Heartfelt Advice, Hefty Fees
Melody Petersen
The New York Times, August 11, 2002, Page C1
This article reports on a new marketing technique by drug companies, in which they pay celebrities to do pitches for their products in the course of interviews on television shows.
Pressuring Analysts: Hard Habit To Break
Gretchen Morgenson
The New York Times, August 11, 2002, Page C1
This article reports on the firing of a stock analyst by Salomon Smith Barney, apparently over his negative assessment of a firm whose stock was being underwritten by Salomon Smith Barney.
Options Do Not Raise Performance, Study Finds
David Leonhardt
The New York Times, August 11, 2002, Page C1
This article reports on a new study that examines all the available research
on the link between stock performance and the issuance of stock options to CEOs.
According to the article, the study finds that there is no relationship
whatsoever between the amount of options held by CEOs and the performance of the
company's stock.
A Role Unfilled
Elisabeth Bumiller
The New York Times, August 12, 2002, Page A10
This article discusses the fact that the Bush administration does not appear to have any figure who can rally the stock market, in the way that Robert Rubin apparently did during the Clinton years. The article does not present any reason that the administration should want to rally the stock market.
From the standpoint of the economy as a whole, it is extremely harmful to have an over-valued stock market as we did in the last years of the Clinton administration. As a result of the over-valuation in the market, telecom and Internet companies were able to raise capital at almost no cost. This led them to undertake large-scale investments that have proved almost entirely worthless. If the market had not become over-valued, it is unlikely that they could have gotten financing for many of these projects, and instead the money may have been used for more productive investments.
The over-valuation of the market also led many people to save less than they would have otherwise, since they thought they held very large stock portfolios. Now that the market has moved back towards more reasonable levels, many families are recognizing that they have saved far too little for their own retirement.
It is also important to note that the stock market is redistributive,
transferring wealth from those who hold little or no stock (approximately 75
percent of the population), to those who hold large amounts of stock. From the
perspective of the nation's economy, it would make no more sense for Bush to try
to rally the stock market with encouraging words than it would for him to try to
drive up the price of corn futures. Obviously, stock holders will be happy if
stock prices rise, just as holders of corn futures would be happy to see their
prices rise, but there is no general public interest in seeing these people get
richer.
Looking at the Books, The Government Way
Richard W. Stevenson
The New York Times, August 15, 2002, Page A18
This article reports on the federal government's accounting methods, and implies that they are inferior to those used in the private sector. It asserts that, "it is clear that hardly anyone, from President Bush on down, has a firm grasp of the government's finances."
Insofar as this is true, this would seem to be attributable to the poor quality of the reporting on budget issues. While the accounting scandals at firms such as Enron and WorldCom were largely due to misrepresentations in public disclosures about these corporations' finances, the main sources of confusion discussed in this article appear to stem from politicians' characterizations of budget items.
For example, this article refers to a report, which it does not identify, that supposedly applies business accounting procedures to the federal budget. According to the article, this report showed that the federal government would have had a budget deficit of $515 billion in 2001 using standard business accounting procedures, instead of the $127 billion surplus reported for the unified budget.
This "business method budget" showing a $515 billion deficit is a fully public document (unlike the books at Enron or WorldCom). If reporters believe that this report gives a more accurate presentation of the government's finances than the unified budget, which is generally the focus of political debates, then they should be focusing their reporting on this business-method budget.
Bush Threatens to Reject $5.1 Billion Package
Mike Allen and Dan Morgan
The Washington Post, August 10, 2002, Page A4
This article examines the possibility that President Bush will not spend a $5.1 billion supplemental spending package because it includes appropriations of approximately $1 billion for projects he does not support. Since few readers have a clear sense of the size of the total budget, it would be helpful to express the disputed sum as a percentage of the budget.
The $1 billion is equal to 0.05 percent of the total budget for 2002. It is equal to 0.14 percent of the more narrow category of discretionary spending.
In S.D., Bush Faces Test of Fiscal Responsibility
Mike Allen
The Washington Post, August 15, 2002, Page A2
This article reports on the fact that President Bush is opposing a
Congressional spending package, even though some of the money would go for
drought relief in South Dakota, a state with a tight senate race in November. It
is not clear that it is appropriate to characterize this decision as
"fiscal responsibility," as is done in the headline. At a time when
the economy is teetering on the edge of a recession, additional government
spending could provide a helpful stimulus, raising output and employment. For
this reason, the decision to oppose additional spending at present can be viewed
as irresponsible.
A Good Time to Buy European Stocks? Yes and No.
James K. Glassman
The Washington Post, August 11, 2002, Page H1
This investment advice column assesses the merits of European stocks. At one point it notes that Europe has an 8.3 percent unemployment rate, compared to 5.9 percent in the United States. It then adds, "worse yet, in Germany, Belgium, Greece, and Italy, more than half of the unemployed workers have been out of a job for more than a year. In the United States, the comparable figure is just 6 percent."
This is an inappropriate comparison. These countries all provide unemployment
benefits for long periods of time. In the United States, benefits typically end
after six months. In general, workers collecting benefits have to report that
they are actively looking for work, and are therefore counted as unemployed. It
is likely that many workers in the United States who have failed to find a job
after a year or more would simply stop looking. Since they are not collecting
benefits, workers who are unemployed for long periods of time in the United
States -- unlike their counterparts in these European countries -- have no
incentive to report that they are still looking for work. Therefore, in the
United States these workers would not be counted as part of the labor force, and
would not be reported in the data as being unemployed.
