"Is Fed Chairman Targeting Stocks?"
John M. Berry
Washington Post, March 16, 2000, Page E1
This article examines whether Federal Reserve Board chair Alan Greenspan is trying to restrain or bring down stock prices. It includes a number of inaccurate or misleading comments.
For example, it presents as Greenspan's view that stock prices don't actually have to decline; rather, their growth must be restricted to the rate of growth of personal income. Personal income is projected by the Congressional Budget Office, and most other forecasters, to grow at a nominal rate of approximately 5 percent annually for the foreseeable future. If stocks grew at the same pace, then it would imply that stockholders' capital gains will be 5 percent annually.
The current dividend yield on stocks is slightly over 1 percent. This means that the total return from holding stocks would be just over 6 percent in this scenario, approximately the same as the return on government bonds. Unless stockholders are prepared to hold stock, which is risky, for a return that is no higher than that available on government bonds (and lower than the return available on corporate bonds), the scenario described in this article is impossible.
Later the article asserts that "a major danger facing the economy is labor shortages that might trigger inflationary wage increases." Actually, according to data from the Bureau of Labor Statistics, the rate of wage growth (as measured in the average hourly earnings series) has remained stable or fallen slightly even as the unemployment rate has declined to 4 percent in last half year.
Furthermore, even if wages did begin to rise somewhat more rapidly, it would not necessarily lead to inflation. Since the peak of the last business cycle there has been a shift from wages to profits of 3 percentage points of corporate GDP. If wages were to rise more rapidly, at least some of the increase could come at the expense of profits, instead of being passed on in higher prices.
"Republicans See an Opportunity to Fault Candidate Gore as Gasoline Prices Rise"
David E. Rosenbaum
New York Times, March 12, 2000, Section 1 page 31
This article discusses Republican efforts to make a campaign issue out of the recent rise in gasoline and oil prices. The article points out that price of oil has risen from about $12 a barrel a year ago to $32 a barrel at present. However, it fails to note the longer history of crude oil prices.
Oil had plummeted in price in the wake of the East Asian financial crisis. Prior to the crisis, it had sold for more than $20 per barrel. Its price had hovered near $20 a barrel for most of the last decade. If oil prices had risen in step with other prices over the last ten years, its price would be approximately where it is today. If oil prices had risen in step with inflation from their peak in 1980, the price of a barrel of oil would be twice its current level. It is only because oil prices had taken an extraordinary fall in 1998 that the current price seems high.
"Gore to Embrace Campaign Finance as Central Theme"
Richard L. Berke and Katherine Q. Seeyle
New York Times, March 12, 2000, Section 1, page 1
"Clinton Calls Republicans' Budget Plan a 'Dead Plan'"
Associated Press
New York Times, March 12, 2000, Section 1, page 23
"Gore, Bush Spar With Eye on Fall"
Ceci Connolly
Washington Post, March 16, 2000, Page A6
All these articles include discussion of criticisms directed against Republicans for not putting aside sufficient money for Social Security. According to the projections of the Social Security trustees, even without any additional funds, it will be able to pay all scheduled benefits for 34 years, or right through the next eight presidential terms. Even if no changes are ever made, it will always be able to pay a higher benefit, in today's dollars, than the amount an average retiree gets in Social Security at present.
"GOP Avoids Vote on Bush Tax Cut"
Eric Pianin and Juliet Eilperin
Washington Post, March 16, 2000, Page A1
"G.O.P. Can't Match Bush Tax Cut Plan"
Richard W. Stevenson
New York Times, March 16, 2000, Page A1
These articles report on the budget plan approved by the Republican controlled House Budget Committee. The focus of the reporting is the fact that the tax cuts provided in this budget are $50 billion smaller over the next five years than the tax cut proposed by George W. Bush, the likely Republican presidential candidate. It is worth noting that the difference in the proposed tax cuts is equal to approximately 0.5 percent of projected federal spending over this period.
More about Election 2000.
"Strained Ties: I.M.F. Issue Divides U.S. and Germany"
Roger Cohen
New York Times, March 12, 2000, Section 1 page 8
This article examines the dispute between the Clinton administration and the German government over the appointment of the new managing director of the International Monetary Fund. The article takes the Clinton administration's perspective on this issue, and argues that the German government is at fault, for reasons that are not explained in the article.
