ECONOMICS REPORTING REVIEW: The NYT and the
Washington Post Under the Microscope
Week of October 21 - October 27

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

WAGE GROWTH 

"Wage Increases Outpacing Prices," by John M. Berry in the Washington Post,
October 27, 2000, page E1. 

This article reports on the release of data on employment costs for the third quarter
of 2000. The headline and the article applaud the fact that wage growth exceeded
the rate of inflation, with the article explicitly terming it "good news for workers."
Except in extraordinary times, average wage growth exceeds inflation, as
productivity growth is expected to make everyone wealthier through time. 

What is most striking about this latest data is the slow rate of real wage growth at a
time when the productivity is growing very rapidly (more than 5.0 percent in the last
year) and the unemployment rate sits at a thirty year low. Real wage growth was
just 0.3 percent in the last year. By comparison it had been as high as 2.3 percent in
1998. 

The difference between the real wage growth in the last year, and the real wage
growth in 1998 has more impact on the living standards of workers than would the
tax increases needed to keep the Social Security trust fund fully solvent for seventy
five years. While there has been an enormous amount of news coverage devoted to
the projected long-term revenue shortfall in the Social Security program, wage
growth has received minimal, and often inaccurate, coverage. 


SOCIAL SECURITY 

"Bush Says Gore Social Security Plan Creates Huge Debt," by Frank Bruni in the New
York Times, October 24, 2000, page A19. 

This article reports on Governor Bush's charge that Gore's Social Security proposal
would create a $40 trillion debt to the Social Security program by the middle of the
next century. It would have been helpful to readers to have placed this figure in
some context. 

First, Bush did not adjust this number for inflation. By 2050 the price level is
projected to have increased five fold, so the debt would be less than $8 trillion
measured in current dollars. Alternatively, using 2050 dollars, the size of the
economy is projected to be $107.1 trillion in 2050. 

Second, most of this debt does not stem from the Gore's proposal for Social
Security, but rather the structure that is currently in law. The debt to the program
that results from his Social Security plan is offset dollar for dollar by paying down the
publicly held debt, leaving no net increase in debt for the nation. 

Finally, Governor Bush's proposal would imply a debt of the same magnitude, except
insofar as he plans to cut benefits to retirees. While he has indicated this is his
intention, he has not specified and defended the specific sets of cuts that he
intends to put forward. 

"Two Visions, Both Quiet on Tough Choices," by Glenn Kessler in the Washington
Post, October 24, 2000, page A10. 

This informative article examines the Social Security proposals put forward by Vice
President Gore and Governor Bush. The headline of the article is misleading, since
there is no reason to believe that there will necessarily be "tough choices" to be
made, and they certainly won't have to be made by the next president. 

The latest projections show that the Social Security trust fund is fully solvent until
2037. Even after that date, the fund would still be able to pay retirees a larger real
benefit than current beneficiaries receive for the indefinite future. If the economy
can sustain a growth rate that is even two-thirds of its long-term average over the
last century, it would make the fund fully solvent for close to fifty years, with no
changes whatsoever. There is no obvious reason that the candidates should be
concerned about choices that are far in the future in any case, and may not even
exist at all. 

"Actuaries Fault Bush Plan," by Glenn Kessler in the Washington Post, October 26,
2000, page A22. 

This article discusses a new report by the American Academy of Actuaries examining
Bush and Gore's proposals for Social Security. At one point it quotes an aid to
Governor Bush, who criticized the study because it uses growth projections from the
Congressional Budget Office (CBO), which the Bush campaign views as to low. It is
worth noting, that if the Bush campaign views the CBO growth numbers as being too
low, then they also must consider the problems with Social Security to be
exaggerated. The growth projections used by the Social Security trustees are even
lower than the ones used by CBO. If the economic growth continued at just
two-thirds of its historic rate, the trust fund would be fully solvent until almost 2050,
with no changes whatsoever. 

The article also quotes Ron Gephardtsbauer, the author of the report, as saying that
Social Security couldn't pay benefits after 2023 under the Bush plan and after 2037
under current law. Actually, the fund would still be able to pay benefits that are
larger than what current retirees receive, it just could not pay the full scheduled
benefits. 

"Comparing Social Security Proposals," by Richard W. Stevenson in the New York
Times, October 26, 2000, page A27. 

This article compares the Social Security proposals put forward by Bush and Gore. At
several points it notes that Governor Bush's plan hopes to take advantage of the
higher returns available in the stock market, compared with government bonds. 

There is no reason to believe that in the future the stock market will be able to offer
the sort of returns as it did in the past, as seems to be assumed in this article.
Historically, the real rate of return in the stock market has averaged close to 7.0
percent annually. Given the slow profit growth projections from CBO in the
short-term, and the Social Security trustees over the longer term, and the current
price to earnings ratios, it is virtually impossible that stocks will provide this rate of
return in the future. 

