Economic Reporting Review
By Dean Baker
October 15, 2002

Outstanding Stories of the Week

At Firms, Dual Profit Pictures
Jonathan Weisman
Washington Post, October 10, 2002, Page A1
http://www.washingtonpost.com/wp-dyn/articles/A3551-2002Oct9.html

            This article reports on the findings of a study by the Institute on Taxation and Economic Policy, which shows a large and growing gap between the amount of profits reported by companies to their shareholders, and the amount of taxable income they report to the Internal Revenue Service.

A Region's Hospital Supplies: Costly Ties
Barry Meier
New York Times, October 8, 2002, Page C1
http://query.nytimes.com/search/abstract?res=F40A15FB3B5F0C7B8CDDA90994DA404482

            This article reports evidence that the New York area hospital trade group directs its members to high cost suppliers in many instances. These suppliers in turn, make payments to the hospital trade group.

Brazil

Dejected Brazilians Look to Left
Anthony Faiola
Washington Post, October 6, 2002, Page A28
http://www.washingtonpost.com/wp-dyn/articles/A48897-2002Oct5.html

            This article examines attitudes in Brazil on the eve of the elections there. At one point, it asserts that the policies of the current administration have fueled "strong economic growth." At another point it comments that Brazilians seem to have forgotten the benefits of "eight years of free market reform." The basis for these assertions is not clear. Brazil's economic growth has actually been quite weak over the last eight years, with per capita GDP growing at less than a 1.3 percent annual rate. By contrast it grew at a 4.5 percent annual rate between 1980 and 2000. Brazil's growth rate for the last eight years would be mediocre for a rich country; it is low for a developing country, which should be catching up to the rich nations.

            The article uses the expressions "free market" or "free trade" in five different instances to refer to the current administration's policies. This characterization is inaccurate. The policies pursued by the current president, Henrique Cardoso, do involve reducing some barriers, but they also involve increasing other trade barriers, most notably increased patent and copyright protection. It is therefore inaccurate to describe his administration as being consistently in support of free trade or free markets.

            The article reports that concerns by international investors over the prospect that Luis Inacio "Lula" da Silva may win the presidency have weakened Brazil's currency and shaken its financial markets. It then describes it as "ironic" that this has strengthened Lula's support. Actually, it is not at all ironic that evidence that the nation has put its economic future under the control of fickle international investors would lead to more political support for a presidential candidate who advocates a different path.

Leftist Hopes to Capitalize On Strong Showing in Brazil
Anthony Faiola
Washington Post, October 8, 2002, Page A17
http://www.washingtonpost.com/cgibin/search99.pl

            This article reports on the presidential race in Brazil. At one point it refers to a loan from the I.M.F. to Brazil in the summer as "a record $30 billion lifeline." It is questionable whether this money can accurately be described as a lifeline to Brazil. It appears likely that Brazil has already accrued a larger debt than it will be able to manage (see "Paying the Bills in Brazil: Does the IMF's Math Add Up?"

[http://www.cepr.net/paying_the_bills_in_brazil.htm]). If this is the case, then the loans will simply increase Brazil's indebtedness, with little or no benefit to its economy. However, the loans did make it easier for banks that were holding Brazil's debt to dump it before its value fell further.

Congressional Elections

Tough Senate Race in Texas Gets Bush in Gear
Adam Nagourney
New York Times, October 6, 2002, Page A6
http://query.nytimes.com/search/abstract?res=FB0812FA3E5F0C758CDDA90994DA404482

            This article reports on the close senate race in Texas. At one point it reports that President Bush had pointed the Republican candidate towards a study "that rebutted Mr. Kirk's [the Democratic candidate] assertion that the Bush tax cut had contributed to the deficit." There is no real dispute that the tax cut contributed to the deficit. It reduced the amount of revenue that the government collected and therefore made the deficit larger. (The deficit is equal to revenue minus expenditures.) If Mr. Bush has a study that shows the tax cut did not affect the deficit then it is not an honest study. It would have been appropriate to point out this fact in this article.

