"The Battle of the Decades"
Richard W. Stevenson
New York Times, February 8, 2000, page C1
This article examines the current recovery and contrasts the argument that the Reagan tax cuts were the main factor driving growth with the argument that it was Clinton's deficit reduction. At several points the article misrepresents the recent history of the economy.
The most important of these misrepresentations is that the last two decades have been a period of extraordinary growth which requires some explanation. In fact, the economy has grown less rapidly on average in the last two decades than in previous decades. GDP growth has averaged 3.0 percent since 1979. It averaged 3.2 percent in the '70s, and 4.4 percent in the '60s. If consistent measurements were applied, the gap would be even larger, since new measurement techniques from the Bureau of Labor Statistics have added approximately 0.2 percentage points to the annual growth rate in the years since 1978.
At one point the article touts financial innovations as one of the engines of recent growth. It remains to be seen whether this is accurate. In the '80s, deregulation allowed Savings & Loans to use tens of billions of dollars to support speculative real estate ventures that subsequently went bankrupt. Currently financial markets are funneling tens of billions of dollars into Internet start-ups, many of which have never shown a profit. If most of these companies turn out not to be viable, then this investment will have been an enormous waste of capital.
The article refers to the tax increases and spending cuts instituted in 1990, and asserts that "the deficits had continued to increase." The U.S. economy went into a recession in 1990. Deficits always increase when the economy goes into a recession. As the economy began the recovery in 1993, the deficit began falling sharply. Measured as a share of GDP, the deficit was 0.8 percentage points lower in 1993 than in 1992. This was before any of the Clinton tax increases or spending cuts were put in place.
The article also appears to accept President Clinton's assertion that the United States is on a "sustainable long-term growth path." Over the last four years, the trade deficit has increased from 1.2 percent of GDP in 1995 to 2.8 percent of GDP in 1999. If it continues to increase at this rate, the annual trade deficit would be over 5.0 percent of GDP in 2005, a level virtually unimaginable for a major industrial nation. Even if the trade deficit stabilized at its current level, it would cause the nation's foreign debt to rise to a level equal to 60 percent of GDP by 2010. This level of indebtedness would also be without precedent for a major industrialized country. The rate of growth of consumer debt is also unsustainable for any long period of time. For these reasons, it is questionable whether the United States can really be said to be on a sustainable long-term growth path.
"Administration Takes a Bow in Final Economics Report"
Joseph Kahn
New York Times, February 11, 2000, page C8
This article examines the final Economic Report of the President released by the Clinton administration. The article notes that the Report predicts that productivity growth will average 2.1 percent annually over the next four years. The most recent Social Security Trustees Report assumes that productivity growth will average 1.35 percent annually over the program's 75-year planning horizon. If productivity grew at a 2.1 percent annual rate over this period, the fund would be fully solvent for almost 50 years with no changes whatsoever.
At one point the article notes that the U.S. government has gone from running large deficits to large surpluses. It comments, "that reversal has freed hundreds of billions of dollars for investment in more productive sectors." Actually, the increase in government saving implied by this shift from deficits to surpluses has been almost completely offset by a decline in private saving. As a result of this decline in private savings, the share of GDP available for private investment was virtually the same as at the peak of the last business cycle in 1989, when the government was running a large deficit.
"Clinton to Ask For Increase in Assistance to Industry"
Richard W. Stevenson
New York Times, February 5, 2000, page A10
This article reports on a new set of proposals by President Clinton which would assist firms in competing internationally, and provide more assistance to workers displaced by trade. According to the article, the proposals will cost $386 million next year. Of this sum, $215 million would go to increase the funds available to Export-Import Bank, and the rest would go to support a variety of training programs. As a share of projected federal spending, the additional money for the Bank is 0.012 percent, while the amount being requested for training is 0.010 percent.
