ECONOMICS REPORTING REVIEW: The NYT and the
Washington Post Under the Microscope
Week of September 9 - September 15

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

CHINA TRADE BILL 

"Wavering Senators Feeling Pressure on China Trade Bill," by Eric Schmitt in the New
York Times, September 13, 2000, page A8. 

"Amendment Killed, Way Is Cleared for China Trade Bill," by Eric Schmitt in the New
York Times, September 14, 2000, page A14. 

These articles discuss the Clinton Administration's efforts to get the votes needed to
pass a bill in the Senate that would extend permanent normal trading relations to
China. Both of the articles include the following assertion: "China will enter the
W.T.O. no matter how the Senate votes. But without Congress's blessing, Beijing
could withhold some of the trade benefits, including lower tariffs, from the American
farmers and companies that it will extend to other members on the trade group." 

While this is the official position of the Clinton Administration, some legal scholars
dispute it. For example, Mark Barenberg, a law professor at Columbia University who
specializes in international economic law, argues that as long as the United States is
extending normal trading status to China (which is currently the case), then it is
entitled to any trade or investment concessions that China grants to third nations
(see ERR 5-29-00). 

It is also worth noting that U.S. farmers will not benefit if China reduces tariffs on
U.S. agricultural products. There is a world market for these products. If China
reduces its tariffs on imports of grain, for example, it will import more grain and
thereby exert upward pressure on the world price of grain. U.S. farmers will benefit
from the tariff reduction insofar as it raises grain prices, regardless of the extent to
which they are actually selling grain to China. This situation is analogous to the oil
market. If increased demand in the U.S. drives up oil prices, even nations like Iran,
whose oil is embargoed by the U.S., will still benefit. 


THE FEDERAL RESERVE BOARD 

"Oil Prices Fueling World Pain," by William Drozdiak in the Washington Post, September
13, 2000, page A1. 

This article discusses the economic impact of the recent rise in world oil prices. At
one point it comments that the rise in oil and energy prices could "compel the Federal
Reserve and other central banks to raise interest rates." 

While it is possible that the inflation resulting from higher oil prices may be a factor
that leads these banks to raise interest rates, they will never be "compelled" to do
so. The decision to raise interest rates is a policy choice; the central banks always
have the option not to raise rates. 


THE FEDERAL BUDGET 

"Congress Poised For Big Increase in U.S. Spending," by Steven A. Holmes in the New
York Times, September 10, 2000, Section 1, page 1. 

This article discusses the expected outcome in the next month of the debate over
the 2001 federal budget. The article repeatedly refers to the likelihood that the
increases in discretionary federal spending will be "large." It also comments that
spending is likely to hit a "record," an assertion repeated in the article's sub-head. 

The claim that spending will hit a record is virtually meaningless. Spending, like GDP,
increases in almost every year. As the economy grows larger, it is usually expected
the government will grow with it. 

The claim that the increases will be "large" is also dubious. It is reasonable to expect
that demand for government services will grow at roughly the same pace as demand
for goods and services generally. In other words, as a first approximation, it is
reasonable to expect that the federal government's share of GDP will remain roughly
constant through time. 

The prospective level of discretionary spending that the article characterizes as
"large" is "at least $614 billion." This would be a 1.0 percent increase over the year
2000 level of spending and a 6.8 percent increase over the 1998 level. By
comparison, in the second of quarter of 2000 the economy was 8.1 percent larger
than in the same quarter of 1999, and 14.0 percent larger than in the second quarter
of 1998. (All numbers are measured in nominal terms.) It seems inappropriate to
describe an increase in spending that has the government rapidly shrinking as a share
of GDP as "large." 


JAPANESE DEBT 

"Japan's Economy Gets a Downgrade," by Steven Pearlstein in the Washington Post,
September 9, 2000, page E1. 

"Japan Attempts to Slow Pork Barrel Juggernaut," by Doug Struck in the Washington
Post, September 11, 2000, page A16. 

These articles discuss the level of indebtedness of the Japanese government. Both
articles place the debt at $6 trillion dollars, a sum that is larger than Japan's GDP.
They also imply that financial markets are questioning Japan's ability to repay this
debt. 

This view is misleading. Japan has a partially funded Social Security system similar to
that in the United States. The articles include the government's debt to the Social
Security system as part of its debt. This debt is not part of the publicly held debt,
and is not usually counted in national debt figures. Using the OECD's method of
calculating government debt, the Japanese government's debt is slightly over 60
percent of its GDP, a level that is comparable to that of many other industrialized
nations. 

