ECONOMICS REPORTING REVIEW: The NYT and the
Washington Post Under the Microscope
Week of September 16 - September 22

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

THE FEDERAL BUDGET 

"Candidates' Budget Numbers Largely Depend on Optimism," by Richard W. Stevenson
in the New York Times, September 17, 2000, Section 1, page 1. 

This article examines the major party candidates' budget projections for their tax and
spending plans over the next ten years. Much of the discussion is seriously
misleading. 

The article begins the discussion by posing the question, "can the government really
afford what they [the candidates] are proposing?" It then goes on to show how
under some circumstances both candidates' programs of tax cuts and new spending
could push the non-Social Security budget into deficit at some point in the next ten
years. 

As a practical matter, potential deficits of the size implied by the discussion in this
article are almost completely irrelevant to the economy or the nation's finances. The
scenarios described would place the ten-year budget in deficit by $100-200 billion.
This amount is approximately 0.1 percent of the projected GDP over this period. The
consequence of a deficit of this magnitude, in any economic model, is too small to
even be measured accurately. Also, if for some reason anyone cared about the
possibility that the budget appeared to be tipping into a deficit of this magnitude, it
should be a relatively simple matter to find tax increases or spending cuts that pull it
back into balance. Much larger changes have been implemented by prior Congresses. 

While the article claims that each budget plan "hinges on optimistic assumptions," it
does not mention the most extreme example of such optimism. The Congressional
Budget Office assumes that the revenue from capital gains taxes, the vast majority
of which comes from gains on stocks, will be approximately the same over the next
ten years as it has been over the last four. This implies a continued run-up in stock
prices. However, the CBO projections also show that profits will be approximately 10
percent lower in real terms in 2010 than they were in 1999. The implication of these
projections is that the price to earnings ratios of share of stock will rise by nearly 50
percent from their current record highs. 


CHINA TRADE BILL 

"Senate Approves Normalized Trade With China," by Matthew Vita in the Washington
Post, September 20, 2000, page A1. 

"Score One for the Legacy," by Glenn Kessler in the Washington Post, September 20,
2000, page E1. 

"Senate Votes to Lift Curbs on U.S. Trade With Bejing; New Realism Wins the Day,"
by David E. Sanger in the New York Times, September 20, page A1. 

"A Top Clinton Aim," by Eric Schmitt in the New York Times, September 20, page A1. 

These articles report on the Senate's approval of permanent normal trading relations
with China. The articles all report on the agreement as though it had no negative
consequences which could possibly be seen as a future blot on the Clinton
presidency. 

This is ironic, since the impact of NAFTA, the other widely touted trade agreement of
the Clinton presidency, turned out to be radically different than had been claimed
prior to its passage. While the Clinton administration had claimed that NAFTA would
increase the U.S. trade surplus with Mexico and create 200,000 jobs (Economic
Report of the President, 1994, page 230), it has actually led to a trade deficit with
Mexico of more than $20 billion. If the China trade bill is associated with a similar
deterioration of the U.S. trade balance and a continued build-up of U.S.
indebtedness, it is not clear that it will be viewed as a positive part of the Clinton
legacy. 

The articles also ascribe motives to political actors for which there is no evidence
whatsoever. For example, the article by Sanger asserts that President Clinton "is
betting that China cannot open its markets without also opening its political system."
As these articles and others attest, major U.S. corporations pushed hard for this
pact because of the economic opportunities it provided them. The explicitly stated
interests of these corporations gave Mr. Clinton a strong motive to pursue this trade
pact. While he obviously has incentive for claiming an interest in the state of human
rights in China, this article provides no evidence whatsoever that it was a real
concern in his drive to gain approval for the trade pact. 

The article by Sanger also asserts that to win approval for the pact Clinton had to
"convince" members of Congress of the trade agreement's merit. The article provides
no evidence that members of Congress votes on the China bill were based on their
convictions, as opposed to pressure from powerful interest groups. 

All four articles make the mistake of referring to the bill as promoting free trade or
open markets. One of the major provisions of the bill was to enhance copyright and
patent protection in China. These are forms of protectionism that often raise the
price of goods by several hundred or even several thousand percent. 

