ECONOMICS REPORTING REVIEW: The NYT and the
Washington Post Under the Microscope
Week of October 28 - November 3
Dean Baker is co-director of the Center for Economic and Policy Research.
W.T.O.
"Patching Up Morale at the World Trade Organization," by Elizabeth Olson in the New
York Times, October 31, 2000, page W1.
This article discusses the agenda for the World Trade Organization planned by its
director general, Michael Moore. At one point, it states that Mr. Moore is trying to
get a 20 percent increase in the W.T.O.'s budget for next year. It is worth noting
that spending increases by the federal government of less than half this size have
regularly been characterized as spending "binges" in recent news reporting. This
article implies that this request is justified by the number of trade disputes brought
before the W.T.O.
SOCIAL SECURITY
"As Social Security's Finances Improve, Some See Fix as Premature," by John M.
Berry in the Washington Post, October 29, 2000, page H1.
This informative article examines the extent to which Social Security is actually
facing a crisis. At one point, it notes that the last four annual Social Security
trustees' reports have each pushed out the date at which the trust fund is projected
to have a shortfall. It attributes this to "robust economic growth and other factors."
Actually, the most important factor in this improved outlook has been the changes
that have been made in the way the consumer price index (CPI) is calculated. Over
the last five years, the Bureau of Labor Statistics has implemented a series of
changes in the methodology that the CPI uses to measure inflation. The net effect of
these changes has been to lower the measured rate of inflation by approximately 0.5
percentage points annually. Since annual cost-of-living adjustments for beneficiaries
are indexed directly to the CPI, this has the effect of cutting benefits.
This reduction in benefits has been the main factor improving the financial health of
the program. In spite of the strong economic growth of the last four years, the
trustees have actually lowered their growth projections. In both the 1996 and 2000
trustees' reports, the projected long-term rate of real wage growth was 1.0 percent.
Since the CPI in place in 2000 reports a 0.5 percentage lower rate of inflation (i.e. an
inflation rate that would have been measured at 3.0 percent with the CPI in place
1995, would be reported as 2.5 percent with the CPI currently in use), the trustees
have, in effect, lowered their projected rate of real wage growth by 0.5 percentage
points. (Real wage growth is equal to the nominal rate of wage growth minus the
CPI.)
The article also refers to the Congressional Budget Office's long-term analysis of the
budget. The CBO study assumes that current tax and spending policies are left in
place indefinitely. This study showed that under these circumstances, with the
growth rates projected by CBO, the nation would face budgetary problems in
twenty-five or thirty years. Since the nation has never allowed this long a time to
pass without making significant changes in tax or spending policy, it is not obvious
that this study provides any information that is helpful in understanding current
budget problems.
"Gore and Bush Clashing on Social Security," by Richard W. Stevenson in the New
York Times, November 2, 2000, page A21.
This informative article tries to assess the accuracy of Gore's charge that Bush's
Social Security plan will require cuts to current beneficiaries. At one point, it notes
that the projected surplus for the program over the next decade is $2.4 trillion. It is
important to note that the fund has already accumulated a $1 trillion dollar surplus.
This money could also be used to finance benefits to those already retired.
At one point the article quotes a representative of the Concord Coalition, which is
identified as a "fiscal watchdog group." This identification is inaccurate. The Concord
Coalition has consistently argued for cuts in Social Security and Medicare benefits,
and it has almost never made the case for the need for more tax revenue to finance
these programs. It can more accurately be termed a "fiscally conservative group" or
an "anti-entitlement organization."
RUSSIA
"Why West's Billions Failed to Give Russia Robust Economy," by Joseph Kahn in the
New York Times, November 2, 2000, page A14.
This article discusses a report by the General Accounting Office which examines the
failure of Russia's transition from a centrally planned economy. At one point the
article quotes from the report: "while the worst fears of the early transition period,
such as anarchy or return to Communist rule, have not been realized, Russia's
economic decline has been more severe and its recovery slower than anticipated."
It is worth noting the values implicit in this ranking of fears. As a result of Russia's
economic collapse, and the collapse of its health care system, its mortality rates
have soared as life expectancy has dropped by more than six years. In other words,
millions of people are dying prematurely because of failed economic policies. The
report apparently views the replacement of Yeltsin and/or Putin by a member of the
Communist party to be a worse outcome than the loss of millions of lives.
CAMPAIGN CLAIMS
"Republican Declares Rival a Throwback on Fiscal Policy," by Alison Mitchell in the
New York Times, November 2, 2000, page A1.