The article refers to Vice President Al Gore as a supporter of free trade. This is inaccurate. While he has supported the removal of trade barriers to imports of goods like cars and textiles, he has not opposed barriers that protect doctors and other highly paid professionals from foreign competition (see, e.g., "AMA and Colleges Assert There Is a Surfeit of Doctors," by Robert Pear, New York Times, March 1, 1997, page A7; or "U.S. to Pay Hospitals Not to Train Doctors, Easing Glut," by Elisabeth Rosenthal, New York Times, 2/15/97, page A1.) At times Gore has also worked to try to increase protectionist barriers. For example, he tried to force South Africa to apply patent protection to AIDS drugs sold within its borders.
See more on Clinton.
"It's Official: First Lady Is Now Candidate Clinton"
Adam Nagourney
New York Times, February 7, 2000, page A1
"Hillary Clinton Makes It Official"
Lynne Duke
Washington Post, February 7, 2000, page A1
These articles discusses Hillary Rodham Clinton's official announcement that she is a candidate for the United States Senate. Both articles quote a line from her speech in which promised to work to "save Social Security."
It is questionable whether Social Security is in need of saving, since the most recent projections from the Social Security trustees show that the program can pay all scheduled benefits, with no changes whatsoever, through the year 2034. The projections from the non-partisan Congressional Budget Office (CBO) show the program to be even stronger. (See ERR, 2/7/00.)
"A Sobering Surplus Scenario"
Eric Pianin and John M. Berry
Washington Post, February 8, 2000, page A1
"Clinton's Budget Stresses Surplus and Having It All"
Richard W. Stevenson
New York Times, February 8, 2000, page A1
These articles analyze President Clinton's proposed budget. Both articles refer to the president's intention to use the Social Security surplus to pay down the debt. This proposal will not directly improve the finances of the program at all: Social Security's finances are not affected at all by how or whether the government spends the money it borrows from the program. Indirectly, paying down the debt can have a modest impact on the future tax burden facing workers; however, it does not qualitatively change the situation.
For example, if the government uses the entire projected Social Security surplus over the next ten years to pay down debt, the national debt will be approximately $2.2 trillion smaller than if the nation ran balanced budgets over this period. The projected real interest rate (the nominal interest rate minus the inflation rate) is approximately 3.0 percent, which means that the government would be saving $66 billion annually in real interest payments by 2010, as a result of using the Social Security surplus to pay down the debt.
GDP is projected to be $15 trillion in 2010, which means that the interest savings would be approximately 0.44 percent of GDP. Alternatively, if the economy grew by 0.2 percentage points more rapidly than projected, by 2010 GDP would be 2.0 percent higher than current projections show. A 2.0 percent increase in GDP would increase tax collections by an amount equal to 0.4 percent of GDP, approximately the same impact as paying down the debt for 10 years. (It's worth noting that projected GDP growth for the next ten years has been revised up by approximately 0.6 percentage points in the last three years.) In short, the impact of paying down the debt on the government's ability to pay off its obligations to Social Security is very limited.
See more on Social Security.
"Clinton, in Budget, Seeks to Bolster Medicare Program"
Richard W. Stevenson
New York Times, February 7, 2000, page A1
This article discusses President Clinton's proposals for the last budget of his administration. At one point in discussing his plan to put more money aside to support Medicare, it refers to "Medicare's deteriorating finances."
According to the projections issued by the Congressional Budget Office (CBO) last month, the annual surplus in the Medicare trust fund is currently $22 billion and is projected to rise to $28 billion by 2002. In 2010, the last year for which CBO publishes explicit projections for the trust fund, the annual surplus is projected to be $11 billion. The cumulative surplus in the fund at that point is projected to be approximately $384 billion. According to these projections, the trust fund is projected to be fully solvent for close to 20 years into the future even if no changes are made.
The article also includes comments from Republican spokespeople who criticized Clinton's proposal to adjust spending levels for inflation in his baseline budget. It is worth noting that prior to the Republican takeover of Congress in 1994, baselines were routinely calculated with the assumption that real (inflation-adjusted) spending levels would remain constant. CBO stopped including inflation adjustments in its baseline projections only after being directed to do so by the Republican Congress.
See more on health.
