ECONOMICS REPORTING REVIEW: Checking the Facts
Week of August 26 - September 1

Dean Baker is co-director of the Center for Economic and Policy Research.

THE CANDIDATES' BUDGET PROPOSALS 

"For Bush and His Opponents, Another Tug-of-War Day," by James Dao in the New
York Times, August 29, 2000, page A17. 

"Bush and Gore Stake Claims To Federal Role In Education," by David E. Rosenbaum in
the New York Times, August 30, 2000, page A1. 

"Gore and Bush Battling for Control of the Policy Agenda," by Kevin Sack with James
Dao in the New York Times, August 31, 2000, page A17. 

"Hitting Harder on Education," by Terry Neal in the Washington Post, August 31,
2000, page A12. 

These articles contrast Governor Bush and Vice President Gore's budget 
proposals. Much of the discussion is focused on their proposals for 
education spending. While the articles all make an effort to clarify the nature and
size of the candidates' proposed increases in education spending (the Sack and Dao
piece includes a helpful chart, detailing the projected cost of specific proposals),
because they are not clear on the assumed baseline levels of spending, it would be
difficult for a reader to understand exactly what the candidates are proposing. 

Current federal spending on pre-school, primary, and secondary education is 
approximately $24 billion. To maintain the same level of services, adjusting 
for the growth of the population and the economy, would require an 
additional commitment of approximately $59 billion over the years 2002 to 
2011, compared to a baseline that assumed that spending was held at its 
current in real terms (the most common baseline used in budget debates). Mr. 
Gore's proposal would increase spending over this period by $115 billion. 
This is an increase of approximately 16 percent above what is needed to 
maintain current services. The Rosenbaum article inaccurately placed the 
size of the increase in spending at 50 percent. 

Governor Bush's proposal call for an increase in education spending of 
$24.8 billion over the next five years. This is approximately $9 billion 
more than will be needed to maintain the current level of services over this 
period, after adjusting for the growth of the economy and population, an 
increase of approximately 6 percent. 

It is also worth noting that these articles, and almost other reporting on 
the candidates' positions on the budget, exclude any discussion of the views 
of minor party candidates, notably Ralph Nader. In order for voters to make 
an informed choice, they must have access to this information. 

MEDICARE 

"Gore: Bush Could Medicare at Risk," by Mike Allen in the Washington Post, August
31, 2000, page A12. 

This article reports on attacks that Vice President Gore made against Governor Bush,
because he has not committed himself to place the Medicare surplus in a "lockbox,"
where it could not be spent for other purposes. In fact, the Medicare program is not
affected at all by how or whether the government spends its surplus. The program
uses the surplus to buy government bonds. The government's obligation to repay
these bonds is not affected by its decision to spend the money. Therefore the
"lockbox" is completely irrelevant to the solvency of the program. 

This article gives the year 2025 as the projected date at which the Medicare trust
fund will be depleted. According to the most recent trustees report, the date is
2023. 

FRANCE 

"France Joins Wave of Plans for Big Tax Cuts," by John Tagliabue in the New York
Times, September 1, 2000, page A12. 

This article discusses plans for a tax cut in France and a similar tax cut in Italy. The
headline of the article is somewhat misleading, since it is questionable whether most
people would consider the proposed tax cut "big." According to the article, the tax
cut would be roughly $16 billion over three years. Adjusting for the sizes of the
economy, the tax cut would be the equivalent of a $30 billion annual tax cut in the
United States. This is smaller than the size of the tax cuts proposed by Vice
President Gore, which have generally been viewed as modest. 

The article also makes a reference to a new law "that reduced the workweek to 35
hours from 40." Actually the standard workweek in France had been thirty-nine hours
for more than a decade. 

GORE AND THE DRUG COMPANIES 

"Gore Vows To Reduce Seniors' Drug Costs," by Mike Allen in the Washington Post,
August 29, 2000, page A1. 

"Gore in Attack on Drug Industry, Focuses on 2 Medicines," by Kevin Sack in the New
York Times, August 29, 2000, page A17. 

These articles discuss Vice President Gore's plans for a prescription drug benefit for
senior citizens and his criticisms of the drug industry. Both articles refer to Gore as a
long time critic of the drug industry. At one point, the Post article quotes Mr. Gore:
"All my public life, I've stood up to the big drug companies and fought against drug
company price gouging." 

