Economic Reporting Review
June 12, 2000:
Employment Slowdown; MP3 Critics; Teacher Tax
Breaks
By Dean Baker
Employment | Social Security | Medicare | Internet | Education | Europe | Russia | Outstanding Stories
UNEMPLOYMENT
"Slowdown Hint Spurs Stocks"
John M. Berry and Sandra Sugawara
Washington Post, June 3, 2000, page A1
"May's Labor Data Indicate Economy Could Be Slowing"
Louis Uchitelle
New York Times, June 3, 2000, page A1
These articles report on the Labor Department's release of employment data for May. The
report showed a 0.2 percentage point rise in the overall unemployment rate and a decline of
116,000 in the number of jobs in the private sector. While the Times article includes comments
from people who expressed concern about the job loss and rise in the unemployment rate, the
Post article only presented the views of investors and financial analysts who were pleased by
evidence that the economy is slowing.
The Post article also reported in positive terms the fact that the average hourly wage barely
rose in May. This means that workers' wages are not keeping pact with inflation.
The Times article pointed out that the largest increases in unemployment were experienced by
blacks and Hispanics, who saw increases in their unemployment rate of 0.8 and 0.4 percentage
points, respectively. This information was not mentioned in the Post article.
More about labor.
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SOCIAL SECURITY
"Bush Pledges Safety of Social Security"
Hanna Rosin
Washington Post, June 7, 2000, page A6
"Campaign Briefing: The Republicans"
Alison Mitchell
New York Times, June 7, 2000, page A22
These articles report on a speech made by George W. Bush commemorating the 56th
anniversary of the D-Day landing in World War II. In the speech, Governor Bush pledged to
keep Social Security safe for the generation that fought to war. Neither of these articles pointed
out that the program is already safe for this generation. The latest projections show that the
program can pay all scheduled benefits through the year 2037, with no changes whatsoever. At
that point, the youngest members of this generation will already be 110 years old.
Governor Bush's promise was comparable to pledging to protect these people from polio.
They have no reason to fear for Social Security's safety, unless the government dismantles the
program.
More about Social Security.
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MEDICARE
"Gore to Propose Medicare 'Lockbox'"
Dan Balz and Ceci Connolly
Washington Post, June 8, 2000, page A1
This article discusses a proposal by Vice President Al Gore to create a Medicare "lockbox,"
which would require that any surplus revenues for Medicare be used to pay down the debt.
The article notes Gore's claim that using this money to pay down the debt: "would hold down
interest rates and keep the economy growing." It then adds that "until this year, Medicare
surpluses rarely amounted to much money and there was no need to debate whether to protect
or spend the revenue. But over the next ten years, those surpluses are expected to grow
substantially."
The cumulative Medicare surplus is projected to be equal to approximately 1.2 percent of
federal spending over the next ten years. It is projected to equal approximately 0.1 percent of
GDP. The decision as to whether to spend this money or use it to pay down the debt would
not have any measurable effect on interest rates or economic growth.
"More HMOs Exit Medicare and Add to Patient Turmoil"
Robert Pear
New York Times, June 3, 2000, page A1
This informative article reports on the likelihood that more HMOs (Health Maintenance
Organizations) are likely to pull out of the Medicare program, forcing hundreds of thousands of
beneficiaries to seek new plans. The article notes that withdrawals over the last two years have
already forced more than one in nine of the Medicare beneficiaries enrolled in HMOs to change
plans.
The article reports complaints from HMO executives and Rep. Nancy L. Johnson that
Medicare's payments are insufficient to make coverage of Medicare patients profitable. It is
worth noting that if the current payments to HMOs are insufficient for them to operate
profitably, it implies the HMOs are unable to compete with the traditional Medicare program,
since the risk-adjusted payment per beneficiary is the same or higher for people in HMOs than
for people in the traditional Medicare program.
More about health.
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THE INTERNET
"Warned by the Music Industry, Web Site Files Suit"
Matt Richtel
New York Times, June 6, 2000, page C27
"Web 'Pirates' Unearth Treasure: Hit Films"
Paul Farhi
Washington Post, June 7, 2000, page A1
"Recording Industry Near Deal in Suit"
Christopher Stern
Washington Post, June 8, 2000, page E1
These articles discuss problems related to copyright enforcement over the Internet. The Times
article reports on a pre-emptive suit filed by MP3Board.com against the recording industry.
