Economic
Reporting Review
January 22, 2002
By Dean Baker, co-Director of the Center for Economic and Policy Research
OUTSTANDING STORIES OF THE WEEK
Georgia Finds Itself in Jobless Benefits Bind
David Leonhardt
New York Times, January 13, 2002, Page A14
This article examines the situation of jobless workers in Georgia,
where the state suspended employers' unemployment insurance
contribution three years ago. As a result, the state's benefit fund is
rapidly being depleted.
Enron Avoided Income Taxes in 4 of 5 Years
David Cay Johnston
New York Times, January 17, 2002, Page A1
This article reports the findings of an analysis of Enron's tax
records. The company used a variety of loopholes to avoid paying any
federal taxes in four of the last five years.
Why It Takes Psychology To Make People Save
Louis Uchitelle
New York Times, January 13, 2002, Section 3 Page 4
This article reports on research findings on the factors that determine
individuals willingness to save.
An Enron Legacy: Lower Reported Profits
Floyd Norris
New York Times, January 18, 2002, Page C1
This article points out that the sort of accounting abuses employed by
Enron were have become widespread in recent years. As a result,
tighter standards are likely to lead to a significant reduction in
reported profits. It is worth noting that some economists had warned
of these sorts of abuses in prior years (see "The Costs of the Stock
Market Bubble," by Dean Baker,
[http://www.cepr.net/stock_market_bubble.htm]).
Argentina and Liberalization
Bush Declares Free Markets Are Essential For Americas
David E. Sanger
New York Times, January 17, 2002, Page A5
This article reports on a speech by President Bush in which he
insisted that Argentina and other Latin American nations must continue
to follow a path of economic liberalization. At one point, the article
refers to Mr. Bush's claim that countries which follow the
liberalization path are rewarded, where he cited Chile and Mexico as
examples. The article then quotes Mr. Bush's comment that the United
States had strayed from this path in seventies, when it experimented
with wage-price controls. The article adds the information that Bush
did not mention that the wage-price controls "had been devised by
Republican presidents."
It would have been more relevant to inform readers that Mexico has not
been especially well rewarded by liberalization. According to the
World Bank, its per capita GDP growth averaged just 1.7 percent in the
nineties, a relatively weak performance for a developing nation. By
contrast, from 1960-1980, before the liberalizing reforms of the 80s
and 90s, its per capita GDP growth averaged 3.8 percent. It also would
have been appropriate to remind readers that Chile's liberalization
policies were first implemented under a brutal military dictatorship.
The Recession
Which Will Recover First: The Economy or the Politicians?
Richard W. Stevenson
New York Times, January 13, 2002, Section 4 Page 5
This article discusses the economy's prospects for pulling out of
recession in the near future, and the political implications of a
continued recession. At one point the article notes that most
forecasters predict the economy will be recovering by the middle of
the year. It is worth noting that virtually none of these forecasters
anticipated the downturn.
The article notes the possibility that layoffs could continue
throughout the year, with joblessness rising through the next
election, even if the economy is recovering. It then comments: "that
possibility helps explain why the administration continues to push for
a stimulus package."
If the administration's main concern was stimulating the economy and
creating jobs in the immediate future, then it would have proposed a
stimulus package that focused on spending and tax cuts to low and
moderate income families. The fact that its stimulus was so
concentrated on tax cuts to corporations and high-income families --
and often permanent rather than the temporary ones needed for
counter-cyclical fiscal policy -- indicates that job creation prior to
the next election is not its main priority.
The article also includes "putting Social Security on a sound footing
for the baby boom generation," as one of the Bush Administration's top
agenda items. Actually, Social Security is already on a sound footing
for the baby boom generation. The latest Social Security trustees'
report shows that the program can pay all benefits through the year
2038, with no changes whatsoever. At that point, the youngest baby
boomers will be age 74, and the oldest will be age 92.
The Budget and the Economy
Dueling Parties Pick and Choose Data as the Surplus Disappears
Glenn Kessler
Washington Post, January 13, 2002, Page A4
This article reports on the battle over which party should be blamed
for losing the budget surplus. At one point it comments that "the
debate's outcome will help define which party is perceived as better
able to manage the economy." There is no obvious reason that this
should be true. There is very little economic reason why anyone should
care if the government is running a budget surplus. Virtually all
economic models indicate that the impact of modest budget deficits
(less than $200 billion annually) or surpluses, on interest rates is
relatively small. If the outcome of the debate over the blame for the
loss of the surplus determines which party is the better manager of
the economy, it will be because the public has been misled about the
economic consequences of budget deficits.
Bush Budget to Include More Food Aid for the Poor
Mike Allen
Washington Post, January 13, 2002, Page A2
This article reports on President Bush's proposals to increase funding
for the Women, Infant, and Children nutrition program (WIC) and the
Job Corps. The article reports that he proposes to increase funding by
$364 million for WIC, and by $73 million for the Job Corps. The
article does not indicate whether these proposed increases are in
addition to inflation, or whether they are the total increase being
requested. It also does not indicate how large the increases are in
relation to the current size of the programs (8 percent for WIC and
5.2 percent for the Jobs Corps). And it doesn't indicate how large the
proposed increases are relative to total spending (approximately 0.018
percent for WIC and .004 percent for the Job Corps). Without this
information, which very few people would have, the dollar amounts
reported in the article are not very informative to readers.
