ECONOMICS REPORTING REVIEW: The NYT and the
Washington Post Under the Microscope
Week of November 4 - November 10
Dean Baker is co-director of the Center for Economic and Policy Research.
HEALTH CARE AND SOCIAL SECURITY
"The 2000 Campaign: Health; From Social Security to the Environment, the
Candidates' Positions," by Robin Toner in the New York Times, November 5, 2000,
Section 1, page 33.
"The 2000 Campaign: Social Security," by Richard W. Stevenson in the New York
Times, November 5, 2000, Section 1, page 33.
These columns present the major party presidential candidates' views on health care
and Social Security. The column on Social Security includes several comments that
are misleading.
For example, it asserts that "neither approach would fully solve the problem" of
financing Social Security over its seventy-five year planning horizon, and adding
"neither candidate has been willing to discuss which of the other painful options --
cutting benefits, raising the retirement age, increasing taxes -- he might support."
Since Social Security is projected to be able to pay all benefits for the next
thirty-seven years with no changes whatsoever, there is no obvious reason that the
candidates should be supporting the sort of painful options listed in this column. If
the growth rate turns out to be somewhat higher than the 1.7 percent annual rate
projected in the Social Security trustees' report, then the point at which the system
will have a shortfall will be pushed into the more distant future. When, and if, an
actual shortfall appears on the horizon, the country can deal with it at the time, as it
did in the decades of the fifties, the sixties, seventies, and eighties.
It is worth noting that the discussion of health care issues only notes the large
number of uninsured as a problem. It never mentions the rapid increase in health care
costs. In the last three years health insurance premiums paid by employers have
risen at close to double digit rates. According to standard economic theory, this
money is taken out of workers' wages. The impact of this rate of cost increases on
workers' living standards is many times larger than the impact of any potential tax
increases that might be needed at some future date to fund the Social Security
system.
Usually economists believe that factors which have larger impacts on living standards
are more important than factors which have smaller impacts. It is not clear why the
New York Times views a potential increase in taxes to support Social Security as a
more important political issue than the much larger increases in health care costs
that workers are currently bearing.
The Social Security column also makes references to the possibility of getting higher
returns by investing Social Security money from individual accounts in the stock
market. The only projections for stock returns that have been derived from the
Social Security trustees projections for profit growth show that the difference in
stock returns will not even be enough to cover the administrative costs of individual
accounts (click here for more information).
At one point the health care column refers to Governor Bush's plans to break up the
Medicare program and to rely more on HMOs in place of the traditional
fee-for-service program. It is worth noting that a recent study by the General
Accounting Office found that HMOs cost the system more money for each beneficiary
enrolled than the current system ("Medicare + Choice: Payments Exceed Cost of
Fee-for-Service Benefits, Adding Billions to Spending," August, 2000). This means
that a wholesale shift to HMOs and other private insurers is likely to make the
projected funding shortfall for Medicare even larger.
"Gore Describes Rival as Not Up to the Job," by Katharine Q. Seelye in the New York
Times, November 4, 2000, page A1.
"After 'Next Best' Thing, Clinton Carefully Praises Gore," by David E. Sanger in the
New York Times, November 4, 2000, page A14.
"Gore Uses Social Security as Rallying Point," by John F. Harris in the Washington
Post, November 4, 2000, page A14.
These articles all make reference to the charge of the Gore campaign that Governor
Bush cannot afford both to continue to pay Social Security benefits to current
retirees and to use 2.0 percentage points of the payroll tax to finance individual
accounts. This is not true. The projected Social Security surplus over the decade
together with the $1 trillion in assets already accumulated in the trust fund will make
this easily affordable. However, there will have be large cuts in the benefits for
younger workers if the Bush plan is implemented.
THE BUDGET AND THE ECONOMY
"The 2000 Campaign: The Economy," by Richard W. Stevenson in the New York
Times, November 5, 2000, Section 1, page 32.
This column discusses the major party presidential candidates' plans for the budget
and their likely impact on the economy. The article presents the conventional
economic argument that paying down the debt will foster economic growth by
lowering interest rates and thereby increasing investment. However, the discussion
does not present any estimate of the magnitude that economists assign to this
effect. Projections from the Congressional Budget Office imply that the amount of
debt reduction will increase GDP by less than 1.0 percent by the year 2012,
compared with a scenario in which there was debt reduction (see Congressional
Budget Office, 1997, "The Economic and Budget Outlook: Fiscal Years 1998-2007,"
page 90). This is approximately the same amount that the economy grew in the first
two months of this year.
THE ESTATE TAX
"Bush's Finishing Day Includes Tennessee and Arkansas," by Frank Bruni in the New
York Times, November 7, 2000, page A1.
This article reports on Governor Bush's last day of campaigning. At one point it notes
that on visits to Iowa and Wisconsin he repeated his commitment to end the estate
tax, which the article claimed "farmers find especially onerous."
Only about 6 percent of farmers have an estate that is large enough to make them
subject to any tax at all, since the first $1.3 million in of farm's net worth is exempt
from the tax. Even among this 6 percent, the burden from the estate tax is not likely
to be very large, since in most cases the value of farm estates is not significantly
beyond this threshold. The tax can also be paid over a fourteen year period, which
further reduces the burden for farmers.
THE FEDERAL RESERVE BOARD
"Analysts Predict Fed Will Leave Rates Alone," by John M. Berry in the Washington
Post, November 10, 2000, page E1.
