Economic Reporting Review
By Dean Baker
October 20, 2003
OUTSTANDING STORIES OF THE WEEK
Welfare Spending Shows Huge Shift
Robert Pear
New York Times, October 13, 2003, page A1 http://www.nytimes.com/2003/10/13/politics/13WELF.html?th=&adxnnl=1&adxnnlx==1066053850-NjAauTCF1gIEbG7MKYI2Lw
This article reports on the shift in welfare spending from cash transfers to payments designated for specific services, such as health care or child care. According to data cited in the article, such payments now account for more than half of all welfare spending.
Not-for-Profit Credit Counselors Are Targets of an I.R.S. Inquiry
Jennifer Bayot
New York Times, October 14, 2003, page A1
http://www.nytimes.com/2003/10/14/business/14CRED.html
This article reports on an investigation into the practices of credit
counselors. It details ways in which some of these counselors have misled
clients who go to them for assistance when they are facing severe financial
difficulties.
The Democratic Presidential Race
Lieberman, the Centrist in the Middle of the Pack
Edward Wyatt
New York Times, October 13, 2003, page A1 http://nytimes.com/2003/10/13/politics/campaigns/13LIEB.html?Hp=&pagewanted=print&position=
This article discusses Senator Joseph Lieberman's candidacy for the Democratic presidential nomination, and his plans for moving himself into the top tier of candidates. The article includes several references to Senator Lieberman's reputation for integrity.
It is worth noting that Senator Lieberman's greatest impact on public policy resulted from his drive in 1993 to prevent the Financial Accounting Standards Board (FASB) from requiring companies to deduct stock options as a expense against profits. With stock options growing in importance at the time, the FASB came to the conclusion that this was the proper accounting mechanism for stock options. The vast majority of financial experts, including Federal Reserve Board Chairman Alan Greenspan, former Chairman Paul Volcker, and investor Warren Buffet, have also argued strongly for expensing of stock options. They have also argued that the failure to accurately account for stock options was an important factor in the recent round of accounting scandals.
Senator Lieberman forced the FASB to reverse itself by threatening to take away its quasi-official status if they insisted on treating stock options as an expense. At the time, Senator Lieberman was a major recipient of campaign contributions from the tech sector, which was especially dependent on stock options.
Kucinich Makes President Bid Official
Edward Walsh
Washington Post, October 14, page A6
http://www.washingtonpost.com/wp-dyn/articles/A21231-2003Oct13.html
Lieberman Proposes Tax Hikes on Wealthy
Jim VandeHei
Washington Post, October 14, page A6
http://www.washingtonpost.com/wp-dyn/articles/A21234-2003Oct13.html
These articles report on speeches by two candidates for the Democratic presidential nomination, Ohio Representative Dennis Kucinich and Connecticut Senator Joseph Lieberman.
The article reporting on Kucinich's speech notes that he called for a "government-run, single-payer universal health care system." It would have been more informative to readers if the article had described Mr. Kucinich's proposal as a universal Medicare system. Most people are at least somewhat familiar with Medicare, whereas very few have a clear conception of what is meant by a "government-run, single payer" system. This terminology is also consistent with that used by Mr. Kucinich - he calls his plan "Medicare for All."
The article goes on to assert that Kucinich did not say how he would pay for this program. While Mr. Kucinich may not have indicated in his speech how he intended to pay for his health care plan, this information is readily available on his website [http://www.kucinich.us/issues/issue_universalhealth.htm]. It would have been more helpful to readers if the article reported the funding mechanism described on the website, instead of reporting that Kucinich did not take time in his speech to lay out the specifics.
The article on Lieberman concludes by noting that Lieberman is proposing to increase taxes on the wealthy, not just as a way to cut taxes for middle income families, but also to get money to balance the budget and extend health care coverage. The article implies that these positions are unique to Lieberman. In fact, Howard Dean has made balancing the budget a central theme of his campaign, and all the candidates have put forward plans to extend health care coverage.
It is interesting to note that the Kucinich article (wrongly) pointed out that Kucinich did not present a proposal for paying for his health care plan. The article on Lieberman did not mention that his health care plan contains no mechanism to contain costs (in contrast to the Kucinich plan). Current projections show that health care costs, measured as a share of GDP, will rise by 3.0 percentage points by the end of the second term of the next president. Such an increase in health care costs (equivalent to $330 billion a year at present) would have a devastating impact on the economy.
