"Is the U.S. Income Gap Really a Big Problem?"
Sylvia Nasar
New York Times, April 4, 1999, Section 3 page 6
This article reports on recent research from two conservative economists, Martin Feldstein and Finis Welch, which argues that increasing inequality in the U.S. is not a real problem because it has been accompanied by economic growth. In fact, the economy almost always grows. The appropriate question is whether the increase in inequality has been a factor promoting more rapid growth. The last two decades, a period in which income and wealth distribution has become far more unequal, has also been a period of relatively slow growth. The economy grew much faster in the '50s, '60s and '70s, decades in which inequality actually diminished.
"On Social Security, the Good News Is Bad News"
David E. Rosenbaum
New York Times, April 4, 1999, Section 4 page 3
This article comments on the release of the 1999 trustees reports for Social Security and Medicare. (See ERR, 4/5/99.) It notes that both reports pushed out the date when the programs are projected to run short of money. This is the "bad news" referred to in the headline, because it means that Congress is less likely to make any major changes in the programs this year. The article views this as unfortunate, because "the matter cannot be put off indefinitely."
Since there is no reason to believe that there is any significant consequence to putting off changes in these programs by five or 10 years, the article does not indicate why it views it as unfortunate that potential long-term problems in these programs are not addressed this year. The nation faces many immediate problems (e.g. child poverty, inadequate child care, global warming) where there are real consequences to not taking immediate action. One might think it a good thing that these problems can be dealt with now.
The article also wrongly indicates in an accompanying chart that the baby boomers will first begin to retiree in 2011. Actually, the first baby boomers will be retired and collecting Social Security in 2008, when the oldest baby boomers hit age 62. Most workers actually start collecting Social Security before they reach the "normal" retirement age of 65.
"U.S. Jobless Rate Lowest in 29 Years"
John M. Berry
Washington Post, April 3, 1999, page D11
This article reports on the release of the Labor Department's employment report for March. At one point, the article notes that the while the unemployment rate by 0.2 percentage points to 4.2 percent, the number of people counted as employed in the Bureau of Labor Statistics (BLS) household survey fell by 110,000, and presents this as evidence of weakness in the labor market.
The month-to-month movements in employment in the household survey are notoriously unreliable, since they are largely determined by seasonal adjustment factors. For example, the household survey showed a drop in employment of 753,000 people between April and May of 1995, and a jump of 595,000 between April and May of 1993. Economists generally view monthly changes of this magnitude as implausible. For this reason, economists almost always rely on the BLS establishment survey, which takes employment data from firms, to determine the monthly change in the number of jobs.
"With Economies Soft, European Bank Considers Rate Cut"
Edmund L. Andrews
New York Times, April 8, 1999, page C9
This article considers the likelihood that the European central bank will lower interest rates in the face of slow economic growth. It quotes an economist asserting that Europe already has an expansionary monetary policy. It then points out that the short-term interest rate set by the European central bank is 3.0 percent, and compares this to the 4.75 percent rate set by the Federal Reserve Board in the United States.
This comparison is misleading for two reasons. Nations such as France and Germany have inflation rates that are less than 1.0 percent, whereas the inflation rate in the U.S. is close to 2.0 percent. It is the real interest rate, the nominal interest rate minus the inflation rate, that is relevant for economic activity, and by this measure Europe's rates are only 0.75 percentage points lower than those of the U.S.
The comparison is also inappropriate because the United States is near the peak of its business cycle, whereas Europe's economy is just emerging from a long slump. When the U.S. economy was at a comparable point in its business cycle in 1992, the Federal Reserve Board let the interest rate fall to 3.0 percent, approximately the same as the inflation rate, effectively making the real short term rate interest rate zero. By comparison, the policies of the European central bank have been quite contractionary.
"A Revolution By Degrees For Japan"
Stephanie Strom
New York Times, April 6, 1999, page C1
This is another in a series of articles that have criticized Japan's government and corporations for being unwilling to have massive layoffs as method of spurring growth. (See, e.g., "Japan Lowers Rates Again, And for Banks It's a Big Zero," by Sheryl WuDunn, New York Times, 3/6/99, page B1; "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; "The Flip Side of the Strengthening Yen," by Paul Blustein, Washington Post, 1/13/99, page F1; and "Excess Capacity Slowing Japan's Recovery," by Sandra Sugawara, Washington Post, 12/25/98, page B9. See also ERR, 1/4/99, 1/18/99, 2/22/99, 3/15/99.)
The article quotes a series of business analysts and one economist who criticize the Japanese system for trying "to get companies to survive rather than having them fail and making way for new types of business." The article also derides firms for announcing job cuts that are "at closer glance, merely promises to restrict employment and encourage early retirement." The one person identified as an economist in the article criticizes the government "for working to stimulate demand to support sales growth that will paper over problems like excess labor and capacity."
