Economic Reporting Review
By Dean Baker
December 12, 2002
OUTSTANDING STORIES OF THE WEEK
Energy
Dept. Contractors Due for More Scrutiny
Joel
Brinkley
New
York Times, November 24, 2002, Page A21
http://www.nytimes.com/2002/11/24/politics/24CONT.html?todaysheadlines=&pagewant
This
article examines the track record on contracting out government services in the
Energy Department in the context of the Bush Administration's proposal to vastly
expand the role of the private sector in the provision of government services.
It points out that contracting by the Energy Department, which is far more
reliant on contracting than other government departments, has been characterized
by massive cost over-runs. It also notes that projects have regularly taken far
longer than originally scheduled.
Easy
Credit and Hard Times Bring a Flood of Foreclosures
Peter
T. Kilborn
New
York Times, November 24, 2002, Page A1
http://www.nytimes.com/2002/11/24/national/24FORE.html?pagewanted=print&position\=top
This
article reports on the surge in mortgage foreclosures that has followed the
weakening of the economy over the last two years.
Underside
of Christmas Greenery: Poor Wages
Steven
Greenhouse
New
York Times, November 26, 2002, Page A1
http://www.nytimes.com/2002/11/26/national/26WREA.html
This
article reports on the wages and working conditions faced by the largely
immigrant work forces on Christmas tree farms. According to the article, these
workers work as much as 80 hours a week, for pay that can be less than the
minimum wage.
Restructuring
the Tax Code
Itching
to Rebuild the Tax Law
Richard
W. Stevenson
New
York Times, November 24, 2002, Section 3 page 1
http://www.nytimes.com/2002/11/24/business/yourmoney/24TAXX.html?pagewanted=prin\t&position=top
This
article assesses various plans that have been put forward for overhauling the
tax code. At one point it asserts that the motive for most of these changes is
"a basic philosophy." The proposed changes discussed in this article
would all redistribute income from middle and/or lower income individuals to
upper income individuals. While it is possible that the people who advocate this
upward redistribution may be doing so for philosophical reasons, it is also
possible that their goal is simply to get more money for upper income people.
The article gives no indication of how it was determined that philosophy is the
primary motivation of the people pushing these changes to the tax code.
The
article asserts that the recent rash of corporate scandals has "made it
politically tricky" to promote policies that help big business. It does not
present any evidence that supports this assertion. Congress just passed a
homeland security bill that included special provisions that aided insurance
companies by having the government pick up part of its liabilities, aided drug
companies by exempting them from certain types of liability, and benefited
corporations that moved their headquarters out of the United States in order to
evade taxes. In the case of this highly visible piece of legislation, political
considerations did not prevent Congress from providing a wide variety of
benefits to major corporations.
The
article reports that a flat tax proposed by Representative Dick Armey would have
a large zero bracket, so that it does not impose a large tax increase on middle
income taxpayers. Even with a high zero bracket, Mr. Armey's tax would still
impose a large tax increase on the middle class. If the tax raises the same
amount of revenue as the current progressive income tax, then it must have a
large tax increase on the middle class in order to offset the large tax cut that
it gives to the wealthy.
Argentina
Balancing
Budgets, Without a Net
Daniel
Altman
New
York Times, November 24, 2002, Section 3 page 4
http://www.nytimes.com/2002/11/24/business/yourmoney/24VIEW.html
This
article discusses the merit of maintaining a fiscal target of a balanced budget.
At one point it presents Argentina in the mid-nineties as the model of a nation
that acted irresponsibly in not
balancing
its budget in good times.
It
is worth noting that, at the time, Argentina was widely admired by the business
community and business press. It was pursuing neo-liberal policies under the
tutelage of the I.M.F. and World Bank. Its deficits began to grow because the
interest rate it had to pay on its debt exploded after a series of international
financial crises beginning with the Mexican peso crisis in 1994 and the East
Asian financial crisis in 1997. Higher interest rates on debt, rather than
increased spending or reduced tax revenue, was the main factor pushing up
Argentina's deficit during this period.
The
other important factor in Argentina's fiscal crisis was its decision to
partially privatize its Social Security program in 1994. As a result, money that
had gone to the government as Social Security taxes was instead paid into
individual accounts. If Argentina had continued to receive this revenue, its
budget would have been balanced in 2001 (see "The Role of Social Security
Privatization in Argentina's Economic Crisis
[http://www.cepr.net/argentina_and_ss_privatization.htm]).
