Economic Reporting Review
June 5, 2000:
China Trade Aftermath; Drug Prices; Asian Recovery
By Dean Baker
China Trade Bill | Senior Citizens | Prescription Drugs | Russia | East Asia | Outstanding Stories
CHINA TRADE BILL
"For Many, China Trade Bill Isn't About Exports"
John Burgess
Washington Post, May 27, 2000, page E1
This article reports on the fact that "many business leaders and economists" believe that the
main impact of granting China permanent normal trading relations (PNTR) will not be on U.S.
exports to China. Rather, according to the article, these experts view the main impact as being
on U.S. investment and production in China. This was exactly the argument made by many of
those opposed to granting PNTR to China. The debate on this issue would have been better
informed if the Post had chosen to run this piece before the vote.
The article goes on to note that some jobs may be lost to China as a result of the passage of
PNTR, but then comments, "For the most part they would be low-skilled, low-paid ones." In
fact, U.S. manufacturers are already producing a wide-range of goods in China, including auto
and airplane parts. The jobs in these industries pay significantly more than the median and often
involve a considerable amount of skill. There are a wide variety of relatively well-paying jobs
that will be at risk as a result of competition from goods made in China.
While it is true that the very best-paying jobs, those held by professionals with advanced
degrees, probably are not endangered, such jobs account for a small portion of the nation's
employment. The majority of workers are either employed at jobs that are directly threatened
by trade with China, or likely to experience downward pressure on their wages as a result of
the jobs lost by other workers.
"House Vote on China Trade: The Politics Was Local"
Adam Clymer
New York Times, May 27, 2000, page A3
This article examines the political considerations that influenced the vote on PNTR. In outlining
the various political positions on this issue, it sets out an "internationalist" stance that supports
bills like PNTR, United Nations financing, arms control and "comparable issues." It then notes
that very few members of Congress consistently supported this "internationalist" position.
While the article views this as an inconsistency in the positions held by members of Congress,
an alternative possibility is that the position described by the article as "internationalist" is itself
inconsistent. It is entirely plausible that a member of Congress could oppose PNTR for China
because of a real concern over human rights in China or genuine opposition to the path of
globalization implied by PNTR. This would be an "internationalist" position by the normal usage
of the term, even if the article would not characterize it as such.
At one point the article notes that the labor opposition to PNTR suffered from "the label of
'protectionism.'" This claim is certainly true, since "protectionist" carries a negative connotation
among the nation's policy elite. The Times and Post regularly labeled labor's position as
"protectionist" in news stories that discussed the debate over PNTR.
It is worth noting that the concerns of those opposed to PNTR were in no obvious way more
protectionist than the concerns of PNTR proponents. Most notably, the agreement under which
China was granted PNTR required China to provide greater protection for U.S. patents and
copyrights. Although copyright and patent protection generally raise the price of products by
several hundred or even several thousand percent above the free market price, support for
these measures is not labeled as "protectionist" in the Times or Post.
More about China.
More about trade.
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SENIOR CITIZENS
"Seniors' Shift Toward GOP Sounds Democrats' Alarm"
Thomas B. Edsall
Washington Post, May 30, 2000, page A7
This article examines political attitudes among senior citizens. It wrongly presents an image of
the elderly as an affluent group. According to data from the Social Security Administration, the
median income for an a couple over age 62 in 1998 was $30,200. The median income for an
elderly person living alone was $12,000. By comparison, the median income for all families
(including the elderly) in 1998 was $46,737.
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PRESCRIPTION DRUGS
"Health Insurance Provides Buffer to Rising Drug Prices for Most Americans"
David E. Rosenbaum
New York Times, June 1, 2000, page A17
This analysis examines the extent to which health insurance coverage has shielded people from
the full cost of prescription drugs. It argues that because only one quarter of the cost of
prescription drugs are paid for directly out of pocket, most people are not terribly concerned
about prescription drug prices. It comments on legislation to control prices: "In most instances,
this seems to be a case of politicians seizing an issue and drumming up support rather than
responding to demands from their constituents."
