Economic Reporting Review
November 8, 1999:
Budget reporting incompetence; WTO misrepresentations; bioengineering
debate
By Dean Baker
Social Security and the Budget | Trade | Genetic Modification | Mining | Europe | Outstanding Stories
SOCIAL SECURITY & THE BUDGET
"In Social Security Debate, Politics Is Key Player"
Eric Pianin
Washington Post, October 30, 1999, page A4
This article provides background on the current budget standoff between the Republican
Congress and President Clinton. At several point it misrepresents the issues involved.
In explaining the spending limits implied by keeping the non-Social Security budget in balance,
the article states that "the Republicans must spend only $14 billion of the surplus to finance new
programs." The projected surplus assumes that existing programs will be cut in real terms
(adjusting for inflation). If the Republicans were just going to keep spending constant in real
terms, there would be no money left for new programs, and the budget targets would already
be exceeded.
The article also asserts that "for decades, Congress and the White House used the huge
surpluses in Social Security to mask the true extent of the budget deficit." In almost every
official budget document, such as the president's budget and the Congressional Budget Office's
Economic and Budget Outlook, both the unified budget deficit and "on-budget" deficit are
shown right alongside each other. The latter measure excludes the Social Security surplus. If
this latter measure is actually the better measure of the budget deficit, as is suggested in this
article, then it would have been very simple for the media to report the "on-budget" deficit. If
the White House and Congress were able to "mask" the true size of the deficit, it is only
because the media were incompetent in its reporting on the budget.
The article also characterizes the government bonds held by the Social Security trust fund as
"IOUs." All bonds are IOUs by definition; however, other government or corporate bonds are
never referred to as IOUs in the media. Characterizing the Social Security bonds in this manner
has the effect of deprecating their value.
"Parties Closer Than They Seem in Budget Fight"
Alison Mitchell
New York Times, November 1, 1999, page A1
"Charges Fly On Social Security"
Associated Press
Washington Post, October 31, 1999, page A10
"Clinton Vetoes 1 Percent Budget Cut, But Seeks Accord on Aid Bill"
Richard W. Stevenson
New York Times, November 4, 1999, page A16
"Giving In On Foreign Aid Bill, G.O.P. Finds An Election Issue"
Tim Weiner
New York Times, November 4, 1999, page A16
"Congress Reaches Deal on Foreign Aid"
Eric Pianin and Juliet Eilperin
Washington Post, November 5, page A13
These articles discuss the status of the current debate over the federal budget. They imply that
Congress would drain money from the Social Security system if it spent a portion of the Social
Security surplus. In reality, the Social Security system will not be affected at all by the outcome
of this budget debate, as has been pointed out in previous articles (see e.g. "Hands-Off Social
Security Vow Ignores Reality, Experts Say," by George Hager, Washington Post, 10/10/99,
page A5; or "Noble Talk of Saving Social Security Is Muted by Political Gamesmanship," by
Richard W. Stevenson, New York Times, 9/29/99, page A20; and ERR, 11/1/99).
"Vote on Spending Bill Sets Up Another Fight"
Eric Pianin
Washington Post, November 3, 1999, page A4
"Congress Blesses a 1 Percent Budget Cut, But Clinton Won't"
Tim Weiner
New York Times, November 3, 1999, page A1
Both of these articles imply that recent levels of federal spending have been lavish or excessive.
The Post article comments that the Republican Congress "has gradually moved towards the
Democrats in showering funds on domestic and defense programs." The Times article
comments that Republican spending proposals had "bloated the budget" with $21 billion in new
spending.
There is no obvious justification for the comments about excessive spending in these articles.
Spending on discretionary programs has been nearly constant in recent years when adjusted
for inflation, and it has fallen when measured as a share of GDP.
See more on Social Security.
[Top]
TRADE
"Trade Body Summit Targeted for Protest"
Anne Swardson
Washington Post, November 2, 1999, page A1
This article discusses plans for protests at the WTO summit which is scheduled to be held in
Seattle at the end of the month. The article misrepresents many facts about the WTO and
recent patterns of trade.