The articles' suggestion that financial markets are wary of Japanese debt is
contradicted by the fact that bondholders do not appear to be demanding any risk
premium to hold Japanese debt. The interest rate on ten-year government bonds is
approximately 1.9 percent. By contrast, the interest rate on ten-year U.S.
government bonds is 5.7 percent. 

The Pearlstein article includes a comment that the government's only choices are to
either run up more debt or to cut spending and risk throwing the economy into a
recession. There is a third alternative. The Japanese central bank could attempt to
stimulate demand by deliberately creating a modest level of inflation (e.g. 2 to 3
percent). This would give households more incentive to spend their money and firms
more incentive to invest. This policy has been advocated by M.I.T. economist Paul
Krugman for the last two years (see Paul Krugman, "Japan's Trap," May 1998). At
present, prices are actually falling at a rate close to 1.0 percent a year. 


QUALITY CONTROL IN JAPAN 

"Japan Wonders What Became of Quality Control," by Howard W. French in the New
York Times, September 9, page A3. 

This article notes several prominent instances where Japanese corporations produced
defective products and speculates on the reasons that this occurred. Previously,
Japanese corporations had developed a reputation for producing very high quality
goods. 

While the article offers a variety of explanations, there is one possible reason it does
not mention. Until recently, it was considered extremely shameful in Japan to be
responsible for producing a dangerous product. As recently as the 1980s, there were
still instances where corporate CEOs would commit suicide because of the shame
they had brought to their companies and their families by allowing a harmful product
to be sold. Today this ethic may be declining. 


HEALTH CARE 

"What If There Is No Cure for Health Care Costs," by David E. Rosenbaum in the New
York Times, September 10, 2000, Section 4, page 1. 

This article notes the recent trend of rapidly rising health care costs. It raises the
possibility that there may be no politically viable solution to this problem. The article
makes no international comparisons. This is a serious flaw in this kind of analysis,
since the United States is the only industrialized country that has such a health care
cost problem. Every other industrialized nation has done a far better job of
restraining costs. For example, according to data from the OECD, Germany spends
less than 60 percent as much per person on health care, France spends less than
half as much, and the United Kingdom spends just over a third. Each of these
countries also has better health care statistics than the United States. In an
analysis that attempts to examine the long-term problems in the U.S. health care
system, some international comparisons would have been very informative to
readers. 


THE EURO 

"Identity Crisis for Denmark: Are We Danes or Europeans," by Roger Cohen in the New
York Times, September 10, 2000, Section 1, page 1. 

This article reports on the debate taking place in Denmark over the adoption of the
euro as the national currency, as it prepares for a referendum later this month. The
article seriously misrepresents much of the tone of the debate. 

While it notes that the adoption of the euro is being opposed by a left-right coalition,
it only presents the sort of nationalistic xenophobic concerns of the right-wing
opposition. Many on the left have opposed the adoption of the euro not because
they are opposed to greater integration with Europe, but rather because they
oppose the conditions established to join the euro. These conditions seriously limit
the ability of individual nations to use fiscal policy to stimulate their economies. They
also make the European Central Bank (ECB) virtually unaccountable to the
population. By comparison, the Federal Reserve Board in the United States has a far
greater obligation to explain its conduct to the Congress and the public at large. This
article completely ignores arguments about the nature of the rules governing the ECB
and the euro, which will be important to the decision of many Danes. 

The article also includes an unusual comment noting the undemocratic nature of the
movement to adopt the euro in much of the rest of Europe, pointing out that
Germany, among other nations, never held a referendum on the topic. While this
point is well taken, many nations, like the United States, never hold national
referendums. If measures like NAFTA or the creation of the WTO were put up for a
national vote, it is questionable whether they would pass. The Times has never
indicated that the lack of a public vote on such matters raised any questions of
democracy. 

"The Euro Experiment: A Bold Idea That Isn't Working," by Floyd Norris in the NNew
York Times, September 15, 2000, page C1. 

"Modest Purchases by Central Bank Briefly Lift the Euro," by Edmund L. Andrews in
the New York Times, September 15, 2000, page C3. 

These articles both discuss the recent decline of the euro against the dollar. Both
discuss the fall as though it poses a major problem for the euro zone nations. 

In fact, there is no reason to believe that this is the case. The euro zone nations are
all enjoying moderately healthy growth and have a lower inflation rate than the
United States. The immediate impact of the decline in the euro is actually to
strengthen their economies by stimulating exports. They also are building up
enormous wealth for the future through their massive lending to the United States. 

