Poisoned Back Into Poverty
Phillip P. Pan
The Washington Post, August 4, 2002, page A1
This article examines the plight of workers in a shoe factory in China, who were poisoned by the fumes from the glue used in the shoes. It reports how these workers were forced by paralyzing illness to leave their jobs. They initially received no health care from the factory or the government, and became burdens to their family, although the government eventually made some effort to provide health care to many of the sick workers.
Housing Vouchers No Magic Key
Fredrick Kunkle
The Washington Post, August 5, 2002, page A1
This article reports on the impact that the run-up in housing prices has had on low income families. It points out that many families have been unable to find landlords who would accept their rent vouchers, causing many to go unused.
I.P.O. Plums For Titans of Telecom
Gretchen Morgenson
The New York Times, August 4, 2002, Section 3 page 1
This article reports on a practice whereby top executives of telecom companies were given early access to shares of new stock issues of equipment manufacturers, in exchange for buying the products of these companies.
Reactor Sales Are Said to Endanger Accident Payments
Matthew L. Wald
The New York Times, August 7, 2002, page C6
This article reports on the fact that several nuclear reactors have been sold by major public utilities to small firms that lack the assets to pay any significant damages in the event of a major accident.
Ex-Executives Say Sham Deal Helped Enron
David Barboza
The New York Times, August 8, 2002, page A1
This article reports on Merrill Lynch's participation in an accounting
maneuver that allowed Enron to boost its reported profits in 1999.
Nervous Eyes On Greenspan's Shoes
John M. Berry
The Washington Post, August 7, 2002, page A1
This article assesses Alan Greenspan's tenure at the Federal Reserve Board and the problems that any eventual successor will face. It includes several assertions of questionable accuracy. For example, the article asserts that as a result of Greenspan's decision to raise interest rates by three percentage points in 1994, "inflation remained subdued."
It is not clear that inflation would have accelerated had Greenspan not raised rates at the time. The conventional view within the profession was that if the unemployment rate fell below 6.0 percent (the NAIRU), then inflation would accelerate. The unemployment rate eventually fell far below this level and there was no increase in the inflation rate. The article attributes this fact to the acceleration of productivity growth that began in late 1995, but it is possible that the conventional view was just wrong. It is also possible that the acceleration in productivity growth would have begun in 1994, had Greenspan not deliberately slowed the economy with higher interest rates.
At one point the article discusses the possibility that Greenspan erred in not raising interest rates to rein in the stock market in 1999. It is not clear that it would have been necessary to raise interest rates to eliminate the bubble. Greenspan briefly sent stock prices plummeting in December of 1996, when he first raised the possibility of a bubble. When he quite explicitly backed away from this comment, the market resumed its upward course. It seems unlikely that if Greenspan had consistently warned of the bubble from its beginnings (1996, not 1999), that the bubble would have ever grown to anywhere near the size it eventually attained. Interest rate hikes probably would not have been necessary.
One very important item is left out of this discussion of Greenspan's record.
In January of 2001, Greenspan testified before Congress that he was concerned
that the country was paying down the national debt too rapidly. This was widely
seen as an endorsement of the Bush tax cut. With new budget projections showing
deficits for the foreseeable future, this warning appears to have been far off
the mark.
Inventories Increased in July [sic], And Import Prices Jumped
Reuters
The New York Times, August 8, 2002, page C3
This article reports on the release of Commerce Department data on June
inventories, which showed the first increase in 19 months. The article views
this as evidence that "companies were eager to rebuild depleted stocks to
keep pace with demand." There was a large surge in imports last quarter,
which was attributed in part to the fact that importers wanted to bring in goods
in advance of a possible strike by the west coast longshoremen's union (see
"U.S. Growth Sluggish in 2nd Quarter," by John M. Berry, The
Washington Post, August 1, 2002, page E1; and "New Report Shows U.S.
Economy Slowed Significantly for Quarter," by David Leonhardt, The New
York Times, August 1, 2002, page C1). If this explanation of higher imports
is correct, then it is also the explanation for the increase in inventories in
June.