MP3Board.com, a search engine that directs people to MP3 files, argues that it should not be
held responsible if its services facilitate the transfer of copyrighted material without
authorization. The first Post article reports on technological advancements that are making it
feasible to transfer digital versions of movies and videos over the Internet. The second Post
article reports on a settlement of the MP3Board.com suit.
The first Post article includes extensive complaints from representatives of the motion picture
industry about the advance of technology, and the threat it poses to its profits. The second Post
article includes denunciations by the chair of the Disney Corporation of people who make
unauthorized copies of music.
However, none of these articles present any economic analysis of the issues being discussed.
This would be comparable to allowing the chair of a regulated utility to denounce upstart
competitors, without presenting any economic analysis of the potential gains from such
competition to consumers or the economy. The major difference is that in this case the potential
gains are several orders of magnitude larger, since previously costly recorded visual or audio
material is potentially available at virtually no cost, instantly, in the consumer's home.
The information presented in all three of these articles points toward the need to develop
alternative systems of supporting the production of recorded music or video material. The
articles would have been more informative if they presented the views of someone holding this
perspective.
More about the Internet.
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EDUCATION
"Even Beneficiaries Oppose Plan to Reward Teachers"
Todd S. Purdum
New York Times, June 4, 2000, Section 1 page 18
This article reports on the response to California Governor Gray Davis' proposal to make
public school teachers exempt from the state income tax. The article notes that even the
teachers themselves are largely opposed to the idea, since they fear that granting them special
status will lead to resentment.
The article comments on the teachers' opposition disparagingly: "The reaction to the proposal
shows the pitfalls when policy innovation meets interest-group politics." This comment, which
was highlighted in a pull quote accompanying the article, implies that it would only be
special-interest politics that could lead to opposition to the governor's proposal, as opposed to
the possibility that it may not be a very good way to increase teachers' compensation.
There are many different ways that the state can increase compensation for its teachers. For
example, it could give every public school teacher 2,000 tickets for the state lottery each year.
This would increase their average compensation by approximately the same amount as the
exemption from state taxes, yet most people would probably agree that this plan is not an
appropriate way to increase compensation. Applying the logic used in this article, if the
governor had proposed a lottery ticket giveaway, and the teachers opposed it, they would be
guilty of special-interest politics.
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EUROPE
"Europe's Central Bank Increases Key Rate a Half-Point"
Anne Swardson
Washington Post, June 9, 2000, page E4
"Europe's Central Bank Acts to Raise Inflation Barrier"
Edmund L. Andrews
New York Times, June 9, 2000, page C4
"Through The Looking Glass: Europe Raises Interest Rates"
Floyd Norris
New York Times, June 9, 2000, page C1
These articles discuss the decision by the European Central Bank to raise its short-term interest
rate by half a percentage point. This decision comes at a time when the unemployment rate in
the euro-zone countries is still 9.5 percent.
The first two articles included comments only from members of the Central Bank itself or
analysts at financial firms. The Post article turned to analysts at Merrill Lynch & Co. in London
and Goldman Sachs Group Inc. in Frankfurt. The Times articles relied on comments from
analysts at Warburg Dillon Read in Frankfurt, Deutsche Bank Research, and DBN Amro, a
Dutch bank. Neither article presents the views of any elected representatives, or economists in
academia, labor unions or even a non-financial corporation. Since this rate hike could have
far-reaching effects on the economy, it would have been appropriate to seek a broader range
of views.
By contrast, the Times article by Norris presented the views of Robert Solow, a Nobel
Laureate economist. Solow argues that is extremely foolish for the European Central Bank to
be raising interest rates at a time when the unemployment rate is so high. He maintains that
Europe's high interest rates have needlessly kept millions of people out of work.
"Growing Club of Left-Leaning Leaders Strains to Find a Focus"
Edmund L. Andrews
New York Times, June 4, 2000, Section 1 page 6
This article reports on a meeting of center-left heads of government in Berlin. The article points
out that these leaders struggled to find unifying themes that distinguished them both from
conservatives and previous leaders of the left. While the article notes that this has been a
difficult process, it implies that there was much more substance than actually exists.
