ECONOMICS REPORTING REVIEW: The NYT and the
Washington Post Under the Microscope
Week of October 14 - October 20

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


SOCIAL SECURITY 

"Social Security Pay to Rise 3.5% Jan.1," by Amy Goldstein in the Washington Post,
October 19, 2000, page A12. 

"Medicare Premiums and Social Security Will Rise," by Robert Pear in the New York
Times, October 19, 2000, page A21. 

These articles discuss the size of the annual cost-of-living increase for Social
Security beneficiaries. Toward the end, the Post includes several wrong and
misleading statements. For example, it comments that: "neither [major party
presidential] candidate has broached difficult changes that some policy experts
believe might become necessary, such as reducing benefits or requiring people to
wait until they are older than sixty-five to qualify for benefits." 

Virtually all experts recognize that the fund is fully solvent for the next thirty-seven
years with no changes whatsoever, as projected by the Social Security trustees. It
would have been at least as informative to present this fact to readers, instead of
the views of unnamed experts. It is also worth noting that the normal retirement age
is already scheduled to rise to sixty-seven by 2027, under current law. 

The article also states that the Social Security trust fund is projected to take in
more money than it pays out for the next fifteen years. This is wrong. According to
the most recent Social Security trustees report, the fund is projected to take in
more money that it pays out for the next twenty-five years. 

The Times article concludes with a quote from an economist at Texas A&M, asserting
that the consumer price index (CPI) overstates the true increase in the cost of
living. While this was the contention of the Boskin Commission, which looked into this
topic four years ago, its conclusion has not been supported by subsequent research
by the Bureau of Labor Statistics. Its conclusion also seems to have been rejected
by the overwhelming majority of economists, who continue to regard the CPI as an
accurate measure of the rate on inflation when conducting research. 


SOCIAL SECURITY AND THE CAMPAIGN 

"Gore Aides Say Bush Camp Is Exploiting Mideast Crisis," by Kevin Sack in the New
York Times, October 15, 2000, Section 1, page 24. 

This article discusses the latest developments in the presidential campaign. At one
point it reports an assertion by Vice President Gore at a campaign rally, that
Governor Bush's Social Security plan "would eventually bankrupt the system." 

This statement is untrue. Governor Bush has not laid out a specific plan at this point.
If he is elected, he proposes to establish a commission which will design the actual
proposal. He has indicated that he intends to cut the guaranteed benefit, which will
be at least partly replaced with individual accounts. Unless the arithmetic used in
designing this proposal is extraordinarily poor, and no changes are ever made even as
the program sinks into a deficit, there is no reason to believe that it will bankrupt
Social Security, although it may mean that retirees will receive much lower benefits. 

The Times has printed this claim by the vice president in the past without pointing
out its inaccuracy (e.g. see "Gore Campaign Sees Florida as Ripe for the Picking," by
Katharine Q. Seelye, New York Times, October 7, 2000, page A11). 

"Gore Turns Bush Reticence on Retirement to Advantage," by Glenn Kessler in the
Washington Post, October 19, 2000, page A11. 

This article discusses the state of the debate on Social Security between the major
party presidential candidates. At one point it refers to a Social Security restructuring
plan that was proposed by Representative John Kasich. The article reports the claim
that the plan was "certified by the Social Security Administration (SSA) as achieving
long-term solvency." This is not true. 

The Kasich plan includes investing money in the stock market through individual
accounts. The SSA does not make projections for stock returns, since stocks have
historically not been relevant to the program's solvency. The SSA therefore makes its
calculations based on projections of stock returns provided by others. The stock
return projections used in the analysis for the Kasich plan were 7.0 percent above
the rate of inflation. Given high current stock prices and the low rate of profit growth
projected by the Social Security trustees, this is approximately twice the rate of
return that can be expected (click here for more detail). If the SSA had been told to
use stock return projections that were consistent with the trustees' profit growth
projections, it would have found that the Kasich plan did not keep the program
solvent over the seventy-five year planning horizon. 

"Bush Hits Hard in Swing State," by Edward Walsh in the Washington Post, October
19, 2000, page A10. 

This article reports on a campaign trip by Governor Bush to Wisconsin. At one point it
notes Governor Bush's claim that higher returns from private accounts will allow
workers to continue to receive the same level of retirement income even though the
defined Social Security benefit will be smaller. It is worth noting that Governor Bush's
claim is wrong. The stock return projections derived from the Social Security
trustees' profit growth projections show that difference in the returns in the stock
market, compared with the government bonds held by the trust fund, would not even
cover the administrative cost of individual accounts. 