Germans Get More Jolts
Mark Landler
The New York Times, August 8, 2002, page W1
This article reports on the release of more negative economic news in Germany, including new data showing a rise in German unemployment. At one point it refers to the economic record of Edmund Stoiber, the candidate for chancellor of the Christian Democratic coalition. It notes that the unemployment rate in the state of Bavaria, which is governed by Mr. Stoiber, is 5.7 percent, while the unemployment rate nationally is 9.9 percent. This comparison is inappropriate, since the national unemployment rate is pushed up by the 18 percent unemployment rate in the areas that were formerly east Germany. It would be more accurate to compare the unemployment rate in Bavaria to the unemployment rate in former west Germany, which is about 7.5 percent.
In discussing the reasons for Germany's slow growth, the article neglects to
mention the policies of the European Central Bank (ECB). In contrast to the
Federal Reserve Board, which has aggressively lowered interest rates in the face
of economic weakness, bringing the short-term interest rate down to 1.75
percent, the ECB has made only a small reduction in its interest rates.
Currently, the short-term interest rate is 3.5 percent in Europe, in spite of
the fact that euro zone nations have a lower inflation rate and higher
unemployment rate than the United States.
Despair in Once Proud Argentina
Anthony Faiola
The Washington Post, August 6, 2002, page A1
This informative article examines the situation of Argentineans attempting to cope with their country's economic collapse. The article reports that its per capita GDP has shrunk from $8,900 in 1999 to $2,500 at present. These figures are giving Argentina's per capita GDP on a currency conversion basis, converting the peso value of Argentina's output into dollars.
This is a misleading measure. Argentina does not become 50 percent poorer,
just because its currency has fallen by 50 percent against the dollar, just as
the United States did not get 15 percent poorer because the dollar has fallen by
15 percent against the euro in the last two years. The better measure of income
is an inflation adjusted measure of output. This would show a drop of about 20
percent over the last four years. This is a catastrophic decline, but obviously
not as disastrous as the 70 percent decline indicated by the statistics given in
the article.
Remember Fiscal Discipline?
Jonathan Weisman
The Washington Post, August 9, 2002, page A1
This article discusses the willingness of members of Congress to support both large tax cuts and increases in government spending, in spite of the fact that budget projections now show deficits for the foreseeable future. The article concludes with comparisons to the budget pattern in the Reagan administration, when large tax cuts increased deficits. It notes that Congress then began to focus on deficit reduction in the second year of the Reagan administration, but has yet to do so in the current Bush administration.
It is important to point out that the budget deficits of the Reagan era were
far larger than the current deficits. The deficit in fiscal 1983, the second
budget year of the Reagan administration, was 6.0 percent of GDP. The most
recent projections show the deficit for 2003 at just over 1.0 percent of GDP.
Even if the Social Security surplus were pulled out, the deficit would still be
less than 3.0 percent of GDP.
Trade Bill To Help Laid-Off Workers
Paul Blustein
The Washington Post, August 3, 2002, page E1
This article speculates on the long-term impact of the trade bill just passed by Congress, which establishes a health insurance tax credit for workers who lose their jobs as a result of trade. The article explores the possibility that the credit could eventually lay the way for a health-care tax credit for all workers who lose their jobs.
The cost of health insurance has been increasing at double-digit rates for the last four years and is expected to continue to do so for the foreseeable future. In response, many employers are switching to defined contribution systems, where they pay a fixed amount towards a worker's health-insurance policy, or are dropping coverage altogether. Either way, the country appears to be moving rapidly away from its current system of employer-based provision of health-care insurance. It is likely that the impact of this trend will swamp any potential impact from the small program created by the trade bill ($12 billion over the next ten years, or 0.05 percent of total government spending)
At one point the article asserts that trade bill gives the administration "a stronger hand in negotiations to lower global trade barriers." The bill gives the Bush administration a stronger hand in negotiations, regardless of whether it is seeking to lower or raise barriers. Raising global trade barriers is actually one of the main items on the agenda of U.S. negotiators, as they seek to tighten patent and copyright protections for U.S. products.
It is also worth noting that one of the main effects of increased trade is to lower the wages for workers who do not lose their jobs. In other words, manufacturing workers throughout the country, along with workers with similar sets of skills, may experience a decline in wages, as a result of the fact that they must compete with manufactured goods produce by workers in developing nations who are willing to work for $1 an hour, or less. This would be comparable to a situation in which the United States allowed 100,000 doctors from developing nations to practice in the United States. Very few domestic doctors would find themselves out of work, but they might see their pay decline by $50,000 to $100,000 annually as a result of the increased supply of doctors. An article such as this one, which is attempting to evaluate the long-term implications of trade legislation, should consider its likely impact on income distribution.