Other Candidates Again Target Dean
Ceci Connolly
Washington Post, October 16, page A4
http://www.washingtonpost.com/wp-dyn/articles/A32154-2003Oct15.html
Democrats Focus on Health Plans at Iowa Forum
David M. Halbfinger
New York Times, October 16, 2003, page A25
http://www.nytimes.com/2003/10/16/politics/campaigns/16IOWA.html
These articles report on a debate among the Democratic presidential candidates in which health care was a major issue. Both articles note in a single sentence that two of the candidates, Dennis Kucinch and Carol Moseley Braun, favor a "single-payer" health care system. It would have been helpful to readers if the articles at least briefly described this system. Unlike the proposals put forward by other candidates, single-payer systems have a proven track record in more than half a dozen countries around the world, including Canada, Denmark, and Sweden. All of the countries with single payer systems provide universal health care at less than half the per person cost of the U.S. system, and have better health care outcomes.
It may have also been more informative to describe the proposal as
"universal Medicare" which is Kucinch's description of his plan. More
readers are likely to be more familiar with Medicare than the term "single
payer."
Health Care
'Means Test' Deal Near on Medicare
Amy Goldstein
Washington Post, October 16, page A1
http://www.washingtonpost.com/wp-dyn/articles/A32445-2003Oct15.html
Medicare Premium to Increase By 13.5 Percent Next Year
Robert Pear
New York Times, October 16, 2003, page A25
http://www.nytimes.com/2003/10/16/politics/16MEDI.html
These articles report on the Congressional debate over changes in the Medicare program. The Post article discusses a proposal to include a 'means test' for Medicare, under which higher income beneficiaries would be required to pay a larger premium for Medicare coverage. The article reports that this test would only apply to the richest two percent of beneficiaries, but that it would raise $43 billion over the next decade.
There are currently close to 35 million Medicare beneficiaries. If the means test raised $43 billion from the richest two percent, this would imply an additional fee of close to $6,000 per year from every high income beneficiary. According to a previous article in the Times ("Medicare Plan Raises the Cost For the Affluent," New York Times, October 6, 2003, page A1), the maximum fee under this plan would be $1,400 a year, with many of those subject to the fee paying considerably less. If this earlier article was correct, then this means test would raise only about $7 billion over the next decade, less than 0.5 percent of projected Medicare spending over this period.
This point is important, because a Medicare means test will not have a significant effect on the program's finances unless it is applied to a broad segment of the population. Charging higher fees to a small group of the wealthiest beneficiaries can only have a minimal effect on Medicare's long-term solvency.
The Times article discusses Republican proposals to increase the role of private insurers in Medicare. It then comments that Democrats "say private plans often cost more than traditional Medicare." It would have been helpful to note that this is also the assessment of the General Accounting Office, which found that having beneficiaries in H.M.O.s, rather than the traditional program, raised Medicare's costs.
Doctors Eyeing the U.S.: Canada Is Sick About It
Clifford Krauss
New York Times, October 17, 2003, page A4
http://www.nytimes.com/2003/10/17/international/americas/17WIND.html
This article discusses the emigration of doctors from Canada to the United
States. The article reports that they are attracted by better pay and
facilities. The article presents this situation as posing a serious problem for
Canada's single payer health care system. It would have been useful to note that
Canada pays approximately half as much per person for health care is the United
States, and has better health care outcomes. It also is worth noting that
fiscally conservative governments have actually been cutting Canada's per person
(inflation adjusted) payments over the last decade. Given these circumstances it
easier to understand why some areas of service would be under-funded.
The Budget
Tax Revenue at 44-Year Low In Proportion to U.S. Economy
Jonathan Weisman
Washington Post, October 11, page A1
http://www.washingtonpost.com/wp-dyn/articles/A10618-2003Oct10.html
Deficit Falls Below Prediction, But the Year Still Sets a Record
David Firestone
New York Times, October 11, 2003, page A10
http://query.nytimes.com/gst/abstract.html?res=F30C17F93E5B0C728DDDA90994DB404482
These articles report on new budget data that show the deficit for 2003 was slightly smaller than had previously been forecast. Both articles report on the size of the budget deficit in dollar terms and compare it to budget deficits from other years, also measured in dollars.
It would be more to compare the budget deficit measured as a share of GDP. The ability of the country to take on debt depends on the size of its economy in the same way that a richer family can afford a larger mortgage than a poorer family. While the 2003 deficit set a record in dollar terms, it was still considerably smaller than deficits in prior years when measured as a share of GDP. The 2003 deficit was equal to approximately 3.5 percent of GDP. By comparison, the deficit was equal to 4.7 percent of GDP in 1992 and 6.0 percent in 1983. The Post article does present a useful assessment of the decline in revenue in recent years, reporting on revenue trends measured as share of GDP.