While there are economists who argue that the best strategy for Japan is to effectively allow its economy to collapse (see "Excess Capacity Slowing Japan's Recovery," by Sandra Sugawara, Washington Post, 12/25/98, page B9; ERR, 1/4/99), this path for promoting economic growth does not have a particularly good track record. The best recent example is the case of Russia which, under the guidance of the IMF, pursued a policy of "shock therapy" and allowed most of its industry to collapse. This has led to a 50 percent contraction in Russia's economy and a collapse of its health care and education systems, but it has done little to promote new growth. (See ERR, 3/29/99.)
In spite of the dismal track record of this sort of economic policy in other nations, the article includes no comments from any workers, economists or government officials who are critical of this approach. There are many economists who could provide an alternative perspective on Japan's troubles. For example, MIT professor Paul Krugman has argued that the Japan should be trying to stimulate demand by through expansionary monetary policy (see Paul Krugman, "Japan's Trap," 5/98. ), exactly the sort of demand-creating policy denounced in this article.
It is also worth noting that the basic argument advanced by advocates of a Japanese version of shock therapy seems logically flawed on its face. Japan already has plenty of unemployed workers and idle industrial and commercial space. Its interest rates are among the lowest in the world. Under such circumstances, it is difficult to see how the existing firms, derided for their inefficiency in this article, could be standing in the way of new types of business. If there are profitable investment opportunities that are not currently being pursued, it doesn't seem likely that widespread bankruptcies and a jump in the unemployment rate would make entrepreneurs more likely to pursue these opportunities.
"China Sending Official to Push for Trade Deal"
Paul Blustein
Washington Post, April 3, 1999, page A8
This article discusses China's negotiations with the Clinton administration to get its support for admission into the World Trade Organization. A paragraph near the end of the article summarizes the issue: "what it all comes down to, according to administration officials, is whether China's market-opening proposals are enticing enough to unite the business community, as well as the powerful agriculture lobby, behind the deal."
Labor unions, environmentalists, human rights and religious groups have all expressed serious concerns about the actions of the Chinese government. It is striking to see that the Clinton administration is so unambiguous in treating the concerns of these groups as completely irrelevant to its policy towards China, and that it is only the views of business interests that matter. This assertion that U.S. trade policy is being determined exclusively by business interests may have deserved more prominent mention in the article.
"Flimsy Bridges of Qijiang County"
John Pomfret
Washington Post, April 4, 1999, page A11
This article discusses how problems of faulty design, defective materials and shoddy construction practices have resulted in the construction of many unsafe bridges, roads and other structures across China in recent years. The article describes a trial of 31 government officials who were charged with cutting corners and stealing in connection with the construction of a bride that collapsed in Qijiang. According to the article, one of the officials was sentenced to death and 12 others received significant prison sentences. The article characterizes the trial as "an unusual development designed to frighten local officials into walking the straight and narrow."
The article does not indicate why it characterized this trial as an "unusual development." A main purpose of punishment is always to deter others from committing the same crime, so it wouldn't be unusual for the Chinese government to hope that this trial would have a significant deterrence effect. In this particular case, 40 people died as a result of the bridge collapse, so given the severity of the crime, in a nation that imposes the death penalty, there is nothing apparently unusual about either the trial or the punishment. It is possible that the trial was unusual because corruption normally goes unpunished in China, but this is not stated anywhere in the article.
"China Manages to Keep Its Economy Humming"
Seth Faison
New York Times, April 3, 1999, page B3
This article reports on the efforts of China's government to maintain strong economic growth in the wake of the east Asian financial crisis through a massive surge of infrastructure spending. The article notes that China's economy grew 7.0 percent last year and is expected to grow by 7.8 percent in 1999. By contrast, the other nations of East Asia, which followed more orthodox economic strategies, experienced large contractions in 1998 and are projecting little or no growth for 1999.
"Free Web Music Spreads From Campus to Office"
Neil Strauss
New York Times, April 5, 1999, page A1
This article details how new technology is allowing recorded music to be distributed cost-free over the Internet. The evidence presented in the article suggests that copyrights are becoming an increasingly archaic form of property that leads to consider inefficiency. The article points out the tactics that the recording industry is pursuing to preserve copyright protection, including efforts to outlaw some of the new technologies being developed to facilitate the transfer of recorded music.
"AFL-CIO Calls Boards Too Cozy With CEO on Pay"
Frank Swoboda
Washington Post, April 7, 1999, page E1
This article reports on a study by the AFL-CIO that documents cases where friends, relatives and business partners of corporate CEOs sit on the committees that decide their compensation. The study suggests that these ties help to explain the extraordinary growth in CEO pay over the last two decades. The article reports the main findings of the study and then presents two independent analysts' assessments of its claims.
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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