This article reports on allegations made by Governor Bush about the economic
policies being proposed by Al Gore. The allegations have little foundation in reality.
For example, Bush claimed that Gore's policies were the same policies that
"threatened our economy in the 70's." He then contrasted this with the economic
policies pursued by Ronald Reagan in the 1980s. In fact, economic growth was
somewhat faster on average in the 1970s than in the 1980s: 3.2 percent annually in
the 1970s compared to 2.8 percent in the 1980s. Also, since the growth in the 1970s
was not accompanied by a rapid increase in inequality, the vast majority of people
fared better.
"Gore Bashes Bush's Texas Record," by Howard Kurtz in the Washington Post,
November 1, 2000, page A21.
This column analyzes a new television ad from the Gore campaign. The ad claims that
Bush has promised "the same $1 trillion from Social Security to two different groups."
In its analysis the column indicates that this is correct, saying, "Bush has not
detailed how he would finance his $1 trillion plan to privatize Social Security."
Actually, Bush has indicated this money would come from the program's projected
surplus over the next decade along with the $1 trillion in surplus it has accumulated
over the last fifteen years. He has indicated that in the longer term there will be
benefit cuts for younger workers to cover the costs of privatization, but there is no
reason that, over the next decade, the program cannot both pay current benefits
and give workers the proposed accounts.
TRADE
"Rivals Differ On U.S. Role In the World," by David E. Sanger in the New York Times,
October 30, 2000, page A1.
This article examines the major party presidential candidates approaches to foreign
policy. At one point the article asserts that "everyone in this race is a free trader." It
then notes cases where the candidates have not taken a vocal free trade position.
The comment that "everyone in the race" is a free trader overlooks the minor party
candidates, many of whom explicitly are not free traders. It is also worth noting that
both Bush and Gore have a very narrow view of the areas where they would apply
free trade. For example, neither candidate has expressed any opposition to
restrictions that prevent foreign doctors from practicing in the United States,
thereby raising the cost of health care to U.S. consumers. And both candidates seem
to fully support the extension of patent and copyright protections around the world,
an explicitly protectionist measure. Bush and Gore have primarily been in support of
free trade when it involves placing manufacturing workers in competition with low
wage workers around the world. They have not in general supported the removal of
barriers that protect the incomes of higher paid workers.
WORKPLACE SAFETY
"Budget Deal Stalls on Timing Of a Worker-Safety Provision," by Eric Schmitt in the
New York Times, November 1, 2000, page A20.
This article reports on a snag in budget negotiations between President Clinton and
the Republican congressional leadership over the implementation of work rules related
repetitive motion activities. At one point, the article refers to a study by the
Employment Policy Foundation, which is identified only as "a research group." It
would have been appropriate to identify this group as a business financed research
group, as was done in a Washington Post article that discussed the same study (see
below).
MEDICARE
"Clinton Raises Stakes in a Battle With House Republicans Over a Medicare Pot," by
Robert Pear in the New York Times, November 1, 2000, page A23.
This article discusses the dispute between President Clinton and the Republican
congressional leadership over the allocation of additional funds to Medicare. The
Republicans would like more money to be directed to HMOs while the president wants
to increase payments to hospitals by a larger amount.
This article would have been helpful to readers if it had pointed out that, according
to a recent study by the General Accounting Office, the Medicare program loses
money at the current compensation rates for HMOs. The study found that Medicare
pays HMOs more to treat beneficiaries than it costs to treat them through the
traditional Medicare program. If the payments for HMOs are increased still further, it
will mean that the program incurs larger losses when beneficiaries switch to HMOs.
NADER'S INVESTMENTS
"Nader Sees a Bright Side to a Bush Victory," by Melinda Henneberger in the New
York Times, November 1, 2000, page A25.
This article presents arguments against Ralph Nader's campaign in the form of a
dialogue with the candidate. At one point the article raises questions about Mr.
Nader's ethics because he holds shares of a mutual fund that owns shares of
Occidental Petroleum. Occidental Petroleum has been involved in forcefully removing
indigenous people from their land in Columbia.
This connection between Nader and Occidental Petroleum's practices is about as
indirect as if he purchased gas from one of their dealerships. Mutual funds typically
hold dozens of different stocks, which they often turn over rapidly. It is unlikely that
Nader would even have known that his mutual fund held shares of Occidental
Petroleum. His direct benefit from these holdings would be miniscule. If ethical
conflicts of this magnitude were generally taken seriously by reporters, there would
never be time to discuss anything else. Most candidates would have hundreds, or
thousands, of more serious ethical conflicts.
