Economic Reporting Review
By Dean Baker
November 3, 2003
OUTSTANDING STORY OF THE WEEK
Corporate Plea For Tax Breaks: Ours Comes First
Edmund L. Andrews
New York Times, October 30, 2003, page A1
http://www.nytimes.com/2003/10/30/business/30TAX.html
This article reports on the efforts of various corporations to secure special tax breaks for themselves in a new tax bill being debated in Congress.
The Economy
Wage Increases Giving Economy Unexpected Lift
David Leonhardt and Edmund L. Andrews
New York Times, October 27, 2003, page A1
http://query.nytimes.com/gst/abstract.html?res=F60F14FA3A550C748EDDA90994DB404482
This article reports on evidence of rising wage growth, which it describes as a potential and unexpected source of economic strength. The evidence for more rapid wage growth appears to be taken from the Bureau of Labor Statistics (BLS) Current Population Survey (CPS). This is a monthly survey of approximately 60,000 households. This evidence is contradicted by the evidence from two much larger employer-based surveys.
The BLS Current Employment Situation Survey, which is sent to 360,000 employers every month, shows that wages in the third quarter increased at a 2.7 percent annual rate, almost exactly the same as their rate of increase over the last year. This is consistent with the data on wage growth from a third BLS survey, the Employment Cost Index, which shows wages rising by 0.7 percent in the third quarter (a 2.8 percent annual rate), the same as the average growth rate for the last year. This rate of nominal wage growth is only slightly higher than the current rate of inflation, meaning that real wage growth is now almost zero.
Most economists view these two other surveys to be more accurate measures of quarterly wage growth because they are both larger than the CPS, and employer-based. (Each employer reports the wages of many individual workers.)
Bush's Urgent Task: To Calm Public's Growing Impatience
Richard W. Stevenson
New York Times, October 29, 2003, page A1
http://www.nytimes.com/2003/10/29/politics/29ASSE.html
This article reports on President Bush's efforts to convince the public that the situation in Iraq is under control. At one point the article comments that if not for the problems in Iraq, the public's attention might be focused on "the rapidly improving economy."
It is not clear that this is an accurate description of the economy. While the third quarter GDP growth was very strong, and the September data did show that the economy created 55,000 jobs in the month, this comes after losing nearly 3 million since President Bush took office. Unless the pace of job growth picks up dramatically, President Bush will be the first president since Herbert Hoover to face re-election with a net loss of jobs. (More then 8 million jobs were created in President Clinton's first term in office.) Real wage growth has also virtually stopped over the last year. While the latest growth data do show signs of promise, the vast majority of the public has so far seen little benefit from this growth.
White House Takes Credit for Surge in Economy
Richard W. Stevenson
New York Times, October 31, 2003, page A17 http://www.nytimes.com/2003/10/31/politics/31BUSH.html
This article reports on the Bush Administration's efforts to take credit for the strong economic growth reported for the third quarter. It comments that Democrats are "faced with the prospect that the strong growth figure would undermine their campaign theme that Mr. Bush has the worst economic record of any President since Herbert Hoover." Even with the strong GDP report for the quarter, there are few economists who project that the economy will have more jobs at the end of President Bush's term than at the beginning. This would be the first time since the Great Depression that the number of jobs had not increased during a president's term in office.
Fed Holds Interest Rates at Low Level
John M. Berry
Washington Post, October 27, page E1 http://www.washingtonpost.com/wp-dyn/articles/A31988-2003Oct28.html
This article reports on the Federal Reserve Board's decision to keep the short-term interest rate at 1.0 percent. At one point the article asserts that "with productivity … rising at an unprecedented pace in recent quarters, the officials worry that even a 4 percent economic growth rate would not be rapid enough to reduce the country's 6.1 percent unemployment rate."
