Economic Reporting Review
By Dean Baker
March
6, 2006
In This Issue:
• Outstanding
Stories of the Week
• Canadian Health Care
• Protectionism
• House Sales
• Food Safety Warnings
• India
• New Orleans Shipping Industry
• Stock Returns
• Bolivia
• Medicare
• Trade
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Outstanding
Stories
of the Week
U.S. Easing Fines For Mine Owners On Safety Flaws
Ian Urbina and Andrew W. Lehren
New York Times, March 2, 2006, Page A1
This article reports on evidence showing that the Bush administration had sharply reduced the size of fines imposed on mining companies for safety violations. In the case of small mines, the fines were reduced to a trivial level.
For Thirsty Farmers, Old Friends At Interior Dept.
Timothy Egan
New York Times, March 3, 2006, Page A1
This article reports on the fact that several former employees of trade associations for California farmers are now in positions at the Interior Department where they assign rights to water.
Internal Turmoil At Device Maker As Inquirer Grew
Barry Meier
New York Times, February 28, 2006, Page C1
This article reports on the discontent among workers at Guidant, one of the country’s largest makers of medical devices, over the company’s decision to withhold evidence of problems with a heart device.
Two Tiers, Slipping Into One
Louis Uchitelle
New York Times, February 26, 2006, Section 3, Page1
This article examines the diminishing premium that workers in manufacturing receive compared to workers with comparable skills in other industries. The article reports on how firms have been able to force manufacturing workers to accept large concessions in wage and benefits, ostensibly due to threat of foreign competition.
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Canadian Health Care
As Canada's Slow-Motion Public Health System Falters, Private Medical Care Is Surging
Clifford Krause
New York Times, February 26, 2006, Page A10
This article reports on the growing role of private health care providers in Canada. The article describes Canada’s health care system as being in crisis. For example, at one point it describes Canada’s health care costs as “exploding.” It is worth noting that Canada’s health care costs are not rising as rapidly as health care costs in the United States.
According to data from the OECD, Canada spends less than 60 percent as much per person as the United States (in 2001, Canada’s per capita spending was $2,792 compared to $4,887 in the United States). Life expectancy for people in Canada is also more than two years longer than for people in the United States (79 years compared to 76.7 years). It would have been useful to include this information in article assessing the state of Canada’s health care system.
The Times has printed a number of articles over the last decade that warn of a crisis in Canada’s health care system (e.g. “"Full Hospitals Make Canadians Wait and Look South," January 16, 2000, Section 1 page 3; and "A Crossroads in Canadian Health Care," May 9, 2000, page D8 ). None of these articles note either that Canadians spend far less on health care than do people in the United States or that they enjoy better health care outcomes.
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Nations Rebuild Barriers to Deals
Heather Timmons
New York Times, February 28, 2006, Page C1
This article discusses the growing tendency of governments to block or place conditions on corporate takeovers. At one point the article quotes an economist who sees the restrictions on takeovers as a form of protectionism. He is quoted as saying that “protectionism remains the major threat to global growth.”
It is worth noting that many forms of protectionism have persisted in the world economy, even as trade deals have removed some barriers, and in some cases have even been extended. For example, the United States has greater protection for doctors at present than it did a decade ago. While protection for doctors and other professionals is almost never discussed in the context of trade, in economic theory, protection that raises the cost of doctors and other professionals to people in the United States (and prevents foreign professionals from being able to sell their services in the United States) is every bit as harmful as protection that restricts imports of clothes or agricultural products.
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New Homes Sold Slower In January; Prices Rose
Vikas Bajaj
New York Times, February 28, 2006, Page C1
This article reports on data from the Commerce Department on new homes sales in January. The article reports that house sales fell by 5.0 percent from December, and that the inventory of unsold homes was 20 percent higher than its year ago level.
It is worth noting that the data showed a sharp rise in home sales in the west. This follows a pattern that has been present since July, where the west showed a big jump in new home sales in the first month of the quarter and then fell back for the next two months. In July, sales in the west region jump by 27.5 percent from June. In the next two months sales averaged less than they did in June. Sales then jumped 25.4 percent in October. They then fell back to a level that was just equal to their September level over the next two months.
The January data showed sales in the west increasing by 11.3 percent from December level. If this quarter shows the same pattern as the prior two quarters and the January gain in fact reflects a reporting error, then the drop in January sales was considerably more than reported. If sales in the west just held steady, then it would imply a nationwide drop of 7.9 percent in home sales in January.
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Bill Would Standardize Warnings on Food, Drink
Marc Kaufman
Washington Post, March 1, 2006, Page A11
Bill May Undo States’ Rules On Safe Food
Marian Burros
New York Times, March 1, 2006, Page A14
These articles report on a bill in Congress that would standardize warnings on food products and would prohibit states from imposing stricter warning requirements. It is worth noting that the bill is primarily being supported by the Republicans in Congress, a fact that is pointed out in the Post article but not in the Times article.
