Economic Reporting Review
By Dean Baker
November 24, 2003
OUTSTANDING STORIES OF THE WEEK
For Middle Class, Health Insurance Becomes a Luxury
Stephanie Strom
New York Times, November 16, 2003, page A25
http://query.nytimes.com/gst/abstract.html?res=F30E1FFD3B5C0C758DDDA80994DB404482
This article examines the situation of middle class families, many of whom
now face the prospect of losing their health insurance coverage.
Economy's Advances in Atlanta Don't Lead to Popping of Corks
David Leonhardt
New York Times, November 17, 2003, page A1
http://query.nytimes.com/gst/abstract.html?res=F3081FF93A5C0C748DDDA80994DB404482
This article provides a detailed assessment of the economic situation in the
Atlanta area, one of the cities showing the most evidence of revived growth. The
article finds that the local economy does appear to be on the upswing, but that
growth is still restrained.
Russia's Tax Havens May Have Fueled Legal Backlash
Peter Baker
Washington Post, November 20, page A36
http://www.washingtonpost.com/wp-dyn/articles/A63387-2003Nov19.html
This article examines the use of tax havens by Russia's largest corporations.
It suggests that the decision to arrest some of the country's most prominent
business people in recent weeks may have been motivated by their abuse of tax
shelters to largely avoid paying taxes.
Medicare
GOP Set to Announce Deal, But Medicare Rift Remains
Amy Goldstein
Washington Post, November 15, page A7
http://www.washingtonpost.com/wp-dyn/articles/A42516-2003Nov14.html
Republican Leaders Reach Deal On Medicare
Amy Goldstein
Washington Post, November 16, page A1
http://www.washingtonpost.com/wp-dyn/articles/A46457-2003Nov15.html
Medicare Deal Likely to Spark More Health Care Competition
Bill Brubaker
Washington Post, November 16, page A15
http://www.washingtonpost.com/wp-dyn/articles/A46747-2003Nov15.html
Deal 'in Principle' For Medicare Plan To Cover Drug Costs
Robert Pear
New York Times, November 16, 2003, A1
http://query.nytimes.com/gst/abstract.html?res=F30811F93B5C0C758DDDA80994DB404482
These articles report on an agreement in a House-Senate conference committee on a proposal for a Medicare prescription drug benefit. The articles all include assertions that the compromise bill will inject competition into Medicare between private plans and the traditional plan. This is inaccurate. There is already competition between private plans and traditional plans. The key feature of the new bill is to change the nature of this competition and to change the nature of the guarantee that Medicare provides to senior citizens.
The Republican proposal will restructure the system of competition so that it
will be easier for private plans to save money by "cherry picking" the
healthiest beneficiaries from the Medicare system. If private plans can serve
relatively healthy patients at a lower cost than the overall average, then they
stand to make large profits under the Republican proposal. Also, the Republican
proposal only guarantees a Medicare payment that is sufficient to pay the
premium of a low cost plan. It does not guarantee a premium that is adequate to
pay for the traditional Medicare program. This is a major change in the program
-- it would be difficult for readers of these articles to recognize that this is
a key issue in the current debate. (For a more detailed discussion of these
points see ERR 11-17-03 []).
At several points, the Post articles by Goldstein include comments summarizing what Democrats or Republicans say about the Medicare proposals. For example, the November 15th article comments that Republicans, "say it would save money" whereas Democrats "say it would compel people who want to stay in the traditional program to pay more for their care." It would be helpful to readers if the article made some effort to assess the truth of these claims. Few of the Post's readers have the time and expertise to make this assessment themselves.
The Times article reports that the plan includes a form of means-testing, which will require seniors with incomes of more than $80,000 a year, to pay more for their Medicare benefits. It would be helpful to report whether this income figure is indexed to inflation and real income growth. If it is indexed, then the means-testing will only apply to about 5 percent of seniors, and will barely affect the program's finances. If the income cutoff is not indexed, then middle income people -- for example retired teachers and firefighters -- will soon find themselves paying higher Medicare premiums as a result of this means-testing.
The November 16th article by Goldstein includes an assertion that the differences over the structure of competition in Medicare "involved a central ideological disagreement over how far the government should go to try to motivate Medicare beneficiaries to leave the traditional fee-for-service program." It is not clear that ideology played any role in this dispute whatsoever.
The insurance industry is a powerful political backer of the Republican party. It is entirely possible that the Republicans are promoting the role of private plans in Medicare simply to serve the interests of the insurance industry, rather than out of any ideological commitment. If this is the case, they are more likely to justify their actions by making false claims about their ideological commitment to the private sector, than to admit their true intentions.
