Economic Reporting Review
By Dean Baker
June 30, 2003
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OUTSTANDING STORIES OF THE WEEK
Very Richest's Share of Income Grew Even Bigger, Data Show
David Cay Johnston
New York Times, June 26, 2003, page A1
http://www.nytimes.com/2003/06/26/business/26TAX.html
This article reports on new data from the Internal Revenue Service, which show
that the average inflation-adjusted income of the 400 richest families more than
tripled in the last ten years.
Medical Care Often Not Optimal, Study Finds
David Brown
Washington Post, June 26, 2003, Page A2
http://www.washingtonpost.com/wp-dyn/articles/A33637-2003Jun25.html
This article reports on the findings of a new study in the New England Journal
of Health, which finds that doctors often do not prescribe the best course of
treatment for their patients. The study found that patients only have a fifty
percent chance of receiving the optimal course of treatment for their medical
conditions. This is a remarkable finding that deserves serious attention from
the public and the medical profession.
For Struggling Seniors, Medicare Drug Plan's Proof Is In the Purse
Ceci Connolly
Washington Post, June 26, 2003, Page A1
http://www.washingtonpost.com/wp-dyn/articles/A33599-2003Jun25.html
This article includes several interviews with moderate-income seniors, in which
they discuss how they see themselves being affected by the drug plans before
Congress.
________________________________________________________________________________________________________
Medicare Prescription Drug Proposals
Medicare Drug Plan Could Be Painful for Democrats
Ceci Connolly
Washington Post, June 21, 2003, Page A6
http://www.washingtonpost.com/wp-dyn/articles/A17307-2003Jun20.html
GOP Aims for Dominance in '04 Race
Dan Balz
Washington Post, June 22, 2003, Page A1
http://www.washingtonpost.com/wp-dyn/articles/A19264-2003Jun21.html
These articles discuss the impact of congressional approval of a Medicare
prescription drug benefit on the 2004 election. Both articles assert that if
Congress approves a version of the bills now under consideration then it will
take away an important political issue from the Democrats.
Under either the House or Senate version of the bills, senior citizens will on
average pay more money -- in real, inflation-adjusted terms -- for prescriptions
in 2006, when the prescription drug plan is first scheduled to go into effect,
than they did when President Bush proposed such a plan as a candidate in 2000.
In 2013, the last year in the Congressional Budget Office's projections, the
average senior is projected to be paying nearly twice as much for prescription
drugs under these plans as they did without a Medicare prescription drug benefit
in 2000.
It is unlikely that if senior citizens understood the limited benefits of the
plans being considered by Congress that access to prescription drugs would not
be an issue in the 2004 election. If the articles are correct that prescription
drug coverage will not be an issue, then it is revealing more about the coverage
of this issue in the media -- that is, seniors will be unaware of the actual
nature of the benefits provided -- then it is about the wisdom of the
Republicans' political strategy. It also assumes that Democrats will not call
attention to the fact that the wealthy will be getting the benefits of
Republican tax breaks long before the elderly see any benefits from a
prescription drug benefit.
Criticism of Drug Benefit is Simple: It's Bewildering
Robert Pear and Robin Toner
New York Times, June 22, 2003, page A15
http://www.politicalposts.com/news/index.asp?id=180194
Bush Seeks Medicare Drug Bill That Conservatives Oppose
Robin Toner and Robert Pear
New York Times, June 25, 2003, page A21
http://www.nytimes.com/2003/06/24/politics/24MEDI.html
House and Senate Pass Measures for Broad Overhaul of Medicare
Robin Toner and Robert Pear
New York Times, June 27, 2003, page A14
http://www.nytimes.com/2003/06/27/politics/27MEDI.html
These articles discuss the nature of the Medicare prescription drug bills being
considered by Congress. All three include explicit assertions that the major
differences between Republicans and Democrats on this issue are philosophical in
nature. For example, the article from June 22 describes the bills as part of an
effort to "find a grand compromise on one of the longest-running divisions
in American social policy: how much to trust the government and how much to
trust the market." The June 27th article asserts that the differences are
due to "fundamental disagreement over the proper role of government in
Medicare."
The parties in this dispute are politicians. It is not clear that these
politicians care at all about political philosophy, even if they may claim so at
times. The Republican position favors insurance companies and the pharmaceutical
industry, both powerful political interests who make large campaign
contributions. The Democrats have disproportionately benefited from the support
of senior citizens, who are concerned about a Medicare prescription drug benefit
that will make drugs more affordable.
In general, politicians do not admit to acting out of political motives. They
usually seek some alternative rationale for their actions. It is generally
reasonable to assume that politicians act primarily based on political motives,
in the absence of compelling evidence to the contrary. These articles present no
evidence whatsoever that the Republicans were motivated by anything other than a
desire to increase the profits of two powerful interest groups and the Democrats
by the desire to curry favor with an important political constituency.