For example, the article asserts that the United States finds Germany's behavior in this dispute "unsettling," adding, "especially when, as American officials put it, the country manages to mishandle a sensitive diplomatic quest to such an extent."
It then notes the German perspective, attributed to Michael Steiner, a top aid to German Chancellor Gerhard Schroder, that the German government had been misled by the Clinton Administration on its position towards the first candidate for the IMF director that Germany put forward. The article then implies that Schroder's aid is wrong, and asserts that his "evidence" [quotations appear in original] was primarily "an elaborate, unsourced account of how the United States had told Germany that it would accept any consensus candidate of the European Union, before changing its view at the last moment," which appeared in a major German newspaper.
While several German sources are cited by name in the Times article, the views of the Clinton administration are attributed only to "American officials" (twice) and "one American who has played a central role in negotiations." Why readers should find these unnamed sources as more credible than the unsourced account in the German newspaper is not explained.
"U.S. Will Endorse European Nominee to Lead The IMF"
David E. Sanger and Joseph Kahn
New York Times, March 14, 2000, page A1
This article reports on the Clinton administration's decision to back Germany's nominee, Horst Kohler, for the position of managing director of the IMF. At one point, the article refers to Thailand and South Korea as two nations that have prospered as a result of following an IMF austerity plan.
While these nations have enjoyed strong growth in the last year, it is worth noting that the liberalization of capital flows in these countries, which had previously been urged by the IMF, helped create the conditions for the 1997 financial crisis. It is also worth noting that these countries had earlier been criticized for not following the IMF's policies closely enough (e.g. see "Skepticism Over Korean Reform," by Stephanie Strom, New York Times, 7/30/99, page C1; and "Asian Rebound Derails Reform as Many Suffer," by David E. Sanger and Mark Landler, New York Times, 7/12/99, page A1; see ERR, 7/19/99, 8/2/99).
"In the Midst of Upheaval, Yet Out of Public Sight: Horst Kohler"
Edmund L. Andrews
New York Times, March 15, 2000, page C1
This article presents a highly favorable assessment of Horst Kohler, the person selected to be the new managing director of the IMF. For example, the article begins by asserting that "he is no stranger to the kinds of seismic upheaval that come with the responsibility of managing a global lender to financially distressed nations. Mr. Kohler was a financial engineer behind two of Europe's biggest transformations."
The positive assessment of Kohler in this article contrasts sharply with the more guarded or negative assessment in earlier reporting, before the Clinton administration announced its support for Kohler. For example, a Times article last week commented that "though respected, Mr. Kohler is not a particularly well known or prestigious figure in international financial circles" ("New Candidate Proposed for IMF," by Edmund L. Andrews, New York Times, 3/8/00, page C4). A Times article earlier this week suggested that Germany had committed a major diplomatic blunder by even putting Kohler forward as candidate ("Strained Ties: I.M.F. Issue Divides U.S. and Germany," by Roger Cohen, New York Times, 3/12/00, Section 1 page 8; see above).
This shift in reporting on Kohler appears to mimic the position of the Clinton administration. As was noted in another Times article published just after the endorsement of Kohler: "senior administration officials who had been far from enthusiastic about Mr. Kohler last week began to speak of his strengths, describing him as 'an important player' in the economic unification of Germany and the creation of the European Monetary Union." ("U.S. Will Endorse European Nominee to Lead the IMF," David E. Sanger and Joseph Kahn, New York Times, 3/14/00, page A1.)
"The Metamorphosis of Germany Inc."
Edmund L. Andrews
New York Times, March 12, 2000, Section 3 page 1
This article examines the breaking up of Germany's system of interlocking directorates between banks and major corporations. To show the growth of the new German economy, the front page includes a chart comparing the growth rate of the market capitalization of Germany's "New Market," which includes many small high tech firms, with the growth rate of the DAX index, which includes most of Germany's big established companies. The chart shows that the percentage growth in the New Market in the last three years has been 6,818 percent, compared to 84 percent for the DAX.