Similarly, Democrats have relied on support of senior citizens in recent elections. It is entirely reasonable to believe that their commitment to preserving the traditional Medicare program stems from a desire to maintain this support, rather than any ideological commitment.
This article does not provide any evidence as to the true intentions of the
politicians in this dispute. Therefore, there is no obvious basis for the
assertion that ideology has played an important role in this debate.
Counting Votes and Attacks In Final Push for Medicare Bill
Robert Pear and Robin Toner
New York Times, November 20, 2003, A21
http://www.nytimes.com/2003/11/20/politics/20MEDI.html
This article discusses the prospects of the Medicare drug bill. At one point
in listing features that should appeal to various constituencies, it comments
that the bill provides "a big new role for private insurance
companies" which it asserts should appeal to conservatives. While the bill
provides large subsidies to private insurers to better enable them to compete
with the traditional Medicare plan, it is not obvious that this would be
attractive to principled conservatives. Many conservatives strongly oppose
government handouts to favored industries. This aspect of the bill would be very
unattractive to these conservatives.
Trade
Free-Trade Battle Lines Are Drawn
Paul Blustein
Washington Post, November 15, page E1
http://www.washingtonpost.com/wp-dyn/articles/A43220-2003Nov14.html
Modest Goals for Meeting on Free Trade
Elizabeth Becker
New York Times, November 15, 2003, Page B1
http://query.nytimes.com/gst/abstract.html?res=F3081EFC385C0C768DDDA80994DB404482
These articles discuss the prospects for negotiations on a Free Trade of the
Americas Agreement. Both articles repeatedly describe the agenda of proponents
of this agreement as "free trade," including in the headline of both
articles. This is inaccurate. Many of the proposals being discussed do not
directly involve trade, for example rules on investment, and some aspects of any
agreement would likely increase protectionist barriers, most importantly patent
and copyright protections. It would be more accurate if the proposed agreement
were simply described as a "trade" or "commercial"
agreement.
U.S. Moves to Limit Textiles Imports From China
Edmund L. Andrews
New York Times, November 19, 2003, page A1
http://www.nytimes.com/2003/11/19/business/worldbusiness/19TRAD.html
This article reports on President Bush's decision to impose tariffs on a number of apparel items imported from China. At one point the article comments that "President Bush has been willing to compromise his often-stated goal of promoting global free trade with the more immediate political goal of stemming the loss of manufacturing jobs."
Actually, President Bush's biggest breaks with free trade have been is
efforts to increase patent and copyright protections and his willingness to
support protectionist barriers that prevent qualified foreign professionals,
such as doctors and lawyers, from practicing in the United States. These
barriers have far greater economic consequences than the tariffs imposed on
steel, or more recently, apparel imports from China, even though the latter have
received much attention in the media.
Report Finds Few Benefits for Mexico in Nafta
Celia M. Dugger
New York Times, November 19, 2003, page A9
http://www.nytimes.com/2003/11/19/international/americas/19NAFT.html
This article reports on a study by the Carnegie Endowment for International Peace on the benefits to Mexico from NAFTA. While the article includes much useful information, it does not present any data on Mexico's growth rate since the approval of NAFTA. Growth is usually viewed as the most basic measure of economic improvement. While it is not a comprehensive measure of economic well-being, it is an important factor.
Since NAFTA went into effect in 1994, Mexico's per capita GDP has grown less
than 1.0 percent annually. By contrast, it had per capita GDP growth of 4.1
percent annually between 1960 and 1980. As a result of its slow growth in the
post-NAFTA period, living standards in Mexico have actually fallen further
behind living standards in the rich countries.
Greenspan Speaks Out Against Trade Restraints
John M. Berry
Washington Post, November 21, page E1
http://www.washingtonpost.com/wp-dyn/articles/A1820-2003Nov20.html
Greenspan Voices Concern on U.S. Efforts to Limit Imports
Edmund L. Andrews
New York Times, November 21, 2003, Page C5
http://www.nytimes.com/2003/11/21/business/worldbusiness/21trade.html
These articles report on a speech by Alan Greenspan in which he warned of
"creeping protectionism." It would have been appropriate to note that
Mr. Greenspan is apparently only concerned about protectionist measures that
might have the effect of benefiting less skilled workers, such as the steel
tariffs recently imposed by the Bush Administration. There is no indication that
he expressed any concern about professional restrictions that protect highly
paid professionals, such as doctors and lawyers, from foreign competition. Nor
does it seem that he raised any concerns about the economic costs and
inefficiency imposed by more stringent patent and copyright protection. Standard
economic models indicate that these other forms of protectionism are far more
costly than the types of protection that Mr. Greenspan noted in his speech.
