Economic Reporting Review: April 10, 2000

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April 10, 2000:

Genetics and Food Safety; the World Bank and AIDS; Ralph Nader and the Red Sox

By Dean Baker

"Biotech Crops Appear Safe, Panel Says"
Marc Kaufman
Washington Post, April 6, 2000, page A10

"Cautious Support on Biotech Foods by Science Panel"
Carol Kaesuk Yoon and Melody Petersen
New York Times, April 6, 2000, page A1

These articles report on a study by the National Academy of Sciences that evaluated the potential health and environmental dangers posed by genetically modified crops. As indicated in the headlines, the Post article suggests that the report was far more favorable to the biotech industry than the Times article. (The Times article includes a subhead: "Group Shifts Tone on Safety and Benefits of Products of Genetic Engineering.")

The National Academy's news release appears to be more in sync with the Times article. Its headline is: "U.S. Regulatory System Needs Adjustment as Volume and Mix of Transgenic Plants Increase in Marketplace." At one point the text states: "It is the committee's belief that the agencies [the Environmental Protection Agency, the Department of Agriculture, and the Food and Drug Administration] must bolster the mechanisms they use to protect human health and the environment."

"As Life for Family Farmers Worsens, the Toughest Wither"
Nicholas D. Kristof
New York Times, April 2, 2000, Section 1 page 1

This informative article examines the plight of family farmers in Nebraska four years after the passage of the "Freedom to Farm Act." The article presents anecdotes and data that show that most family farmers are struggling to get by and that many are losing their farms.

At one point the article comments: "Just a few years ago, the United States thought it had a plan to revitalize the agriculture economy: the Freedom to Farm Act." While the politicians who supported this bill may have made this claim, there was little economic logic to this view. The further impoverishment of the farm sector was a predictable outcome of the passage of this bill.

THE WORLD BANK AND AIDS

"Loan Practices of World Bank, IMF Targeted"
David Montgomery
Washington Post, April 2, 2000, page A14

This article briefly discusses the official roles of the IMF and the World Bank in the context of large protests planned for their annual meetings later this month. The article includes a comment from a World Bank spokesperson, who noted that the HIV crisis is one of the items on the agenda for the World Bank's meetings. The spokesperson said that it was ironic that protestors, who favor greater access to AIDS drugs, might obstruct this meeting.

It is worth noting that international agreements on patent protection, which the IMF and World Bank have helped to impose on developing nations, raise the price of AIDS drugs by several hundred percent over their free market price. In the absence of this form of protectionism, AIDS drugs could be available at a relatively low cost throughout the world.

"Agencies Urge Use of Affordable Drug for HIV in Africa"
Donald G. McNeil
New York Times, April 6, 2000, page A1

This article discusses a recommendation from the World Health Organization and the United Nations AIDS program, that people in Africa who are infected with the AIDS virus should be given a relatively cheap antibiotic which can prevent secondary infections. In many cases, such secondary infections are the immediate cause of death for people with AIDS.

At one point, the article notes that the best combination of AIDS drugs costs $15,000 per year. The article does not point out that the vast majority of the cost is attributable to the monopoly profits that drug companies can earn as a result of patent protection. The actual cost of producing these drugs is almost certainly less than one twentieth this amount.

INFLATION

"White House Conference to Examine Changes"
Glenn Kessler
Washington Post, April 5, 2000, page E1

This article reports on a White House conference on the "new economy." At one point the article asserts that "economic doctrine held that inflation would rise if unemployment stayed below a 'natural level' of between 5 percent and 6 percent for a period of time." It then quotes Princeton economist Alan Blinder saying that economists are "still scratching our heads" trying to figure out why inflation has not increased even though the unemployment rate has been below 5 percent for more than three years.

It is worth noting that many economists did not accept that inflation would necessarily accelerate if the unemployment rate fell below 5.0 percent. Some of the economists in this group were James Galbraith of the University of Texas, Ray Fair of Yale University and Tom Palley of the New School (now with the AFL-CIO). It may have been worth quoting one of the economists who proved to be right, in addition to, or in place of, an economist who turned out to be wrong.

"High Gas Prices Wreak Havoc in the Land of the Car"
Christian Berthelsen
New York Times, April 2, 2000, Section 1 page 14

This article examines the impact of higher gas prices on drivers in California, where environmental regulations raise the price of gas considerably above its national average. Like other reporting on the recent rise in gas prices (see ERR, 4/3/00, 3/27/00), this article fails to discuss gas prices in an historical perspective, thereby implying that current prices are unusually high. After adjusting for inflation, the current price is approximately the same as it was in the late '80s and early '90s.

EDUCATION

"Scrapping Over Schools"
Kenneth J. Cooper
Washington Post, April 2, 2000, page A6

This article discusses the education proposals being put forward by Al Gore and George W. Bush. The information in the article provides little basis for evaluating the two programs, since it never presents the current size of the federal education budget, nor does it give the baseline level of expenditures that the candidates are assuming in putting forward these new programs.

