Economic Reporting Review
March 18, 2002

By Dean Baker, co-Director of the Center for Economic and Policy Research

Oil Industry Hesitates Over Moving Into Arctic Refuge
Neela Banerjee
New York Times, March 10, 2002, page 31

This article assesses the value of the Arctic National 
Wildlife Refuge's value to the oil industry. It reports the view of 
many in the industry that the oil fields in the refuge may not be 
worth drilling in, even if the area is opened up to exploration.

Whistle-Blower Says Marketers Broke the Rules To Push a Drug
Melody Petersen
New York Times, March 14, 2002, page C1

This article reports on a lawsuit by a former marketing agent 
for Warner-Lambert, which alleges that the company promoted one of 
its drugs among doctors, for uses that had not been approved by the 
Food and Drug Administration (FDA). This would violate federal law, 
which requires that companies submit evidence from clinical trials of 
a drug's effectiveness for specific uses, before it is allowed to 
promote a drug for these uses. 

Ready to Quit, but Deep in Debt
Daniel Altman
New York Times, March 12, 2002, page E11

This article examines the financial situation of workers 
approaching retirement age. It notes that many workers in the fifties 
and early sixties are still net debtors, meaning that they have 
managed to accumulate nothing to support themselves in retirement. 

This fact is especially interesting in the context of 
proposals to replace a portion of Social Security with individual 
accounts. It is often argued that an advantage of these accounts is 
that they could be passed on to children. This argument is most often 
made in reference to African-Americans and lower income workers who 
are most likely to die young. These workers are also the most likely 
to be in debt as they approach retirement age. If these workers had 
individual accounts, and they died in debt, their accounts would go 
to repay their debts, not to their heirs. 


Steel Tariffs and Copyrights


Bush Is Still Winning War There, But He Begins to Lose Battles Here
David E. Sanger 
New York Times, March 9, 2002, page A1

This article discusses some of the political problems that 
President Bush has faced in recent weeks. At one point it discusses 
his decision to impose tariffs on imported steel. It asserts that 
this decision has "left the White House in the awkward position of 
explaining why Mr. Bush has turned on his free-trade principles and 
how much that reversal would cost Americans paying for cars, houses 
and washing machines." 

The article does not explain why the White House has been 
forced to make such explanations. There is no obvious reason that 
anyone would have previously believed that Mr. Bush adhered to 
any "free-trade principles." His administration has worked to extend 
costly forms of protectionism, such as patents and copyrights. 
President Bush has also never indicated any unhappiness with 
professional restrictions that have the effect of preventing 
foreigners from competing in professions such as law, accounting, and 
medicine. His administration has never been asked to explain how much 
these restrictions cost American consumers, although the answer would 
certainly be several orders of magnitude larger than the cost of the 
steel tariffs. 

Most people probably view President Bush as a politician who 
adopts positions in response to political pressure. This article 
presents no reason why anyone would believe that ideological 
considerations have governed his decisions. 


Piracy, Or Innovation? It's Hollywood vs. High Tech
Amy Harmon
New York Times, March 14, 2002, page C1

This article reports on efforts by the entertainment industry 
to get Congress to pass legislation requiring digital locks on 
computers and other electronic equipment, which would block the 
reproduction of copyrighted material. The article asserts that the 
conflict between the technology and entertainment industries on this 
issue: "underscores a new tension between what have long been high 
national priorities: protecting intellectual property and promoting 
technological innovation." 

The fact that millions of people make unauthorized 
reproductions of copyrighted material, as claimed by the 
entertainment industry, indicates that "protecting intellectual 
property" is probably not a high national priority. While copyright 
enforcement may be a major concern for some members of Congress, 
clearly a large segment of the population views the matter 
differently. 

It would have been helpful to include some analysis of the 
economic costs associated with copyright enforcement. Many of the 
news articles that discussed President Bush's decision to impose 
tariffs on imported steel included economists' estimates of the costs 
of these tariffs to consumers. It would be helpful to include the 
same sort of estimates from economists concerning the costs of 
enforcing copyrights. 




