Economic Reporting Review
By Dean Baker
January 12, 2004
Outstanding Stories of the Week
Questions Raised on Price of Seeds
David Barboza
New York Times, January 6, 2004, Page A1
This article reports evidence that the two largest seed companies in the world, Monsanto and Pioneer Hi-Bred International, may have collaborated to raise seed prices. The article presents evidence, based on interviews with employees and company documents, which indicate such collaboration, took place. Such behavior would likely be a violation of anti-trust laws.
From Paycheck to Plastic
Caroline E. Mayer
Washington Post, January 6, 2004, Page E1
http://www.washingtonpost.com/wp-dyn/articles/A57322-2004Jan5.html
This article reports on the growing use of payroll cards by employers, as an alternative to paychecks. The article notes that the switch saves money for employers, and can be more convenient for workers; however in some cases the cards impose significant fees on workers, which are deducted from their pay.
Africa Quandary: Landless Blacks and White Farms
Sharon LaFraniere and Michael Wines
New York Times, January 6, 2004, Page A1
This article examines the progress of land reform in South Africa. While this had originally been a high priority of the anti-Apartheid movement, plans for land reform have been put on the back burner since the transition to democracy.
The Budget
Bush’s Budget for 2005 Seeks to Reign in Domestic Costs
Robert Pear
New York Times, January 4, 2004, Page A1
http://query.nytimes.com/gst/abstract.html?res=F30B17FC3F550C778CDDA80894DC404482
This article discusses the Bush administration’s plans for its 2005 budget. In the first paragraph, the article asserts that the administration is facing a record deficit. It indicates that the administration has projected that the deficit will be in the neighborhood of $450 billion. While this would be a record deficit in nominal dollars, measured as a share of GDP, it is considerably below the 6.0 percent deficit in 1983. If the deficit were $450 billion, then it would be approximately 4.0 percent of projected GDP in 2005. However, if the money borrowed from Social Security and Medicare was included, the deficit would be approximately 6.0 percent of GDP.
I.M.F. Says Rise in U.S. Debts Is Threat to World’s Economy
Elizabeth Becker and Edmund L. Andrews
New York Times, January 8, 2004, Page A1
This article reports on a new study by the I.M.F., which warns that the U.S. budget and current account deficits could create serious instability in the world economy if they are not soon brought under control. At one point it refers to a projection that shows the size of the long-term U.S. budget deficit as $47 trillion. This figure is reported as being "nearly 500 percent of the current gross domestic product in the coming decades."
The $47 trillion figure is the present discounted value of future deficits. It is nearly 500 percent of this year’s gross domestic product, but it would be more reasonable to compare it to the present discounted value of future GDP. This deficit is equal to approximately 6.5 percent of the present discounted value of future GDP, which implies that a tax increase equal to 6.5 percent of GDP would leave the budget in balance. Such a tax increase would leave tax rates in the U.S. somewhat lower than the average for rich countries.
It is also important to note that approximately three quarters of this projected deficit is attributable to rising private sector health care costs, which affect the federal budget through Medicare, Medicaid, and other government health care programs. If the U.S. found a way to successfully contain its health care costs -- as has every other industrialized nation – then most of the projected $47 trillion deficit would be eliminated (see "The Forty-Four Trillion Dollar Deficit Scare," [http://www.imf.org/external/Pubs/NFT/Op/227/index.htm#box1]).
Democrats Pledge Some Tax Relief
Vanessa Williams and John F. Harris
Washington Post, January 9, 2004, Page A8
http://www.washingtonpost.com/wp-dyn/articles/A1766-2004Jan8.html
This article discusses some of the tax proposals by the Democratic presidential candidates. It would be helpful if the numbers were placed in some context. For example, the article reports that Wesley Clark proposed to pay for a tax cut for families earning less than $100,000 a year with $14 to $18 billion in addition revenue from cracking down on corporate tax evasion. This amount of revenue would be sufficient to pay for a tax cut that averaged approximately $140 to $180 for every family earning less than $100,000 a year.