Pensions and the Stock Market
States and Cities Risk Bigger Loses To Fund Pensions
Mary Williams Walsh
New York Times, October 12, 2003, page A1
http://query.nytimes.com/gst/abstract.html?res=FB0A13FA385B0C718DDDA90994DB404482
This informative article reports on a popular practice of many state and local governments, who issue bonds to finance their pension funds, and then invest the proceeds from the bond sales in the stock market. The article reports the views of several analysts that this practice is risky, and notes that many governments lost large amounts of money through this practice in the last few years.
It would have been useful to note that this practice did not just involve
risk when governments bought stock at the peaks of the stock bubble from 1998 to
2000. The generally accepted projections for profit growth at the time (from
agencies such as the Congressional Budget Office or the Office of Management and
Budget), implied that stocks would provide very low returns if stock prices grew
at the same rate as corporate profits. Alternatively, stocks would experience
large losses if price to earnings ratios moved back toward their historic
average, which actually happened. Basic arithmetic should have been sufficient
to demonstrate that borrowing to place money in the stock market during these
years was almost guaranteed to lead to loses (see "Dangerous Minds: The
Track Record of Economic and Financial Analysts," [http://cepr.net/dangerous_minds.htm]).
Welfare in Germany
A German Banker on Welfare Among Miami's Palms
Mark Landler
New York Times, October 17, 2003, page A3
http://www.nytimes.com/2003/10/17/international/europe/17GERM.html
This article reports on Germans who live outside of Germany, but still get German welfare or disability benefits. The article reports that this has become a major issue in the government's plans to overhaul the welfare system.
A one point the article reports that total welfare spending on Germans living outside the country comes to $6.4 million a year. This means that the tax burden for an average German is less than 7 cents a year. Since many of these cases undoubtedly do not involve abuses (e.g. a sick person living with family members in a foreign country), the amount of this money that is being misspent is even smaller.
The news in this article is that the German government has chosen to highlight a trivial issue to bring about larger changes in the government's welfare programs. The article provides no information as to why it might have pursued this path.
The State of the Economy
Spending Propels Growth
John M. Berry
Washington Post, October 16, page E1
http://www.washingtonpost.com/wp-dyn/articles/A31908-2003Oct15.html
This article reports on the assessment of several economists that the economy is now on a solid growth path going into next year. All of the recent economic news is presented as positive, including a September retail sales report that showed overall sales falling by 0.2 percent in nominal terms, and non-auto sales remaining flat after adjusting for inflation.
It is worth noting that none of the economists cited in the article foresaw
the onset of the recession in 2001 or the collapse of the stock bubble. It is
also worth noting that the Post has been regularly running pieces over the last
two years that claimed the recovery was underway (Economy Gains As Consumers
Keep Spending," Washington Post, July 14, 2001, Page E1 and ERR 7-23-01;
"Economic Reports Show Gains," Washington Post, June 27, 2001, Page E1
and ERR 7-2-01; "Economy Beats Expectations," Washington Post, April
28, 2001, Page A1 and ERR 5-7-01; and "Reports Offer Positive Economic
News," Washington Post, April 3, 2001, page E1).
Auto Safety
Study Says Making Cars Lighter Would Cost Lives
Danny Hakim
New York Times, October 15, 2003, page C1
http://www.nytimes.com/2003/10/15/business/15AUTO.html
This reports on an interagency federal study that found that more people
would die in auto accidents if average car weight fell. The article never gives
any information on the potential increase in fatalities estimated by the study.
This is important because the pollution from larger cars has negative health
effects which can also result in additional deaths. Given the trade-offs, it
essential to know not only that lighter cars may lead to more traffic
fatalities, but also how many more.
Liberal Think Tanks
Notion Building
Matt Bai
New York Times, October 12, 2003, Magazine p 88
http://www.freecongress.org/misc/031012notionbuilding.asp
This article examines the plans for the Center for American Progress (CAP), a new Democratic think tank. At one point the article notes that no one at CAP has an alternative to the current Social Security system which it describes as leading the United States to "an inevitable fiscal crisis." The Social Security trustees projections, which are widely accepted as the basis of the debate over Social Security, show that the program can pay all benefits for the next 40 years with no changes whatsoever, and that a tax increase equal to 1.86 percent of payroll would be sufficient to keep the program fully solvent for the next seventy five years. This tax increase is approximately the same size as tax increases put in place in each of the decades from the fifties to the eighties.
The article also describes CAP as being constrained in its agenda by the concerns of interest groups like teacher unions and the AARP. It contrasts such constraints with the supposedly unfettered thinking of right-wing think tanks. It is not clear that right-wing think tanks really have not been constrained by powerful interest groups. For example, true market oriented conservatives should oppose government granted monopolies like patents and copyrights. However, right-wing think tanks have often received large amounts of money from media and entertainment companies, as well as the pharmaceutical industry, all of whom are heavily dependent on these government monopolies for their survival.