In Campaigns Nationwide, Plans for Social Security Become Focus of Ads
Lizette Alvarez
New York Times, October 10, 2002, Page A30
http://www.nytimes.com/2002/10/10/politics/10ADS.html

            This article discusses how Social Security is coming out as an issue in congressional campaigns around the country. The article reports that Democrats are accusing Republican candidates of supporting the privatization of Social Security. It reports that many Republicans are vehemently denying this charge and accusing their opponents of lying.

            It would have been appropriate to point out that the vast majority of Republican candidates have in fact supported replacing a portion of Social Security with individual accounts, as has President Bush, which is exactly what the Democrats are claiming. 

The Longshoremen's Labor Dispute

For Stalled Produce, Only Bite Is at Headquarters
Steven Greenhouse
New York Times, October 5, 2002, Page A13
http://query.nytimes.com/search/abstract?res=F20811FC3F5F0C768CDDA90994DA404482

            This article discusses the impact that the shutdown of west coast ports is having on the economy. At one point it discusses the possibility that President Bush will order the longshoremen back to work. Such an order would have little effect, since the workers have been locked out. They would be arrested for trespass if they attempted to go back to work. If the president wants to have the shipyards operate again, he would have to order the owners to end their lockout.

September Unemployment

Unemployment Down To 5.6% Last Month
Washington Post Staff Writer
Washington Post, October 5, 2002, Page E1
http://www.washingtonpost.com/wp-dyn/articles/A45290-2002Oct4.html

            This article reports on the Labor Department's data on employment for September. At one point the article asserts that both the Labor Department's household survey and establishment survey "point to improved labor market conditions." While the household survey did show a statistically insignificant decline in the unemployment rate of less than 0.05 percentage points, it also showed an increase in the average and median duration of unemployment spells, an increase in the number of people involuntarily working part-time, and a large year over year increase in the number of people who quit looking for work because they are discouraged over their job prospects. It also showed a decline in the percentage of unemployment attributable to people who have voluntarily quit their jobs: a measure that is generally viewed a measure of workers' confidence in their job prospects.

            The establishment survey showed a loss of 43,000 jobs in September, and also provided information in its employment diffusion indexes suggesting that firms will be reducing their payrolls in coming months. It is not clear what information in September's report the article views as evidence of improved labor market conditions.

Germany

Germany Opens New Front on Joblessness
Mark Landler
New York Times, October 9, 2002, Page A
http://www.nytimes.com/2002/10/09/business/worldbusiness/09GERM.html

            This article discusses the German government's plans to reduce the unemployment rate. At one point the article asserts, "to really revive the economy, experts say, the government must make it easier for companies to cut wages and lay off workers. It also has to give those who are out of work more incentive to find jobs." While some experts do make assertions like this, there are many prominent economists, such as Nobel Prize winner Robert Solow and Princeton professor Paul Krugman, which argue that a main cause of high unemployment in Germany is high interest rate policy of the European Central Bank (ECB). Even the International Monetary Fund has called on the ECB to lower interest rates to help stimulate the economy in Europe and the world.

            The article reports that Germany's unemployment rate is close to 10 percent. This refers to Germany's official measure of the unemployment rate, which uses a somewhat different methodology than that which is used in the United States. According to the Bureau of Labor Statistics, Germany's unemployment rate would be close to 8 percent using the U.S. method. 

Highly Paid Stock Analysts

The Crux of Reform: Autonomous Stock Rating
Patrick McGeehan
New York Times, October 7, 2002, Page C1
http://query.nytimes.com/search/abstract?res=F20D11FC395F0C748CDDA90994DA404482

            This article examines efforts by investment banks to re-establish the credibility of their market analysis after a rash of recent scandals indicated that conflicts of interest affected their reports. At one point it refers to the problem that these banks face finding a way to support "a full complement of highly paid analysts."

