Economic Reporting Review
By Dean Baker
October 14, 2003
OUTSTANDING STORIES OF THE WEEK
Spending On Iraq Sets Off Gold Rush
Jonathan Weisman and Anitha Reddy
Washington Post, October 9, page A1
http://www.washingtonpost.com/wp-dyn/articles/A496-2003Oct8.html
This article discusses the quest for contracts to rebuild Iraq. It reports on several large contracts that have been awarded to politically well-connected firms.
As Doors Close, a Generation Grows Desperate
Mary Jordon
Washington Post, October 4, page A15
http://www.washingtonpost.com/wp-dyn/articles/A42214-2003Oct3.html
This article discussed the plight of young Mexicans who are seeing very limited economic opportunities as a result of slow economic growth, rising college tuition due to reduced government subsidies, and fewer opportunities to emigrate to the United States.
A Slave to Health Insurance
David Finkel
Washington Post, October 4, page A1
http://www.washingtonpost.com/wp-dyn/articles/A42036-2003Oct3.html
This article examines the factors that have led many older workers to stay in the labor force in the last few years. Since the recession in 2001, the percentage of people aged 55 to 64 who are employed has risen, at the same time that it has fallen sharply for all other age groups. The article points out that the need for health insurance coverage and the lack of adequate retirement savings have been major factors keeping older people working.
Tax Cuts and the Economy
Handcuffed to the Economy
Richard W. Stevenson
New York Times, October 4, 2003, page A10
http://query.nytimes.com/gst/abstract.html?res=ö0C1FFA3E580C778CDDA90994DB404482
This article discusses a speech that President Bush gave in Milwaukee, touting the benefits of his economic agenda. At one point the article asserts that "Mr. Bush showed no sign on Friday of losing faith in his economic philosophy." It then reports that he is calling for Congress to make the temporary portion of his tax cuts permanent.
It is not clear that this proposal has anything to do with an economic philosophy or that President Bush has any economic philosophy. President Bush originally proposed his tax cuts because the government was running a large surplus, which he claimed was evidence that the government was taxing too much. Later he advocated tax cuts as a way to boost the economy in a recession. It is not clear how these two claims are consistent, nor is it evident what economic philosophy would support such claims.
President Bush's tax cuts have primarily benefited a small number of wealthy taxpayers. These people overwhelmingly supported President Bush in his 2000 campaign and are likely to do so again in 2004, according to public opinion polls.
While it is possible that President Bush has an economic philosophy that explains his tax cut proposals, it is also possible that he is simply trying to give money to his wealthy political backers. The article presents no evidence whatsoever to support its assertion that Bush's tax cutting agenda is explained by economic philosophy rather than more simple political considerations.
The article concludes by noting that President Bush claimed his tax cuts will benefit small businesses owners, "many of whom file individual tax returns subject to the highest rate." The most recent data showed that more than nine million people consider themselves self-employed. While hundreds of thousands of these people are subject to the highest individual tax rates, this is a small fraction of small business owners. The vast majority of small business owners pay a tax rate that is considerably lower than the highest rate.
The article also assesses the possibility that the economy will have experienced any job growth at all under President Bush. It would have been useful to present readers a basis of comparison. For example, the economy generated an average of three million jobs a year during the two Clinton administrations.
Outsourcing Government Jobs
103,412 Federal Jobs In OutSourcing Study
Christopher Lee
Washington Post, October 4, page A10
http://www.washingtonpost.com/wp-dyn/articles/A42360-2003Oct3.html
This article describes a report by the Office of Management showing that federal agencies are considering the possibility of outsourcing more than 100,000 jobs. At one point the article asserts that the policy of moving to the outsourcing of government work is "based on President Bush's conviction that forcing federal employees to compete with the private sector for their jobs promotes efficiency … even if the jobs ultimately stay in-house."
Firms that win government contracts are often politically well- connected, with close ties to members of President Bush's administration. Many of their top executives are generous supporters of the Republican Party. It is possible that President Bush's main motivation in outsourcing government jobs is to reward his political allies. This seems an especially plausible explanation, since a recent GAO study found no evidence that outsourcing does actually save the government money. Outsourcing also has the advantage, for President Bush, of weakening public sector unions who have been strong supporters of the Democratic Party.
The article presents no evidence to support its assertion that President Bush's support of outsourcing is attributable to his personal convictions, rather than to these political considerations.
Medicare
Medicare Plan Raises the Cost For the Affluent
Robert Pear
New York Times, October 6, 2003, page A1
http://query.nytimes.com/gst/abstract.html?res=ó0614FB38580C758CDDA90994DB404482
This article looks at the political support for plans to increase the Medicare premiums paid by high income individuals. The article reports that these plans enjoy "unexpected support" from some Democrats. The three policy experts who are identified as providing this unexpected support, Robert M. Ball, Robert Greenstein, and Robert Reischauer, have in the past supported cuts to Social Security or Medicare, so it is not clear why their support for the proposed premium increases would be viewed as unexpected.
