower price than if they had to hire native-born workers.
On the other hand, these high-paid occupations are staunchly opposed to freer
immigration of their peers from developing countries who will compete with them
and bring down their own wages and salaries (which would also provide large
economic gains to the economy as a whole).
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Angry Immigrants
Embroil France in Wider Riots
Craig S. Smith
New
York Times, November 5, 2005, Page A1
This article reports
on violent protests in largely immigrant sections of France. At one point it
refers to the views of “immigration analysts” that European societies will
find it necessary to allow more immigrants because of their aging societies and
shrinking populations.
Actually, there is no obvious reason that an aging society or a shrinking
population will force European countries to allow more immigration. Several
European countries, like France and Germany, have high unemployment rates, which
means that they are very far from experiencing any shortages of labor.
Furthermore, even if unemployment were low, a labor shortage simply means that
the least productive jobs (e.g. the midnight shift in convenience stores or a
sales clerk in a clothing store) go unfilled. There is very little cost to
society from losing these jobs.
There also is no obvious problem with a shrinking population, especially in the
relatively densely populated countries of Europe. A shrinking population could
lead a rising standard of living since it will reduce pressure on land and it
will make it easier to meet pollution reduction targets, such as Kyoto agreement
targets on greenhouse gas emissions.
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Trade
Skepticism Prevails
at Trade Talks
Monte Reel
Washington
Post, November 6, 2005, Page A14
Hemisphere Meeting Ends Without Trade Consensus
Larry Rohter and Elisabeth Bumiller
New
York Times, November 6, 2005, Page A8
These articles report on the outcome of the trade summit held
in Argentina. Both articles repeatedly describe the goal of the Bush
administration as advancing “free trade.” Actually, the Bush administration
is ardently opposed to free trade. One of the main goals of his proposed “Free
Trade Area of the Americas” agreement is to increase protectionist barriers in
the form of patent and copyright protections. These barriers will raise the
price of protected items by several hundred percent above their free market
price, leading to large economic losses.
President Bush is also strongly opposed to free trade in professional services.
The proposed agreements would do little to remove U.S. barriers to foreign
providers of medical services, legal services, or other highly paid professional
services.
At one point the Times
article describes Mexico’s economy as “dynamic.” Actually Mexico’s rate
of per capita GDP growth has been just over 1.0 percent annually, since NAFTA
went into effect in 1994. This is an extremely weak rate of growth for a
developing country. It is not clear in what way the economy can be described as
“dynamic.”
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Mountains of Corn
and a Sea of Farm Subsidies
Alexei Barrionuevo
New
York Times, November 9, 2005, Page A1
This article discusses the system of agricultural
subsidies in the United States and the way in which it which it provides
incentives for farmers in the United States to increase their production of many
crops. This has the effect of depressing world prices for these crops and
increasing the cost of farm subsidies. The article goes on to assert that poor
nations are hurt by low agricultural prices because they are heavily dependent
on agriculture.
Actually, while studies by the World Bank and other sources have shown very
small net gains for the developing world as a whole from the removal of rich
country agricultural subsidies (less than 0.5 percent of GDP), many of the
world’s poorest countries would be hurt if the rich countries eliminated their
subsidies. Many of the poorest countries are net importers of agricultural
goods. According to standard economic models, these countries will be hurt if
the United States and Europe remove their subsidies, since they will be forced
to pay more for food and other agricultural products.
At one point this article compares the current estimate of $22.7 billion
in farm subsidies in 2005 to what it describes as the record of $22.9 billion in
2000. To make an accurate comparison, the current level of subsidies should have
been adjusted for inflation. It is equal to approximately $20.3 billion in 2000
dollars, more than 10 percent less than the level of subsidies in the that year.
The article attributes the high level of subsides in 2000 to the East Asian
financial crisis. The financial crisis took place in 1997. The countries of the
region had largely recovered by 2000. The more obvious cause of high subsidies
in 2000 was the high value of the dollar. When the dollar rises relative to
other currencies, the price of agricultural goods (expressed in dollars) falls.
This squeezes domestic producers and raises the cost of subsidies.
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Hope Fades For a
Pact Easing Trade Barriers
Paul Blustein
Washington
Post, November 10, 2005, Page D6
This article reports on the prospects for a WTO agreement at the next round of
meetings in December. The article asserts that a principle aim of the agreement
is to provide developing countries with more opportunities to gain from
trade.
While this is a stated purpose of the agreement, it is not clear that this is
really an important motivation for the United States and other wealthy countries
in trade negotiations. It is common for politicians to conceal the true motives
for their actions.
One of the main goals of U.S. negotiators has been to increase trade barriers by
forcing the developing countries to adopt U.S. style patent and copyright laws.
This will lead to substantial outflows of money from poor countries to rich
countries in the form of royalties and licensing fees.
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Internet
File Sharing
Grokster Calls It Quits On Sharing
Music Files
Jeff Leeds
New
York Times, November 8, 2005, Page C1
This article reports on the provisions of settling a legal case under which the Grokster, a file sharing system, agreed to stop allowing copyrighted material to be exchanged. At several points the article refers to unauthorized reproduction of copyrighted material as "piracy." It is inappropriate to use such a pejorative term in a news article, especially since the legal status of such copying is often unclear (e.g. reproductions in countries where the work is not copyrighted or sharing a digital recording with a friend).
The
article includes several comments from representatives of the entertainment
industry, including an industry lawyer who wants the government to teach respect
for copyrights in elementary school classes. It would have been helpful to
include comments from economists on the economic losses associated with
copyright protection (the Times has run numerous articles on the much smaller
losses associated with protectionist barriers in agriculture) as well as some
discussion of more modern and efficient mechanisms of supporting creative work
(e.g. see "The Artistic Freedom Voucher: An Internet Age Alternative to
Copyright," [http://www.cepr.net/publications/ip_2003_11.pdf]).
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The
Arctic Wildlife Refuge
Arctic Oil Drilling Goes to House Vote
Juliet Eilperin
Washington
Post, November 9, 2005, Page A3
This
article discusses the likelihood that Congress will remove the ban on drilling
for oil in the Arctic National Wildlife refuge. At one point the article reports
the claim of proponents of drilling that lease fees from the area could raise
$2.5 billion. It is important to note that this figure is a projection of the
revenue that would be raised over a ten-year period. It is equal to
approximately 0.008 percent of projected federal spending over this period.
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The
Budget
Some in GOP Regretting
Pork-Stuffed Highway Bill
Shailagh Murray
Washington
Post, November 4, 2005, Page A1
G.O.P. Budget Cuts Face
Varied Opposition
Jonathan Weisman
Washington
Post, November 8, 2005, Page A2
Official Reveals Budget
for U.S. Intelligence
Scott Shane
New
York Times, November 8, 2005, Page A24
These articles report on debates over various items in the budget. It would be useful if the budget numbers were placed in some context so that readers would have a better sense of what is at issue. The pork in the highway bill is reported as being $24 billion that will be spent over the next 6 years. This is equal to approximately 0.16 percent of projected federal spending over this period.
The $54 billion in proposed cuts over the next five years noted in the Weisman article is equal to approximately 0.6 percent of projected spending over this period. It is a considerably larger share of the affected programs.
The
Times article reports that the secret U.S. intelligence budget is equal to $44
billion in 2006. This is approximately 1.6 percent of total spending. The
article reports that intelligence spending was $26.7 billion in 1998, the last
year the figure was publicly disclosed. This implies that spending on
intelligence has increased by more than 40 percent over this period, even after
adjusting for inflation.
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Dean Baker is Co-Director of the Center for Economic and Policy Research in Washington, D.C.