"Dow Tumbles 374 on Earnings Fears"
Sharon Walsh
Washington Post, March 8, 2000, Page E1
This article reports on a large fall in the Dow Jones industrial average. The article notes that Nasdaq did not experience the same sort of sell-off, commenting that "in a brief glorious moment today, the Nasdaq composite index bobbed above 5,000 points."
There is no obvious reason that a rise in stock prices should be viewed as "glorious." For people who own a large amount of stock in Nasdaq companies, passing the 5,000 mark was clearly good news; that is not the case for the rest of the country. It would be equally legitimate to characterize a rise in the price of oil above $50 a barrel as "glorious."
"House GOP Scrambles Over Wage Boost"
Juliet Eilperin
Washington Post, March 9, 2000, Page A4
"President Says Wage Bill Raises Minimum Too Slowly"
Marc Lacey
New York Times, March 9, 2000, page A16
These articles discuss the prospect of Congress approving an increase in the minimum wage in this session. Both articles repeat claims about the negative impact of raising the minimum wage on employment that have been contradicted by a large body of recent economic research. (See, e.g., David and Alan Krueger, Myth and Measurement: The New Economics of the Minimum Wage, Princeton University Press, 1995.)
The Times article also presents competing claims about the beneficiaries of a minimum wage increase in a manner that is likely to confuse readers. It notes claims of opponents that two-thirds of minimum wage workers are part-time, more than half are under 25, and only a small minority are heads of households. It also presents evidence from proponents of a minimum wage hike that nearly 70 percent of the beneficiaries of an increase are over 20, and nearly half are full-time workers.
The reason for the difference in these figures is that the opponents of a minimum wage hike are only looking at workers who earn exactly the minimum wage. The vast majority of the workers who would gain from an increase in the minimum wage currently earn more than the minimum wage, but less than the higher proposed minimum wage. Restricting the focus to the subset of workers who earn exactly the minimum wage distorts the impact of a higher minimum wage.
The Times article also briefly notes the nation's history of raising the minimum wage since the first national minimum was put into effect at 25 cents an hour in 1938. This discussion would have been more informative if it gave the real (inflation adjusted) value of the minimum wage, rather than the nominal figures, which are essentially meaningless. In real terms, the minimum wage peaked at more than $6.50 an hour in the late '60s, more than 20 percent higher than the current minimum wage. If the minimum wage had kept pace with economy-wide productivity growth over the last 30 years, it would be more than $10 an hour at present.
"House Votes Hike in Wage"
Juliet Eilperin
Washington Post, March 10, 2000, Page A1
This article reports on a House vote to approve a higher minimum wage. At one point it refers to charges by opponents of the increase that it would be inflationary. The proposed increase would raise the minimum wage by $1.00 an hour over two years, from its current $5.15 to $6.15 an hour.
According to the article, approximately 10 million workers would gain from this increase. The average wage increase for these workers would be approximately 50 cents per hour. (Some of the workers earning below the new minimum would see a pay increase of just a few cents, while others might get a full dollar an hour increase.) If these workers work an average of 30 hours per week for 50 weeks a year, it implies an annual average pay increase of $750, after the wage hike has been fully implemented. Since 10 million workers are projected to be affected, the total increase in the annual wage bill is approximately $7.5 billion.
If this increase is fully passed on in higher prices (i.e., profits do not fall at all), and it is assumed that these workers wages would not have risen at all in the absence of the increase in the minimum wage, this increase in the wage bill would lead to a 0.07 percentage point increase in the rate of inflation. Since some of these workers would have gotten higher wages even if the minimum wage did not increase, and some portion of the wage increase will probably come at the expense of profits, the actual impact on the rate of inflation should be considerably less than 0.07 percentage points.
See more on labor.
"Potent Software Escalates Music Industry's Jitters"
Amy Harmon
New York Times, March 7, 2000, page A1
This article discusses the potential impact on new software that facilitates the process of finding recorded music on the web. The article implies that people are violating the law when recording music from the Web: "Every day, about a million otherwise law-abiding adult citizens are demonstrating no compunction about using the service to get free what they would have to pay for in a record store." Existing copyright law does allow people to record music for their own use off the radio or television, so it is not clear that they are violating any law when they copy it off the Web.
The article goes on to discuss the willingness of consumers to ignore copyrights as though it constitutes a moral failing. This is an interesting contrast to how mass disrespect for the law is usually treated in economic reporting. For example, in a recent article on Canada's tax system ("Rising Tax Bills Fuel Anger in Canada," by James Brooke, New York Times, 2/27/00, Section 1 page 12; see ERR, 3/6/00), the fact that many people work off the books to evade taxation was presented as evidence of the failure of the system. Similarly, articles on the European welfare states have often pointed to the existence of large underground economies as a serious indictment of their systems. (See, e.g., "Germany's Leader Popular, but Grip Is a Bit Uncertain," by Roger Cohen, New York Times, 3/1/99, page A1; ERR, 3/8/99.) By contrast, mass disregard for copyright law is treated as a moral issue, rather than an indication that copyrights have become an anachronism in the digital age.