This comparison is highly misleading, however, since the New Market is growing both from the addition of firms (from almost zero in 1997) and the rise in share prices, while the DAX is growing almost exclusively because of rising share prices. According to the article, the market capitalization of the DAX is still more than four times the capitalization of the New Market. Furthermore, the DAX has actually added more value over this period than the New Market.
More about Europe.
"Protests on New Genes and Seeds Grow More Passionate in Europe"
Donald G. McNeil Jr.
New York Times, March 14, 2000, Page A1
This article reports on the state of the debate in Europe over the introduction of genetically modified crops. It portrays the opponents of the introduction of these crops as being driven exclusively by irrational concerns, that have no scientific merit. None of the opponents quoted or cited in the article are scientists, while several of the advocates of genetically modified crops are.
This contrasts with the perspective presented in an earlier Times article ("Reassessing Ecological Risks of Genetically Altered Crops," by Carol Kaesuk Yoon, 11/ 3/99, page A1; see ERR, 11/8/99), which reported on comments from several scientists who questioned the rigor of the Food and Drug Administration's testing of genetically modified crops.
"Still Wary of Outsiders, Japan Expects Immigration Boom"
Howard W. French
New York Times, March 14, 2000, Page A1
This article reports on the prospects for Japan's labor market, given its low birth rate. The article argues that this will produce a labor shortage which will necessitate a large increase in immigration. At one point the article implies that the labor shortage is affecting the country now: "Already, industries like elderly care, hospital work and the lowest paying farming and manufacturing jobs are struggling to find enough workers to keep up with demand."
Japan's unemployment rate is currently over 4.0 percent. It had averaged less than 2.0 percent over the previous 40 years. In addition, the average Japanese work year has gotten considerably shorter in the last five years. Both of these phenomena suggest that Japan is not currently suffering from a labor shortage. The difficulties that these industries face in attracting workers more likely stem from the fact that they are trying to pay a below- market wage. Such industries always have difficulty attracting workers.
More about Asia.
"Chinese Are Split Over WTO Entry"
John Pomfert
Washington Post, March 13, 2000, Page A1
This article discusses the divisions within China over its entry into the WTO. The discussion characterizes the supporters of entry as "reformers," while those who are opposed are deemed as backward-looking or self-interested.
As a condition of entering the WTO, China will be privatizing many government industries. In many other developing nations, privatization has led to large-scale theft as people with political connections have been able to buy state assets at below market prices. (See, e.g., "Latin Nations Pay Price of Reform," by Anthony Faiola, Washington Post, March 13, 2000, Page A1; see below.). It is reasonable to believe that similar corruption would accompany privatization in China. It is possible that this is a concern of some of those opposed to China's entry into the WTO.
More about China.
"Latin Nations Pay Price of Reform"
Anthony Faiola
Washington Post, March 13, 2000, Page A1
This article examines how corruption undermined much of Argentina's efforts at "reform" in the last decade. The article notes that the government's privatization agenda offered enormous opportunities for graft, as well-connected entrepreneurs were often positioned to buy state assets at prices that were far below market levels.
"It's Not What You Know, But When You Know It"
Gretchen Morgenson
New York Times, March 12, 2000, Section 3 page 1
This article reports on new research showing that insiders at technology companies have managed to make extraordinary profits by trading on information that is not publicly available. The excess profits available to insiders comes at the expense of traders without access to this information.
"Profiting From Fine Print With Wall Street's Help"
Diana B. Henriques with Lowell Bergman
New York Times, March 15, 2000, page A1
This article, the result of a joint investigation with the ABC News show 20/20, reports that a mortgage company, the First Alliance Corporation, has been gouging many low and moderate income homeowners by using deceptive language in mortgage contracts, and verbally misrepresenting the terms to clients. The First Alliance Corporation is a national company which has received backing from major Wall Street investment banks.
"Fairfax Boom Leaves Little Room for Poor"
Michael D. Shear and Tom Jackman
Washington Post, March 14, 2000, Page A1
This article reports on the impact of soaring housing prices on the availability of moderate-income housing in the Fairfax County suburbs of Washington. The article reports that the number of homeless people in the county is growing rapidly, as many low- wage workers can no longer afford housing in the area.
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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