This is not accurate. In 1999, Vice President Gore was leading a drive to force South
Africa to pay patent protected prices for AIDS drugs. Had he succeeded in forcing
South Africa and other developing nations to respect the patents of the U.S.
pharmaceutical industry, it would have raised the price of AIDS drugs in South Africa
by several hundred, or even several thousand, percent. Because of his efforts on
behalf of the drug companies, there were several protests last year at Gore
campaign events by AIDS activists. The Clinton Administration then reversed its
policy. 

At one point the Times article states that "the drug industry has long been one of
Mr. Gore's corporate bogeyman." This statement appears to be putting Gore's
criticisms in a derogatory light. It is unlikely that a news story would have referred to
welfare mothers or unions as Republican "bogeymen," even though they would also
be singled out for attack in much the same way that Mr. Gore has attacked the drug
industry. 

JOB INSECURITY 

"Lingering Job Worries Amid a Sea of Plenty," by David Leonhardt in the New York
Times, August 29, 2000, page C1. 

This informative article examines the extent to which a high degree of job insecurity
persists even as the unemployment rate remains near a thirty year low. An important
piece of data not mentioned in the article is that real wages have stopped rising in
the last year. Higher oil prices pushed the rate of inflation to 3.5 percent over the
last twelve months. This is almost exactly the same as the 3.7 percent rate of
increase in the average hourly wage in the same period. It is striking that workers
are seeing no real wage gains, given both the low unemployment rate and the
extraordinary rate of productivity growth over the last year. 

IMMIGRATION IN IOWA 

"Short of People, Iowa Seeks To Be Ellis Island of Midwest," by Pam Belluck in the
New York Times, August 28, 2000, page A1. 

This articles reports on efforts by Iowa's government to increase the number of
immigrants coming into the state. The discussion entirely takes the position of
business. At several points it refers to labor shortages and the need for more workers
to create a "vibrant economy." 

The vast majority of Iowa's population would stand to do better in a situation where
Iowa continues to have a tight labor market and fewer immigrants into the state. In
these circumstances, the price of labor would be bid up, raising most people's
income. Businesses obviously prefer to be able to hire workers at lower wages, which
a larger workforce will allow. Insofar as a large supply of cheap labor is the source of
additional economic growth, it will not benefit most of the people in Iowa. 

AIDS AND SUB-SAHARAN AFRICA 

"President Urges Nigeria to Fight Tyranny of AIDS," by Marc Lacey in the New York
Times, August 28, 2000, page A1. 

This article reports on President Clinton's visit to Nigeria. At one point it notes that
African nations have "reacted coolly" to the Clinton administration's proposal to lend
them $1 billion annually to purchase AIDS drugs. The article attributes this reaction
to the fact that these nations are already heavily indebted. While this is certainly
part of the explanation, the loans would also be designated for the purchase of AIDS
drugs produced the U.S. pharmaceutical industry. While the Clinton Administration
has proposed that these drugs would be made available at a discount, their price
would still be higher than AIDS drugs produced in Brazil and India (see "U.S. Offers
Africa $1 Billion A Year For Fighting AIDS," by Joseph Kahn, New York Times, July 19,
page A1; and ERR 7-24-00). 

GLOBALIZATION AND FREE MARKETS 

"Bush Vows To Put Greater U.S. Focus on Latin America," by Frank Bruni in the New
York Times, August 26, 2000, page A1. 

"Trade Support Is Dwindling Fed Chief Says," by Richard W. Stevenson in the New
York Times, August 26, 2000, page B1. 

Both of these articles discuss aspects of globalization. Both articles includes
assertions that recent trade agreements, such as NAFTA, were intended to open
trade. While these agreements do remove some barriers, most notably obstacles to
foreign investment by U.S. corporations, in some instances they also increase
barriers. Specifically, a major thrust of recent trade agreements has been to increase
the extent of patent and copyright protection in developing nations. Therefore, it is
inaccurate to refer to these agreements simply as advancing free trade, as these
articles do. 