"End to Social Security Penalty Welcomed by Companies and Their Workers"
Peter T. Kilborn with Leslie Wayne
New York Times, March 5, 2000, Section 1, page 18
This article reports on the impact of a bill that was just approved by the House, which would eliminate the Social Security earnings penalty for people between age 65 and 69. The article discusses the situation of various workers who would benefit from not being subject to this penalty. The discussion could be misleading, since it includes comments from a 68-year-old worker who is employed at McDonald's Corporate headquarters in Oak Brook, Ill. It then generalizes to other McDonald's employees who it says may benefit from this change.
While a worker in a management level position at McDonald's headquarters may earn enough to be affected by the earnings penalty, the vast majority of older workers at McDonald's are unlikely to earn more than $17,000 a year, and therefore would not be affected by the elimination of the penalty. Furthermore, the article fails to note that the amount of earnings not subject to the penalty was already scheduled to rise to $30,000 in 2002, even without any new action. Based on current wage patterns, less than 6.0 percent of the people between age 65 and 69 will be earning enough to be subject to the penalty at that point (See ERR, 2/28/00).
See more on Social Security.
"Injecting Change Into Argentina"
Clifford Kraus
New York Times, March 8, 2000, page C1
This article reports the economic policies being pursued by Argentina's President Fernando de la Rua in his first months of office. The article repeatedly takes the perspective of business.
For example, it notes that Mr. de la Rua has moved to increase revenue by raising taxes and eliminating loopholes, and then presents the views of some economists that higher taxes will slow growth. Earlier it refers to cuts in the "bloated" government bureaucracy, which were instituted by Mr. de la Rua. In the short term, spending cuts will dampen growth in exactly the same way as tax increases, but this concern is not raised.
Later, the article refers to the "crown jewel" of Mr. De la Rua's economic policy, a change in the nation's labor law. According to the article, this law will allow corporations to unilaterally impose new contracts in the event of a deadlock in negotiations, instead of leaving the prior contract in effect. The article asserts that this change will "prohibit union leaders from protecting anachronistic work rules by refusing to negotiate in good faith."
While the change in the law may have this effect, it will also allow management to impose cuts in wages and benefits, and to worsen working conditions, by refusing to negotiate in good faith.
See more on Latin America.
"Germany Taps New Nominee To Head IMF"
William Drozdiak
Washington Post, March 8, 2000, Page A24
"New Candidate Proposed for IMF"
Edmund L. Andrews
New York Times, March 8, 2000, page C4
"Report Seeks Big Change in IMF and World Bank"
Joseph Kahn
New York Times, March 8, 2000, page C4
The first two of these articles report on the battle over the selection of the new managing director of the International Monetary Fund. The last article discusses the report of a congressional commission reviewing the IMF and World Bank.
While the position of managing director has traditionally gone to a European, the United States opposed the European candidate, German Deputy Finance Minister Caio Koch-Weiser, ostensibly because he lacked the "stature" or "intellectual vigor" to hold the position. The German government maintains that the conflict over the United States stems from real policy differences over the direction the IMF should take, whereas the Clinton administration has been trying to portray the dispute as simply a question of personalities and national pride.
The two articles on this issue, like prior reports (see ERR, 3/6/00) implicitly or explicitly endorse the Clinton administration's view. The Times article asserts that, "the battle over who will lead the International Monetary Fund ... has become a prolonged squabble over political entitlements and national pride." It twice refers to Koch-Weiser's lack of stature, and then asserts that Germany's second nominee for the position, Horst Kohler, head of the European Bank for Reconstruction and Development, "is not a particularly well known or prestigious figure in international financial circles."
The Post article comments that after its nomination of Kohler, "some international financial specialists in Washington" were concerned that Germany was only interested in getting one of its citizens into the position, even if they lacked the necessary stature. This sort of anonymous attack was used frequently to defeat Koch-Weiser's candidacy. There is no obvious reason why critics should not be willing to be identified when expressing their views, or that the media should be willing to publicize such comments if the authors insist on anonymity--a point that was argued in another article ("An Effort at Character Assassination," by Nora Boustany, Washington Post, 3/8/00, Page A25).
It is worth noting, that while Koch-Weiser and Kohler's stature has been questioned, by most objective measures, the recent record of the IMF has been disastrous, leading to major economic disruptions in Russia, Brazil, East Asia and elsewhere (see ERR, 3/6/00). In spite of its recent failures, Stanley Fischer, the IMF's deputy director (and currently acting director), has been repeatedly referred to as a person who has the stature to be director, although he is not viewed as being eligible because he is a United States citizen. This suggests that "stature" has little relationship to performance.
