"A Healthy Sign for Organized Labor"
Frank Swoboda
Washington Post, February 27, 1999, page E1
This article reports on the decision of 75,000 home care workers in Los Angeles County to be represented by the Service Employees International Union. It was the largest union organizing victory in more than 60 years. A significant portion of the article discusses the possibility that the unionization of these workers would lead to an increase in health care costs. In fact, the headline of the jump part of the article (on page E2) is "A Union's Effect on Health-Care Costs Debated." No one who believes that the unionization of these workers will have a significant impact on health care costs is actually cited or quoted in the article, although this is said to be a concern of "labor's critics."
According the article, the average wage for home-care workers in Los Angeles County is $5.75 per hour. The average wage for doctors nationwide is approximately $180,000. This means that if a home-care worker is able to get a 20 percent pay raise, it would have approximately the same impact on health care costs as a doctor getting a 1.0 percent pay raise. In the past, news articles in both the Post and Times have discussed the restrictions imposed on the number of foreign doctors admitted to the U.S., in order to protect the salaries of doctors (see, e.g., "Caught in the Middle," by Lena H. Sun, Washington Post, 3/19/96, Health Section, page 10; "A.M.A. and Colleges Assert There is a Surfeit of Doctors," by Robert Pear, New York Times, 3/1/97, page A7 and "U.S. to Pay Hospitals Not to Train Doctors, Easing Glut," by Elisabeth Rosenthal, New York Times, February 15, 1997, page A1), without any reference to the impact that these restrictions have on health care costs.
"Low Inflation Means Low Interest Rates, Too"
John M. Berry
Washington Post, February 27, 1999, page E1
This article examines the current economic situation in which inflation has continued to decline even as the economy has grown rapidly and unemployment has fallen to its lowest level in almost 30 years. The article includes extensive quotes from Federal Reserve Board Chairman Alan Greenspan describing the current economic situation. In one of these quotes, Greenspan notes that workers have been receiving relatively modest wage increases even though the unemployment rate is quite low.
Greenspan attributes this in part to workers' "remaining sense of job insecurity." The article characterizes this as part of "a new, positive dynamic." It is not clear that most of the nation's workers would view increased insecurity about holding their jobs as a positive development.
It is also worth noting that the capital share of business sector income (profits plus interest) has risen by more than 3.0 full percentage points from 1988, the profit peak of the last business cycle, to 1997. This means that if workers' wages had kept pace with productivity growth over this business cycle, a full-year full-time worker would be earning approximately $1500 more a year on average.
"Congress on a Path to Approve a Rise in Spending Caps"
Richard W. Stevenson
New York Times, February 28, 1999, Section 1 page 1
This article discusses the possibility that Congress will relax the caps on discretionary spending that it put in place as part of a 1997 budget deal. The only person quoted or cited in the article who is not directly involved in the budget process is Martha Phillips, the executive director of the Concord Coalition. This group is identified simply as a "fiscal watchdog group."
This characterization is of questionable accuracy. The Concord Coalition has consistently supported large cuts in social spending, even when it would hit well-run programs such as Headstart. Its agenda appears to be cutting social spending, not ensuring that money is well spent.
The Concord Coalition's ability to assess government finances is also questionable. In December of 1996 (Concord's Quarterly Deficit Report, Vol. 1, # 1) it commented that, "while the low federal deficit of $107 billion was welcome good news [for fiscal year 1996], it appears that's as good as it will get. By this time next year, barring a change in direction by Washington policy-makers, the deficit will be billions of dollars higher and soaring upward." In fact, the deficit for fiscal year 1997 was just $21.9 billion, even though no significant policy changes were implemented in the remaining nine months of the fiscal year. The surplus for fiscal year 1998 was $69.8 billion, even though only minor policy changes were implemented.
The article appears to share the Concord Coalition's agenda. At one point it comments that "even under the most optimistic scenario, stripping out all programs financed last year by one-time emergency spending and freezing spending for all discretionary programs at current dollar levels, spending would be $546 billion, or $10 billion over the caps." There are many who would not view a budget that has cuts in real (inflation-adjusted) spending on Headstart, child care and education as an "optimistic" scenario.
