ECONOMICS REPORTING REVIEW: The NYT and the
Washington Post under the Microscope
Week of November 18 - November 24

Dean Baker is co-director of the Center for Economic and Policy Research.

TRADE DEFICIT 

"U.S. Trade Deficit Hits New High," by Martin Crutsinger in the Washington Post,
November 22, 2000, page E3. 

"September Trade Gap Raises Some Fear on Pace of Slowdown," by Joseph Kahn in
the New York Times, November 22, 2000, page C11. 

These articles report on the release of trade data for the month of September. Both
articles are somewhat misleading in discussing the origins of the trade deficit, and
downplay its economic significance. 

For example, the Times article asserts that "most economists" attribute the growth
in the trade deficit to "the disproportionate strength of the United States economy
compared with major trading partners." While the relatively rapid growth of the U.S.
economy can explain part of the increase in the trade deficit, it clearly is not the
primary cause. In the last three years, the deficit has increased from just over one
percent of GDP to more than four percent. The difference in growth rates between
the United States and its trading partners cannot plausibly explain growth of this
magnitude. Furthermore, the deficit has continued to grow rapidly even in the third
quarter of 2000, when growth in the United States slowed to just over 2.0 percent,
far below the growth rate of most of its trading partners. 

The Times article later asserts, "Even economists who say they are worried about
the trade deficit are not really sounding the alarm." The impact of the trade deficit
on future living standards is largely a matter of accounting and arithmetic. By running
a trade deficit that exceeds $400 billion on an annual basis, the United States is
borrowing a large amount of money from abroad. This implies future payments of
interest, profits, and dividends from the United States to people living in other
nations. These payments imply lower living standards for people living in the United
States. 

The impact of a trade deficit of $400 billion is comparable to the impact of a budget
deficit of $400 billion. There are many economists who have expressed concern, if
not "alarm," about budget deficits that were considerably smaller. If these
economists are honest, then it logically follows that they are equally concerned
about trade deficits of the same magnitude. 

The Post article includes the comment that U.S. exports "set a record in August."
Exports, like imports, GDP, and population, will generally grow month after month.
Therefore setting a record in this category is pretty much meaningless. 

"U.S. Trade Deficit Heats Up With Steel at Its Core," by Steven Pearlstein in the
Washington Post, November 24, 2000, page E1. 

This article discusses the impact that the growing U.S. trade deficit has had on the
steel industry. It misrepresents many aspects of the current situation. 

For example, it asserts, "With the economy booming and unemployment low, ...a
broad political consensus developed around the advantages of free trade, symbolized
by ratification of a new trade treaty with China." Actually, virtually all public opinion
polls on the issue show that most of the public opposes what is labeled as "free
trade." Polls also indicated that most of the public opposed the trade agreement with
China. While there is widespread support for "free trade" among more affluent and
educated people, this is not true for the population as a whole. 

This may be due to the fact that a primary purpose of recent trade agreements has
been to place blue-collar workers in direct competition with manufacturing workers in
developing nations, who earn a small fraction of the wages paid in the United States.
By contrast, these trade agreements have done virtually nothing to increase the
extent to which professionals such as doctors, lawyers, and accountants come into
competition with their lower paid counterparts in the developing world. 

While the article notes that the steel industry's critics complain about the high
wages in the industry, it never mentions the value of the dollar as one of the factors
contributing to the industry's problem. Since 1996, the dollar has risen by
approximately 15 percent against other major currencies. (It has risen much more
relative to the currencies of some major steel exporters, like South Korea and
Russia.) For U.S. firms attempting to compete with foreign producers, this rise in the
dollar has the same impact as if foreign nations granted a 15 percent subsidy on
every ton of steel exported to the United States. 


CANADA 

"Canada's Premier Tugged to Right by Challenger," by James Brooke in the New York
Times, November 22, 2000, page A6. 

This article reports on the nature of the political debate in Canada in the last week
before its parliamentary elections. The article approvingly presents the tax-cutting
platform of the conservative Canadian Alliance party, implying that its presentation
of the nation's problems is accurate. 