The baselines are significant, because there are several different possibilities. President Clinton has used a baseline budget that assumes that expenditures rise with inflation. On the hand, the Republican leadership in Congress argued that the baseline should assume constant dollar amounts, so that the purchasing power of baseline expenditures fall at the rate of inflation. If George W. Bush's baseline follows the suggestion of the Republican congressional leadership, then he is proposing cuts in real spending on education, even after counting the additional spending he is proposing.

ENTITLEMENTS

"Bush Signaling a Readiness to Go His Own Way as an Unconventional Republican"
Frank Bruni
New York Times, April 1, 2000, page A15

"Gore Seen More Able to Reform Education"
Richard Morin and Claudia Deane
Washington Post, April 4, 2000, page A6

Both of these articles discuss the extent to which the two major party presidential candidates are perceived as protectors of Social Security. According to the latest Social Security trustees report, the program will be fully solvent with no changes whatsoever through the year 2037, nine full presidential terms in the future. Even after this date, the program would still indefinitely be able to pay benefits that are larger (after adjusting for inflation) than what current retirees receive. While many politicians are attempting to scare the public over the future soundness of Social Security, the evidence suggests that the program needs no protection except from politicians who would try to dismantle it.

"Bitter Partisan Fight Brewing Over Medicare Drug Benefits"
Robin Toner
New York Times, April 5, 2000, page A1

This article discusses the prospects of legislation to extend coverage for prescription drugs to Medicare beneficiaries. At one point the article comments that "some lawmakers worry that it will be far easier and politically appealing to enact a new drug benefit than to restructure Medicare and thus the effort to make Medicare more efficient and financially solvent before the baby boomers retire will be left to languish."

According to the latest report of the Medicare Trustees, the program is already projected to be fully solvent until 2023. The tax increase that would be needed to make the program fully solvent over the next 50 years is equal to just 0.81 percent of taxable payroll over this period. Given this situation, it is not clear that there is any need to restructure the Medicare program, as the article implies.

RALPH NADER AND THE RED SOX

"Nader Keeps Running a Bit Like a Corvair"
B. Drummond Ayres Jr.
New York Times, April 2, 2000, Section 1 page 16

This article reports on Ralph Nader's campaign as the Green Party candidate for president. At one point the article asserts that "while in Boston, Mr. Nader threw all rational political caution out the window and went after two sacred Beantown icons: the Red Sox and Fenway Park."

Actually, according to the article, Nader did the exact opposite. He opposed a plan to use $600 million in public funds to tear down Fenway Park and build a new stadium. It is also worth noting that the headline writer felt the need to express disdain for Nader's candidacy.

CHINA

"U.S. Assails Partners on Barriers to Exports"
Martin Crutsinger
Washington Post, April 1, 2000, page E2

This article discusses a report by the Clinton administration on foreign barriers to exports from the United States. The article notes that China's barriers take up 17 pages in the report. It then prints the assertion from "a senior U.S. trade official" that "if Congress approves permanent normal trade relations for China, the trade concessions China has promised in exchange for being allowed into the WTO will solve virtually every problem raised in the report."

This assertion seems dubious, since the Clinton administration's position is that most of the barriers imposed by other nations violate WTO rules. Unless China is more respectful of WTO rules than other U.S. trading partners, it is reasonable to believe that many of these problems would persist even if China entered the WTO.

It is also worth noting that the "senior U.S. trade official" made this claim anonymously. There is no obvious reason why top administration officials should be unwilling to stand behind what is apparently the administration's position on this topic.

CANADA

"Canada's Anti-Corporate Crusader"
James Brooke
New York Times, April 3, 2000, page A6

This article discusses the work of Naomi Klein, a Canadian activist and author who has been opposing the current course of globalization. At one point the article notes how the '90s have been a decade of economic stagnation in Canada, with living standards having advanced very little. It then notes that during this period Canada has become much more integrated with the larger world economy.

The article then attributes the support for Klein's views to the "loss of local economic control" associated with Canada's increased integration into the world economy; in effect the problem is presented as a sort of psychological concern over Canadian identity. While concerns for national identity may play a role in the movement of which Klein is a part, it is likely that concern over the real deterioration in living standards that has accompanied globalization is also a major reason that many Canadians are sympathetic to Klein's view. If globalization had produced prosperity instead of stagnation, Canadians would have less reason to oppose its current course.

It is also worth noting that the OECD does not view Canada's economic performance in the '90s as being quite as bad as this article. The article asserts that "after a decade of economic stagnation, Canadian per capita income fell in 1998 to $16,487." According to the most recent data from the OECD, Canada's per capita income in 1998 was $24,473 (measured in 1995 dollars, on a purchasing power parity basis). This figure is 9.0 percent above its 1990 level.

OUTSTANDING STORY OF THE WEEK

"IRS Sees Increase in Evasion of Taxes on Gifts to Heirs"
David Cay Johnston
New York Times, April 2, 2000, Section 1 page 1

This article reports on the high rate of under-reporting on the value of family gifts on tax returns by heirs to large fortunes. The article points out that random audits have found that more than 80 percent of the gifts valued at over $1 million were under-reported on tax returns, with the average understatement being $303,000. The IRS has limited ability to crack down on this under-reporting because it employs relatively few auditors.

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.