There are three serious problems with the logic in this analysis. First, it assumes that individuals
either fail to recognize the rise in the price of their health care insurance, or to note the factors
that are responsible. While this may be the case for younger families who typically have their
insurance paid by an employer, if they have insurance at all, this is less likely to be true for the
elderly who buy supplemental insurance policies. These policies pay for services not provided
by Medicare, most importantly prescription drugs. The price of these "Medigap" policies has
been rising sharply in recent years, driven largely by the price of prescription drugs.
Second, even in cases where patients have insurance, they are often unable to get the drug of
their choice. Increasingly, insurance policies restrict patients to using generics, or to pay the
cost themselves. In many cases patients may be convinced (possibly wrongly) that the branded
drug is better, but find that they must use the generic drug because the branded version is too
expensive.
The third problem with the article's logic is its willingness to dismiss the quarter of the public
under age 65 who lack health insurance as a small group. In other circumstances, much smaller
groups have been the focus of serious attention by the media and politicians. For example,
dozens of stories have appeared on the elimination of the Social Security earnings test for
people between the ages of 65 and 70 (e.g. see " Seniors' Shift Toward GOP Sounds
Democrats' Alarm, by Thomas B. Edsall, Washington Post, 5/30/00, page A7; ERR,
3/13/00 and 3/27/00). This earnings test affected less than 10 percent of the people within this
narrow age group. The number of people without health insurance is more than 40 times as
large as the number affected by the Social Security earnings test.
The article also includes a comment from MIT economics professor Ernst R. Berndt in which
he claimed it wasn't clear that Americans pay more for drugs than people in other nations.
Berndt pointed out that in the United States drugs account for 10.3 percent of health care
expenditures, compared to 13.8 percent in Canada and 16.7 percent in Britain. Berndt then
asked, "Why is it, if pharmaceutical prices are highest in the U.S., their cost share is so low?"
The answer to Berndt's question is that other medical costs are much higher in the United
States than in these other nations. According to the OECD health statistics for 1998, people in
the United States spent twice as much per person as people in Canada on health care, and
nearly three times as much as people in Britain (calculated at dollar exchange rates). This means
that they spent nearly 70 percent more per person on drugs than people in Canada and nearly
75 percent more than people in Britain.
More about health care.
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RUSSIA
"A Factory's Turnaround Reflects a Glimmer in Russia's Economy"
Michael Wines
New York Times, June 2, 2000, page A1
This article reports on evidence that Russia's economy is rebounding from its 1998 financial
crisis. The article includes numerous comments that imply that the financial crisis of that year
was a disastrous event to hit a previously healthy economy, referring to it as "the crash of 1998,
the meltdown that wiped out Russia's middle class."
This view is contradicted by almost every measure of Russia's economic progress in the '90s,
including a chart that accompanies the article. The chart shows that Russia's economy
contracted by approximately 40 percent between 1990 and 1996. It then stabilized, before
dropping another 2-3 percent as a result of the 1998 financial crisis. Compared to the
economic collapse earlier in the decade, the 1998 financial crisis was a minor blip from which
the Russian economy has now fully recovered.
The article includes several other assertions that are wrong or misleading. For example, it
asserts that "exports are driving the recovery, accounting for $8 of every $10 of growth in the
gross domestic product." The growth of exports by itself is meaningless; the relevant economic
measure is net exports, the difference between exports and imports. If exports alone counted in
GDP, it would imply that the United States would have a higher GDP if it exported to Mexico
all the parts needed to assembly a car, and then imported the finished car, than if it just
produced the car in the United States. Net exports in Russia have been growing rapidly, but
they are not quite as important to Russia's growth as the article claims.
The article also suggests that the increased competitiveness of Russian goods was an accidental
outcome of the collapse of the ruble. In fact, this was an expected result of the devaluation of
the currency, and one of the reasons why many economists advocated devaluation prior to
financial crisis. In the summer of 1998, the IMF insisted that Russia not devalue, and instead
forced it to spend tens of billions of dollars of foreign exchange trying to prop up the ruble. The
news reporting in the Times and Post generally accepted the IMF position asserting that a
devaluation of the ruble would have disastrous consequences for Russia. (See ERR, 4/19/99).