For example, the article asserts that the leaders all believe in "modernization and a focus on the
future." All policy focuses on the future, by definition. What constitutes modernization is
subjective. Any change can be characterized as "modernization." For example, returning to
19th Century-style laissez-faire capitalism is often termed "modernization."
The article also asserts that the leaders all support free trade. This is inaccurate. Most of these
leaders have been associated with efforts to extend copyright and patent protection to
developing nations. These forms of protectionism often raise the price of protected products,
such as recorded music or prescription drugs, by several hundred or even several thousand
percent. Patents and copyrights are also more than 400 years old, which calls into question
these leaders commitment to modernization.
More about Europe.
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RUSSIA
"Clinton and Putin Meet at Kremlin With Wide Agenda"
Patrick E. Tyler
New York Times, June 4, 2000, Section 1 page 1
This article discusses the first meeting between President Clinton and Russian President
Vladimir Putin. The article contrasts the current situation with the situations during previous
summit meetings, saying that the improving economic situation presents "a sharp contrast with
Mr. Clinton's most recent visits here--in 1996 when former President Yeltsin was fighting for
his political life against an entrenched Communist opposition, and in 1998 when the Russian
ruble and much of the country's economy had collapsed."
This statement seriously misrepresents Russia's recent history. In 1996, Boris Yeltsin was
extremely unpopular among Russians across the political spectrum. While the Communist Party
still has a significant following (between 20 percent and 30 percent of the electorate), if this
were the bulk of the opposition, he would have coasted to re-election.
The main reason for the widespread public opposition was the disastrous effect that his
economic policies had on the nation. By 1996, Russia's economy had already contracted by
approximately 40 percent, which led to soaring poverty rates and a plunge in life expectancies.
The economic impact of the 1998 decline in the ruble was minor by comparison (see "A
Factory's Turnaround Reflects a Glimmer in Russia's Economy," by Michael Wines, New York
Times, 6/2/00, page A1; ERR, 6/5/00).
The article also asserts that the Russian parliament has formed "a strong pro-reform and
pro-Putin majority since elections last December." It is worth noting that this majority includes
the Communist Party, which is part of Putin's ruling bloc in parliament.
"Words of Clinton: Gains Despite Pains of Growth"
Associated Press
New York Times, June 6, 2000, page A12
This box presents excerpts from the text of a speech that President Clinton gave before
Russia's parliament. The headline describes the speech as "gains despite pains of growth." It is
not clear if this is a title to the speech or a headline selected by the newspaper. In either case, it
misleads readers about the economic situation in Russia. The last ten years have seen an
economic collapse in Russia, with its economy having shrunk by approximately 40 percent.
This collapse, not growth, is the main cause of Russia's current pain.
More about Russia.
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OUTSTANDING STORIES OF THE WEEK
"Estate Tax Affects Few Heirs, Yet Repeal Bid Gains Support"
Glenn Kessler
Washington Post, June 5, 2000, page A1
This article examines the incidence of the estate tax. It notes that the vast majority of families,
even among small business owners, faces little or no estate tax liability. Yet many of these
families wrongly believe that they will be subject to substantial estate taxes, and in some cases
have even bought expensive insurance policies to pay the expected taxes.
"For Want of Safer Glue, Chinese Shoemakers Get Sick"
Erik Eckholm
New York Times, June 6, 2000, page A10
This article examines the working conditions in the Chinese shoe industry. The industry
continues to use a type of glue that causes cancer and other serious diseases.
"In San Francisco, Renters Are Supplicants"
Evelyn Nieves
New York Times, June 6, 2000, page A14
This article examines the problems that even many relatively well-off families face in trying to
find rental housing in San Francisco. It notes that the stock market wealth generated in Silicon
Valley had already made homeownership in the city unaffordable to all but the wealthiest
families, and now rental property is experiencing the same run-up in prices.
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Dean Baker is an economist and the co-director of the Center for Economics and Policy
Research (CEPR). His latest book (co-authored with Mark Weisbrot) is Social Security: The
Phony Crisis (University of Chicago Press). ERR is a joint project of FAIR and CEPR.
ERR is edited by Jim Naureckas.
Back to CEPR's Economics Reporting Review website.