The Stock Market

Are the Bulls Starting a Run As the Economy Gathers Steam?
Alex Berenson
New York Times, March 9, 2002, page B1

This article assesses the stock market's prospects. At one 
point it presents the views of Abby Joseph Cohen, who predicts that 
the S.& P. 500 will end the year at 1250. It is worth noting that Ms. 
Cohen had projected that the S.&P. 500 would end 2000 at 1550, a gain 
of 8.5 percent. It actually ended the year at 1330, a decline of 7.0 
percent for the year. 


World Bank Aid

World Bank, in Report, Defends Its Use of Aid
Joseph Kahn
New York Times, March 12, 2002, page W1

This article discusses a new World Bank report that assesses 
the impact of World Bank aid over the last four decades. In addition 
to presenting the findings of the report, the article also presents 
the views of several prominent critics of the bank.

At one point the article reports that the bank claims 
that "foreign aid has added 20 years to life expectancy in poor 
countries in the last four decades, and has cut their illiteracy rate 
in half." This refers to the cumulative progress that developing 
nations have made over the last four decades (mostly in the period 
1960-80). While the World Bank has made exaggerated claims about the 
usefulness of its aid, even the Bank would not try to claim that it 
deserves full responsibility for all the progress that developing 
nations have made over the last forty years. 


Bush Seeks Foreign Aid Boost
Paul Blustein
Washington Post, March 15, 2002, Page A1

Bush Plans to Raise Foreign Aid and Tie It to Reforms
Elisabeth Bumiller
New York Times, March 15, 2002, page

These articles report on a proposal by President Bush to 
increase U.S. aid to developing nations by a total of $5 billion over 
the years 2004-2006. This increase is reported in the context of an 
appeal by the United Nations that the industrialized nations double 
the size of their aid flows. In this context, it would have been 
appropriate to adjust the proposed increase for projected inflation 
over this period. While the articles report that the increase is 
equal to 14 percent of current aid flows, after adjusting for 
inflation, the increase would be less than 7 percent.

The Post article also discusses aid flows measured as a share 
of GDP, noting that European aid is equal to approximately 0.39 of 
GDP, while U.S. aid is about 0.1 percent of GDP. The Bush 
administration's proposal would be sufficient to keep the share of 
GDP going to foreign aid nearly constant. 

The Times article includes a comment comparing the proposed 
$5 billion increase in foreign aid with the $48 billion proposed 
increase in military spending. This comparison is inappropriate, 
since the $48 billion refers to increased spending next year. The 
total increase in military spending over the years 2004-2006, 
compared with current spending, would be close to $200 billion.

The articles also include assertions that future aid would be 
tightly linked to developing nations' adoption of reforms approved by 
the World Bank. It is not clear that the World Bank is a good judge 
of successful reforms. Under its tutelage, Russia saw its economy 
contract by close to 50 percent. The last twenty years, in which the 
World Bank and the I.M.F. have played a far more direct role in 
determining the economic policies of developing nations, have been 
very bad ones for developing nations (see "The Scorecard on 
Globalization, 1980-2000: Twenty Years of Diminished Progress" 
[http://www.cepr.net/globalization/scorecard_on_globalization.htm]). 



Farm Subsidies

California's Senators Oppose $275,000 Farm Subsidy Limit
Associated Press
New York Times, March 12, 2002, page A26

This article reports on efforts by California's senators to 
raise a proposed cap of $275,000 on the size of the subsidy that any 
individual farm could receive. According to the article, the senators 
argue that this cap would discriminate against California's rice and 
cotton farmers, because at market prices, these farms incur much 
larger losses than other types of farms. 

If the senators' claim is true, it would imply that rice and 
cotton are probably bad crops to grow in California. There is no 
obvious public interest in subsidizing crops that can only be grown 
at very large losses. 