While productivity growth has been very good recently, it is typical for the economy to experience rapid productivity growth when it comes out of a recession. Assuming that the third quarter productivity growth ends up being 10 percent (the data is not yet available), the average over the last year will be 5.0 percent. By comparison, productivity grew at an 8.5 percent annual rate from the second quarter of 1983 through the second quarter of 1984. It grew at a 6.5 percent annual rate from the first quarter of 1961 through the second quarter of 1962. Therefore the current pace of productivity growth is certainly not unprecedented.
Bush Credits His Tax Cuts for Brisk Economic Growth
Dana Milbank
Washington Post, October 31, page A2 http://www.washingtonpost.com/wp-dyn/articles/A44071-2003Oct30.html
This article reports on a speech in which President Bush claimed that his policies were responsible for the strong growth reported in the third quarter. At one point the article comments that new unemployment insurance claims fell by 5,000 in the latest week, from the number reported the prior week. It is worth noting that the previous week's number was revised upward by 5,000 in the most recent report. The number of new claims reported in the most recent week, 386,000, is the same as the number that had originally been reported for the prior week. There is therefore no clear trend in this data.
Trade
Miami Caught in Free Trade Quandary
Simon Romero
New York Times, October 28, 2003, page W1
http://www.nytimes.com/2003/10/28/business/worldbusiness/28ftaa.html
This article discusses Miami's efforts to be the permanent home for any permanent trade organization that gets formed through the proposed Free Trade of the Americas Agreement. The article repeatedly uses the expression "free trade" where the term "trade" would be more appropriate. For example, at one point the article notes that "Florida is lobbying to protect tariffs that inhibit free trade."
The proposed trade agreement will reduce some trade barriers, but is also likely to increase other barriers to trade, for example by requiring stricter copyright and patent protections. It would be more accurate to simply use the term "trade" in this discussion.
AIDS in Africa
AIDS Plan Would Cut Drug Costs for Poor
Shankar Vedantm
Washington Post, October 25, page A1 http://www.washingtonpost.com/wp-dyn/articles/A14310-2003Oct24.html
This article reports on a plan by the World Health Organization to substantially increase the number of people who are receiving low-cost generic versions of drugs to treat AIDS. At one point it reports the criticism of a spokesperson for the pharmaceutical industry, that a three drug combination pill has not been adequately tested and may prove harmful. It is worth noting that this combination pill has already been administered to tens of thousands of people in Sub-Saharan Africa and elsewhere. This is a far larger sample than the Food and Drug Administration typically requires for a drug to be approved in the United States.
Medicare
Congress Planning to Curb Growth of Medicare Budget
Robert Pear
New York Times, October 25, 2003, page A11
http://query.nytimes.com/gst/abstract.html?res=F10A15F639550C768EDDA90994DB404482
Health Savings Accounts Rejected
Amy Goldstein
Washington Post, October 25, page A4
http://www.washingtonpost.com/wp-dyn/articles/A26501-2003Oct27.html
Negotiators on Medicare Fear That Premiums Might Vary
Robert Pear
New York Times, October 28, 2003,
http://www.nytimes.com/2003/10/28/politics/28MEDI.html
These articles report on the progress of the House-Senate conference committee working on a bill providing a Medicare drug benefit. All three articles refer to Republican proposals that they describe as putting Medicare in competition with private health care plans. For example, at one point the first article by Pear refers to the claims of conservative House Republicans that they will not support a bill unless "it promotes competition between traditional Medicare and private plans."
It is important to note that the traditional plan already competes with private plans. According to the General Accounting Office, the traditional plan provides care at a lower cost than private plans. In fact, more than 40 percent of beneficiaries who enrolled in private plans have been dropped because the insurers claimed that they could not operate profitably on the fee paid by Medicare (which is already higher than the cost of the traditional program).
Since competition between the private sector and the traditional Medicare program already exists, this is not what is currently at issue. Rather, the issue in contention with the Medicare bill is the structure that this competition will take. The measure approved by the House will put the traditional program at a severe disadvantage, since it would have to be able to serve the sickest beneficiaries at the same cost that private plans incur serving more healthy beneficiaries.