Drug Patents and Research
European Union Expansion Has Drug Makers Worried
Alan Cowell
New York Times, November 20, 2003, Page W1
http://www.nytimes.com/2003/11/20/business/worldbusiness/20eurodrug.html
This article discusses the prospects for the pharmaceutical industry in Europe. It implies that firms have been moving research facilities from Europe to the United States because the United States provides stronger patent protection for prescription drugs.
Insofar as this is true, it is important to note that the decision to relocate production to the United States is entirely motivated by politics, not economics. Under existing trade agreements, the degree of patent protection that a company receives for its product in both the European Union and the United States is not affected at all by where the research took place. This means that even if Europe provided no patent protection whatsoever, it would not affect the relative merits of locating a research facility in European Union, since any drugs developed there could still get the exact same patent protection in the United States as drugs developed in United States. If drug companies are relocating their facilities due to patent rules, it could only be explained as a political payback for strong patent protections.
This article also asserts that Europe is facing a "gathering
crisis" over the projected increases in health care costs due to its aging
population. Actually, health care costs, measured as a share of GDP, are
projected to increase far more rapidly in the United States. While part of the
projected increase in U.S. health care costs is also due to aging, the more
important part is attributable to its failure to contain costs.
Energy Bill
Accord Reached By Republicans For Energy Bill
Carl Hulse
New York Times, November 15, 2003, Page A1
http://query.nytimes.com/gst/abstract.html?res=F50B11FE385C0C768DDDA80994DB404482
No Home Runs in Energy Bill
Dan Morgan and Peter Behr
Washington Post, November 16, page A10
http://www.washingtonpost.com/wp-dyn/articles/A46456-2003Nov15.html
These articles report on an agreement between House and Senate Republicans on an energy bill. These articles provide very few specifics -- such as the dollar amounts involved -- on the key spending or tax provisions in these bills. Therefore they provide readers with little basis to assess the merits of the bill.
It is worth noting that the bill will include a provision that prohibits lawsuits over damage from the gasoline additive MTBE. This fact is striking, because the prohibition of lawsuits effectively amounts to a government taking -- this provision means that the government is preventing people who have suffered damages, either to themselves or their property, from being compensated.
The fact that Republicans would support a taking in this instance is
striking. When the Republicans first retook the House of Representatives in
1994, one of the key planks in their platform (the "contract with
America") was a prohibition on government takings. At that time,
Republicans were concerned about environmental regulations that might have the
effect of reducing property values by limiting development.
House Approves Energy Measure
Dan Morgan
Washington Post, November 19, page A1
http://www.washingtonpost.com/wp-dyn/articles/A59440-2003Nov18.html
2 Major Unions Oppose Energy Bill on Eve of Senate Vote
Dan Morgan
Washington Post, November 21, page A6
http://www.washingtonpost.com/wp-dyn/articles/A1740-2003Nov20.html
These article report on the progress of the energy bill approved by a House-Senate conference committee. Both articles cite Republican claims, without presenting any opposing views, that the bill will create 800,000 jobs.
It is not clear that this claim is anything other than a complete fabrication by the Republicans. The job claim is based on vague estimates of the jobs that will be generated in the energy sectors being subsidized (plus grossly implausible multiplier effects), without any job losses being subtracted for less favored sectors. This would be comparable to counting job gains in the airline industry, if the federal government provided a 10 percent tax credit on airline tickets, without noting any job losses due to less auto, bus, or train travel.
The job count also does not account for any costs associated with paying for the bill. Money provided as subsidies to the energy industry must either come from higher taxes or spending cuts elsewhere; both costing jobs, or raise the deficit, which can also cost jobs through its effect on interest rates.
A comprehensive analysis of the job impact of this bill may find that on net
it loses jobs, but even if there are gains, they will almost certainly be less
than one tenth the size claimed by the Republicans. Such an implausible claim
should not have appeared unanswered.
Social Security
Bid to Change Social Security Is Back
Mike Allen
Washington Post, November 21 page A16
http://www.washingtonpost.com/wp-dyn/articles/A1932-2003Nov20.html
This article reports on the Bush Administration's plans to push for the
partial privatization of Social Security. At one point, the article asserts that
Social Security will face solvency problems with the retirement of the baby boom
generation. This is inaccurate. The Social Security trustees project that the
program is fully solvent, with no changes whatsoever, until 2042. At that point,
the oldest baby boomers will be 96 and the youngest will be 78. The long-term
problem facing the Social Security system is simply that people are projected to
be living longer in the future.