Manufacturing
Manufacturing Index Reaches 20-Year High
Jonathan Fuerbringer
New York Times, January 3, 2004, Page B1
http://query.nytimes.com/gst/abstract.html?res=F20F11F83C550C708CDDA80894DC404482
This article reports on the release of the Institute for Supply Management’s (ISI) manufacturing index for December. It would have been useful to note that this index measures changes, not levels. This means that if manufacturing had been at a very low level – which is in fact the case, since capacity utilization remains near post-war lows – then an uptick from these low levels leads to a very high reading on this index. If future indexes continue to show high readings, then it indicates that the manufacturing sector is recovering. However by most output measures it remains very weak.
The Joyless Recovery
Edmund L. Andrews
New York Times, January 4, 2004, Section 3, page 1
http://query.nytimes.com/gst/abstract.html?res=FA0D11FD3C550C778CDDA80894DC404482
This informative article reports on how Rockford, Illinois, a mid-sized city with a manufacturing based economy, is faring in the recovery. At one point, when discussing evidence that the manufacturing sector has been growing, the article asserts that "orders for new equipment shot up at the fastest pace in 20 years in December." This statement is based on the new orders component of the ISI index. This measure is not quantitative – it reports the percentage of firms experiencing an increase in orders compared to the percent experiencing a decrease in orders. If the vast majority of firms experienced very slight increases in orders it would lead this index to show a high number, even if the actual increase in orders may be small. The fact that the Commerce Department’s November data on new orders for durable goods showed a decline for the month (also a month when the ISI measure was strongly positive), suggests that this ISI data should be viewed with some caution.
Immigration
Bush to Seek Immigrant Benefit Protection
Mike Allen
Washington Post, January 4, 2004, Page A5
http://www.washingtonpost.com/wp-dyn/articles/A52647-2004Jan3.html
This article reports on a plan being considered by President Bush, which will help to ensure that immigrant workers will receive the Social Security benefits that they earn by working in the United States. At one point the article discusses a proposal to allow foreign workers into the United States to accept jobs, after they have been posted for a period of time and no U.S. workers have applied. The article presents this proposal as a step towards a free market.
It would be helpful if the proposal were more fully described. For example, it does not indicate whether it would be possible to list doctors’ positions paying $100,000 a year (approximately half their average pay), and then to hire foreign doctors if no U.S. physicians came forward to accept the position. If such listings of professional positions are not allowed, then the proposal seems intended to bring further downward pressure on the wages of less educated workers, while allowing more skilled workers to continue to enjoy protection from international competition.
Bush Plan Would Give Immigrants Legal Status
Mike Allen
Washington Post, January 7, 2004, Page A1
http://www.washingtonpost.com/wp-dyn/articles/A60529-2004Jan6.html
Bush Proposes Legal Status for Immigrant Labor
Mike Allen
Washington Post, January 8, 2004, Page A1
http://www.washingtonpost.com/wp-dyn/articles/A63428-2004Jan7.html
These articles report on President Bush’s proposals to normalize the status of foreign workers in the United States who are not legally employed. The articles also discuss a part of the proposal that will allow foreign workers to fill "low wage jobs," for which it asserts there is a shortage of workers.
No job is inherently a "low wage job." The wage is determined by conditions of supply and demand. Many jobs that currently pay low wages, such as jobs in the meatpacking or construction industry, were at one time high paying jobs. In the case of the meatpacking industry, successful efforts to weaken the unions in the industry led to sharp declines in wages and deterioration in working conditions. Given current wages and working conditions, few native born citizens would consider these jobs desirable. However, twenty-five years ago, when meatpacking jobs offered relatively high pay and good benefits to less educated workers, there were many people in the United States who sought jobs in the industry.
The availability of a large supply of foreign workers, who are willing to take jobs at low wages and with bad working conditions, will depress the wages in the industries where they are allowed to work. The article does not indicate if the new rules will allow foreign professionals to compete with U.S. professionals, or whether it only increases such competition for jobs employing less educated workers.