For example, it repeatedly asserts that the WTO is committed to opening trade. This is
inaccurate. While its rules are designed to facilitate foreign investment, such as a U.S. auto
manufacturer building a factory in Indonesia, in other areas the WTO has taken little action to
facilitate trade, while in some areas it rules are intended to impede free trade. In the case of
professional services, such as those provided by doctors, lawyers and other highly paid
professionals, the WTO has done virtually nothing to facilitate international trade and
competition. In the case of intellectual property claims, such as patents and copyrights, the
WTO has worked to impose these protectionist barriers on developing nations, at an
enormous cost to their consumers.
The article also refers to statistics and studies which are intended to show the benefits from the
recent growth in trade. It makes no reference to the near consensus among economists that
trade has been one of the factors that has increased wage inequality in the United States over
the last two decades.
In addition, the article mischaracterizes the context in which the WTO came into existence five
years ago, claiming that it "was hailed as the solution to the world's trade problems." The WTO
certainly was not universally regarded in this manner at the time. The Clinton administration had
to fight to gain Congressional approval for the WTO, at one point using the (false) claim that
the WTO agreement provided the largest tax cut in the history of the world as a rationale for
supporting the agreement.
This article on the planned WTO protests relies on extensive comments from several
supporters of the WTO. It includes only one brief statement from anyone associated with the
protestors.
"Clinton Is Seeking China Trade Deal by End of Month"
David E. Sanger
New York Times, November 2, 1999, page A1
This article reports on President Clinton's efforts to reach an agreement under which China will
enter the WTO. At several points it characterizes the administration's goal as "opening
markets" in China. While in some cases this is true, the Clinton administration has also worked
very hard to close certain markets, insisting that China enforce U.S. copyright and patent
protections. Imposing these protections led to a shutdown of many factories producing
compact discs and videos, and raised the prices on these products by several hundred percent.
"Senate Passes Trade Bill, Including Caribbean"
Eric Schmitt
New York Times, November 4, 1999, page A7
This article reports on a trade bill that would remove tariff barriers to imports from the
Caribbean and sub-Saharan Africa. While the article includes comments from several
supporters of the bill, it does not quote or cite anyone who opposed the bill. Many groups did
oppose this legislation because of the policy changes it required from African nations as a
condition of benefiting from tariff reductions.
The article also includes an unanswered statement from Sen. William Roth (R.-Del.) that the
bill would create 121,000 jobs in the textile industry. This would imply an increase of more
than 20 percent in employment in that industry. It is completely implausible that this trade
measure could have an impact of this magnitude.
See more on trade.
[Top]
GENETIC MODIFICATION
"Gene-Altered Corn's Impact Reassessed"
Rick Weiss
Washington Post, November 3, 1999, page A3
This article reports on a set of studies presented at a symposium that supposedly show that
genetically altered corn does not pose a threat to monarch butterflies, and thereby the larger
environment. The article implies that these studies had largely ended scientific concerns about
this particular source of risk, as indicated by the article's sub-head: "Studies Funded by Biotech
Consortium Find Little Risk to Monarch Butterfly."
The view presented in this article is contradicted by a New York Times article on the same
symposium ("No Consensus On the Effects Of Altered Corn on Butterflies," by Carol Kaesuk
Yoon, 11/4/99). This article highlights the conflicting views among the scientists at the
conference, quoting several experts who found the studies inclusive. The Times also notes
these experts' concern about the role of the bio-tech industry in supporting this research and
presenting it to the public before it had been peer-reviewed. (See "Outstanding Stories of the
Week.")
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MINING
"Senator Leads Move to Block Ruling on Strip Mines"
Frances X. Clines
New York Times, October 30, 1999, page A8
"White House Backs W.Va. on Mine Dumping"
Tom Kenworthy and Juliet Eilperin
Washington Post, October 30, page A2
These articles discuss the impact of a decision by a Federal District Court judge to block strip
mining in West Virginia because it violates environmental regulations. Both articles uncritically
report claims that this ruling will cost a large number of miners their jobs.