The articles all include some peculiar or awkward comments on the trade pact. For
example, the Sanger article raises the prospect that "American steel will wipe out
huge state-owned industries in China." Given the transportation costs and
differences in labor costs, it is implausible that U.S. firms will be shipping large
amounts of steel from the U.S. to China, although they may look to establish plants
in China. 

Both Post articles go to great lengths to avoid highlighting the growth of the trade
deficit. The article by Vita notes that "U.S. exports to China, which have been
increasing over the past decade and last year totaled $14 billion, could nearly double
by 2005." It doesn't point out that U.S. imports from China grew much faster and are
now close to $100 billion. This means that the U.S. would still have a huge trade
deficit with China even if exports doubled and imports remained unchanged. 

The article by Kessler notes that "trade has soared under Clinton, with U.S. exports
rising 72 percent, or $500 billion, since 1992, while two-way trade has nearly doubled
to $2.5 trillion." Instead of jumping from exports to "two-way trade," the more
obvious number to include would have been the $800 billion increase in imports over
the last eight years. 


MEXICO AND NAFTA 

"Mexicans Reap NAFTA's Benefits," by Mary Jordan in the Washington Post,
September 17, 2000, page A22. 

This article discusses the extent to which NAFTA is improving living standards for
Mexicans. By relying on anecdotal accounts, the article implies that NAFTA is
producing prosperity for Mexicans, even though statistical evidence indicates the
opposite. The claim of NAFTA-inspired prosperity appears in both the headline of the
article and the headline on the jump page: "Mexican Wages Grow as Exports Rise." 

The article focuses on several towns near the U.S. border that have seen rapid job
growth as exports to the United States increased since NAFTA. It notes that wages
for the workers in these towns are often much higher than the wages they received
in their previous employment. However, as the article notes, "average wages for the
majority [sic] of Mexico's 8 million industrial workers have fallen 10 percent since the
early 1990s." Obviously, the average wage for Mexico's factory workers is a far more
significant figure than the few examples of relative prosperity discussed in this
article. It is extremely misleading for the article to ignore the overall average and
instead present the experience of a few factory towns as typical. 


DEMOGRAPHICS AND LABOR SHORTAGES 

"Iowa Looks Abroad for Workers," by William Claiborne in the Washington Post,
September 16, 2000, page A3. 

"Swiss to Vote On Plan to Set Limit on Influx of Immigrants," by Elizabeth Olson in the
New York Times, September 17, Section 1, page 17. 

These articles discuss the tight labor markets in Iowa and Switzerland and their plans
to use immigrant workers to increase the labor supply. Both articles confuse
economic growth with rising living standards. 

For example, the Post article notes the projections showing Iowa with an aging
population and comments "it is not a pretty picture." It adds later: "economists warn
that if the state does not find more workers to fuel the engine of industrial growth,
Iowa's economy could stagnate." There is no reason why Iowa's population should
value economic growth which is simply attributable to a larger population, although
they would probably value growth that is attributable to higher incomes per person.
This is more likely to occur in a situation where the labor supply is restricted, so that
wages are bid up, rather than a situation in which employers are able to bring
workers from other nations who are willing to work for much lower wages. 

The Times article asserts that "Swiss companies must look abroad to fill job
vacancies." Certainly these companies could fill their vacancies if they offered wages
that were high enough. While some companies may not find it profitable to hire
workers at the wage that would be required, this is the way a market economy is
supposed to work. The market is giving those firms a signal that labor can be better
employed elsewhere. The vast majority of the population in Switzerland would have
little reason to want to bring in lower cost labor, just so inefficient companies can
continue to remain in business. 

The Post article at several points implies that the opposition to increased immigration
is attributable to ignorance and racism, rather than a desire by workers to protect
their incomes. For example it notes that a surge of Latino immigrants who took jobs
in the meatpacking industry in Iowa prompted considerable resentment. It is worth
noting that this surge in immigrant labor was associated with the breaking of unions
in many work places, and the imposition of major concessions in wages, benefits, and
working conditions in others. In this case, the increase in the supply of labor due to
immigration was quite directly linked to a decline in the living standards of workers in
the industry. 