President Signs Bill On Trade Authority
Mike Allen and Paul Blustein
The Washington Post, August 7, 2002, page A6
This article reports on the signing of a bill that enhances President Bush's
trade negotiating authority. At one point the article refers to efforts to sign
a "free trade" agreement with Central America. It would be more
accurate simply to refer to the pact as a "trade" or
"commercial" agreement, since many of the provisions deal with rules
governing investment or other issues, not trade. Also, since increasing the
stringency of copyright and patent protection is a major goal of U.S. policy,
these pacts are likely to increase protectionism in some important sectors.
Jobless Rate Unchanged Last Month
John M. Berry
The Washington Post, August 3, 2002, page E1
This article reports on the Labor Department's release of data on employment in July. This article notes that the average workweek was reported as falling by 0.3 hours in February. It is worth noting that this is one of the largest non-weather related declines in the workweek in the 38 years for which this data has been collected.
The article twice refers to the GDP growth rate for the 2nd quarter, which was released earlier in the week, as being "much slower than expected." Most of the data that is needed to calculate GDP was already public prior to the release of the GDP report. Only people who had not followed the data would have been surprised by the slow rate of growth reported for the second quarter.
The article reports that the savings rate hit 4.2 percent in June, commenting
that this is the highest rate since the beginning of 1999, except for 2 months
in which the tax rebates were being mailed out last summer. It is important to
note that this is still below average saving rates prior to the '90s, which were
close to 10 percent. With most of the baby boomers in their peak saving years,
the United States would be expected to have a savings rate today that is higher
than the historic average.
Turkey Passes Rights Reforms In Bid for EU
Karl Vick
The Washington Post, August 4, 2002, page A21
This article discusses Turkey's decision to abolish the death penalty and to
make other changes in order to be eligible for membership in the European Union.
At one point the article comments that "the economic dangers of the
country's statist traditions became apparent two years ago in a monetary
meltdown that cost the nation … more than a million jobs and caused the worst
recession since World War II." It is not clear that Turkey's "statist
tradition" can be blamed for its recent economic problems. Countries that
have eagerly embraced the market model promoted by the I.M.F., such as Argentina
and Brazil, have also encountered severe economic problems in recent years.
Other developing countries that have traditionally allowed for a very strong
role for the state, such as South Korea and Taiwan, have managed to maintain
strong growth through most of the recent economic turmoil.
Illegal Workers in W. Europe Do Continent's Heavy Lifting
Keith B. Richburg
The Washington Post, August 3, 2002, page A16
This article discusses efforts across Europe to impose restrictions on the number of immigrant workers that can enter. At one point it asserts that "little thought is being given to how Europe's envied standard of living has come to depend on the manpower the illegal [immigrant] workers provide." It is not clear that these immigrant workers provide a substantial boost to the living standards of most Europeans.
To a large extent, their economic impact will be re-distributive, since the
availability of a large supply of low-cost labor will lower the wages of workers
who would compete for the jobs currently being held by immigrants. A reduced
supply of immigrant workers will raise wages for some groups of workers, while
making the goods and services they provide somewhat more expensive for
consumers. While on average, tighter limitations on immigrants might reduce
living standards for Europeans (even this cannot be assumed, given space and
environmental limitations), a substantial portion, and possible a majority, of
the population would see higher living standards as a result of having higher
wages.
Stock Gauges Fall 2% or More on Jobs Report
Jonathan Fuerbringer
The New York Times, August 3, 2002, page B1
A Scary Ride for the Economy Sunday Briefing
(edited by Steven Pearlstein)
The Washington Post, August 4, 2002, page H2
Both of these articles include comments that imply that the stock market is somehow out of line with strong economic fundamentals. There is no obvious way in which the stock market is out of line (on the low side) of the economy's fundamentals. The average ratio of stock prices to corporate earnings is currently about 18 to 1, measured against the pre-recession earnings of 2000. This is significantly higher than its historic average of 14.5 to 1.
It also is not clear what fundamentals about the economy can currently be viewed as strong. The nation is currently borrowing money from abroad at a rate close to $500 billion a year. The economy's net domestic product has grown by just 0.2 percent over the last two years. Investors have almost no confidence in the credibility of corporate financial statements and the housing market is experiencing a bubble that may have created as much as $3 trillion in illusory wealth. It is not clear what economic fundamentals can currently be viewed as strong.
Dean Baker is co-director of the Center for Economic and Policy Research.