The combative tone of this article is extraordinary for a news article. It is worth
noting that on its editorial page, the New York Times has been harshly critical of
Ralph Nader's campaign.
ITALY
"Italy's New Politics: The Beauty Contest," by Alessandra Stanley in the New York
Times, October 30, 2000, page A6.
This article provides background for Italy's parliamentary elections which are
scheduled to be held next year. After commenting on stylistic differences between
the candidates of the two leading blocs, the last paragraph asserts that economic
issues are likely to ultimately take prominence in the election. The three issues it lists
are Italy's unemployment rate, which is among the highest in Europe, its "bloated
pension system," which is "in dire need of reform," and its 46 percent top tax rate.
While the unemployment rate is clearly an economic issue, it is not obvious why
anyone would necessarily view the 46 percent top tax rate as an issue. Many nations
have enjoyed rapid growth with much higher tax rates. For example, in the 1960s,
when the United States was enjoying its most prosperous decade ever, the top tax
rate was 70 percent. The article also does not explain how it has determined that
Italy's pension system is bloated and in dire need of reform.
IRELAND
"From Backwater to Boom Town: Dublin Is a Magnet for Technology and Young
People," by Alan Cowell in the New York Times, October 31, 2000, page C1.
This article discusses the economic boom currently being experienced by Ireland. At
one point the article notes that the inflation rate in Ireland is 6.2 percent, far above
the average for the other nations in the euro zone. The article then points out that
many workers' wages are barely keeping pace with inflation, but comments that
Ireland is not in a position to do anything to slow inflation, since the European
Central Bank has control over its monetary policy.
If Ireland had a central bank that could pursue an anti-inflationary policy, it is
unlikely that it would help workers struggling to keep pace with inflation. Monetary
policy generally brings down inflation by raising interest rates, which slows the
economy and thereby throws workers out of jobs. When enough workers lose their
jobs, it slows the pace of wage growth, and thereby reduces inflationary pressure in
the economy. While this policy can effectively reduce inflation, it is not a scenario
that generally increases real wages for most workers.
GDP GROWTH
"Economic Growth Slows Sharply," by John M. Berry and Steven Pearlstein in the
Washington Post, October 28, 2000, page A1.
"Economic Growth Slowed Sharply in Third Quarter," by Louis Uchitelle in the New
York Times, October 28, 2000, page A1.
These articles report on the Commerce Department's release of data for third quarter
GDP growth. Both articles attribute the slower growth in the third quarter in part to
the fact that inventories grew at a slower pace than in the second quarter. Actually
inventories grew at a slightly faster pace in the third quarter than in the second
quarter; $79.9 billion in the third quarter, compared to $78.6 billion in the second
quarter. However, this added little to GDP growth, since only acceleration (or
deceleration) in the rate of inventory accumulation affects growth.
This point is important in understanding the GDP numbers for the third quarter,
because the rate of inventory accumulation was actually quite rapid. It is likely that
much of the accumulation was not intended, which will cause firms to cut back
production in coming months.
OUTSTANDING STORIES OF THE WEEK
"Few Drugs for the Needy," by David Finkel in the Washington Post, November 1,
2000, page A1.
This article examines the situations of AIDS victims in Malawi. It points out that very
few AIDS patients receive adequate treatment because of the high cost of AIDS
drugs. As a result of patent protection, the cost of the standard combination of AIDS
drugs used in the United States is over $10,000 per year. The per capita GDP of
Malawi is less than $1,000 a year.
"Scientists Report Bid to Block Publication of an AIDS Study," by David Brown in the
Washington Post, November 1, 2000, page A10.
This article reports on the allegations of a group of scientists at the University of
California, San Francisco, that a drug company, the Immune Response Corporation,
tried to block publication of their research results. The scientists' results found that
the company's drug was not an effective treatment for AIDS. This sort of
interference in the research process is a predictable outcome when the government
interferes in the market by granting patent monopolies.
"Repetitive-Stress Rule at Core of Dispute," by James V. Grimaldi and Frank Swoboda
in the Washington Post, November 1, 2000, page E1.
This article examines the evidence on the health impact of repetitive motions injuries,
and the cost of preventing them. The imposition of regulations to prevent such
injuries has been a major obstacle to a budget compromise.