            According to economic theory, workers are supposed to be paid in accordance with their marginal productivity. The recent rash of scandals showed that many analysts were corrupt, making false reports in order to help their employers to market stock. However, it is not clear that even the honest analysts were doing anything of value. Virtually all of them failed to recognize the stock bubble, the largest financial bubble in the history of the world. Given their performance, the main problem appears to be that these analysts are highly paid. There is no obvious reason that a business should pay large sums to analysts who seem unable to provide information of any real value.

Copyrights

Debate to Intensify on Copyright Extension Law
Amy Harmon
New York Times, October 7, 2002, Page C1
http://query.nytimes.com/search/abstract?res=F2091EFC395F0C748CDDA90994DA404482

            This article reports on a case before the Supreme Court over whether an extension of the duration of copyright violates first amendment protections of freedom of speech. At one point the article notes that a letter by fifteen prominent economists, ranging from free market conservative Milton Friedman to liberals like Kenneth Arrow, argued against the copyright extension. It would have been appropriate to present the arguments of these economists in somewhat more detail.

Investor Tax Cut  

House Republicans Push Bills To Benefit Small Investors
Richard W. Stevenson
New York Times, October 8, 2002, Page A20
http://query.nytimes.com/search/abstract?res=F60711FF3B5F0C7B8CDDA90994DA404482

            This article reports on a Republican proposal to increase to $8,250 the amount of capital loses from stock investments that can be written off on taxes each year. The headline is in accurate, since this proposal would almost exclusively help large investors. The vast majority of small investors in the stock market don't hold stock outside of a 401(k) type account. The gains and losses on these accounts are not subject to tax. (The full amount is taxed as normal income, when the worker begins to draw down the account.) The headline should have either said that the bill would help "large investors," or just "investors."  

Argentina  

I.M.F. and Argentina Are Close to Accord on Debt
Edmund L. Andrews
New York Times, October 11, 2002, Page A5
http://www.nytimes.com/2002/10/11/international/americas/11ARGE.html

            This article reports on negotiations between the I.M.F. and Argentina over the repayment of a loan from the I.M.F. At one point it refers to I.M.F. demands that Argentina curb spending by local governments, which it describes as "a main cause of runaway debt."

            This characterization is questionable. The spending of local governments only began to increase rapidly in 1999 and 2000, in response to the unemployment caused by the recession, and cutbacks in social spending at the national level. It is not clear how important local debt was in pushing Argentina into default, since Argentina's central government was not responsible for the debt of its states and cities. (The I.M.F. has since forced the central government to take responsibility for this debt.) Also, the debt from the provincial and local governments --which totaled 1.1 percent of GDP in 2000 and peaked at 1.9 percent in 2001 -- is still relatively small compared to the debt accrued as a result of Argentina's decision to privatize its Social Security system or the debt that can be attributed to higher interest rates, which were in turn attributable to financial crises in East Asia, Russia, and elsewhere.

Venezuela 

Throngs Again Demand Venezuelan Leader Quit
Juan Forero
New York Times, October 11, 2002, Page A6
http://www.nytimes.com/2002/10/11/international/americas/11VENE.html

            This article reports on protests in Venezuela against President Hugo Chavez. At one point the article comments that the protestors "blamed the government for bringing the country to the brink of ruin." It then adds, "Though rich in oil, Venezuela is in a deep recession."

            While it is true that Venezuela, like most of Latin America, is currently experiencing a recession, it is worth noting that economic mismanagement long predated Chavez. Venezuela's per capita GDP shrank by 18 percent from 1980 to 2000. Such a long period of negative growth is extremely rare. The public's disgust with this track record was the main factor behind the landslide victory for Chavez in 1998.

The Stock Market Crash and Non-Profit Institutions

Cultural Groups and Charities Are Feeling Each Bump on Wall Street
Stephanie Strom
New York Times, October 11, 2002, Page A29
http://www.nytimes.com/2002/10/11/national/11GIVI.html

            This article discusses how charities, foundations, and other non-profit institutions have been affected by the downturn in the stock market. It notes that they have both lost large amounts of money from their endowment and are experiencing large falloffs in donations, since so many of their donors have been hit by the stock market downturn.