In the same vein, the June 25th article asserts that the opposition of
conservative members of Congress is due to the fact they "want more
structural change to restrain the growth of Medicare spending." There is a
large body of evidence that shows that the increased involvement of private
insurance plans will raise the costs of providing medical care to the elderly.
While it is possible that these members of Congress are ignorant of this
evidence, it is also possible that they simply hope to increase the profits of
the insurance industry.
President Leads the Roundup for Votes to Add Drug Benefits for
Medicare
Robert Pear and Robin Toner
New York Times, June 26, 2003, page A25
http://www.nytimes.com/2003/06/26/politics/26MEDI.html
Congress Poised to Pass Medicare Bills
Amy Goldstein and Helen Dewar
Washington Post, June 27, 2003, Page A6
http://www.washingtonpost.com/wp-dyn/articles/A37659-2003Jun26.html?nav=hptop_ts
These articles report on the state of the debate over the passage of a Medicare
prescription drug benefit. Both articles note the opposition of liberals to
provisions in the bill approved by the House, but neither provides a coherent
explanation of the basis of this opposition.
For example, the Times article refers to a rally by the Alliance for Retired
Americans, which it described simply as a protest over "what its members
described as the imminent death of Medicare under the House bill." The Post
article includes the assertion that Democrats objected to a provision that would
require the traditional Medicare plan "to begin competing directly on
price" with private plans.
In fact, the issue is not price competition, but how the competition is
structured under the House bill. The bill would tie payments for the traditional
Medicare plan to the lowest cost private sector plan. Since private sector plans
have traditionally sought the healthiest patients, the lowest cost plan is
likely to have much lower-cost beneficiaries than the traditional Medicare plan.
While there is a substantial body of evidence showing that the traditional plan
is more efficient than private sector plans, it is not likely that it would be
able to provide care to the sickest beneficiaries for the same cost that private
plans charge for the healthiest beneficiaries. This means that the traditional
plan could wither under this system, even while costs for the system as a whole
increased, as less healthy beneficiaries are eventually forced into the private
system.
Agricultural Protection and Developing Nations
Bush Calls for Changes in Africa To End Wars and Promote Trade
Richard W. Stevenson
New York Times, June 27, 2003, page A1
http://www.nytimes.com/2003/06/27/international/africa/27PREX.html
European Union Votes 14-1 to Reform Agricultural Policy
Thomas Fuller
New York Times, June 27, 2003, page A1
http://www.nytimes.com/2003/06/27/international/europe/27EURO.html
Both of these articles include discussions of European agricultural policy and
its impact on developing nations. The Stevenson article reports on a speech by
President Bush in which he raised the issue of selling genetically modified
foods in Europe, claiming that Europe's opposition to these foods was leading to
starvation in Africa.
It is important to note that Europe's opposition derives from the unwillingness
of European consumers to buy genetically modified foods. While it would help
African economies if Europeans had more interest in buying their products, it is
equally true that it would help African economies if U.S. consumers had more
interest in buying their products. It would have been helpful to point out that
the tastes of U.S. consumers lead to starvation in Africa in the same way as the
unwillingness of U.S. consumers to buy more African products. It is unusual for
political leaders to publicly complain about the tastes of consumers in other
countries.
The article by Fuller quotes the complaints by a representative of Oxfam that
under the new European Union agricultural policy, farm products will still be
dumped on the markets of developing nations. It is worth pointing out that farm
export subsidies in rich nations have the same effects on developing nations as
increases in agricultural productivity in rich nations. It is also worth noting
that the negative effects of export subsidies could be counteracted by import
tariffs in developing countries.
The Stevenson article also includes a reference to the removal of U.S. barriers
to imports from Africa. It asserts that many African leaders say these changes
"are vital to the economic development of their country." It is worth
noting that a recent World Bank study concluded that removing all U.S. trade
barriers would have virtually no effect on Africa's development (http://econ.worldbank.org/files/1715_wps2595.pdf).
Unauthorized Reproduction of Recorded Music
RIAA Plans to Sue Music Swappers
Mike Musgrove
Washington Post, June 26, 2003, Page E1
http://www.washingtonpost.com/wp-dyn/articles/A33442-2003Jun25.html
Recording Industry to Sue Internet Music Swappers
Lynette Holloway
New York Times, June 26, 2003, page C4
http://www.nytimes.com/2003/06/26/technology/26MUSI.html
These articles report on threats by the recording industry to initiate
large-scale legal actions against individuals who make unauthorized copies of
recorded music on the Internet. The Times article refers to such copying as
"piracy." This is inaccurate, since the legal status of much of this
copying is in question. For example, a person may allow a friend to hear a song
from a CD that he has purchased. The Post article correctly notes that the music
industry calls this copying "piracy," but does not itself use this
term.
It would have been useful to include the views of economists on the economic
losses implied by the industry's actions. Copyrights are effectively a
government-imposed monopoly that allows firms to charge an enormous tariff in
excess of the free market price. The economic losses from this intervention
dwarf the losses from most other forms of trade protection.