For example, the article presents a comment from a person identified as a nineteen
year old "television production assistant," who asserts that: "it's a shame that
Canada leads the G-7 in taxes." According to data from the OECD, Canada actually
ranks fourth among the G-7 in taxes, behind France, Germany, and Italy, and just
about even with Great Britain. The article also asserts that income tax rates "often
total 50 percent." Only a small portion of the Canadian population pay a 50 percent
income tax rate. 

Later the article cites Stockwell Day, the conservative leader, asserting that
Canadians pay 25 percent more taxes on average than Americans. While this figure is
approximately accurate, the vast majority of Canadian health care expenditures are
paid by the public sector. In the United States, the government pays less than half
of health care expenditures. The total of health care expenditures plus taxes would
be approximately the same, measured as a share of GDP, between the two countries.
It is worth noting that Canadians have better health care outcomes in measures
such as life expectancy and infant mortality. 

The article also repeats Mr. Day's assertions that Canada is experiencing a
large-scale brain drain as its educated workers immigrate to the United States to
take advantage of lower tax rates. While there is a significant outflow of educated
workers from Canada, this has been true for at least a half century. A recent paper
by John F. Helliwell, a Canadian economist, examined the evidence of a brain drain
from Canada to the United States ("Checking the Brain Drain: Evidence and
Implications"). The paper found that the rate of Canadian immigration to the United
States has fallen sharply over the last four decades. This decline in emigration is
particularly dramatic for scientists and engineers. In the early 1960s more than 30
percent of Canadian scientists and engineers moved to the United States. By the mid
1990s, this number had dropped to 8 percent. 

It is worth noting that the Times has run several recent articles with this reporter's
byline, all of which disparage Canada's welfare state based on wrong or misleading
information (see ERR January 24, 2000, March 6, 2000, May 1, 2000). 


COPYRIGHTS 

"Which Direction Now For Digital Music?" by Laura M. Holson in the New York Times,
November 20, 2000, page C1. 

This article discusses the prospects for music being distributed over the web, now
that MP3.com and Napster have both signed agreements with some of the major
firms in the recording industry. It would have been helpful to readers if the article
had included some economic analysis of the gains from allowing the free transfer of
music over the web, as opposed to efforts to step up copyright enforcement to
prevent such transfers. As some of the discussion implies, enforcement of copyrights
on the web will be at least a costly, if not impossible, task. 

"Pirating of Software Rampant on Campus," by Ariana Eunjung Cha in the Washington
Post, November 24, 2000, page A1. 

This article discusses the frequency with which students on college campuses use
unauthorized copies of music, software, and videos. It points out that many
companies are worried that this disrespect for copyright laws may undermine their
profitability in the long-term. 

It is worth noting that the article treats the disregard of copyright restrictions as an
ethical problem. Usually when individuals ignore government restrictions on the
market, such as the imposition of price controls on certain products, it is viewed as
evidence of the inability of the government to over-ride the market. In this case, the
article takes the opposite perspective, viewing the problem as a failing of individual
ethics. 


ARGENTINA 

"With No Hope for Economy, Many Argentines Are Leaving," by Clifford Krauss in the
New York Times, November 24, 2000, page A3. 

"Argentine General Strike," by Agence France-Presse in the New York Times,
November 24, 2000, page A3. 

These articles discuss aspects of the current economic situation in Argentina. The
first article is the major story, covering half of a page. The wire service story on the
general strike is a two-paragraph piece at the bottom of the larger story. 

The article on people leaving Argentina refers to the relatively small group of
Argentineans, perhaps numbering in the tens of thousands, who have relatives in
Italy, Spain, or the United States, who are seeking to leave the country. By
contrast, millions of workers are expected to take part in the general strike. 

The larger article points out the bleak economic situation in Argentina. It includes a
quote from a senior IMF official who blames Argentina's "social psychology" for its bad
economic situation. It is worth noting that Argentina's economy was widely praised
by the IMF and business press only a few years ago. The nation's decision to rigidly
fix its currency to the dollar was given credit for ending a period of hyper-inflation. 