It is also questionable whether real spending is the appropriate measure for programs such as education. It is reasonable to believe that spending in many areas would grow at approximately the same pace as the economy. A larger economy will need more spending on infrastructure, education and other areas, not just the same amount. This would suggest that the appropriate measure is to consider spending as a share of GDP. By this measure, spending in education and most other areas of social spending has already fallen in the Clinton years, and is projected to fall further over the next 10 years.
"Budget's Reliance On Social Security Is Under Scrutiny"
Richard W. Stevenson
New York Times, March 3, 1999, page A1
This article reports on Republican plans to change the way that Social Security revenues and benefits are scored in the budget. At one point the article characterizes this proposal as "explicitly endorsing its longstanding practice of papering over the country's remaining fiscal problems."
The article does not explain either how it has determined that the country has fiscal problems, nor how it has determined that they have been papered over. At present, projections show that the government will have large surpluses into the indefinite future. The U.S. already has the lowest debt to GDP ratio of any major industrialized nation except Japan. By standard criteria, the U.S. would not appear to have any remaining fiscal problems.
It is also questionable to what extent previous accounting practices had ever caused anything to be "papered over." All of the government's expenditures and revenues are fully documented in many different government publications. Any interested economist or journalist can examine them in whatever depth they chose.
"It's a Global Mess. What's a World to Do? "
David Sanger
New York Times, February 28, 1999, Section 3 page 1
This article discusses efforts to build a new system of international finance that could be more stable than the current system. At one point it notes Treasury Secretary Robert Rubin's objections to a system of fixed exchange rates, commenting that "Washington, of course, does not want a committee of the Group of Seven dictating American monetary policy. Suppose the United States economy began sinking, and the value of the dollar sank with it. The Group of Seven might mandate that the United States raise interest rates to stabilize the currency. That could worsen the economic downturn."
This describes very well the role that the I.M.F. has played in the East Asian financial crisis in 1997 and in the Russian and Brazilian financial crises in 1998 and the beginning of this year, with the full public support of Treasury Secretary Rubin. In each case, the I.M.F. has insisted that nations raise domestic interest rates to support their currency. The outcome was to make these nations' economies suffer even more, as suggested by the earlier quote.
"Germany's Leader Popular, but Grip Is a Bit Uncertain"
Roger Cohen
New York Times, March 1, 1999, page A1
This article discusses the economic and political situation in Germany. It argues that German's economy and society is facing some sort of imminent crisis, asserting at one point that "time seems short." At another point it raises the question of "whether Germany's vaunted `social market' economy built on consensus between unions and employers and on extensive social insurance has stalled irrevocably."
The sense of crisis implied by these statements is not supported by the individuals quoted in the article, nor by economic data. For example, a novelist quoted in the article complains that "what we have is a generation of nice passive consumers who are busy in a nice passive way. Why should they bother about big ideas, goals, and ambitions." If this characterization is accurate, then it appears that Germans are quite content with their current situation.
As far as the economic evidence, productivity growth in Germany was more than 2.0 percent in 1998, approximately twice the average rate in the U.S. over the last quarter century. According to Bodo Hombach, the chief of staff to Prime Minister Gerhard Schroeder, who is quoted extensively in the article, Germany has an underground economy with an annual output of $350 billion a year. If this number is accurate, then Germany's per capita GDP is approximately 20 percent higher than is generally recognized. This would give Germany the second highest per capita GDP of the major industrialized nations at $26,400 per year, not far behind the U.S. per capita GDP of $29,326. Since former East Germany is considerably poorer than the rest of Germany, the per capita GDP in the west is probably higher than that of the U.S., when the underground economy is factored in.
The article also appears to ridicule German Finance Minister Oscar Lafontaine for his efforts to persuade the European central bank to "abandon its long sacrosanct monetary orthodoxy in pursuit of murky new goals." The "murky new goals" that Lafontaine is urging the central bank to pursue are more rapid growth and lower unemployment. In fact, most central banks of industrialized countries have viewed these goals to be part of their responsibility ever since Keynes wrote the General Theory in the depression. A significant portion of the world's most respected economists, including several Nobel Laureates, have indicated their agreement with Lafontaine's position. (See "An Economists' Manifesto on Unemployment in the European Union," BNL Quarterly Review, # 206, 9/98.)