Drug Study
Study Finds Baldness Drug Lowers Prostate Cancer Risk
Rob Stein
Washington Post, June 25, 2003, Page A1
http://www.washingtonpost.com/wp-dyn/articles/A28451-2003Jun24.html
Mixed Results for Drug Used to Prevent Prostate Cancer
Mary Duenwald
New York Times, June 25, 2003, page A17
http://www.nytimes.com/2003/06/25/health/25PROS.html
These articles report on the findings of a new study intended to determine the
effectiveness of Propecia, a drug used to treat baldness, in preventing
prostrate cancer. The headline of the front page article in the Post touted the
study as a huge success. The Times article highlighted the mixed nature of the
findings, including evidence that the drug increased the probability of
contracting an especially virulent strain of prostrate cancer. While this
information also appears in the Post article, it is only mentioned in the
continuation on page 10, and is not reflected in the headline.
Pensions
Pension Reserve: What's Enough?
Mary Williams Walsh
New York Times, June 22, 2003, Section 3, page 1
http://query.nytimes.com/gst/abstract.html?res=F60813F7345C0C718EDDAF0894DB40448\2
This informative article discusses the difficulty that many defined-benefit
pension plans are facing as a result of the downturn in the stock market and the
current low interest rates on long-term treasury bonds. It discusses the efforts
of some companies to have their projected pension liabilities reduced, based on
the fact that their workers enjoy shorter than average life expectancies. While
the evidence for such assertions are questionable, as the article notes, it is
worth pointing out that this method implies that firms with workers who have
longer than average life expectancies should have their pension liabilities
adjusted upward. Such a change could lead to large expenses for some companies.
Pension Needs Fueling GM's Sales Push
Greg Schneider
Washington Post, June 25, 2003, Page E1
http://www.washingtonpost.com/wp-dyn/articles/A28501-2003Jun24.html
This article discusses the impact that the shortfall in General Motors' pension
fund is having on its sales strategy. At one point the article asserts that
shortfalls in pension funds at GM and elsewhere are attributable to a low stock
market. Actually, the stock market is selling at price-to-earnings ratios of
close to 20 to 1, approximately one-third above its historic average. Pension
shortfalls are attributable to the fact that pension fund managers made absurd
projections on stock returns during the bubble years from 1996 to 2000. As a
result of these absurd projections, many companies contributed little or nothing
to their funds over this period.
Russia
Russia's Economy Building on 3 Years of Solid Growth
James Brooke
New York Times, June 25, 2003, page W1
http://www.nytimes.com/2003/06/25/business/worldbusiness/25RUSS.html
This article reports on Russia's current economic prospects. It notes that
Russia has been experiencing strong growth since 1999. The article includes an
assessment of Russia's economy from the International Monetary Fund. It is worth
noting that Russia's economy collapsed during the years in which it followed an
IMF program for a transition away from a centrally planned economy, shrinking by
approximately 50 percent between 1990 and 1998.
In 1998, over the strenuous and public objections of the IMF, it de- linked its
currency from the dollar. After a brief period of financial turmoil, the economy
recovered and has been maintaining a healthy growth pace ever since, as noted in
this article. It would have been helpful to note the track record of the IMF's
advice for Russia.
The article also includes a graph showing Russia's GDP measured in dollar terms.
It would be more informative to present GDP measured in purchasing power parity,
since this measure gives a more accurate indication of the health of Russia's
economy.
Gregory Mankiw
Into the Politics of Economics
David Leonhardt
New York Times, June 22, 2003, Section 3, page 1
http://query.nytimes.com/gst/abstract.html?res=F20B10F6345C0C718EDDAF0894DB40448\2
This article profiles Gregory Mankiw, the new head of President Bush's Council
of Economic Advisors. At one point it contrasts President Bush's economic
advisors with President Clinton's, commenting that none of President Bush's
advisors enjoy the credibility that Robert Rubin did as Treasury Secretary. It
would have been appropriate to note that Mr. Rubin's policies were associated
with the stock bubble -- the collapse of which has led to the current period of
recession and stagnation. They were also associated with the "strong
dollar," which has led to a current account deficit that is presently
running at a $550 billion annual pace, and has added several trillion dollars to
the nation's foreign indebtedness. If none of President Bush's advisors has
achieved the same credibility that Mr. Rubin enjoyed as Treasury Secretary, it
is also the case that none has been associated with such large-scale economic
failures.
At one point, the article lists as one of Mr. Mankiw's mistaken predictions the
assertion in the late eighties that inflation-adjusted housing prices would fall
by 50 percent in the next two decades due to the retirement of the baby boom
generation. It is not yet possible to know that this prediction is wrong. A
person who predicted in 1993 that stocks would have below normal returns for the
next decade would have appeared very wrong in 2000 -- but they subsequently
would have been proven correct. When two decades have elapsed it will be
possible to know whether or not Mr. Mankiw's prediction on housing prices was
correct.