At the time, many economists opposed this move because it tied Argentina's fate to
the dollar. The recent rise in the dollar has made Argentina's goods far less
competitive internationally, since its currency has risen by the same amount as the
dollar. The rise in the value of the currency makes Argentina's exports more
expensive to other nations and makes foreign imports cheaper for people in
Argentina. Also, the Federal Reserve Board's interest rate hikes over the last year
and a half have forced Argentina's central bank to raise interest rates as well,
slowing an economy that was already in a slump. 

In its discussion of the Argentinean economy, the article never mentions the impact
of the currency's link to the dollar. It is worth noting that the business press was
willing to prominently tout the benefits of linking Argentina's currency to the dollar,
but now appears reluctant to call attention to the negative consequences, which
were entirely predictable. 


INDIA AND THE ENVIRONMENT 

"A Cruel Choice in New Delhi: Jobs vs. a Safer Environment," by Celia W. Dugger in
the New York Times, November 24, 2000, page A1. 

This article reports on the reaction to a decision by the Indian Supreme Court to
require that the government of New Delhi enforce pollution laws. According to the
article, this decision may force the closure of tens of thousands of small factories. 

The article misleading characterizes the choices here as a question of jobs versus
the environment. While the immediate impact of this sort of decision may be the loss
of jobs, this is primarily due to the fact that the pollution regulations had been
ignored for years, so that factories had no incentive to comply with them. Had
regulations been followed consistently, it is likely that the numbers of jobs lost
through time would have been relatively small, as has been the experience of other
nations that have instituted such regulations. The real problem in New Delhi was the
corruption of the government, which allowed for mass defiance of pollution
regulations and the endangerment of its citizens' health. 


SOCIAL SECURITY 

"The Wall Street Bonanza That Won't Be," by Gretchen Morgenson in the New York
Times, November 19, 2000, Section 3, page 1. 

This article presents an analysis of the stock market and the economy that suggests
that the Social Security system will not be able to reap significant benefits by
placing funds in the stock market. The article is very misleading in its discussion of
the problems facing the Social Security system. It notes that the ratio of workers to
retirees was sixteen to one in 1934, but is projected to be just two to one in 2030.
It fails to point out that the tax rate has been increased to cover this cost, so that
at current tax rates, the latest projections show that all benefits can be paid in full
until 2037. Even after this point, the system would always be able to provide a
benefit that is substantially larger, adjusted for inflation, than what a typical retiree
receives today. It is also important to point out that average wages will be
approximately four times as high in 2030 as they were in 1934. This means that
workers in 2030 will be able to afford to pay more in Social Security taxes, to cover a
longer retirement, and still enjoy a much better standard of living with their after-tax
wages than did workers in 1934. 


OUTSTANDING STORIES OF THE WEEK 

"Battle Lines Drawn Over Ergonomic Rules; Business Pitted Against Washington," by
Steven Greenhouse in the New York Times, November 18, page B1. 

This article examines a new set of workplace rules issued by the Occupational Safety
and Health Administration (OSHA). Business groups have claimed that the rules will
be extremely costly to follow, while OSHA's studies indicate that the regulations
should actually save more in lost workdays and productivity than they would cost. 

"Defying the I.R.S., Anti-Tax Businesses Refuse to Withhold," by David Cay Johnston
in the New York Times, November 19, Section 1, page 1. 

This article reports on a growing number of businesses which openly refuse to
withhold taxes for their workers or to pay taxes themselves. To date, the I.R.S. has
not brought any action against these businesses, even though they are being very
open in their refusal to comply with I.R.S. withholding requirements. 

"Bond Believers See Prelude to a Fall," by Gretchen Morgenson in the New York
Times, November 19, Section 3, page 1. 

This article reports on the growing spread between interest rates on corporate
bonds, particularly junk bonds, and government bonds. The article points out that
this spread is reaching a level not seen since the 1990-91 recession. This implies
that investors view the risk of default as being very high. It also means that many
businesses are finding it very expensive to borrow. 

"Consensus Sought on Tax Cuts," by Glenn Kessler in the Washington Post, November
21, 2000, page E1. 

This article discusses the possibility for a compromise over tax cuts between
Republicans and Democrats. It notes that the current tax code provides for large tax
credits or deductions for low and higher income taxpayers, but provides relatively
small benefits for children for middle income families.

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