Economic Reporting Review
May 13, 2002
By Dean Baker, co-Director of the Center for Economic and Policy Research
Officers
May Gain More Than Investor In Move to Bermuda
David
Cay Johnston
New
York Times,
May 20, 2002, page A1
This article examines the potential gains to the top
executives at Stanley Works from legally relocating its headquarters to Bermuda.
The article points out that the main beneficiary of this effort at avoiding U.S.
taxes may be the corporate executives – who stand to earn large bonuses –
rather than the investors.
The
Right in Europe
Europe
‘Is Rubbing Its Eyes’ at the Ascent of the Right
Alan Cowell
New York Times
May 18, 2002, Page A3
The
Politics of Assassination
Anson Rabinbach
New York Times
May 19, 2002, Section 4, page 3
These
articles both discuss the rise of the anti-immigrant right in Europe. Both
articles imply that the rise of the right has been associated with a
disaffection with the welfare state politics of traditional Social Democratic
parties. In two of the countries in which anti-immigrant parties have garnered
significant support, Denmark and the Netherlands, their platform actually
centered largely on the defense of the welfare state.
In
the case of Denmark, the Danish People’s Party emphasized protecting the
public pension and education system and improving the health care system. Two of
the main planks in the platform of Pim Fortuyn, the assassinated leader of the
Dutch right-wing party, were reducing waiting lists for surgery and smaller
class sizes in the public schools. In both Denmark and the Netherlands, social
democratic parties had led governments that imposed significant cutbacks in the
welfare state. Given the platforms of these anti-immigrant parties, it seems
that much of their popularity stems from the retreat of social democratic
parties from the support of the welfare state, rather than a decision of voters
to reject the social welfare state.
Copyrights
and Protectionism
Mexico Embraces Microsoft, Stirring a Debate
Graham Gori
New York Times
May 19, 2002, Section 3, page 6
This article discusses the decision of the Mexican government to enter
into an agreement with Microsoft to help build up its computer infrastructure.
Under the agreement, Microsoft is donating money and computer equipment, in
exchange for Mexico committing itself to Microsoft’s software, as opposed to
free open-source software.
At the end of the article, it describes this decision as being consistent
with Mexico President Vicente Fox’s “pro-business, pro-market” philosophy.
While it will likely help Microsoft, it is not apparent that committing Mexico
to pay for software for the indefinite future is a “pro-business,
pro-market” decision. Microsoft’s contribution to the construction of
Mexico’s computer infrastructure makes it cheaper in the short-run to choose
Microsoft, but it is entirely possible that a careful analysis of the long-run
costs would show that going with open-source software would be the cheaper and
more market-based route.
At one point the article reports that France is considering the adoption
of open-source software in its school system “out of national pride.” It
does not indicate how it determined that this would not be the most economical
route for the nation to pursue.
Living
Wage Laws
‘Living
Wage’ Roulette: Bigger Check, or Will It Be a Pink Slip?
Steven Greenhouse
New York Times
May 19, 2002, Page A25
This article discusses the impact of living wage laws on the plight of
low-income workers. Much of the discussion is based on a study by Michigan State
University Professor David Neumark, which finds that living wage laws reduce the
poverty rate, but increase the rate of unemployment in the cities that have
passed them. In fact, since the living wage laws that have been passed to date
apply to a very small number of workers (less than 0.05 percent of workers
nationwide), it is almost inconceivable that they have had a measurable impact
on either the poverty rate or the unemployment rate. It is also worth noting Professor Neumark has done work for the
Employment Policy Institute, a research organization funded by the fast food
industry, which found that the minimum wage raised the unemployment rate.
Subsequent research revealed that this result was driven entirely by data
provided by the operator of a fast food chain, which was inconsistent with
results based on data that had been independently collected
(see “The Minimum Wage and Job Loss:
Opponents of Wage Hike Find No Effect, by John Schmitt, Economic Policy
Institute, 1996).
Research that relied solely on data collected independently of the industry did
not find any relationship between job loss and the minimum wage. The article also presents the claims of a restaurant owner that he might
lay off 40 of his 125 employees, if a living wage law is approved in Santa
Monica. This law exempts businesses with sales of less than $5 million. If this
business actually crosses the threshold which would make the law applicable,
then its revenue would be equal to at least $40,000 per worker, or $27.60 per
worker hour, assuming that its workers put in 29 hours a week, the average in
the retail sector. If labor costs account for just one-third of the
restaurant’s expenses, then the average wage would already be above that of
the proposed living wage ($12.25 an hour, without benefits), and the restaurant
would be little affected by the law.
Free
Trade and Latin America Economic
Crisis Spurs Anger
Anthony Faiola
Washington
Post, May
19, 2002, Page A20
U.S.
Hasn’t Kept Promise to Latin America
Christopher
Marquis
New
York Times,
May 19, 2002, Page A12
These articles discuss the relationship between Latin America and the
United States. Both articles refer to the United States backing away from its
commitments to “free trade,” and the lack of progress on a hemispheric
“free-trade” agreement. The United States has never been committed to
“free-trade,” except as rhetoric. While it has sought reductions in some
trade barriers, it has sought to promote increased protection in other areas,
notably for patents and copyrights.
These forms of protectionism have been especially
important in the context of commercial negotiations with Latin America. It is
likely that any trade pact will include stronger protection for U.S. patents and
copyrights, driving up prices for consumers in Latin America and draining
billions of dollars from their economies, according to World Bank estimates.
These forms of protectionism have already been an important issue in relations
with Latin America, as efforts by the Clinton Administration to impose patent
protection for certain drugs threatened to undermine Brazil’s AIDS program.