The article reports that the proposed fee increases would only affect seniors with incomes above $75,000, and that the maximum increase of $1,400 per year would only be paid by individuals with incomes in excess of $100,000 a year or couple with incomes in excess of $200,000. Given the small fraction of seniors who would be affected by these increases, it is unlikely that the proposals would raise more than $500 million a year, approximately 0.2 percent of the current Medicare budget.
The imposition of large Medicare fees on high income beneficiaries also gives them strong incentives to switch their wealth into non- income bearing assets, such as second homes, or to pass wealth to their children prior to death. Since the proposed fee increase would raise little money if it is restricted to high income individuals, and would certainly lead to substantial efforts at evasion thereby undermining political support for the program many Medicare supporters have consistently opposed such measures. This argument should have been presented in the article. Higher fees will only have a significant impact on the finances of the program if the cutoffs are ratcheted down so that they apply to many middle income elderly.
The article also includes an assertion that the impending retirement of the baby boomers will put substantial strains on both Medicare and Social Security. According to the reports of the trustees of these programs, Medicare will be able to pay all scheduled benefits through the year 2027, and Social Security will be able to pay full benefits until 2042, with no changes whatsoever. These reports show both programs to be in better financial condition at present and than they have been through most of their existence.
Obstacles to Unionization
Union Organizing Remains Muddled In Chrysler Pact
Danny Hakim
New York Times, October 7, 2003, page C1
http://www.nytimes.com/2003/10/07/business/07AUTO.html?adxnnl==1&adxnnlx==1066079065-05muK6Nq4nSoIpQTbz1K0A
This article discusses the part of the new contract between DaimlerChrysler and the United Auto Workers that addressed the circumstances governing union organizing efforts at a Mercedes plant in Alabama. The article notes that unions generally prefer to have recognition of a union depend on whether a majority of workers at a work site have signed cards indicating that they want union representation, rather than a formal union election supervised by the National Labor Relations Board. It attributes this preference to the fact that since elections are held at the work site, "they give employers something of a home court advantage."
There is often a long period of time between when a union requests an election and when it is actually held, since it is easy for an employer to find ways to delay an election. During this period, it is a common practice for firms to make threats, for example that a plant will close if workers vote to unionize, to fire the workers leading the unionization effort. While these practices are prohibited under the National Labor Relations Act (NLRA), the sanctions for violating the law are trivial, so firms routinely ignore the NLRA. One study found that, on average, 20 percent of the workers involved in unionization drives are fired.
Since the NLRA in fact provides very little protection during the period prior to an election, many unions have come to view card checks as the only possible path to unionization.
Prescription Drugs Prices in Canada
Hopefuls Back Drug Reimports
Ceci Connolly
Washington Post, October 8, page A6
http://www.washingtonpost.com/wp-dyn/articles/A58297-2003Oct7.html
This article discusses the debate over whether people should be allowed to buy drugs in Canada, and other countries, where prices are far lower than in the United States. The article includes several references to government imposed price controls in Canada as the reason that drug prices are lower than in the United States, implying that this is an interference in the market. In both Canada and the United States, the government interferes in the prescription drug market. The difference is that in the United States the government gives firms unrestricted patent monopolies, whereas in Canada the government imposes a price ceiling that limits the extent to which firms can exploit their government-granted monopoly.
At one point the article comments that many of the drugs purchased in Canada were "developed and patented in the United States." In nearly every case these drugs are also patented in Canada; otherwise their prices would be even lower.
September Retail Sales
Cool Weather Lifts Retail Sales
Bloomberg News
New York Times, October 10, 2003, page C4
http://www.nytimes.com/2003/10/10/business/10shop.html
This article reports on September sales data from the country's major retail chains. The article reports that September sales were up by 5.9 percent compared to September of 2002. It is worth noting that retail sales slumped in September of 2002, dropping 1.5 percent from their August levels. The weak September sales in 2002 exaggerates the strength of the 2003 performance in a year-over-year comparison.
High Tech Jobs
Intel Chairman Says U.S. Is Losing Edge
Jonathan Krim
Washington Post, October 10, page E1
http://www.washingtonpost.com/wp-dyn/articles/A6042-2003Oct9.html
This article reports on a speech by Andrew S. Grove, the chairman of Intel, in which he warned that the United States was losing its lead in high tech areas and faces the prospect of millions of high tech jobs being exported to India, China, and other developing countries.
It is worth noting that this process of replacing high cost U.S. labor with lower cost labor in the developing world is a main purpose of trade agreements such as NAFTA or the WTO. Economists and politicians routinely celebrate the efficiency that results from this process.
This article is striking because this argument for increasing efficiency is never presented. This would be comparable to having an article devoted to a talk by a leader of the autoworkers or steelworkers union, in which they decried the prospect of losing auto and steel sector jobs to developing countries, without ever presenting the economic argument as to why this trade would benefit the economy. It is unlikely that the any major media outlet would ever run such an article.