West Virginia has been losing mining jobs at the rate of 15 percent annually, primarily as a
result of strip mining replacing underground mining. Strip mining employs very few people. If
the practice were outlawed in West Virginia, it may actually on net increase employment in
mining, since some of the remaining jobs in underground mining may survive a bit longer.
[Top]
EUROPE
"European Central Bankers Raise Key Rate a Half-Point"
Edmund L. Andrews
New York Times, November 5, 1999, page C4
This article reports on the decision of the European Central Bank to raise its short-term interest
rate by half of a percentage point, to 3.0 percent. At one point, the article comments that
"because European interest rates are still low, economists throughout the region greeted the
rate increase today as a fairly painless precaution."
Given the high level of unemployment and excess capacity throughout Europe, interest rates are
not low. Since inflation in the euro nations is just 1.0 percent, the real short-term interest rate
(the nominal interest rate minus the inflation rate) will be 2.0 percent after this rate hike. By
comparison, Alan Greenspan allowed the real interest rate in the United States to remain at
virtually zero over the two years from 1992 to 1994. At the time, the United States economy
was recovering from a recession which was not nearly as severe as the slump affecting Europe.
The high unemployment currently being experienced across Europe is exactly the result that
standard economic theory would predict from the European Central Bank's high interest rate
policy. Many of the world's leading economists argued this point in a statement issued at the
end of last year. (See "An Economists' Manifesto on Unemployment in the European Union,"
BNL Quarterly Review, 9/98.)
While the article refers to views held by "economists throughout the region," only two are cited
in the article. Both of the economists cited are employed by financial firms.
See more on Europe.
[Top]
OUTSTANDING STORIES OF THE WEEK
"Reassessing Ecological Risks of Genetically Altered Crops"
Carol Kaesuk Yoon
New York Times, November 3, 1999, page A1
This article assesses views among scientists on the potential environmental hazards posed by
genetically altered foods. It points out that the United States Department of Agriculture
(USDA) has never rejected an application for a genetically engineered crop. It also presents
the view of several scientists that the evidence that provided the basis for the USDA approval
was often of questionable quality.
The perspective on genetically engineered crops presented in this article is quite different from
that of previous reporting (e.g. see "New Trade Threat For U.S. Farmers," by Melody
Peterson, New York Times, 8/29/99, Section 1 page 1; "Fearful Over the Future, Europe
Seizes on Food," by Roger Cohen, New York Times, 8/29/99, Section 4 page 1; see also
ERR, 9/6/99). These articles implied that there was no rational basis for concern about the
safety of genetically altered crops and that the issue was simply a pretext for protectionist
measures.
"School a Rare Luxury for Rural Chinese Girls"
Elisabeth Rosenthal
New York Times, November 1, 1999, page A1
This article examines the education system in rural China. Schools generally charge fees that
are a considerable drain on the income of the rural population. Many parents therefore do not
send their children to school. Disproportionately, they choose not to pay the fees for their
daughters, which means that most girls do not attend school in many parts of the country.
"Patent Fight Tests Drug Firm's Clout"
Charles R. Babcock
Washington Post, October 30, 1999, page A1
This article reports on the lobbying efforts of Schering-Plough Corp., a major pharmaceutical
manufacturer, to have its patent on the allergy drug Claritin extended by three years. If they
succeed, it will cost consumers billions of dollars, since the patent protected price is four to five
times the free market price.
"Sponsors Want to Keep Gene Test Deaths Secret"
Rick Weiss and Deborah Nelson
Washington Post, October 30, 1999, page A1
"NIH Not Told of Deaths in Gene Studies"
Deborah Nelson and Rick Weiss
Washington Post, October 30, 1999, page A1
These articles report on the efforts of drug companies and researchers to keep secret deaths
associated with tests of various gene therapies. According to the articles, the reason for the
secrecy is to prevent bad publicity that could hurt stock prices.
[Top]
Dean Baker is a senior research fellow at the Preamble Center and at the Century Foundation.
ERR is edited by Jim Naureckas.
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