The evidence discussed in this article indicates that the IMF was wrong.
More about Russia.
More about the IMF.
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EAST ASIA
"Asian Region Rides a Wave of Growth Linked to Exports"
Mark Landler
New York Times, May 27, 2000, page A1
This article reports on the rapid growth that many East Asian economies are now experiencing.
The article notes that many people had criticized the policies that the IMF had prescribed for
the region in the wake of its financial crisis in 1997. It then asserts that the region's
"stronger-than-anticipated rebound has largely silenced those complaints." The article then goes
on to note the concerns of some economists that because of the strong rebound, these
countries have not pursued "reform" to the extent that they should.
The evidence presented in the article, that East Asian economies are growing rapidly in spite of
the fact that they have not followed the IMF's recommendations for "reform," supports the
position of the IMF's critics, not the proponents of IMF policies. While the IMF has been
criticized for a variety of reasons, a key complaint is that the IMF was arrogant to suggest that
it knew the best economic path for these nations to follow.
South Korea, and to a lesser extent Thailand and Malaysia, achieved remarkable economic
growth and improvements in the living standards of their population over the last four decades.
According to data from the United Nations, their per capita growth rates in the period from
1960 to 1995 were 7.0, 5.2 and 4.2 percent, respectively. By contrast, nations such as Brazil
and Mexico which have followed the IMF's advice over the last decade, have had per capita
GDP growth of approximately 1.0 percent annually. While the economic system in these East
Asian nations has routinely been denounced as "crony capitalism," no nation that has followed
the IMF-designed growth path has ever achieved anywhere near as much success.
The IMF contended that the top priority for the East Asian nations as they attempted to
recover from their financial crisis should be to dismantle the system that had proven so
successful over the prior four decades. The impressive growth rates achieved by these nations,
which has largely been accomplished without accepting the IMF's advice, demonstrates that the
IMF was wrong.
"Japan's Employers Are Giving Bonuses for Having Babies"
Calvin Sims
New York Times, May 30, 2000, page A1
This article discusses the incentives that some companies in Japan are giving their workers to
have more children. At one point the article claims that Japan's low birthrates "pose many
long-term problems." It is not obvious that Japan's low birth rates will pose any problem for the
nation at all. Japan is a very densely populated country in which land is extremely expensive. If
the nation's population declines it will reduce the crowding to some extent, and thereby improve
living standards.
More about Asia.
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OUTSTANDING STORIES OF THE WEEK
"Even at Higher Price, Gasoline Is Still a Bargain"
Glenn Kessler
Washington Post, May 27, 2000, page E1
This article examines the recent increase in the price of gasoline and places it in a historical
context. The article notes that after adjusting for inflation, gasoline prices are still near their
lowest points on record in spite of the recent price rise. The article also points out that people
in the United States pay far less for gasoline that consumers in other industrialized nations.
"Rules and Restrictions Apply"
Howard Kurtz
Washington Post, May 29, 2000, page C1
This article reveals an effort by United Airlines and US Airways to shape the news reporting on
their proposed merger. The airlines had offered to give the New York Times, Washington
Post and Wall Street Journal exclusive details of the merger arrangements, with the condition
that they not include any comments from outside analysts in their initial stories. All three papers
accepted the deal.
"Medical Reporting on Drugs Is Faulted"
Susan Okie
Washington Post, June 1, 2000, page A8
This article reports on a new study published in the New England Journal of Medicine that
examined news reporting on new drugs. The study found that the coverage systematically
overstated the benefits of new drugs and downplayed potential risks. Also, reporters often
cited experts without noting that they were receiving funding from the drug manufacturer.
"Welfare Reform's Progress Is Stalled"
Amy Goldstein
Washington Post, June 1, 2000, page A1
This article examines the progress of welfare reform in Indiana. It notes the number of people
on welfare is no longer declining. It also points out that most of those who have left the welfare
roles in the state in the last four years are still living below the poverty line, even if they are
working.
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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.