Trade
Dean Absorbs Most Attacks From Rivals
Dan Balz
Washington Post, January 5, 2004, Page A1
http://www.washingtonpost.com/wp-dyn/articles/A53933-2004Jan4.html
Dean Still Standing After Foes Take Shots
David S. Broder
Washington Post, January 5, 2004, Page A6
http://www.washingtonpost.com/wp-dyn/articles/A54682-2004Jan4.html
These articles report on the status of the Democratic presidential race. Both articles refer to agreements like NAFTA as "free trade" agreements and proponents of such agreements as supporters of "free trade." This is inaccurate. These agreements only liberalize some forms of trade – primarily trade in manufactured goods. They do little to liberalize trade in highly paid professional services, such as physicians’ or lawyers’ services. Recent trade agreements have also increased some forms of protectionism, most notably patent and copyright protection. It is therefore inaccurate to refer to such agreements as "free trade" agreements or their proponents as supporters of "free trade."
Young Doctors and Wish Lists: No Weekend Calls, No Beepers
Matt Richtel
New York Times, January 7, 2004, Page A1
This article examines a new trend among young doctors. It appears that many doctors are choosing fields of specialization, such as dermatology, which offer somewhat lower pay, but have more limited and predictable hours. The article raises the possibility that this trend could lead to shortages in some key areas, including various categories of surgery.
In this context, it would have been useful to note that the United States restricts the number of foreign medical residents who are allowed to enter the country each year. This quota was reduced in 1997 in a conscious effort to support physicians’ salaries. If shortages develop due to a limited domestic supply of qualified workers, there would be a large pool of highly skilled foreign doctors who could fill these positions, if the United States relaxed its trade restrictions in this area.
The Economy
As Economy Revs Up, Democrats Shift Rhetorical Gears
Jonathan Weisman
Washington Post, January 8, 2004, Page A4
http://www.washingtonpost.com/wp-dyn/articles/A63155-2004Jan7.html
This article discusses the recent turnaround in the U.S. economy and how it is impacting the presidential campaigns. At one point the article notes that employers added 194,000 new workers between September and November, and implies that this figure represents strong growth.
This is a monthly rate of job creation of 65,000 for this three-month period. Just to stay even with the growth in the labor force, the economy has to add approximately 150,000 jobs per month. From 1996 to 2000, the economy added 250,000 jobs per month. By comparison, the job growth reported for last fall is quite weak.
Consumer Debt
A Drop of 1.4% in November For Orders to Factories
Associated Press
New York Times, January 7, 2004, Page C6
This article reports on a set of new data that was released the previous day. At one point the article notes that total consumer debt had risen to $1.98 trillion, which it describes as a record. It also reports that the percentage of credit card holders who are behind in their payments rose to 4.9 percent, which it also describes as a record.
It is important to distinguish between these different types of records. The amount of consumer debt is expected to grow through time as the economy grows; therefore it is reasonable to expect that the levels of debt would be setting records in most months. On the other hand, there is no reason to expect that the percentage of people behind in their credit card payments would increase through time. In this case, the record levels presumably reflect extraordinary debt burdens that many households are experiencing.
Education Spending
Bush’s Education Plan Gets Mixed Grades on Anniversary
Mike Allen
Washington Post, January 9, 2004, Page A9
http://www.washingtonpost.com/wp-dyn/articles/A1494-2004Jan8.html
Renewing His Focus on Schools, Bush Proposes Spending Increase
Richard W. Stevenson
New York Times, January 7, 2004, Page A12
These articles discuss President Bush’s record and plans for education policy. Both articles make references to the changes in spending that have occurred under the Bush administration. The Times article focuses on Bush’s plan to increase spending on K-12 education from $35.5 billion in 2004 to $36.7 billion in 2005. The Post article compares the $36.7 billion proposal with the $24.8 billion appropriation in the last Clinton budget.
It would be helpful to readers if these spending levels were adjusted for inflation, or more properly for the rate of growth of the economy – reflecting the fact that education spending would be expected to increase as the number of children in school increases and pay scales rise generally. Adjusting for economic growth, President Bush’s 2005 budget request represents a cut of approximately 1.5 percent from the 2004 level. It represents an increase of approximately 23 percent from the Clinton level. The increase is equal to approximately $200 per student. Current levels of education spending are equal to approximately 1.5 percent of total federal spending.