The first article by Pear also refers to comments by Representative Bill Thomas, the chair of the conference committee, that he wants to put Medicare on a sustainable basis. It is worth noting that the latest projections from the Medicare trustees show that the program can meet all projected payments for the next twenty-five years with no changes whatsoever. The program has never gone this long in past years without some fundamental change.
Bush Pushes Hill on Drug Proposal
Amy Goldstein
Washington Post, October 30, page A6 http://www.washingtonpost.com/wp-dyn/articles/A38255-2003Oct29.html
Pact on PPOs Aimed at Rural Elderly
Amy Goldstein
Washington Post, October 31, page A4 http://www.washingtonpost.com/wp-dyn/articles/A43993-2003Oct30.html
These article report on proposals being considered by a House-Senate conference committee to restructure Medicare, one of which would set up a fund to subsidize private insurance companies, so that they would be better able to compete against the traditional Medicare program in rural areas. Both articles describe the debate over the program as being focused on a central question. This question is described in both articles as "how much the traditional, fee-for-service Medicare program should be required to compete for patients against private health plans."
As the information in October 31 article clearly shows, the debate is not over "how much" the traditional program should compete, but rather the conditions of the competition. The proponents of this fund are willing to give additional subsidies (they already receive higher payments per person on a health-adjusted basis) to private insurers to allow them to better compete with the traditional program.
The October 30th article describes this debate as reflecting "ideological differences." It is not clear that ideological factors play a role in this debate. The pharmaceutical and insurance industries are important political backers of the Republican party, while Democrats have historically received majority support from senior citizens. Since the actors in this debate are politicians, not political philosophers, it is at least as likely that they are motivated by the desire to serve their political supporters, as by deeply held convictions about the best way to structure Medicare. The article presents no evidence that political convictions explain the behavior of members of Congress on this issue.
Health Care
Do Some Pay Too Little for Health Care?
David E. Rosenbaum
New York Times, October 26, 2003, Section 4 page 3 http://query.nytimes.com/gst/abstract.html?res=FA0A14FD38550C758EDDA90994DB404482
This article reports on the views of various health care experts as to whether it will be necessary to require patients to bear a larger share of their health costs in order to keep costs under control. It would have been helpful if the article included some discussion of the other experience in other wealthy countries. Patients in the United States already pay far more of their costs out of pocket than do patients in other rich countries. Yet, the per-person cost of health care in other countries is less than half of what it is in the United States. This fact indicates that it is possible to restrain health care costs without requiring patients to directly pay for a larger share of their health care.
Global Warming
Cutting Greenhouse Gases, or Not
Andrew C. Revkin
New York Times, October 26, 2003, Section 4 page 3 http://query.nytimes.com/gst/abstract.html?res=F10C11FC38550C758EDDA90994DB404482
This article examines the state of the debate over implementing policies that will reduce greenhouse has emissions. The article reports that politicians in India, China, and the United States all argue that they should not have to take the lead in controlling emissions. In this context, it would have been helpful to note that there would not be a problem as present, if not for the past emissions of the United States and other rich countries. This fact would seem to be an important consideration in determining which nations have an obligation to take the lead.
Social Security
Lieberman's Risky Ads
Howard Kurtz
Washington Post, October 29, page A6 http://www.washingtonpost.com/wp-dyn/articles/A31351-2003Oct28.html
This article reports on a new set of television ads being run by Senator Lieberman in his campaign for the Democratic presidential nomination. One of the ads accuses the Republicans of trying to "ransack the whole Social Security trust fund" in order to pay for tax breaks for corporations. This accusation is untrue. The Social Security trust fund holds U.S. government bonds. The amount of bonds it holds are in no way affected by the size of the current deficit, just as the amount of bonds that Citigroup or any private corporation holds are not affected by the size of the current deficit. This inaccuracy should have been noted in the article.