Economic Reporting Review
March 15, 1999
By Dean Baker
"Dow Gains 268.68 As it Edges Closer To 10,000 Mark"
Lanthe Jeanne Dugan
Washington Post, March 6, 1999, page E1
"Economic Growth Still At Fast Pace As Hiring Surges"
Sylvia Nasar
New York Times, March 6, 1999, page A1
These articles cover the Labor Department's release of its February employment report. There
is probably no release of economic data that contains more information about the economic
conditions facing working people than the employment report, yet both articles report on this
release primarily from the perspective of businesses rather than workers.
For example, the Times article notes that in spite of the strong job growth, "hourly wages
barely budged, rising a cent--reassuring Wall Street that the Federal Reserve would not feel
compelled to raise interest rates soon. 'Remember the movie As Good as it Gets?' asked
Daniel Eagan, senior portfolio manager at Black Rock, a Philadelphia investment firm. 'We are
about as close to that as we can be.'" (Actually, one of the main characters in the movie As
Good as it Gets is a woman struggling to get by and pay for her sick son's medical expenses
on her income as a waitress. Presumably Mr. Eagan did not have this character in mind in his
reference to the movie.)
The Post article discusses the employment rate almost exclusively from the standpoint of its
impact on financial markets. The paper includes no discussion of its larger meaning for the
economy.
"Japan Lowers Rates Again, And for Banks It's a Big Zero"
Sheryl WuDunn
New York Times, March 6, 1999, page B1
This story reports on the decision of Japan's central bank to lower short-term interest rates to
nearly zero in order to stimulate the economy. This article is yet another in a long series of
articles in both the Times and the Post which have portrayed the Japanese economy as being
in desperate straits in the face of evidence to the contrary. (See, e.g., "Japan Cuts Key Interest
Rate; Economists Are Skeptical," by Sandra Sugawara, Washington Post, 2/13/99, page E3;
"Japan Lowers Key Rate, but (Surprise) Bond Yields Go Higher," by Sheryl WuDunn, New
York Times, 2/13/99, page B1; "An Unlikely Fear for Japan: Stiflingly High Interest Rates,"
by Sheryl WuDunn, New York Times, 2/3/99, page C8; "The Flip Side of the Strengthening
Yen," by Paul Blustein, Washington Post, 1/13/99, page F1; and "Excess Capacity Slowing
Japan's Recovery," by Sandra Sugawara, Washington Post, 12/25/98, page B9. See also
ERR, 2/22/99.) This move to lower interest rates is characterized in this article as a "gamble"
and "a sign of how fragile both the weakly capitalized banks and the economy have become."
The article also discusses the intended outcome of the drop in interest rates as an undesirable
result. It quotes a Japanese market analyst as saying "who would lend out money at these
rates?" The article continues "the answer seems to be: fewer and fewer lenders. And that could
emerge as a problem. Insurance companies and investment trust funds no longer want to park
their money there [overnight bank loans], and are putting it into regular bank deposit accounts
or into longer-term money markets, such as one-month or three-month maturities."
This is exactly the way in which expansionary monetary policy is supposed to work. By
making short term interest rates extremely low, it encourages lenders to make longer-term
loans, thereby bringing down long-term interest rates as well. The decline in longer term
interest rates is then supposed to stimulate borrowing to finance new investment or
consumption.
The evidence in the article suggests that the Japanese central bank has been quite successful in
bringing down long-term interest rates. The interest rate on 10-year bonds is now just 1.57
percent, less than one-third the current rate in the U.S. The fact that investors are willing to
hold Japanese government bonds at such low interest rates suggests a considerable degree of
confidence in the future value of the yen and the ability of the Japanese government to repay its
debts.
"Fixing Social Security Even in the Flush Times"
David E. Rosenbaum
New York Times, March 7, 1999, Section 1 page 18
This article examines the current state of the debate over the future of Social Security. At one
point, it comments that "most economists and social policy analysts believe that acting now is
the responsible course to take. Ultimately, they say, a crunch is bound to arrive because so
many baby boomers will be in retirement."
Actually, economists and social policy analysts familiar with the projections for Social Security
would not argue that any "crunch" is primarily attributable to the large number of baby boomers
in retirement. Current projections show the program being fully solvent through 2032. This
date is likely to be pushed out several more years in the 1999 projections, as noted in the
article. By 2035, the oldest baby boomers will be 89 and the youngest will be 71. The number
of retired baby boomers will have already peaked and will be dropping rapidly. The real
crunch facing the program is simply that people are projected to live longer in the future.
The article also asserts that financial health of the program "depends on how well the economy
and the stock market perform over the next generation." At present, the performance of the
stock market is completely irrelevant to the health of the program, since it does not in any well
directly depend on stock returns for its financing. The performance of the economy over the
next 20 years also has relatively little effect on the financial strength of the program. The rate at
which the economy grows after there is a larger ratio of retirees to workers will be much more
important that the rate at which it grows when the ratio is still comparatively low.
"New I.M.F. Aid Pact Further Limits Brazil"
Larry Rohter
New York Times, March 9, 1999, page C1
"Bank Chief Vows to Curb Brazilian Debt"
Larry Rohter
New York Times, March 11, 1999, page C 5
Both of these articles discuss aspects of the new pact that Brazil signed with the I.M.F. as a
condition of getting new loans. Neither article suggests that the I.M.F. might have contributed
to Brazil's current financial problems, as is argued by many prominent economists, such as
Rudiger Dornbusch and Paul Krugman from M.I.T., and Jeffrey Sachs from Harvard
University.