The Congressional Budget Office (CBO) projects that real corporate profits will fall by
approximately 10 percent over the next decade. If CBO's profit projection proves
correct, then the price to earnings ratio for stocks will have to rise to almost
forty-five to one by 2010, in order to generate the 7.0 percent real return assumed
by the Bush campaign. This ratio is approximately three times the historic average for
stocks. If profits grow at the same rate as the economy is projected to grow in the
years after 2010, the price to earnings would have to rise above fifty to one by
2016, in order to generate the returns assumed by the Bush campaign. Virtually no
economist has been willing to publicly state that he or she considers such price to
earnings ratios plausible. (These calculations assume that 60 percent of corporate
profits are paid out to shareholders either as dividends or through share buybacks.) 

The only projections of stock returns that were derived from the Social Security
trustees profit growth projections show that stocks will on average provide a real
return of just over 3.5 percent annually. The difference between this return and the
return on the government bonds held by the Social Security trust fund will not even
be large enough to cover the administrative costs of maintaining individual accounts. 


THE FEDERAL RESERVE BOARD 

"A Presidential Imprint on the Fed," by Richard W. Stevenson in the New York Times,
October 21, 2000, page B1. 

This informative article discusses the sort of people that Bush or Gore may appoint
as governors of the Federal Reserve Board, if they are elected. At one point, the
article comments that new president's appointments will have the opportunity to
influence "the most important economic debate of this era: whether technology is
permanently increasing the economy's ability to grow without generating inflation." 

The Federal Reserve Board actually does not have to pass judgement on this issue in
its conduct of monetary policy. Virtually all of the standard models of inflation show
that it accelerates very gradually in response to the economy exceeding its
capacity. The only cost of waiting until evidence of higher inflation actually
appeared, instead of acting based on beliefs about potential growth rates, is that
the inflation rate may remain fixed at somewhat higher level. The standard rule of
thumb is that if the unemployment rate is below a sustainable level by a full
percentage point for a full year, it would only increase the rate of inflation by half a
percentage point. 


THE W.T.O. 

"Malaysia Says U.S. Failed To Obey Ruling on Shrimp," by Elizabeth Olson in the New
York Times, October 24, 2000, page W1. 

This article discusses a complaint by the Malaysian government that the United
States has not adhered to a W.T.O. ruling. At one point the article characterizes the
W.T.O.'s dispute settlement system as being designed to ensure that countries meet
their "free trade obligations." 

This is an inaccurate characterization of this system. The dispute settlement system
is designed to ensure that nations abide by the conditions of the W.T.O. The body
does not consider whether or not these conditions comply with abstract principles of
free trade. 


CANADA 

"With Economy Booming, Canadian Leader Calls for Elections," by James Brooke in the
New York Times, October 24, 2000, page A19. 

This article reports on Canadian Prime Minister Jean Chretian's decision to call for
new elections next month. At one point the article asserts that Canada's economy "is
reaping some of the benefits of the fiscal austerity imposed in the early Chretian
years." It is not obvious that the austerity is responsible for the Canada's strong
economic growth. An alternative explanation is the demand for Canadian goods
created by the rapid growth in the United States. 


HEALTH CARE 

"Trying to Cover the Bases With a Light Federal Hand," by David Brown in the
Washington Post, October 26, 2000, page A25. 

This article analyzes the major party presidential candidates' proposals on health
care. At one point it comments that the failure of Clinton's health care plan in 1994
taught both candidates that voters "are wary of anything that looks like government
control of the health care system." 

It is not clear why this would have been the lesson of that defeat. For example,
Medicare, which looks like government control of the health care system in many
ways, continues to be an enormously popular program. The Clinton proposal was
extremely complex, incomplete, and probably unworkable. These factors probably
contributed to the plan's defeat. 

It is worth noting the difference between the way in which health care and Social
Security have been covered in this campaign. Articles in both papers have regularly
berated the candidates (or quoted others who berate them) for not proposing Social
Security plans that would address projected shortfalls in the distant future, which
are not even particular large by historic standards. Meanwhile, the problems with the
nation's health care system have received little attention, even though the rising
costs of this system are already imposing a vastly greater burden on the nation's
living standards than the projected shortfalls in Social Security ever could. 


BENEFITS FOR IMMIGRANTS 

"Restoration of Aid To Immigrants Sought," by Ellen Nakashima in the Washington
Post, October 19, 2000, page E1. 

This article discusses efforts by President Clinton to have food stamp and health
benefits restored for legal immigrants. These benefits were cut off with the passage
of the 1996 welfare reform bill. 

The article notes that the cost of restoring the benefits would be $1.3 billion over
the next five years. It would have been helpful to readers to put this figure in
context. The federal government will spend approximately $10 trillion over this period,
which means that the cost of restoring these benefits would be 0.013 percent of
total spending. 


THE BUDGET 

"Binges Becoming Regular Budget Fare," by Eric Pianin in the Washington Post,
October 19, 2000, page A29. 