Germany
Bavarian Is Chosen To Oppose Schroeder
Peter Finn
Washington Post, January 12, 2002, Page A16
German Right Backs Bavarian to Run Against Schroder
Steven Erlanger
New York Times, January 12, 2002, Page A3
These articles report on the decision of Germany's main opposition
party to make Edmund Stoiber, the premier of Bavaria, its candidate
for Chancellor in this year's elections. At one point, the Post
article comments that Bavaria's economic prosperity will contrast with
rising unemployment nationally under Schroeder's [the current
Chancellor] watch." Actually unemployment has not been rising
nationally in the years that Schroeder has been in office. According
to the Bureau of Labor Statistics measure, the unemployment rate in
Germany was 9.3 percent when Schroeder took office in 1997. It was 8.2
percent in November, the most recent month for which data is available.
The times article describes Bavaria's 5 percent unemployment as "half
the national average." It is inappropriate to compare Bavaria's
unemployment rate to the national rate, because this includes the
areas of former East Germany, which still have very high unemployment.
The unemployment rate in the rest of former West Germany is
approximately 6 percent, not much higher than the rate in Bavaria.
Argentina
Agentine Accuses IMF of Meddling
Anthony Faiola
Washington Post, January 14, 2002, Page A14
This article reports on complaints by Argentina's government against
the IMF's efforts to dictate its economic policy, as the nation
attempts to recover from a financial crisis. At one point the article
defends the IMF commenting, "some analysts say the IMF's criticism
represents a necessary and realistic assessment of Argentina's
situation. ... It also reflects the widespread belief that Argentina
must take steps to control spending."
While some economists hold this view, there are also many who consider
the IMF's past policy recommendations to be largely responsible for
the country's current problems. It would have been appropriate to
present the differing opinions among experts on this topic. It is
worth noting, that at 2.6 percent of GDP, Argentina's central
government budget deficit is smaller than the size of the U.S.
government in each of the last three recessions.
IMF, White House Fumble for a Strategy as Argentina Founders
Paul Blustein
Washington Post, January 18, 2002, Page A20
This article examines Washington's efforts to construct a policy
towards Argentina. At one point it quotes President's Bush's statement
that aid to Argentina will be conditional on it adopting a "sound and
sustainable economic plan." The article then informs readers that
"such a plan will by necessity impose fresh jolts of short-term pain."
The article does not indicate its basis for assessing "sound and
sustainable" economic policies. This is not an easy task, as
demonstrated by a quote that appears at the end of the article.
Michele Davis, the chief spokesperson for the Treasury Department, is
quoted as saying that Argentina had "10 years' worth of bad policy."
Through most of this period, Argentina's economic policies won
considerable praise, as well as tens of billions of dollars in
support, from the IMF and Washington policy circles.
Italy
For Premier Of Italy, Mud Doesn't Seem to be Sticking
Melinda Henneberger
New York Times, January 14, 2002, Page A4
This article discusses some of the political miscalculations recently
made by Italy's Prime Minister, Silvio Berlusconi, and the impact that
they have had on his standing with the public. At one point, the
article asserts that Italians voted for Berlusconi, because they could
count on him, "as the country's most successful businessman, to cut
taxes and reform labor laws that make it difficult for even small
companies to dismiss employees." Since most Italian voters work for
other people, it is not clear that making it easier to get fired was a
high priority in casting their vote.
Turkey
Turkey's Leader Visits U.S. to Plead for Urgent Economic Aid
Douglas Frantz
New York Times, January 14, 2002, Page A3
This article discusses the agenda of Bulent Ecevit, Turkey's Prime
Minister, on his visit to Washington. The article notes that he will
be seeking to increase Turkey's exports to the U.S., which it reports
as $3 billion last year. The article notes that one of the items that
President Bush will raise is the repayment of a $2 billion investment
that Motorola made in a Turkish cellular phone company.
It is worth noting the relative magnitude of money involved in these
two issues, from the viewpoint of the Turkish economy. A 20 percent
increase in Turkish exports to the U.S. (a very large increase) would
be $600 million. If the net gains to the country from these exports
were 20 percent of the sale price (i.e. the next best use of the labor
and capital used in these exports had a value that was 20 percent
lower), then the gains from such a large increase in exports to the
U.S. would be equivalent to $120 million a year. This is 6 percent of
what President Bush hopes to have Turkey pay to Motorola.
Medicaid Cuts
Amid Fiscal Crisis, Medicaid Is Facing Cuts From States
Robert Pear and Robin Toner
New York Times, January 14, 2002, Page A1
This article reports on the impact on state budgets of sharp rises in
health care costs at a time when revenues are falling due to the
recession. The article repeatedly comments that states face tough
choices as to where to cut their Medicaid budgets. It never mentions
the possibility of raising taxes. (Increased federal assistance is
another unmentioned possibility.) Politicians may opt not to pursue
this route, but it is a plausible way to address the shortfalls, and
should at least be mentioned in this type of article.
Copyrights
Delta Farmers Want Copyright on Catfish
Elizabeth Becker
New York Times, January 16, 2002, Page A1
This article reports on efforts by fishermen in the Mississippi Delta
to copyright the name "catfish" and thereby prevent the sale of a
Vietnamese fish under this name. While the article discusses some of
the concerns of U.S. fisherman over losing market share, it would have
been appropriate to also include some discussion of the economic
issues involved in using the name "catfish."
If the Vietnamese fish are clearly labeled as "Vietnamese catfish,"
then there would be no basis for the concern expressed by the
fisherman, that consumers were being deceived when they purchased the
Vietnamese fish. Therefore, a simple labeling requirement, rather than
a copyright, can address the concerns expressed by the fisherman
quoted in the article.