Economic Reporting Review
 By Dean Baker

November 14, 2005

In This Issue:

 Outstanding Stories of the Week
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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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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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," []).

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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.