Bush's Plan For Social Security Loses Favor
Jim VandeHei and Juliet Eilperin
The Washington Post, August 13, 2002, Page A1
This article reports on the fact that many Republicans in Congress appear to be moving away from President Bush's plan to privatize Social Security, which is viewed as a serious liability in the fall election. At one point the article asserts that, "even if the system [Social Security] is partially privatized, experts say, lawmakers will likely have to consider raising the eligibility age, cutting benefits for wealthy recipients or raising taxes to ensure that there is enough money for baby boomers approaching retirement."
While most privatization proposals call for cuts in benefits, these cuts are due to the fact that money is being pulled away for individual accounts. The Social Security trustees report clearly shows that, if it is left alone, Social Security will face no problems until long after the last baby boomers have retired (e.g. Table IV.B.3, http://www.ssa.gov/OACT/TR/TR02/IV_LRest.html#209325). According to the latest projections, the program will be able to pay all scheduled benefits until 2041, with no changes whatsoever. At that point, the youngest baby boomers will be age 77 and the oldest will be age 96. The article does not identify any of the experts who say that Social Security benefits will have to be cut.
DNC Chief Opens Race With Blast at President
Dan Balz
The Washington Post, August 11, 2002, Page A5
Forum to Show Darker View of the Economy
Mike Allen and Jonathan Weisman
The Washington Post, August 13, 2002, Page A1
These articles both discuss President Bush's handling of the economy. The first article reports on a speech in which Democratic Party Chairman Terry McAuliffe criticized President Bush. At one point, the article reports that Mr. McAuliffe criticized Bush for the reappearance of budget deficits. It is worth noting that the main factors responsible for the reappearance of deficits were the recession, which began before Bush took office, and projections of capital gains tax revenue, which proved to be far too optimistic.
Mr. McAuliffe also criticized President Bush for "raiding" the Social Security and Medicare trust funds. There has been no raid on these funds. The money designated for these programs was used to purchase government bonds, as required under the law. The amount of bonds held by the trust fund is not affected at all by whether the government saves or spends the money it has borrowed.
The second article reports similar criticisms, also without calling attention
to their inaccuracy.
Decade After Health Care Crisis, Soaring Costs Bring New Strains
Robin Toner and Sheryl Gay Stolberg
The New York Times, August 11, 2002, Page A1
This informative article assesses the current state of the nation's health-care system. It reports that costs again appear to be rising far faster than the overall rate of inflation, after a period in the mid and late '90s when costs increases were far more moderate.
It would be useful to readers to compare the United States system to health-care systems elsewhere in the world. No other nation pays anywhere near as much for its health care as the United States (measured as a share of GDP), and most have considerably better health-care outcomes (e.g. life expectancy, infant mortality rates). In fact, the United States pays almost twice as much, measured as a share of GDP, as the average of other industrialized nations.
A careful evaluation of the causes of rising health-care costs would also be
helpful to readers. While the article notes that the rapid run-up in prices for
prescription drugs has been one of the factors driving costs, it does not point
out that this is entirely due to the patent protection that the government gives
the industry. If the United States opted for direct funding of drug research, or
at least limited patents by requiring compulsory licensing and/or price
controls, prescription drug prices would not rise anywhere near as fast.
Japan Anxiously Looks Ahead
Howard W. French
The New York Times, August 11, 2002, Page D5
This article examines the future prospects for Japan's economy and Japanese society. At one point it notes that Japan has been mired in stagnation since the collapse of its real-estate and stock-market bubbles 13 years ago, and contrasts this with the United States, which it asserts "is already seeing strong stirrings of reform just weeks into a crisis over business ethics."
While it is indisputable that politicians in the United States feel the need to use the rhetoric of reform, it is not clear that this amounts to anything more than rhetoric. For example, Congress has yet to take any action on two of the most blatant abuses exposed in the current rash of scandals, the accounting of stock options and depositing workers' pension funds in a company's own stock.
There is very little disagreement among financial experts on either issue. Stock options are an expense, just like wages and electricity, and any honest set of books would record them as such. Similarly, no serious pension would ever be invested primarily in the company's stock. Doing so leaves open the prospect that workers, like many at Enron and WorldCom and Enron, will lose both their jobs and their pensions.
In spite of the near unanimity of financial experts on these points, Congress has taken no action to counter these abuses, due to the power of corporate lobbyists. Given the failure to act on such clear-cut issues, there is little basis for touting the effectiveness of the government's response to the latest rash of scandals.
This article discusses at length Japan's aging population and the stress that
this will place on its pension system. It then comments, "even Japan's
coming population crunch has failed to open the country to immigrants." The
way in which an aging population could be expected to hurt Japan's economy is by
creating a labor shortage. At present, Japan does not have any labor shortage;
in fact, it has too much labor available, as shown by its rising unemployment
rate. Letting in more immigrants at present would not help ease its pension
problems at all. It would most likely just lead to more downward pressure on
wages and a somewhat higher unemployment rate.
Inventories in June Show a Modest Rise, But Caution Persists
Associated Press
The New York Times, August 15, 2002, Page C5
This article reports on new data showing a modest increase in inventories in June. The article refers to the assessments of economists that this data shows firms are starting to restock in anticipation of renewed economic growth.
When the GDP data for the second quarter was released last month, the surge
in imports shown in the report was attributed to efforts of firms to bring in
goods in anticipation of a possible strike by the West coast longshoreman'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 was the reason for the surge
in imports, then this explanation -- not an expectation of increasing sales, as
this article indicates -- would also be the reason for the reported increase in
inventories (the additional imported goods would be stockpiled).