Russia
An
Empire Tries to Become a Normal Nation
Celestine
Bohlen
New
York Times,
May 19, 2002, Section 4, page 1
This article reports on the effort by Russians to adjust to their
nation’s diminished standing in the world after the collapse of the Soviet
Union. The article refers to this issue largely as a psychological problem, as
Russians realize that the nation no longer has the power it once did. For it
example, it refers to Russians’ feelings of powerlessness as the United States
bombed Serbia, a historic Russian ally.
Russians have had more than psychological problems in recent years. Its
economy collapsed in the early nineties as it adhered to an I.M.F./World Bank
plan for transitioning from a centrally planned economy to a market economy. GDP
fell in half, unemployment soared, and there was an enormous deterioration in
the well-being of the population, most clearly demonstrated by a sharp decline
in life-expectancy. This sort of economic collapse is without precedent for a
nation that is neither at war nor suffering from national disaster.
The I.M.F. and World Bank did further damage to Russia’s economy when
they insisted that the government support an over-valued currency in 1997-1998.
This effort led to a large waste of foreign reserves and forced interest rates
ever higher, throwing the economy into a recession. The country finally broke
with these polices and devalued its currency in August of 1998. After a period
of financial disruption, Russia’s economy resumed growing in 1999, turning in
its best performance in more than twenty years.
The economic damage that Russia has incurred as a result of following
I.M.F./World Bank policies are likely an important factor in Russians attitudes
toward the West. This damage is not mentioned in the article.
Gambling
Midwest
Towns Feel Gambling Is a Sure Thing
Jodi
Wilgoren
New
York Times,
May 20, 2002, Page A1
This article discusses the growth of casino gambling in the Midwest. At
one point it asserts that the strategy to promote gambling in the region “was
validated” this year, since many of the region’s residents choose to remain
close to home rather than travel long distances for vacations.
This is not sufficient evidence to determine that gambling has been a net
benefit to the region. Even if much of the money that has been spent on gambling
in the region would have otherwise been spent elsewhere, it is still likely that
the casinos have led many people in the region to spend more in total on
gambling, than they would have if the casinos were not there. As a result, many
people likely have lower savings, and will be less prepared for retirement.
Social
Security
Bush
Turns More Partisan With the Coming of Elections
Dana
Milbank
Washington
Post, May
19, 2002, Page A1
This article reports on the increasingly
partisan rhetoric used by President Bush in recent weeks. At one point it refers
to Democrats efforts to attack Bush for violating “promises to protect Social
Security funds.” It is worth noting that Bush has done nothing to jeopardize
Social Security funds. The fact that the Social Security surplus is being spent
does not affect the health of the program at all, since the Social Security
trust fund holds the exact same assets regardless of whether the surplus is
spent or not.
Polls
consistently show that large segments of the public are confused on this issue.
Therefore it would be appropriate to point out that Social Security has not
actually been affected by the spending of the surplus.
Lieberman Urges Congress to
Delay Future Tax Cuts
Dan Balz
Washington
Post, May
21, 2002, Page A6
This
article reports on a speech by Senator Joseph Lieberman, in which he called on
Congress to delay the rest of the Bush tax cut package. At one point it refers
to Social Security’s “looming financial problems.” Social Security is
projected to be fully solvent until 2041, with no changes whatsoever. This means
that the program is in better shape than at any point in the forties, fifties,
sixties, and seventies – decades in which Social Security was rarely thought
to face serious troubles.
Amazon.com
Amazon II: Will This Smile
Last?
Leslie Kaufman
New
York Times,
May 19, 2002, Section 3, page 1
This lengthy article examines the prospects for Amazon.com. It never
discusses the impact of the likely change in the tax status of items sold over
the Internet. Presently, virtually all goods sold over the Internet are not
subject to state sales taxes. This is almost certain to end within the next year
and a half, as a federal moratorium on state taxation of the Internet expires in
October of 2003. The sales tax will be taken primarily out of Amazon’s profits
for most goods, since the price of the goods sold at traditional stores will not
be affected, and therefore Amazon will not be able to raise its prices to cover
the tax.
Venezuela
Descendants
of Venezuelan Immigrants Flee to ‘Old Country’
Simon
Romero
This article reports on efforts by many Venezuelans to leave the country
as a result of the current political unrest. The article does not look at the
class and racial dimensions to this issue. Venezuela has been ruled for most of
the last century by a small elite that is white. Hugo Chavez has considerable
support from the poorer segments of the population, the vast majority of whom
are of mixed (indigenous, European, and African) descent. The loss of the
traditional elite’s control over the government is undoubtedly an important
factor in their interest in leaving Venezuela.
Germany
Wage
Pact Reached By German Workers
Bloomberg
News
New
York Times,
May 20, 2002, Page C6
This article reports on an agreement between employers and the metal
workers union in two regions of Germany, which will give workers a 4.0 percent
pay increase this year, and a 3.1 percent pay increase next year. The article
reports that “executives and economists say the increases may lead to
layoffs.”
The article does not identify the economists to which it refers. While
there are undoubtedly economists who hold this view, especially those who are
close to business, there are many economists who would not view pay increases of
this size as being a serious problem. Wages in the United States have been
rising at approximately this rate for the last five years.
An earlier article on labor negotiations in Germany used the identical
wording describing the view of “business executives and economists” (see
“First Wave of Strikes In Germany Shuts Plants,” by Edmund L. Andrews, New
York Times, May 7, 2002, Page W1; and ERR 5-13-02).