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Economic Reporting Review

March 1, 1999

By Dean Baker

"U.S. Trade Deficit Set Record"
Paul Blustein
Washington Post, February 20, 1999, page E1

This article reports on the Commerce Department's release of trade data for December. It notes at one point that Japan's central bank has recently adopted a more expansionary monetary policy to stimulate growth (a move the Post characterized as "desperate"), and comments: "Ironically, however, that step is producing a side effect--a decline in the value of the yen against the dollar--that may make Japanese exports even more competitive." The decline in the value of the yen, and the resulting stimulus to Japan's exports, is a main purpose of expansionary monetary policy, not a side effect. It would be quite surprising if Japan's central bank had not anticipated this effect.

"A High Number of Rifts Await the Group of 7"
Edmund L. Andrews
New York Times, February 20, 1999, page B2

This article analyzes the issues that are likely to be debated at the meeting of the finance ministers of the Group of Seven industrialized nations that weekend. It notes efforts by German finance minister Oskar Lafontaine to move towards a system of fixed or stable exchange rates. The article cites or quotes several people who view this as a bad policy. The article includes no comments from anyone in support of fixed or stabilized exchange rates.

A very high percentage of economists actually view fixed exchange rates as desirable, since they remove a major source of uncertainty in long-range planning. This is why the move towards a single European currency has generally been supported by economists. It is also worth noting that while Treasury Secretary Robert Rubin is cited as characterizing managed or fixed exchange rates as "unworkable" in the article, he and the I.M.F. insisted that Russia and Brazil adhere to a fixed exchange rate, long after it became apparent to most economists that their currencies were substantially over-valued.

This article also notes that "Lafontaine has argued for years that Germany's high unemployment stems in large part from the high value of the German mark and tightfisted, orthodox monetary policies." It then asserts, "that has placed him at odds with most economists." The article does not indicate how it has determined the views of the majority of the world's economists on this issue. A large portion of the world's most prominent economists, including several Nobel laureates, agree with Lafontaine. (See "An Economists' Manifesto on Unemployment in the European Union," BNL Quarterly Review, #206, 9/98.)

"Stretching Federal Labor Law Far Into South Pacific"
Seth Faison
New York Times, February 20, 1999, page A3

This article discusses the conditions of Chinese factory workers in Saipan, which is a United States Commonwealth in the South Pacific. The conditions of these workers has recently gained attention since they are being employed in apparel factories that do not adhere to United States labor laws. The factories are subject to a class action suit on behalf of the workers over the violations of U.S. law.

The article notes the alleged violations of U.S. laws which are the basis of the suit, then comments that "interviews with dozens of Chinese workers here tell a story that is not so stark." The article then includes extensive comments from workers indicating that they are satisfied with their working conditions and are upset that the lawsuit is occurring.

The way these comments are presented is interesting for two reasons. First, any group of workers that are being made subject to protective legislation must already view their present work situation as better than not working, otherwise they would not be working under such conditions. For example, people who work in unsafe factories or who send their children to work at an early age must view working under such circumstances as better than the alternatives, otherwise no one would be working under these conditions. The fact that some workers in Saipan appear to be satisfied that their current conditions are better than their alternatives is an equally compelling argument against any health and safety or minimum wage legislation at all as it is that U.S. labor law should not be applied in Saipan.

The second striking aspect to the presentation of these accounts of workers is that, according to the article, all the workers in these factories have signed contracts "not to discuss problems with outsiders." Since the workers giving positive accounts of the factories are all identified by their full names, it is reasonable to infer that they had no option but to give positive accounts under such circumstances. While these accounts may reflect their actual views, they would not have had the option to present a negative view without risking their job.

The article does summarize conversations with two anonymous women who are involved in the lawsuit, and then comments "but the accusations were not as serious as the allegation in the suit. Nor did these women seem representative of the large Chinese population here, instead appearing to be spirited individuals unsuited to monotonous factory work." The article does not indicate how it was determined that most of the Chinese workers in Saipan are not spirited individuals, and therefore are well-suited to monotonous factory work.

The article is also not very specific in describing the abuses that form the basis of the suit. It writes that "factory floor managers wield enormous power over employees, deciding who gets overtime, and sometimes asking working for 'loans' and other favors in exchange for better hours." According to allegations in the lawsuit, factory floor managers can get workers fired, not just decide their hours. Factory floor managers sometimes demand sex as one of the "favors" for better hours, or just keeping their jobs.

The article notes the lobbying efforts of government officials in Saipan to prevent the enforcement of U.S. laws on the island, ostensibly because it would harm the native economy. According to the article, the island has 10,000 native residents and 40,000 foreign contract workers. At no point does it discuss whether this huge influx of contract workers has actually produced benefits for the island's original residents.