This article reports on economic analysts' expectations for the Federal Reserve
Board's decision on interest rates at its meeting next Wednesday. The article twice
refers to concerns about "inflationary wage increases." There has been a large shift
from wages to profits over the course of this business cycle. The profit share of
output now stands close to its highest point of the post-World War II era. It is
possible for wages to grow more rapidly for a period of time, allowing workers to
enjoy some of the gains from recent productivity growth, without leading to inflation,
if the profit share falls back towards it historic average.
THE EURO
"European Bank Fails to Lift Euro," by William Drozdiak in the Washington Post,
November 4, 2000, page A20.
"Out on a Limb, Another Effort To Lift the Euro," by Edmund L. Andrews in the New
York Times, November 4, 2000, page B1.
These articles discuss the European Central Bank's efforts to raise the value of the
euro against the dollar. They include several misleading statements. For example,
both articles imply that the low value of the euro is a source of major concern for
European economies. The Times article even contained a quote asserting that the
effort to raise the euro was a "desperation" move by the bank.
If the euro stays at its current value, or falls lower, the greater threat is to the
United States. The U.S. is currently borrowing more than $400 billion a year from
abroad, primarily because of its large trade deficit. This trade deficit will grow even
more if the euro stays low against the dollar, since it will make goods produced in the
United States less competitive. If the trade deficit continues at its current level,
measured as share of GDP, then by 2010 the net foreign debt of the United States
will be close to 60 percent of GDP or $9 trillion.
The Post article includes the assertion that "many U.S. officials and economists
believe that the euro can recover for the long term only if Europe deregulates its
economies, restructures inefficient industries and achieves growth more in tune with
that of the United States." Unless these officials believe that the U.S. can support a
foreign debt that is equal to 60 percent of its GDP, an unprecedented level of
indebtedness for an industrialized nation, then such changes in European economies
are not necessary to support the euro. It is also worth noting, that with the
exception of the last four years, most European nations have enjoyed far more rapid
productivity growth than the United States. It is also worth noting, that nations that
have followed the U.S. model, such as New Zealand and Australia, have also seen
their currency decline against the dollar in the same way as the euro.
The Times article includes the assertion that the decline in the euro has been
worsened the impact of recent oil price hikes because oil is priced in dollars. Actually
the fact that it is priced in dollars is irrelevant. The oil exporting nations are not
posting a price in dollars, rather the market is setting a price, which is typically
reported and actually paid in dollars. The price in euros in would be exactly the same
if oil was generally priced in euros.
"Euro-Wise, Yes But Dollar Foolish," by Neela Banerjee in the New York Times,
November 5, 2000, Section 3, page 4.
This article reports on Iraq's decision to insist on payment for its oil in euros instead
of dollars. The article claims that this will actually mean that Iraq will get less money
for its oil, since the euro is down against the dollar. This is not true, unless Iraq is
not able to obtain euros at the market exchange rate. Assuming that it gets euros at
the market exchange rate, it will make little difference which currency it receives for
its oil. In fact, since it is likely that more of its purchases will be from European
countries than the United States, it is likely that it will save some money on currency
trades, if it already holds the euros needed to buy exports from European countries.
"Continent's Businesses Fond of The Euro," by William Drozdiak in the Washington
Post, November 10, 2000, page E1.
This article discusses the attitudes among European business executives to the euro.
At one point it presents a quote from Thomas Middelhoff, the CEO of a German media
conglomerate, stating that European businesses had to change their mode of
operation and that the euro was forcing them to do this. Until the last four years,
according to data from the OECD, most European countries enjoyed considerably
more rapid productivity growth than the United States. For example, from 1990 to
1995 productivity growth averaged 1.6 percent annually in France, 2.4 percent in
Germany and 2.5 percent in Italy. By contrast, it averaged just 1.2 percent in the
United States. This implies that even prior to the adoption of the euro, businesses in
the euro zone were showing considerable dynamism.
ARGENTINA
"Argentina, Wobbly, Clears a Borrowing Hurdle," by Clifford Krauss in the New York
Times, November 9, 2000, page C7.
This article discusses the current economic situation in Argentina. At one point the
article discusses the views of Domingo Carvallo, a former economy minister, who
engineered the linking of Argentina's currency to the dollar. The article comments
that that Mr. Carvallo has begun working with the current government, which it
asserts is boosting its standing in international financial markets.
It is worth noting that Mr. Cravallo's policy of linking Argentina's currency to the
dollar is largely responsible for Argentina's current economic problems. The rise in the
dollar against most major currencies has led to a similar rise in the value of
Argentina's currency. This makes its products more expensive relative to goods
produced elsewhere, thereby increasing Argentina's imports and reducing its exports
to the rest of the world. This problem is compounded by the fact that Argentina's
largest trading partner, Brazil, sharply devalued its currency last year.
The link to the dollar also meant that when the Federal Reserve Board raised interest
rates to slow the U.S. economy, it also forced Argentina to raise its interest rates as
well. Since Argentina was already in a recession, these interest rate hikes further
depressed the economy. The problems that Argentina has experienced as a result of
linking its currency to the dollar were entirely predictable and are widely recognized
by economists.
OUTSTANDING STORIES OF THE WEEK
"Who's Afraid Now That Big Is No Longer Bad?" by Louis Uchitelle in the New York
Times, November 5, 2000, Section 3, page 1.
This article examines the impact of the recent wave of mergers, which has made
most industries more concentrated than at any time in the past.
"The Chaos at the Core," by David Leonhardt in the New York Times, November 5,
2000, Section 3, page 1.
This article discusses the rapid shifts that many firms have made in recent years as a
result of pressure from shareholders to produce ever rising profits. It notes several
cases where businesses have quickly entered, and then abandoned, new lines of
business when expectations for quick payoffs did not pan out.
Back to CEPR's Economics Reporting Review website.