"Gore Pins Hope on Economy," by Dan Balz and Mike Allen in the Washington Post,
October 19, 2000, page A1. 

This article reports on a campaign trip by Al Gore to Iowa. At one point, the article
reports Gore's claim that Governor Bush's Social Security plan would bankrupt the
system in a single generation. It is worth noting that Gore's claim is wrong. Bush
proposes replacing a portion of the defined Social Security benefit with individual
accounts. While he has not laid out a precise plan, he has explicitly stated that he
intends to cut the guaranteed benefit for future retirees. Presumably he will cut
benefits by enough to make up for the lost revenue and maintain the system's
solvency. It is also important to note that nothing that Bush or Gore do can
"bankrupt" Social Security at some future date, since it will always be possible to
place more revenue in the system or cut benefits, as was done by the Greenspan
Commission in 1983. 


THE BUDGET AND THE CAMPAIGN 

"Gore Rips Bush Claims on Budget, Hate Crimes," by Ceci Connolly and Mike Allen in
the Washington Post, October 15, 2000, page A10. 

This article reports on the latest set of exchanges in the presidential campaign. At
one point the article refers to a study by the Committee for a Responsible Federal
Budget, which the Bush campaign used to support its contention that Gore was
proposing a major expansion of the government. According to the Post article, the
study claims that Gore is proposing the largest increase in government spending
since the Lyndon Johnson proposed the Great Society in the sixties. 

This is not true. Even with the spending initiatives proposed by Gore, the share of
GDP going to government spending is still projected to decline over the next decade,
since declining interest payments will offset the increases in spending. It is also
worth noting that many categories of government spending are projected to shrink
as share of GDP under his proposed budgets. By contrast, President Reagan
increased military spending by more than a full percentage point as a share of GDP. 

"Bush in Clinton's Backyard To Attack Gore on Spending," by Alison Mitchell in the
New York Times, October 17, 2000, page A20. 

This article reports on a campaign trip by Governor Bush through Arkansas. It quotes
Bush as saying that Al Gore has "proposed a budget that's three times bigger than
President Clinton proposed when he ran." The budget that President Clinton proposed
was approximately $1.4 trillion. The budget that Al Gore is proposing for his first year
in office will be approximately $1.9 trillion. By the time he leaves office in 2009, if he
were to be elected twice, it would be approximately $3.0 trillion. Measured as a
share of projected GDP, spending would have fallen from 21.5 percent in 1993 to
approximately 19 percent in 2009. Usually newspapers do not let such obviously
fallacious claims by politicians, such as this one by Governor Bush, pass without
comment. 


THE EUROPEAN CENTRAL BANK 

"Euro Slides to Record Lows Amid Doubts on Intervention," by William Drozdiak in the
Washington Post, October 19, 2000, page E1. 

This article discusses the fall in the euro to a new low against the dollar. At one
point the article discusses the structure of the European Central Bank (ECB) and
comments that the euro nations agreed that the bank should be politically
independent "in a way similar to the autonomy enjoyed by the U.S. Fed." 

Actually the ECB is much less accountable politically than the Federal Reserve Board.
The governors of the Federal Reserve Board (seven of the twelve people who
determine the nation's monetary policy) are appointed by the president and subject
to congressional approval. The chairman of the Federal Reserve Board is also
obligated to give periodic testimony to Congress in which he or she explains the Fed's
monetary policy. In addition, the minutes of meetings are made public with a short
lag, and the full transcripts become available with a five year lag. 

The ECB has no comparable requirements to justify its policies to European
parliaments, nor is its board subject to parliamentary approval. It also maintains a
much higher level of secrecy than the Fed. It is questionable whether the ECB would
have been able to pursue the same sort of policies -- raising interest rates at a time
when inflation is low and unemployment is high -- if it had the same degree of
accountability as the Fed. 


INFLATION MEASURES 

"3 Reports Support View That Economy Is Slowing," by Steven Pearlstein in the
Washington Post, October 14, 2000, page E1. 

This article reports on the release of the producer price indexes (PPI) for September.
At one point the article refers to the view of one economist that inflation may be
rising more quickly now than in the past, because the prices of computers and other
high tech goods are not falling as quickly. It then points out, "Last September, for
example, the price of computers fell 2.2 percent; this year it was 0.3 percent." The
monthly data for price changes is extremely erratic. For example, computer prices
were reported as declining by 2.2 percent in August. While the rate of price decline
in computers may have slowed somewhat, computer prices in the PPI are still
reported as declining at a very rapid rate. 


THE STOCK MARKET 

"Market Turbulence Does Little to Curb Investors' Optimism," by Alex Berenson in the
New York Times, October 15, 2000, Section 1, page 1. 