It is also worth noting that the Times article by Andrews implies in its last paragraph that the dispute over the director's position is based, at least in part, in policy differences. It notes that "one of the American objections to Mr. Koch-Weser was ... a suspicion that he would support development projects rather than straightforward economic assistance." As noted in the Kahn article, the United States has sought to narrow the focus of the IMF in order to insulate it more from its domestic critics. The comment in the Andrews article suggests that the European governments may not be prepared to go along with this change in focus.
It would have been more informative to readers if the articles on the succession battle at the IMF had focused on the nature of the policy differences between the countries supporting competing candidates, rather than on anonymous comments on the stature and intellectual abilities of the candidates themselves.
"U.S. Lukewarm to Germany's New IMF Pick"
John Burgess
Washington Post, March 9, 2000, Page E1
This informative article discusses the battle over the appointment of a new managing director of the IMF and the report of a congressional commission that evaluated the function and performance of the IMF and World Bank. At one point, the article notes a proposal for complete debt forgiveness to the world's poorest countries, which was unanimously approved by the commission. It characterizes this proposal as a "program already underway." Actually, the IMF and the U.S. Treasury Department have been strongly opposed to the complete debt forgiveness advocated by the commission. They have supported more limited debt relief, which would be conditional on nations following an IMF structural adjustment program.
"President Begins China Trade Push"
Charles Babington and Matthew Vita
Washington Post, March 9, 2000, Page A1
"Clinton Sends to a Wary Congress a Long-Delayed China Trade Bill"
David E. Sanger
New York Times, March 9, 2000, page A1
These articles report on President Clinton's submission of a bill that would permanently grant China normal trading status. Both articles repeat, without commenting or presenting an alternative perspective, President Clinton's assertion that the defeat of this bill would cost U.S. workers jobs.
It is unlikely that many workers in the U.S. stand to lose jobs if this bill doesn't pass. The main industries expecting to extend their business in China as a result of this agreement are in the financial and telecommunications sectors. The vast majority of the people that they would employ are Chinese. Insofar as the increased security associated with the change in trade status leads to more foreign investment in China, it will cause more U.S. workers to be displaced by imports from China.
It is worth noting that the Clinton administration has a history of making outlandish claims to advance its trade agenda. For example, when it was promoting NAFTA in 1993, the administration repeatedly referred to a study which showed that NAFTA would increase the United States trade surplus with Mexico and thereby create 200,000 new jobs (e.g. see Economic Report of the President, 1994, p. 230). Virtually all economists would view this claim as ridiculous on its face; in fact, the trade surplus with Mexico has turned into a large deficit since the passage of NAFTA.
In 1994, the President's Council of Economic Advisors assured the public that the Uruguay Round of GATT would led to an increase in annual GDP of $100 billion to $200 billion by 2004--0.9 percent to 1.7 percent of projected GDP (Economic Report of the President, 1994, p 234). This impact is far larger than almost economist would view as plausible. Even the Council of Economic Advisors has cut it estimate of the gains from the Uruguay Round by more than half in the last five years (America's Interest in the World Trade Organization: An Economic Assessment, 1999; p22).
"A Labor Voice Urges China Trade"
Steven Mufson
Washington Post, March 8, 2000, Page A29
This article reports on the view of Leonard Woodcock, the former president of the United Auto Workers, that Congress should grant China permanent normal trade status. It is worth noting that the Post would choose to devote considerable space (the article occupies approximately one quarter of the page) to Woodcock's views on this issue. Major newspapers rarely devote significant space to the views of current or former labor leaders. In this case, a prominent retired leader has endorsed a position that commands considerable support in the business community, but is almost unanimously opposed by labor.
See more on China.
"Wal-Mart Ends Meat-Cutting Jobs"
Frank Swoboda
Washington Post, March 4, 2000, Page E1
This article reports on the decision by Wal-Mart's management to eliminate their meat cutting operations at 180 stores, after the meat cutters at one store voted to unionize. As the article notes, this was the first vote for union recognition at any of Wal-Mart's stores in the United States.
"A Quiet Crisis in Housing Prices"
Michael Grunwald
Washington Post, March 6, 2000, Page A6
This article discusses the housing situation for low- and moderate-income people. It points out that in some of the nation's most prosperous areas, rising land prices have made decent housing unaffordable for many workers.
"Bermuda Move Allows Insurers to Avoid Taxes"
David Cay Johnston and Joseph B. Treaster
New York Times, March 6, 2000, page A1
This article reports on a loophole in the tax code that has allowed several major insurance companies to escape federal income tax by moving their headquarters to Bermuda. The article notes that if all insurers took advantage of this loophole, it would reduce corporate income tax revenues by 4 percent.
"Is the Relationship Between Inflation and Unemployment a Curve or More of an Economics Knuckleball?"
J. Bradford DeLong
New York Times, March 9, 2000, page C2
This column examines the relationship between increases in the rate of inflation and the unemployment rate. While there once appeared to be a stable inverse relationship between the two, this no longer appears to be the case.
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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