This is striking, because Republicans usually argue for leaving issues to the states wherever possible. In this case, there is no obvious reason (and none are presented in either article) why a state would not be allowed to impose a stricter labeling requirement if its citizens or their representatives chose to do so. Turning over the power to Congress in such situations may benefit companies in the food industry who want to avoid stricter regulations, but there is no obvious reason why the decision on applying stronger standards cannot be left to individual states.
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Executives See U.S. Link as Crucial in India’s Growth
Saritha Rai
New York Time, March 3, 2006, Page C13
This article reports on the prospect for trade between India and the United States. The headline does not reflect any information reported in the article. It is also unclear how it possibly could. Business executives are concerned about their corporations’ profit, not India’s economic growth. While they may make assertions that trade with the United States is crucial for India’s growth, there is little reason to believe that such assertions reflect their actual views of India’s economy.
At one point the article notes the large percentage of young people in India. It implies that this will mean that India will be a much bigger market for U.S. goods in the future. This does not necessarily follow. The market for U.S. exports will grow less rapidly by having more poor people, than by having poor people get richer. The rate at which India grows, which will depend far more on productivity growth than on population growth, will determine the growth of its import market. In fact, by putting stress on its infrastructure and environment, more rapid population growth may slow economic growth.
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Debating a Shipping Shortcut That Turned Against New Orleans
John Schwartz
New York Times, March 3, 2006, Page A14
This article discusses proposals for filling in a shipping canal that was partly responsible for the flooding of New Orleans. It reports on the businesses that would be harmed by this decision and then implies that the government would have an obligation to compensate the businesses that would be hurt by the shutting of the canal.
It is not clear why the government would have such an obligation. Businesses benefit all the time from government actions that improve infrastructure or in other ways improve their business climate. In such cases, businesses do not reimburse the government for the benefits they have received. It is therefore not clear why the government should reimburse them when its actions cause losses. Intelligent business people presumably understand the existence of such risks and take them into account in their business decisions.
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Why Do Stocks Pay So Much More Than Bonds?
Daniel Altman
New York Times, February 26, 2006, Section 3, Page 4
This article discusses the debate among economists over the reason for the equity premium – the gap between the return on stock and bonds. The article notes that this gap appears to have narrowed in the last few years. It then quotes an economist as saying that the smaller gap will be associated with more investment.
Thus far, there is little evidence of this increase. In 2005, the investment share of GDP was just 10.6 percent. This is far below the levels of prior decades. For example, in the years from 1987 to 1989 investment averaged 11.1 percent of GDP. It averaged 12.2 percent of GDP in the years from 1977 to 1979. The falloff in investment in recent years is even larger than these numbers indicate because there has been a large increase in car leasing over this period. A car that is purchased by a dealer and leased out is counted as investment, while a car that is bought directly by a consumer is counted as consumption. The growth in car leasing has inflated the investment data by an amount approximately equal to 0.7 percentage points of GDP between the late eighties and 2005.
There also is no theoretical reason to believe that a lower equity premium will necessarily lead to more investment. Firms finance investment by both issuing bonds and selling stocks. If the equity premium has declined it means that it can effectively raise money more cheaply by issuing stock, but it will cost firms relatively more to raise money by selling bonds. The net effect of this change on investment can go in either direction and is likely to be very small in any case.
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U.S. Lists Its Pluses and Minuses in Fighting Narcotics Worldwide
Joel Brinkley
New York Times, March 2, 2006, Page A13
This article reports on the Bush administration’s annual assessment of the progress it is making in combating the production of illegal narcotics around the world. At one point the article notes that Evo Morales, the new president of Bolivia, has said that he will not prevent the cultivation of coca, but will combat drug trafficking. The article describes this position as “paradoxical.”
There is nothing obviously paradoxical about this position. Coca leaves are used in Bolivia to make tea and for other legal uses. There is nothing inconsistent about allowing the production of coca leaves for these purposes, while still trying to prohibit its use to make cocaine.
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Medicare
Medicare Says It Will Pay, But Patients Say ‘No Thanks’
Gina Kolata
New York Times, March 3, 2006, Page C1
This article discusses Medicare’s decision that it would only pay for an expensive new medical procedure if patients agreed to take part in a clinical trial to determine its effectiveness. It reports that the procedure was expected to cost Medicare $10 billion. The article does not present the time frame over which this expense was projected to be incurred. This provides readers with no basis for assessing its potential importance.
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Trade
Scramble to Back Port Deal: Making of Political Disaster
Anne E. Kornblut
New York Times, February 25, 2006, Page A10
U.S. and Colombia Reach Trade Deal After 2 Years of Talks
Juan Forero
New York Times, February 28, 2006, Page C4
An Industrial Park in North Korea Nears a Growth Spurt
James Brooke
New York Times, February 28, 2006, Page C5
Central American Trade Deal Is Being Delayed by Partners
Elisabeth Malkin
New York Times, March 2, 2006, Page C10
These articles refer to trade agreements between the United States and other countries. All three articles refer to these deals as “free trade” agreements. This is not accurate. All of these trade agreements will include provisions that will increase protectionism, most importantly provisions for increased protection for patents and copyrights. It would be more accurate to describe these pacts as simply “trade” agreements.
Dean Baker is Co-Director of the Center for Economic and Policy Research in Washington, D.C.