This article examines attitudes among investors in the wake of the increasing
volatility and general downward direction in financial markets in recent months. It
would have been worth pointing out that the continued optimism among the
investors interviewed is not shared by experts. The Congressional Budget Office, in
the economic projections which form the basis of its budget projections, expects
profits to fall by 10 percent in real terms over the next decade. If its profit
projections are anywhere close to accurate, stocks are currently hugely over-valued,
since the current ratio of stock prices to corporate earnings is nearly twice the
historic average. 


THE STRONG DOLLAR 

"With Strong Dollar; Questions of Stability," by Steven Pearlstein in the Washington
Post, October 18, 2000, page E1. 

This article examines some of the possible consequences of the dollar's current
strength. In noting the differing views among economists, it divides them into three
camps which are labeled "alarmists," "optimists," and "realists." These are not neutral
terms. 

The article also includes some comments that do not appear to be accurate. For
example, it comments that "according to various Wall Street estimates, U.S.
companies still offer an extra 5 percent return on investment when compared with
companies in Europe, with an even greater advantage over Japanese firms." First, it
is not clear whether the article means "percent" or "percentage points." If it is the
former, then the difference in return would be sufficiently small that it would not
have a significant impact on investment flows. The pre-tax return on investment in
the United States is approximately 10 percent at present. If the difference between
Europe and the United States is 5 percent of this, then the return in Europe would be
9.5 percent. This half percentage point difference could easily be eliminated by a fall
in the value of the dollar. Since fluctuations of 1.0 percent or more in a single day
are common, it seems unlikely that much investment flows would be influenced by
such a small difference in the return to capital. If the article did mean "percentage
points," then it is almost certainly wrong, since it implies that the return on
investment is incredibly low in Europe. 

The article also asserts that "most economists" agree that increasing the budget
surplus through tax increases or spending cuts would bring about a soft landing for
the dollar. The article does not indicate how it has determined that this view, which
appears in the "realist" camp, represents the thinking of most economists. 

If the realist camp accepts projections from the Congressional Budget Office as being
plausible, then it must believe that the stock market is hugely over-valued, since
these projections show profits falling by 10 percent over the next decade. In this
context, anything that slows the economy, such as tax increases or major cuts in
government spending, could bring about a large downturn in the market. A large
downturn in the market is likely to cause a rapid decline in the dollar, since many
investors who sell U.S. stocks would likely also sell dollars and buy into foreign
financial markets. 


OUTSTANDING STORIES OF THE WEEK 

"New Concerns Rise on Keeping Track of Modified Corn," by Kurt Eichenwald in the
New York Times, October 14, 2000, page A1. 

"Farmers Cite Scarce Data In Corn Mixing," by Barnaby Feder in the New York Times,
October 17, 2000, page C1. 

These articles examine how a strain of genetically modified corn, which had not been
approved for human consumption, got mixed into the general corn supply and was
eventually sold in taco shells at supermarkets and fast food restaurants. 

"Debaters' Messages: Not the Whole Truth," by Glenn Kessler in the Washington Post,
October 18, 2000, page A15. 

"Doing the Math Behind Candidates' Debate Claims," by Richard W. Stevenson in the
New York Times, October 19, 2000, page A22. 

These articles examine the accuracy of the statements made by Bush and Gore in
their last presidential debate. This sort of analysis is very helpful, since most people
don't have the time to investigate the accuracy of the candidates' comments
themselves. 

"Below $100,000, a Deep Tax Divide," by Glenn Kessler in the Washington Post,
October 17, 2000, page A10. 

This article examines how the major party presidential candidates' proposed tax cuts
will affect middle and lower income people. It makes the generally overlooked point
that both tax cut plans provide approximately the same total tax cut to families
earning less than $100,000 a year. The Bush proposal costs much more because of
the tax cuts provided to people with higher incomes. 

"Big Firms Said to Avoid Minimum Federal tax," by Albert Crenshaw in the Washington
Post, October 20, 2000, page E1. 

"Study Finds That Many Large Companies Pay No Taxes," by David Cay Johnston in
the New York Times, October 20, 2000, page C2. 

These articles report the findings of a new study by the Institute on Taxation and
Economic Policy. The study showed that a large number of nation's biggest and most
profitable firms were able to use loopholes to avoid paying taxes. 

"Taxes, the Market and the Luck Underlie the Budget Surplus," by Louis Uchitelle in
the New York Times, October 20, 2000, page A1. 

This article examines the factors that turned around the federal budget from large
deficits to large surpluses.

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