Hope
Glimmers Again For Argentine Economy
Anthony
Faiola
Washington
Post, November 26, 2002, Page A22
http://www.washingtonpost.com/wp-dyn/articles/A38667-2002Nov25.html
This
article reports on the recent upturn in Argentina's economy. At one point it
holds out the possibility that Argentina's economy may face new problems in the
future because it may not reach an agreement with the I.M.F. At this point, it
is not obvious that an agreement with the I.M.F. will be beneficial to
Argentina. The I.M.F. has already said that it will provide no net increase in
lending, and the conditions of such an agreement may actually lead to
considerable economic damage.
It
also warns that defaulting on loans to the World Bank could put Argentina
"in the same category as such failed economies and financial pariahs as
Sudan and Iraq." The article does not indicate what, if any, negative
consequences Argentina should expect from being placed in such a category, other
than being the victim of bad coverage in the business press.
Health
Insurance
Problem
of Lost Health Insurance Is Reaching Into the Middle Class
Reported
by John M. Broder, Robert Pear and Milt Freudenheim and
written
by Mr. Broder
New
York Times, November 25, 2002, Page A1
http://www.cahi.org/News/Problem%20of%20Lost%20Health%20Benefits%20Is%20Reaching/%20Into%20the%20Middle%20Class.htm
This
informative article examines the current trend of rapidly rising health
insurance premiums and its impact on coverage. At one point, the article asserts
that President Bush "earmarked a large amount of money for health insurance
tax credits: $89 billion over ten years." It is not clear that this should
be considered a large sum. Total spending on health care over this period is
projected to be more than $20 trillion. The amount set aside by President Bush
is equal to approximately 0.5 percent of projected health care spending over
this period. Alternatively, adjusting for inflation and assuming (contrary to
this article) that the number of uninsured does not rise significantly, the
amount President Bush set aside would be equal to approximately $125 per year
for each of the nation's uninsured.
While
the article notes the path of rising health care costs in the United States, it
never discusses the pattern of health care costs in other nations. The average
cost of providing health care in other rich nations is less than half as much
per person as in the United States, and these nations all have better health
care outcomes. It would have been appropriate to include this information in a
lengthy article such as this one.
Copyrights
Students
Learning to Evade Moves to Protect Media Files
Amy
Harmon
New
York Times, November 27, 2002, Page C3
http://www.nytimes.com/2002/11/27/technology/27SWAP.html
This
article reports on ways in which college students are evading measures by their
schools to prevent them from making unauthorized copies of copyrighted material.
At one point it discusses the need to "instill students with a sense of
morality." It is not obvious that a sense of morality would encourage
greater support for copyrights, since it is not apparent that this sort of
government interference in the market - which primarily benefits large
corporations and a small number of wealthy musicians and actors - is especially
moral. In this respect, courses intended to instill respect for copyrights could
be seen as comparable as courses to discourage black market transactions in the
former Soviet Union.
Foreign
Aid
Bush
Plan Ties Foreign Aid to Free Market and Civic Rule
David
E. Sanger
New
York Times, November 26, 2002, Page A12
http://www.nytimes.com/2002/11/26/international/26PREX.html
This
article reports on a Bush administration plan to set up a special pool of $5
billion in foreign aid, which will be targeted towards countries that adopt
policies that the administration views in a positive light. The article suggests
that the criteria would be following the U.S. economic model. It then suggest
that "cutting marginal tax rates," could be one of the measures on
which countries would be evaluated. In fact, most developing countries already
have much lower effective tax rates on the rich than does the United States. If
they were to follow the U.S. model, they would have to substantially increase
the tax burden faced by their wealthiest citizens.
It
would also have been useful if the proposed increase in aid were expressed as a
percentage of the federal budget. In 2006, when the proposed increase in aid
would be fully phased in, it will account for just over 0.2 percent of projected
federal spending.
Medicare
Republican
Senator Fixed on Overhaul of Medicare as His Next Mission
Robin
Toner
New
York Times, November 27, 2002, Page A14
http://www.nytimes.com/2002/11/27/politics/27MEDI.html
This
article discusses plans by Republican Senator Bill Frist to try to overhaul
Medicare. The first paragraph describes Medicare as "costly." The
article provides no basis for this description. Many studies have shown the
program is far more efficient in delivering medical care than the private
sector, so it is not costly by this standard. While it does comprise a
significant portion of the federal budget, it is only about half as large as the
defense budget. Times articles generally do not describe the defense budget as
"costly."
At
one point the article refers to Republican plans to move Medicare towards a
"more competitive model." It would have been appropriate to note that
the government has tested this policy for close to a decade by increasing the
role of H.M.O.s in Medicare. Studies by both the General Accounting Office and
the Congressional Budget Office show that H.M.O.s increased costs, as they
sought to sign up the healthiest and least costly Medicare patients.