The first article actually misrepresents Brazil's recent history, asserting that the decline in the
value of Brazil's currency "caused a notable increase in interest rates." In fact, it was the I.M.F.
which insisted that Brazil increase its interest rates; this was not a necessary result of the
decline in the value of the currency.
The second article notes that the pact requires that Brazil reduce its debt to less than 44.3
percent of GDP by 2002. It also notes that Brazil's economy is projected to contract by as
much as 4.0 percent this year as a result of the austerity policies being demanded by the I.M.F.
The effect of this contraction will be to raise the ratio of Brazil's debt to its GDP by more than
2.0 percentage points in 1999.
"Via an Aide on Russian TV, Yeltsin Warns His Prime Minister"
Michael R. Gordon
New York Times, March 8, 1999, page A4
"Primakov Accused of Inaction on Economic Front"
David Hoffman
Washington Post, March 12, 1999, page A34
Both of these article report on criticisms of the economic performance of the Russian economy
under its new Prime Minister, Yevgeny Primakov. All of the people who are cited or quoted in
these articles are critical of Primakov's record. Most of these critics held high positions in
earlier governments, under which Russia's economy's suffered an unprecedented collapse for a
nation at peace. By comparison, the economy's performance under Primakov has been quite
good.
The Times article at one point notes that Russia is obligated to repay $4.5 billion in loans to
the I.M.F. this year, and asserts that "the Kremlin has been anxious to avoid a humiliating
default."
Under I.M.F. tutelage, Russia's economy has contracted by approximately 50 percent over the
last eight years. Its health care system has collapsed, leading to large increases in mortality
rates, and the nation has effectively been de-industrialized. Against this backdrop, it is difficult
to see how a default on loans to the I.M.F. would be humiliating.
"Politicians of All Persuasions Rally Around Bills to Protect Lands"
John H. Cushman Jr.
New York Times, March 11, 1999, page A19
This article reports on a set of proposals being put forward to buy land for conservation
purposes. At one point the asserts that some of these proposals would "put large sums into fish
and wildlife programs." The largest sum mentioned in any of these proposals is $1.7 billion.
This would be approximately 0.1 percent of projected government spending in the year 2000.
It would be far more informative to readers if spending numbers were expressed as a
percentage of the total budget. This would make them better positioned to assess whether a
proposed amount of spending was large or small.
"Schroeder Rival Quits Key Posts"
William Drozdiak
Washington Post, March 12, 1999, page A25
"German Finance Aide Quits: European Markets Jubilant"
Edmund L. Andrews
New York Times, March 12, 1999, page A1
These articles report on the resignation of Germany's Finance Minister Oskar Lafontaine.
Although Lafontaine represents the largest faction in Germany's largest political party, none of
the people quoted or cited in these articles is a supporter of the positions he took in the
government. Many of the world's leading economists also took similar positions, particularly in
respect to his calls on the European central bank to lower interest rates. (See "An Economists'
Manifesto on Unemployment in the European Union," BNL Quarterly Review, # 206,
9/98.)
The Post article asserts that in Germany "more than 11 percent of all workers--nearly 4.5
million people--are unemployed." Actually, according to the most recent employment report
from Germany, 10.6 percent of its work force is unemployed, a drop of a full percentage point
from the 11.6 percent who were unemployed last year.
The article continues: "Although Germany remains one of the world's two largest exporters, it
now ranks only 24th among nations in business competitiveness." There is no standard
measure of competitiveness and this article provides no hint of what measure it is applying.
Measured by its ability to sell goods in international markets, Germany is clearly far ahead of
the U.S., since it has a trade surplus of more than 1.0 percent of GDP, while the U.S. has a
trade deficit that exceeds 2.0 percent of its GDP.
The Post article goes on to note that "Germany has some of the world's highest labor costs
[i.e., wages and benefits], shortest working hours, longest vacations, oldest students and
youngest retirees." These are all characteristics of a prosperous economy that has produced
high living standards for its people. The article presents this list as though it is a set of problems
that must be remedied.
Outstanding Story of the Week
"Drop in Food Stamp Rolls Is Worrying Officials"
Judith Haveman
Washington Post, March 7, 1999, page A2
This article discusses the concerns of many workers in social welfare agencies that efforts to
tighten restrictions on welfare have prevented many eligible families from receiving food
stamps. As a result, there is evidence that an increasing number of people are receiving food
from emergency food banks or not getting adequate nutrition.
"West Virginia Pares Welfare, but Poor Remain"
Michael Janofsky
New York Times, March 7, 1999, Section 1 page 14
This article reports on the situation of former welfare recipients in West Virginia. The state has
had one of the largest reductions in its welfare case load, but in most cases, the former
recipients are still living in poverty. Many former recipients have simply been shifted onto
Supplemental Security Income, a federal anti-poverty program for which many are eligible.
"Handful of States Still Tax the Very Poor"
David Cay Johnston
New York Times, March 7, 1999, Section 1 page 14
This article reports on the findings of a new study by the Center on Budget and Policy
Priorities. This study found that any states have very low thresholds for their income tax, so
that families whose incomes place them well below the poverty line often have to pay state
taxes on those incomes.
Dean Baker is a senior research fellow at the Preamble Center.
Recent articles can be found on the websites of the New York Times and Washington Post.
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