Economics Reporting Review September 6, 2001 By Dean Baker You can sign up to receive ERR every week by sending a "subscribe ERR" email request with your address in the body of the email to [EMAIL PROTECTED] You can find the latest ERR at http://www.tompaine.com/news/2000/10/02/index.html . All ERR prior to August 2000 are archived at http://www.fair.org/err/. All ERR after August 2000 are archived at www.tompaine.com. OUTSTANDING STORIES OF THE WEEK Tracking the Yo-Yo Economy Louis Uchitelle New York Times, August 26, 2001, Section 4 page 1 This column examines the statements that economists have been making about the state of the economy since the slowdown began last year. It notes that many seem to be looking for evidence that economic growth is returning in the midst of considerable evidence suggesting the opposite. Rate Cuts Won't Spur an Economy Choked by Debt Gretchen Morgenson New York Times, August 26, 2001, Section 4 page 1 This article reports on the extent of corporate indebtedness. It points out that as a result of high current debt levels, firms will be reluctant to take on additional debt, and will have difficulty finding lenders, regardless of how low the Federal Reserve Board pushes interest rates. Boom Missed the Middle Class In Some States, Data Suggests Janny Scott New York Times, August 31, 2001, page A1 This article reports the findings of an analysis of trends in family income, which the New York Times commissioned. The analysis indicated that the income of middle-income families was nearly stagnant over the decade, while upper-income families experienced large gains, and low-income families lost ground. More Women Are Losing Insurance Than Men Tamar Lewin New York Times, August 31, 2001, page A13 This article reports on the findings of a study of trends in health care coverage by the Commonwealth Fund. The study found that women are losing coverage more rapidly than men, so that the number of uninsured women is now almost as high as the number of uninsured men. Former Workers at Lucent See Nest Eggs Vanish, Too Danny Hakim New York Times, August 29, 2001, page A1 This article examines the situation of some of the workers who were recently laid off by Lucent. In addition to losing their jobs, many of these workers also lost much of their savings due to a 91 percent drop in the price of Lucent stock from its 1999 peak. Workers were given incentives to buy Lucent stock and many had kept much of their 401(k) money in Lucent stock. There are many workers in other firms who are currently in a similar position. Trade and Agricultural Subsidies Treaties May Curb Farmers' Subsidies Elizabeth Becker New York Times, August 31, 2001, page A1 This article reports on the fact that recent trade agreements, most notably the WTO pact, may limit the subsidies that can be paid to U.S. farmers. It is worth noting that this possibility was almost never mentioned in the debate over these trade agreements. When the implications for agriculture were noted at all, most articles reported comments suggesting that these agreements would be a boon for farmers. Japan Accelerating Decline in Japan Evokes Rust Belt Comparisons James Brooke New York Times, August 31, 2001, page A1 This article reports on the rising unemployment rate and falling industrial production in Japan. At one point the article notes that Japan's prime minister, Junichiro Koizumi, "promised to undertake painful structural economic reforms." It then adds, "investors are waiting to see if Mr. Koizumi, returning from a summer vacation, will act on his bold talk." Actually, Mr. Koizumi is acting on his bold talk. The rise in the unemployment rate and massive layoffs of recent months are precisely the painful structural economic reforms he promised. Instead of encouraging firms to keep workers on their payroll through a downturn and finding areas where they could do productive work - as had been the practice in Japan - firms are being encouraged to carry through U.S.-style mass layoffs. What remains to be seen is whether Mr. Koizumu stands back and refrains from acting as the social cost of this policy increases, or whether he will try to stimulate the economy with increased spending or a further easing of monetary policy. Jobless Rate In Japan Hits 5% Akiko Kashiwagi Washington Post, August 25, 2001, Page E1 This article reports on the new unemployment data for Japan, which showed the unemployment rate reaching 5 percent for the first time since World War II. At one point the article gives an account of Japan's system of lifetime employment, where firms tried to avoid laying off their permanent employees. According to this account, the system of lifetime employment "led to a troubled banking system, because Japanese banks were expected to extend loans to major employers, even those losing large amount of money, to keep unemployment low. These companies failed to repay loans, eventually leading to insolvent banks that threatened the stability of Japan's banking system and required a major taxpayer bailout." While this is an accurate description of the Japanese economy over the last decade, it ignores the fact that this crisis developed in the wake of a collapse of Japan's stock and land markets in 1989. As many economists, such as Princeton University Professor Paul Krugman, have argued, Japan's economy badly needed fiscal and monetary stimulus to sustain it in the wake of the collapse of these bubbles. Instead, the government was very cautious with both fiscal and monetary policy. Given the failure of the government to adopt appropriate macroeconomic policies, it is not clear that the nation would have fared any better in the absence of the system of lifetime employment. In fact, had companies been quicker to layoff workers, it may have simply intensified the downturn, as seems to be happening now. Investment Spending Spending On Tech Is Way Down Neil Irwin Washington Post, August 25, 2001, Page E1 This article reports on the falloff in investment in technology over the last year. The article includes a comment from Mickey Levy, the chief economist at Bank of America, in which he seriously exaggerated the growth of the technology sector. According to the article, Levy said that "20 percent of business investment was in information technology in 1990, compared with nearly 50 percent in 1999. According to the most recent data from the Commerce Department, information technology accounted for 27.9 percent of business investment in 1990 ($176.1 billion out of $630.3 billion total non-residential investment). The share of information technology had risen to 34 percent in 1999 ($399.7 billion out of $1174.6 billion total investment). Argentina Argentina's Stopgap Cash Gets Some Funny Looks Larry Rohter New York Times, August 26, 2001, Section 1 page 3 This article reports on the printing of a provincial currency by the government in Buenos Aires province, the largest province in Argentina. After examining the uses of the currency and noting that other provinces are following suit, the article casts this development in a negative light, warning that "for the central government though, the immediate risk is that it might lose control over economic policy." The I.M.F. has just imposed a stringent set of conditions on Argentina as a requirement of its most recent set of loans. For example, even though Argentina is in the middle of a recession, the I.M.F. is insisting that its government balance its budget, a policy virtually guaranteed to raise unemployment and worsen the recession. Given the ability of the I.M.F. to dictate such policies to Argentina's government, along with the tremendous influence of international bond markets on interest rates (and Argentina's unsustainable debt service payments), it seems that it has already lost control over its most important economic policies. The article also quotes two experts extolling the virtues of adopting the dollar as Argentina's currency. This decision would also cause Argentina's government to lose considerable control over economic policy, since the printing of dollars would be controlled by the Federal Reserve Board in the United States, not Argentina's central bank. The article does not indicate why it would be a matter of concern if Argentina's government cedes control of economic policy to its provincial governments, but not when it cedes control to the I.M.F. or the Federal Reserve Board. The Economy Short-Term Consumer Confidence Drops John M. Berry Washington Post, August 29, 2001, Page E1 U.S. Economic Growth Drops To Almost Zero John M. Berry Washington Post, August 30, 2001, Page A1 These articles report on the release of new economic data on the state of the economy. The primary news item in both articles is a negative report on the state of the economy -- a drop in consumer confidence in the first article and a sharp downward revision to second quarter GDP in the second article. In both cases, the articles chose to highlight positive news. Specifically, both articles refer to an improvement in consumers' expectations about the future, a measure that has very little relationship to current or future levels of consumption. The headlines to the jump-page section of both articles reflected this optimism: "Long-Term Confidence Up," and "Some Economists See Signs That a Pickup Has Begun." The Budget President Asserts Shrunken Surplus May Curb Congress David E. Sanger New York Times, August 25, 2001, page A1 This article discusses the current budget situation in the context of a speech that President Bush gave in Texas. At one point the article indicates that the nation could be facing "difficult fiscal times." It is worth noting that insofar as budgets are constrained at present, it is because a different yardstick is being applied, not because the nation is in a bad financial situation. Even ignoring the Social Security surplus, the deficit would be smaller, measured as a share of GDP, than at any point from 1970 to 1998. (If we include the Social Security surplus, which was standard practice for both politicians and the press until about two years ago, we are looking at one of the largest federal budget surpluses in history). If the current situation can be described as a "difficult fiscal time," than this 28-year period would have to be described in much graver terms. Russia Hard Living Is Making For Unhealthy Russia Sharon LaFraniere Washington Post, August 25, 2001, Page A1 This article reports on some of the factors contributing to the poor health of the Russian population. At one point, the article refers to a statement by Russian President Vladimir Putin, that an aging, dwindling population is a national security concern. It is worth noting that the low life expectancies of the Russian population actually reduce the extent to which an aging population poses a problem. The article also includes a quote from a population expert who notes that Russia's low birth rate is similar to the low birth rates in other countries, which he characterizes as a "global problem." It is not clear why low birth rates should be viewed as a problem. A stable or declining population would place less pressure on land and other resources and would generate less pollution. The article gives no reason why this scenario should be viewed as bad. Biotech Foods U.S. Challenges EU's Biotech Food Standards Alan Sipress and Marc Kaufman Washington Post, August 26, 2001, Page A1 This article reports on a dispute between the United States and the European Union (EU) over the sale of genetically altered foods in the EU. The dispute centers on whether genetically altered foods will have to be labeled as such when sold in Europe. The industry is opposed to labeling because they claim that labels would "unfairly stigmatize the products." The article includes a quote from an undersecretary at the State Department, who described this view as a "free trade" position. This is a dubious claim. Supporters of free trade usually believe that consumers are the best judges of which products they should consume. In this case, the industry is asserting that its own assessment of the quality of its product is more accurate than the judgment of consumers, who it believes will "unfairly stigmatize" their genetically modified products. It would be more consistent with free trade to inform consumers about the way in which food was grown and allow them to decide for themselves which products to consume. At several points the article refers to estimates of the losses to the U.S. industry as a result of the EU's labeling requirement. The basis for these estimates is not clear. It appears as though the numbers are losses of potential sales to the EU. However, this would be a large exaggeration of the actual losses to the industry, since most of the food not sold in Europe could presumably be sold in other countries, although possibly at a somewhat lower price. Reorganizing the Federal Government Bush Plan Could Cut Federal Workers Ellen Nakashima Washington Post, August 26, 2001, Page A1 This article discusses President Bush's plans to reorganize the federal government. One of the changes it notes is "cutting waste in the student loan program." It is unlikely that there is a category of spending in this program that is universally accepted as "waste." It would have been more appropriate to describe the President as intending to eliminate spending that he characterizes as "waste." Electricity Deregulation in California Lights Off Is New Policy For Coping in California Mireya Navarro New York Times, August 26, 2001, Section 1 page 10 This informative article examines the continuing problems that Californians are facing as a result of the deregulation of its electricity markets. At one point the article refers to the situation of southern California and comments that rates there "rose sharply because it did not participate in the power deregulation experiment that is regarded as the source of the state's energy trouble." Actually, rates soared in southern California precisely because it did take part in the statewide deregulation plans. Rates more than doubled last summer, eventually leading to the re-imposition of price controls (see ERR 8-8-00).