This article discusses the recent growth in spending approved by Congress. It
repeatedly asserts that spending growth is excessive, based primarily on the fact
that Congress has exceeded very strict spending targets which were put in place at
a time when the nation still had a large budget deficit. It is worth noting that
virtually no budget experts had expected that these targets would actually be met
at the time they were written into law. Now that the nation has a large budget
surplus, there seems little reason that anyone would care about these targets. It is
worth noting that during this spending "binge," government spending has fallen
significantly as a share of GDP. 


THE BUDGET AND THE CAMPAIGN 

"Lieberman Declares His Party Built the Boom," by Richard Perez-Pena in the New
York Times, October 21, 2000, page A10. 

This article reports on a campaign appearance at which Senator Lieberman claimed
that the Democrats deserve credit for the strength of the economy. At one point the
article discusses Bush and Gore's budget proposals for the next decade. It notes that
"most independent analysts agree that Mr. Gore's plans are more likely to keep
government within its means, but many believe that both candidates' proposals run
the risk of overspending the surplus." 

It is important to recognize that neither candidate will be in a position to impose a
budget for the next ten years regardless of the outcome of this election. Budgets are
decided annually, a new Congress is elected is elected every two years, and there
will be presidential elections in both 2004 and 2008. In the event that budget plans
this year prove to be based on assumptions that are too optimistic, and the resulting
shortfalls are of significant concern, there will be plenty of opportunities to alter the
budget, with either tax increases or spending cuts. 

"Differences Aside, Candidates Rely On Same Forecast," by Eric Pianin in the
Washington Post, October 23, 2000, page A12. 

This article discusses the major party presidential candidates' plans for the use of
the projected budget surplus over the next decade. The articles includes several
comments which are somewhat misleading. 

For example, it asserts that Gore has "set down an ambitious series of goals ... that
would require the expenditure of large sums of money." Most of the goals that are
subsequently listed are not evidently ambitious and would not necessarily require
large sums of money to achieve. For example, Gore has set a target of reducing the
poverty rate below 10.0 percent. It is currently 11.6 percent. If the poor were able
to get their share of even moderate economic growth over the next decade, this
target should be achieved without any new programs. 

The article also points to a new set of projections from the Congressional Budget
Office (CBO) which it claims show that "the cost of providing promised health and
retirement benefits after the baby boom generation leaves the work force will
ultimately overwhelm the federal budget." This statement is misleading for two
reasons. First, the major reason for the projected increase in the costs of retirement
programs in the future is not the size of the baby boom cohort, but rather projected
increases in life spans. The costs of Social Security and Medicare are projected to be
considerably higher in 2060, when virtually all of the baby boomers will have passed
on, than in 2030 when the number of retired baby boomers is peaking. 

The second reason that the statement is misleading is that it assumes that taxes will
never be increased to pay for these programs, even though they are providing more
benefits for the population in the form of more years of support. There is no historical
precedent for such a situation occurring, especially since the projections imply that
workers will be far richer in twenty or thirty years than they are at present. In past
decades, when increasing life expectancies and greater generosity increased the
costs of these programs, Congress always passed tax increases to pay the bill. While
it is appropriate for a baseline budget projection to assume that no tax increases will
be approved, it is misleading to present a scenario with no historical precedent as
though it were a reasonable projection for the future. The projections imply only that
the costs of these programs will increase through time, just as they did in past
decades. They do not imply that the they will "overwhelm the federal budget." 

It is also worth noting that the article concludes with a comment from a
representative of the Concord Coalition, which is described only as a "budget
watchdog group." This is a misleading description. The Concord Coalition has
consistently published material advocating cuts in Social Security and Medicare.
While it is not affiliated with a political party, it does not hold a neutral position in
budget debates. 


OUTSTANDING STORIES OF THE WEEK 

"Report Faults Laws for Slowing Growth of Unions," by Steven Greenhouse in the New
York Times, October 24, 2000, page A14. 

This article discusses the finding of a new study by Human Rights Watch on the
state of workers' rights in the United States. The study found that workers are
effectively being denied the right to organize due to the way in which labor laws are
enforced. 

"Emergency Room, to Many, Remains the Doctor's Office," by Jennifer Steinhauer in
the New York Times, October 25, 2000, page A1. 

This article examines why many patients continue to rely on emergency room
treatment for normal care, in spite of recent efforts to ensure that patients have
access to regular physicians. 

"Factory Workers Fight the Squeeze On Health Benefits," by May Williams Walsh in
the New York Times, October 25, 2000, page C1. 

This article reports on the situation in a clothes hanger factory in small town in
Pennsylvania, where the company is demanding that the workers accept a much
worse health care plan or take large cuts in pay. The company is threatening to shut
the plant and move its operations overseas if the workers do not agree. 

"Farm Union Takes Aim at Big Pickle Maker," by Simini Sengupta in the New York
Times, October 26, 2000, page A18. 

This article reports on efforts to organize farm workers in the south. At present,
these workers are almost completely unorganized.

Back to CEPR's Economics Reporting Review website.