Japan

Tokyo Stock Rally Is Attracting Some Suspicion
Ken Belson
New York Times, March 13, 2002, page W1

This article reports on the recent rally in Japan's stock 
market. At one point it discusses the possibility that banks may 
continue to bail out heavily indebted construction companies. The 
article comments that "the approach may keep unemployment from rising 
quickly, but it also prevents new jobs from being created, leaving 
the economy to corrode as before." 

The article does not explain how lending money to otherwise 
bankrupt companies would keep new jobs from being created. Japan is 
not currently suffering from a shortage of capital. Its real interest 
rates on corporate debt are well below the levels in the United 
States, indicating that there is plenty of capital available for 
firms that want to borrow. Therefore, there is no reason to believe 
that bank loans to companies that may not be economically viable are 
depriving potentially dynamic companies of access to capital. In 
fact, in an already depressed economy, these loans may help to 
sustain demand and therefore make it easier for firms to create new 
jobs.


Growth in Europe

European Meeting Will Focus on Freer Rein for Economy
Emma Daly
New York Times, March 15, 2002, page W1

This article discusses a summit meeting of leaders of the 
European Union. It reports that the main items on the agenda are 
plans that would further deregulate the European economy in order to 
foster more rapid growth. 

It is worth noting that the most obvious factor slowing 
European growth is the tight monetary policy being pursued by the 
European Central Bank (ECB). Currently the short-term interest rate 
set by the ECB is at 3.5 percent. By comparison, the Federal Reserve 
Board has set the short-term rate at 1.75 percent. The ECB is 
maintaining this higher rate, even though the euro zone has a lower 
rate of inflation, and a higher rate of unemployment than the United 
States. 

It would be difficult to envision the Federal Reserve Board 
deliberately restraining growth to the same extent as the ECB is at 
present. However, the lack of political accountability in the 
European system allows the bank to set policy with little regard for 
its impact on the economy or the plight of workers seeking jobs. The 
ECB is not discussed in this article. 


Tax Cuts

House GOP Reluctant to Seek Debt Ceiling Increase
Glenn Kessler
Washington Post, March 13, 2002, Page A6

This article discusses the debate in Congress over raising 
the nation's debt ceiling to accommodate the new borrowing that is 
necessary as a result of current deficits. The article reports that 
Democrats hope to gain politically by blaming last year's tax cut for 
the deficit.

It would be striking if this were an effective political 
tactic. Most economists believe that last year's tax cuts played an 
important role in reducing the severity of the recession and keeping 
people employed. By contrast, there is virtually no negative economic 
consequence to the modest deficits that occurred as a result. (Last 
year's tax cut was also added to the bill at the insistence of the 
Democrats.) 


Productivity

Payrolls Rose by 66,000 in February
John M. Berry
Washington Post, March 9, 2002, Page E1

This article reports on the release of February employment 
data by the Labor Department. At one point the article attempts to 
infer the quarterly rate of productivity growth based on the hours 
worked reported for January and February and forecasts of growth for 
the quarter. Based on the strong productivity growth implied by this 
calculation, the article cites an economist projecting substantial 
increases in profitability. 

Quarterly productivity growth is very poorly measured even 
after the full quarter's data is available. The numbers jump around 
in ways that cannot plausibly be attributed to actual changes in the 
economy. For example, productivity growth was reported as 7.8 percent 
in the 4th quarter of 1999 and 6.7 percent in the 2nd quarter of 
2000. It was reported as 0.0 in the first quarter of 2000. It is not 
likely that productivity was growing extremely rapidly for three 
months, then stopped growing altogether, then started a new surge in 
the following three months. These numbers can more easily be 
explained by measurement error. It is also worth noting that 
productivity data are subject to very large revisions, which often 
leads to numbers that are quite different from the ones originally 
reported. 

Given the poor quality of quarterly productivity data, it 
would be dangerous to infer very much about the state of the economy 
from even a full quarter's data. An inference that is based on data 
from only a portion of the quarter has an even shakier 
foundation.