At one point, the Post article comments that the unemployment rate in Iowa is 2.0
percent, and that "nearly every employable worker [is] holding a job." It is worth
noting that the unemployment rate for college graduates nationwide is less than 2.0
percent. This low unemployment rate among college graduates has not produced the
same sort of calls for more immigrants to keep the economy from stagnating. 


NICARAGUAN UNIONS 

"Nicaragua's Trade Zone: Battleground for Unions," by David Gonzalez in the New
York Times, September 16, 2000, page A3. 

This informative article examines the conflicts over efforts to unionize workers at
foreign owned factories in Nicaragua. At one point the article states that a worker's
"call for higher pay and a union is viewed as a threat to the country's prosperity."
The article does not indicate who holds this view or why. 


THE EURO 

"When Will The Euro's Slide End?" by Steven Pearlstein in the Washington Post,
September 16, 2000, page E1. 

This article discusses the continued decline of the euro against the dollar. The article
includes numerous incorrect assertions. It also wrongly implies that there is some
need for Europe to reduce job security for its workers and adopt other changes that
will make its economy more similar to the United States. 

Among the incorrect assertions in the article is the claim that the "rates of return on
business capital last year were still 10 percentage points higher in United States." It
is difficult to compare returns across nations, since capital stock and profits are
measured somewhat differently, however this claim seems improbable. The return on
capital in the United States in 1999 (measured as profits plus interest divided by the
current value of the capital stock) was 10.6 percent. 

The article also comments that the U.S. economy seems to be widening its lead over
Europe. The OECD's most recent projections show GDP growing 3.3 percent next year
in the euro zone nations compared to 3.0 percent in the United States. The article
does not indicate the basis for its claim. 

In addition, the article claims that "Dutch voters" will decide this week whether to
join the euro. Holland was one of the original eleven euro nations. However, Denmark
is holding a referendum on this issue. 

The article has several quotes from economists or statements implying that Europe
must adopt U.S.-style business practices. For example, the article concludes with a
lengthy reference to the views of Gary Hufbauer, an economist at the Institute for
International Economics, who comments: "a little currency depreciation may be a
great way of stimulating the economy and encouraging reform." Since the euro zone
economies are experiencing very rapid productivity growth -- the main determinant
of living standards -- under their current system, there is no obvious reason that
they should reform in the manner suggested in this article. 


OUTSTANDING STORIES OF THE WEEK 

"Brazil Becomes Model in Fight Against Aids," by Stephan Buckley in the Washington
Post, September 17, 2000, page A32. 

This article reports on how Brazil has reduced the incidence of AIDS through an
effective public health program and has managed to treat many AIDS victims by
producing its own AIDS drugs. 

"As Overtime Rises, Fatigue Becomes a Labor Issue," by Mary Williams Walsh in the
New York Times, September 17, 2000, Section 1, page 1. 

This article reports on efforts in the state of Maine and elsewhere to restrict the
number of forced overtime hours that employers can require. 

"On a New Map, the Income Gap Grows," by David Cay Johnston in the New York
Times, September 17, 2000, Section 3, page 12. 

This article reports on the findings of a new study on income distribution by the
Center on Budget and Policy Priorities. The study found that the real income of the
richest 1 percent of American families had risen by 89 percent between 1986 and
1997. By contrast, the income of the bottom 90 percent had risen an average of just
1.6 percent. 

"China's Farmers Rebel Against Bureaucracy," by Craig S. Smith in the New York
Times, September 17, 2000, Section 1, page 1. 

This article examines the conditions of farmers in China. It reports on how tax
increases imposed by local bureaucrats along with low grain prices has made it
virtually impossible for many to survive. The article notes that this situation is likely
to get much worse if China opens its grain markets to imports as required by the
agreement under which it entered the WTO. 

"Autumn of Teachers' Discontent is Dawning," by Steven Greenhouse in the New York
Times, September 20, 2000, page A16. 

This article reports on growing discontent among teachers in many parts of the
country. The article notes that many teachers have seen little or no increase in their
real wages even as more demands are being placed on them, and the economy is
booming.

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