At one point the article asserts that the since the Social Democrats came to power in September, the unemployment rate has "surged to 11.5 percent, from 10.9 percent." These unemployment numbers are not seasonally adjusted. Most if not all of this increase is due to a normal rise in unemployment from summer to winter. The seasonally adjusted unemployment rate in Germany for January was 10.6 percent, down a full percentage point from the 11.6 percent rate in 1998. The unadjusted unemployment rate in the U.S. rose from 4.4 percent in September to 4.8 percent in January. The seasonally adjusted rate for the U.S. (the only rate that's usually reported) fell from 4.6 percent to 4.3 percent over this period.
"Banker Split Over Russian Debt Payment"
Alan Cowell
New York Times, March 2, 1999, page C4
This article reports on the decision of Deutsche Bank, the head of a creditors' group, and Chase Manhattan, another major creditor of the Russian government, to accept a plan where they would receive 5 cents on every dollar of debt they hold. The article reports on this decision from the standpoint of the creditors. It notes that many other banks objected to this plan and termed the situation a "debacle."
It is worth noting that until last August, the Russian government was in some cases paying more than 30 percent interest on this debt. During this period, the I.M.F. and the United States government worked desperately to keep Russia from defaulting. (See, e.g., "Russia's Markets Rally as Western Powers Discuss Rescue" by Michael Wines, New York Times, 8/15/98, page A2; or "Russia Told to Implement Tough I.M.F. Reform Plan" by Craig R. Whitney, New York Times, 8/29/98, page A7.) As long as Russia did not default, it would have continued to pay such exorbitant interest rates. Now that it has effectively defaulted, it is eliminating large amounts of its debt at a cost that would previously have just been the interest payments for two months.
"Bonds Rally, Driving Yields Even Lower"
Bloomberg News
New York Times, March 3, 1999, page C4
This article reports on a further decline in interest rates on Japanese bonds. The interest rate on 10-year Japanese bonds fell to 1.57 percent. The rate on 10-year bonds had been as high as 2.4 percent earlier in the year. The current rate is less than a third of the 5.38 percent rate currently paid on 10-year bonds in the U.S.
This decline in the interest rate on Japanese bonds is worth noting because both the Times and the Post had run several previous stories warning that interest rates were expected to soar as investors were losing confidence in the Japanese government. (See, e.g., "Japan Cuts Key Interest Rate; Economists Are Skeptical," by Sandra Sugawara, Washington Post, 2/13/99, page E3; "Japan Lowers Key Rate, but (Surprise) Bond Yields Go Higher," by Sheryl WuDunn, New York Times, 2/13/99, page B1; "An Unlikely Fear for Japan: Stiflingly High Interest Rates," by Sheryl WuDunn, New York Times, 2/3/99, page C8; "The Flip Side of the Strengthening Yen," by Paul Blustein, Washington Post, 2/13/99, page F1; and "Excess Capacity Slowing Japan's Recovery," by Sandra Sugawara, Washington Post, 12/25/98, page B9; see also ERR, 2/22/99.)
The sharp decline in Japanese interest rates suggests that the Japanese central bank's efforts to bring down interest rates through expansionary monetary policy has been quite successful and that investors see very little risk in holding Japanese debt, contrary to the assertions in these earlier articles.
"Brazil Increases a Key Interest Rate to 45%"
Larry Rohter
New York Times, March 5, 1999, page C4
This article reports on the decision of the Brazilian government, at the urging of the I.M.F., to raise short-term interest rates to 45 percent in order to support its currency. The article also includes the views of Harvard economist Jeffrey Sachs, who argues that this step will be counter-productive, and that Brazil would be better off lowering interest rates to stimulate growth.
Dean Baker is a senior research fellow at the Preamble Center.
Recent articles can be found on the websites of the New York Times and Washington Post.
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