The
article also comments that Republicans largely neutralized the political impact
of a Democratic plan to provide prescription drug benefits by providing their
own plan. It is worth noting that it would have been almost impossible for
voters to recognize that the Republican plan provided far less generous
benefits. The media, including the Times and the Post, gave almost no coverage
to the contents of the plans, choosing instead to focus their attention almost
exclusively on the effect that the issue was having on political campaigns.
Trade
U.S.
Urges Abolition Of Tariffs
Paul
Blustein
Washington
Post, November 27, 2002, Page E1
http://www.washingtonpost.com/wp-dyn/articles/A43427-2002Nov26.html
U.S.
to Seek To Abolish Many Tariffs
Edmund
L. Andrews
New
York Times, November 26, 2002, Page C1
http://www.nytimes.com/2002/11/26/business/worldbusiness/26TRAD.html
These
articles report on a proposal by the Bush administration to eliminate all U.S.
tariff barriers on goods by the year 2015. Both articles refer to the
administration's commitment to "free-trade." The Bush administration
is not committed to free trade. One of its main goals in trade negotiations has
been to extend protectionist measures such as copyrights and patents throughout
the developing world. It also supports measures that protect highly paid
professionals, such as doctors and lawyers, from foreign competition. The
administration apparently finds it politically advantageous to describe its
trade policy as the promotion of "free-trade." It is not an accurate
description.
The
Times article asserts that the proposal to eliminate all tariff barriers
"plays to the United States' strength." It is not clear how this is a
strength of the United States. The United States has lost more than 3 million
manufacturing jobs since 1997, with much of this attributable to a trade deficit
that now exceeds $400 billion annually. While the United States government might
be more willing to impose such costs on its workers than other nations, this is
not obviously a source of strength.
The
Post article asserts that the average tariff on imports is 4 percent. Actually,
it is 1.5 percent. It also refers to a World Bank study, cited by the
administration, that claims that removing all trade barriers in rich nations
would raise 300 million people in developing nations above the poverty line.
Another World Bank study shows that removing all barriers would raise per capita
income in developing nations by 0.6 percent of GDP, when its effects are fully
felt, after 10-15 years. This means that a country with a per capita income of
$500 would have a per capita income of $503 if all trade barriers are
eliminated. The World Bank's analysis of the TRIPS agreement, which imposes U.S.
style patent and copyright laws on developing nations, shows that these measures
would lead to losses that are larger than any gains associated with removing
tariff barriers in rich nations.
Israeli
Loan Guarantees
Israel
Asks U.S. For an Increase Of $4 Billion In Military Aid
Associated
Press
New
York Times, November 27, 2002, Page A8
http://www.nytimes.com/2002/11/27/international/middleeast/27ISRA.html
This
discusses a request by Israel for increased aid from the United States, some of
which would take the form of loan guarantees. The article asserts that loan
guarantees have "no cost to the United States if the loans are
repaid." This is not true. A U.S. government guarantee will make Israel a
preferred borrower, allowing it to move ahead of other borrowers and raising the
interest rates these other borrowers would have to pay. Since the sums involved
are very small relative to the size of the national and international credit
markets, this effect will be trivial, but it is inaccurate to say that loan
guarantees have no cost.
Energy
Conservation
U.S.
Fails to Curb Its Saudi Oil Habit, Experts Say
Jeff
Gerth
New
York Times, November 26, 2002, Page A1
http://www.nytimes.com/2002/11/26/international/middleeast/26OIL.html
This
article reports on the fact that the United States continues to be heavily
dependent on oil from the Persian Gulf region. The article only discusses
potential alternative sources of oil. It does not mention at any point potential
measures for conserving energy, which would also reduce dependence on Persian
Gulf oil.
Nationalizing
Airlines
Airlines'
Official Warns on Security Costs
New
York Times
New
York Times, November 27, 2002, Page C7
http://www.nytimes.com/2002/11/27/business/27ATA.html
This
brief article reports on a talk by the head of the airlines industry trade
association, in which she said that the cost of security measures may drive the
airlines into bankruptcy and force the government to take responsibility for
running the airlines. She argued that the government should pick up much or all
of the costs of these measures.
This
article should have included an opposing view. While the costs of security
measures may help to drive some airlines out of business, the loss of these
airlines should leave the remaining airlines better situated. Also, having the
government pay for airline security measures amounts to a transfer from
taxpayers to people who choose to travel by air. There is no obvious rationale
for having the general public subsidize air travel.