The Stevenson piece presents a comment from Federal Reserve Board Chairman Alan
Greenspan, that capitalism is the best way to produce wealth, but "there remains
considerable unease among some segments about the way markets distribute that
wealth and the effects of raw competition on society." It seems implausible that Alan
Greenspan really believes that the market and "raw competition" are responsible for
the current distribution of wealth in society. Numerous actions by the government
directly or indirectly affect the distribution of wealth. 

Most obviously, Alan Greenspan and the Federal Reserve Board play a very direct role
in determining the rate of growth of wages through interest rate policy. On numerous
occasions Mr. Greenspan has indicated that he would raise interest rates in order to
raise the unemployment rate and slow the pace of wage growth, in response to
evidence of accelerating wage growth. The willingness of the Federal Reserve Board
to act to counter wage growth is undoubtedly one of the factors explaining the large
redistribution from wages to profits over the last decade. The profit share of
corporate GDP has risen by approximately 3.0 percentage points from the business
cycle peak in 1989 to 1999. This redistribution has reduced an average worker's
compensation by approximately $1,500 a year. 

The government also structures the market in many other ways, for example
arresting people for distributing unauthorized versions of patented or copyrighted
material, or restricting the number of doctors allowed in the country in order to keep
their incomes high (e.g. see "A.M.A. and Colleges Assert There is a Surfeit of
Doctors," by Robert Pear, New York Times, March 1, 1997, page A7 and "U.S. to Pay
Hospitals Not to Train Doctors, Easing Glut," by Elisabeth Rosenthal, New York Times,
February 15, 1997, page A1). While it may be politically advantageous to those who
benefit from the current distribution of wealth to make it appear as simply the result
of the free market, this clearly is not the case. It also is unlikely that Alan Greenspan
does not recognize the impact that government interventions into the market have
on the distribution of income. 

The article also includes a comment from Mr. Greenspan that structural changes in
Europe and Japan are motivated "by the evident ability of market competition to
elevate living standards." There actually is very little evidence that the economic
structure in the United States will lead to more rapid improvements in living standards
than those in Europe and Japan. These nations have regularly maintained rates of
productivity growth of approximately 2.0 percent annually. The rate of productivity
growth in the United States has averaged approximately 1.5 percent over the last
quarter century. 

While productivity growth in the United States has been considerably more rapid in
the last four years, it is not clear that this will be sustained. Both the Congressional
Budget Office and the Office of Management and Budget assume a lower rate of
productivity in their budget projections. Mr. Greenspan also has indicated that he
believes that the more rapid rates of productivity growth will not be sustained when
he has warned Congress that the surpluses may end up being lower than currently
projected. This implies that he believes that productivity growth might be lower than
is assumed in current budget projections. 

OUTSTANDING STORIES OF THE WEEK 

"Forced Labor Swindles Brazil's Poor," by Stephen Buckley in the Washington Post,
August 27, 2000, page A1. 

This article reports on the continuation of a farm labor system in Brazil, under which
workers contract for jobs through brokers. Typically the contract is structured so
that virtually all of the worker's wages are withheld to pay "expenses." Workers are
held in virtual slavery as they try to pay off their debts. 

"The Republican Prescription," by Adam Clymer in the New York Times, August 29,
2000, page A17. 

This article assesses a Republican campaign ad which touts the prescription drug
plan being forward by Governor Bush and criticizes the one proposed by Vice
President Gore. The article correctly points out that the main substantive claims in
the ad, most notably that Governor Bush has a prescription drug plan, are not true.
It is unusual for a news article to be so explicit in pointing out that one of the major
parties is not being honest, even when this is in fact the case. 

"Use of Some Hypertension Drugs Questioned," by Lawrence Altman in the New York
Times, August 29, 2000, page A19. 

This article reports on the results of a new study, which finds that calcium channel
blockers are far less effective than other drugs in preventing heart attack and heart
failures. This finding is striking because, according to the article, calcium channel
blockers cost between 12 and 17 times as much as the most common alternative.
This implies approximately $5 billion a year in unnecessary expenditures. 

"Factory Closings in China Arouse Workers to Fury," by Elisabeth Rosenthal in the
New York Times, August 31, 2000, page A1. 

This article reports on the reactions among Chinese workers to plant closings. It
notes that many of these workers have few alternative job prospects and virtually no
social safety net to rely on. In many cases, plant closings have led to protests, some
of them violent. In some cases, workers have even been driven to suicide.

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