"An Optimistic Farewell at the IMF"
John Burgess
Washington Post, February 9, 2000, page E1
This article reports on the last news conference held by Michel Camdessus in his capacity as managing director of the IMF. At one point the article quotes Camdessus as saying "There are still people around the world…saying that the IMF kills babies." The article then adds that Camdessus was "alluding to radical critics who argue that austerity programs that the IMF imposes on borrowing countries can force cutbacks in crucial social services." The article then goes on to quote Camdessus referring to such criticism as "demagoguery."
It is worth noting that some of the most prominent economists in the world have made these sorts of criticisms, most notably Jeffrey Sachs, a Harvard economics professor, and Joseph Stiglitz, the former chief economist at the World Bank and one time chair of the President's Council of Economic Advisors. Both have argued that some of the IMF austerity programs in recent years have actually worsened the economic situation in the countries they were designed for, and led to unnecessary suffering for their people.
"Japanese Economy Shrinks Again"
Clay Chandler
Washington Post, February 7, 2000, page A5
This article reports on new economic data which shows that the Japanese economy shrank in the fourth quarter of 1999. At one point the article asserts that the ratio of Japan's debt to GDP is now more than 130 percent. While this figure is accurate by one measure of Japan's debt, the more standard "net debt" measure calculated by the OECD shows a debt to GDP ratio of approximately 40 percent (Employment Outlook, 6/99, Annex Table 35).
See more on Asia.
"IMF Cites Concerns, Withholds Russia Loan"
Sharon LaFraniere
Washington Post, February 6, 2000, page A25
This article discusses the International Monetary Fund's decision not to release a $640 million loan to Russia. The official reason was the government's failure to make acceptable progress in following the IMF's economic program. According to the article, Russia's economy grew by 3.2 percent last year. By contrast, in the eight years after the collapse of the Soviet Union, when Russia's government was receiving IMF assistance, its economy contracted by close to 50 percent. Russia never attained a growth rate close to its 1999 level in any of the years when the IMF deemed Russia to be in compliance with its economic program.
"Tight Space. No Privacy. Soviet Decor"
Michael Wines
New York Times, February 5, 2000, page A1
This article reports on the cramped housing conditions for many Russians living in Moscow. According to the article, it is common for four or more families to share a single apartment. At one point the article purports to give "a little history." It then traces the current cramped housing situation to the decision of the Communist government in 1918 to divide up churches, mansions and private apartments in order to provide new living quarters to peasants and factory workers. The article attributes this decision to a desire "to erase all vestiges of class in the new Communist paradise."
Whatever ideological motivations the government may have had in creating communal living quarters, the decision also had the effect of vastly improving the housing situation for tens of thousands of Russian workers and peasants who were either homeless, or lived in even more cramped facilities previously. The article only notes that this measure was a "tightening up" for the relatively wealthy segment of the population that had previously enjoyed comfortable living arrangements. It doesn't acknowledge the gains to the rest of the population from this policy.
See more on Russia.
"Former Allies Clash Over South African Economy"
Rachel L. Swarns
New York Times, February 5, 2000, page A6
This article discusses disputes between South Africa's trade unions and the government over the direction of economic policy. At one point the article refers to South Africa's public sector as "bloated." It does not indicate the basis for this characterization.
"Experts Strongly Dispute Consumer Savings Claim"
George Lardner Jr.
Washington Post, February 10, 2000; Page A6
This article examines Texas Gov. George W. Bush's claim his tort reform measures have saved Texans billions of dollars in insurance fees. The article presents the assessments of regulators and consumer groups that most of the savings from paying lower damage claims has gone to increased profits rather than being passed on in lower premiums.
Dean Baker is an economist and the co-director of the Center for Economics and Policy Research (CEPR). His latest book (co-authored with Mark Weisbrot) is Social Security: The Phony Crisis (University of Chicago Press). ERR is a joint project of FAIR and CEPR.
ERR is edited by Jim Naureckas.
Recent articles can be found on the websites of the New York Times and Washington Post.FAIR's critique of these outlets can be found at http://www.fair.org/media-outlets/nyt.html and http://www.fair.org/media-outlets/wpost-newsweek.html.
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