One of the main reasons for establishing the euro was to limit the impact of currency
fluctuations on national economies. The euro has accomplished this. While the
imports of some European nations are more than half of their GDP, the imports into
the euro zone as a whole are only a bit more than 10 percent of GDP. This means
that a decline in the value of the euro, and the resulting increase in import prices,
has only a mildly disruptive effect on European economies. 

The article by Andrews exaggerates this impact in saying that the decline in the euro
"has intensified the effects of the worldwide rise in crude oil prices." While crude oil
prices have more than doubled when measured in dollars, the additional impact of the
decline in the euro would add less than 10 percent to the price of oil. 

The article by Norris asserts that the purpose of the euro was to force European
countries to eliminate "rigid labor markets and high-cost government pension plans."
This was not the publicly stated purpose by the politicians who sought to get the
euro approved by their parliaments or their populace. As the article notes, it also
does not seem to be having this effect, since the relatively closed euro zone
economy is not being hurt in any significant way by the decline in the euro. 


CONSUMER DEBT 

"Why a Soft Landing Could Be Worse This Time," by Gretchen Morgenson in the New
York Times, September 10, 2000, Section 3, page 1. 

This article examines some of the problems that could arise if the rate of economic
growth slows. At one point it notes that consumer debt burdens are at a record at
24.5 percent of disposable income. It is worth noting that this figure understates the
effective debt burden of households by at least 2.0 percentage points because it
does not include the obligations of consumers under car leasing contracts. 

In the last decade car leasing has grown enormously. By the late 1990s nearly one in
three new cars was sold on a lease arrangement. From the standpoint of consumers,
the leasing fees are nearly identical to payments on a car loan, and therefore should
be added into the debt figures in order to make the numbers consistent through time.
The shift to car leasing also has the effect of boosting investment numbers by
approximately 1.0 percentage points of GDP, since a leased car would count as
investment by firms, whereas a car sold directly to a household would be recorded as
a consumption expenditure. 


UNIONS 

"With Some Victories in Hand, Battered Labor Flexes Muscle," by Steven Greenhouse
in the New York Times, September 9, page B1. 

This article discusses a series of recent contract negotiations where it appears that
labor unions were successful in gaining significant wage increases for their members.
The article suggests that these agreements are part of a larger trend of growing
union power in a tight labor market. 

This view does not appear to be supported by other evidence. For example, the
Bureau of National Affairs (BNA) reports that the average first year wage increase
provided in the contracts it examined in 2000 was just 3.3 percent, less than the
rate of inflation. Similarly, the Bureau of Labor Statistics employment cost index
shows that the increase in hourly compensation for union workers was 1.0 percent
for the three months ending in June. This is less than the 1.2 percent increase during
the same period it reported for non-union workers. 


OUTSTANDING STORIES OF THE WEEK 

"Working Families Strain To Live Middle-Class Life," by Louis Uchitelle in the New York
Times, September 10, 2000, Section 1, page 1. 

This article examines the extent to which the nation's recent prosperity has improved
the lives of working class or middle class families. The workers interviewed for the
article report that they still find themselves struggling to make ends meet, an
assessment that is consistent with national data on wages, which show that typical
workers have experienced only modest wage growth in recent years. 

"Grass Roots Seeded by Drugmaker," by Robert O'Harrow, Jr., in the Washington Post,
September 12, 2000, page A1. 

This article examines how Schering-Plough, a major pharmaceutical manufacturer,
has financed the creation and growth of a "grassroots" movement to promote one of
its drug treatments. This movement petitions insurance companies and legislatures to
pay for this treatment. 

"The Mahogany King's Brief Reign," by Joseph Kahn in the New York Times,
September 14, 2000, page C1. 

This article examines the involvement of a U.S. businessman in the politics of the
island of Fiji, as he sought to gain control of its mahogany forests. The businessman,
Marshall W. Petit, had close ties to the leader of a failed coup attempt. 

"A Dwindling Faith In Deregulation," by Neela Banerjee in the New York Times,
September 15, 2000, page C1. 

This article discusses the problems that have arisen across the nation as states have
begun to deregulate the electricity market. The article points out that the particular
circumstances of the industry, such as the huge variability of demand and limited
degree of competition, will probably make some form of regulation necessary for the
foreseeable future. 

It is worth noting that serious discussion of these issues was almost completely
absent in earlier reporting of deregulation. In the spring the Washington Post included
an "advertorial" section, with articles written by its news staff, which never
mentioned any of the potential problems with deregulation. 

"As Turkey's Schools Open, A Million Are Left Out," by Douglas Frantz in the New
York Times, September 15, 2000, page A4. 

This article reports on the economic conditions and lack of government support
which are preventing more than a million Turkish children from receiving an education.


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