The article notes that Saipan has become an attractive location for manufacturers because it allows them to evade U.S. tariffs. According to a government official cited in the article, this loss of tariff revenue has risen to $200 million a year. This means that if the government applied U.S. laws to the island and thereby completely destroyed its manufacturing industry, it would raise an additional $200 million a year in tariff revenue on the imports that replaced this output. An additional $200 million in revenue would be sufficient to give each of the island's native residents $20,000 a year. In other words, if the concern is the well-being of the native residents, it is likely this can be addressed at a far lower cost than the lost tariff revenue resulting from the current system, which in turn depends on the wholesale violation of U.S. labor laws.

"Clinton Finds Warmth Out West"
Charles Babington
Washington Post, February 26, 1999, page A16

"Clinton in West, Is Mixing Politics, Rest, Fund-Raising"
James Bennet
New York Times, February 20, 1999, page A14

Both these article report on a speech that President Clinton gave in Arizona. Both articles imply that the Social Security program faces far greater problems that is indicated by current projections. The Post article discusses the president's comments on Social Security, and then adds: "Many analysts say the Social Security program must either increase its payroll taxes or reduce its benefits--or both--to survive the approaching retirement of the baby boomer generation."

According to the projections from the Social Security Administration, the president's plan should extend the Trust Fund's solvency to 2050, even assuming none of the Trust Fund was invested in stock. In 2050, the youngest of the baby boomers will be 86 and the oldest will be 104. Since the vast majority of this age group will already be dead, they will not be straining Social Security's finances at that point.

The Times article discusses the president's remarks on Social Security, and then comments that "he avoided any talk of cutting benefits or raising taxes." Since the projections indicate that cuts or tax increases would not be needed for 50 years, it doesn't seem particularly newsworthy that they were not mentioned in the president's speech.

"Biotechnology Treaty Stalls as U.S. and Developing Nations Quarrel"
Andrew Pollack
New York Times, February 23, 1999, page A9

This article discusses the status of international negotiations over a treaty on biotechnology. It explains that the central conflict is a dispute between the developing nations and the United States over what type of products should be subject to restrictions. The article does not point out that the United States actually has no formal place in these negotiations since it was not a signer of the 1992 Convention on Biodiversity.

Outstanding Stories of the Week

"Defying the Usual Wisdom, Inflation Holds Near Zero"
Louis Uchitelle
New York Times, February 20, 1999, page B2

This article reports on the release of the consumer price index for January. It points out how inflation has continued to fall throughout this recovery even as growth has remained strong and unemployment has hit its lowest level in nearly 30 years. The article notes that this decline in inflation has surprised most economists.

"As Welfare Rolls Shrink, Load on Relatives Grows"
Jason DeParle
New York Times, February 21, 1999, Section 1 page 1

"Welfare Policies Alter the Face of Food Lines"
Andrew C. Revkin
New York Times, February 26, 1999, page A1

These articles examine the impact of welfare reform. The first article examines the ways in which welfare reform programs often placed an increased burden on the relatives of families formerly receiving welfare. It focuses on the experience of welfare families in Wisconsin, the state which has experienced the largest decline in its welfare rolls. Reporter Jason DeParle points out that in many cases, the requirements of welfare reform have led to a situation in which grandparents or other family members have to take responsibility for raising small children. In many cases, these family members are single women who are already living in or near poverty themselves.

The second article notes how diminished access to food stamps and other forms of public assistance has led an increasing number of poor working families to seek help at food pantries that give away free food.

"New Effort Aims to Enroll Children in Insurance Plans"
Robert Pear
New York Times, February 23, 1999, page A11

"Health-Care Coverage Declines at Small Firms"
Martha M. Hamilton
Washington Post, February 24, 1999, page E3

"Uninsured in U.S. Span Many Groups"
Peter T. Kilborn
New York Times, February 26, 1999, page A1

These articles examine the growing problem of people without health insurance. The first article reports on a new proposal from the Clinton Administration to get more children enrolled in Medicaid. It points out that both the number of uninsured adults and children has risen throughout the decade, in spite of recent measures aimed at increasing coverage of poor children.

The second article reports on a new study released by the Kaiser Family Foundation that found that health care coverage among workers in small firms had fallen sharply in the last two years. According to the study, the percentage of workers with health care coverage, in firms that employ less than 200 people, had fallen from 52 percent to 47 percent in the last two years.

The third article examines the growth of the uninsured population, exploring the factors that have been responsible for this trend.

"In Biggest Drive Since 1937, Union Gains A Victory"
Steven Greenhouse
New York Times, February 26, 1999, page A1

This article reports on the decision of 74,000 home-care workers in Los Angeles County to be represented by the Service Employees International Union. This news was noted in a 70-word item in the "Business Digest" section of the Washington Post.

Dean Baker is a senior research fellow at the Preamble Center.

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