Economic Reporting Review

April 26, 1999

By Dean Baker

"Britain's Prescription for Health Care: Take a Seat"
Sarah Lyall
New York Times, April 18, 1999, Section 1 page 3

This article reports on the waiting list for non-essential surgeries in Britain's public health system. The article notes that there is now a waiting list to see specialists, which is generally a precondition to be placed on the waiting list for surgery. The article notes that while the size of waiting list for surgery has decreased, the waiting list to see specialists has increased. The data presented in the article indicate that even summing the two lists together, the number of people waiting for surgery in Britain has been declining over the last year, with the official waiting list showing a drop of 189,310 and the waiting list to see specialists rising by approximately 100,000.

While the article notes that Britain spends $67 billion presently on its national health care system, it would be far more informative to compare its level of health care spending to that in the United States. According to the OECD, Britain spent $1317 per person on health care in 1996 (counting public and private expenditure). By contrast, the United States spent $3898, almost three times as much. While the vast majority of Britain's health care expenditures are made through the public sector, and most health care expenditures in the United States are private, the public sector expenditures per capita are actually 60 percent higher in the United States.

"Spending Bill Feared Likely to Repeat 1998 Fiasco"
Tim Weiner
New York Times, April 18, 1999, Section 1 page 25

This article discusses Congresses efforts to produce a fiscal year 2000 budget. It includes several pejorative references to government spending. For example, it notes that last year's budget was "larded" with $21 billion of emergency appropriations. Later, in presenting the possibility that Congress may opt to increase spending in certain areas, the article comments that Congress "can fall off the wagon and drink deeply from the surplus."

Unless Congress increases spending above current budget caps, the money available for education, child nutrition, and many other areas will actually decline when adjusted for inflation. The article intends to express disapproval of such spending, but it is not obvious that additional appropriations in these areas would be bad for the nation.

"House G.O.P. Chiefs Forgoing Revision of Social Security"
David E. Rosenbaum
New York Times, April 23, 1999, page A1

This article reports on the apparent decision by the House Republican leadership to drop their plans for restructuring Social Security. At one point the article discusses a plan proposed by Harvard Economist Martin Feldstein, which Representatives Clay Shaw and Bill Archer had plan to introduced. The article asserts that the plan had been "certified by Social Security actuaries as sufficient to keep the system solvent for at least 75 years."

This statement is incorrect. Social Security's actuaries did calculate that the plan would keep the system solvent if the stock market produces 7 percent real returns on average over the next 75 years.

The actuaries did not project that this would actually be the rate of return in the stock market over this period, they just applied the historic rate of return in their calculations. (The Social Security actuaries do not make projections for the stock market because it is not currently relevant to the program's solvency.)

Since the actuaries project profit growth to be less than half as rapid in the next 75 years as in the last 75 years, and current stock prices are at record highs in relation to earnings, it seems implausible that stocks will provide the same rate of return as they did in the past. No economist, including Martin Feldstein, has been able to demonstrate how stocks can continue to generate 7 percent rates of return given current stock valuations and projected profit growth.

"Greenspan Criticizes U.S. Protectionism"
John M. Berry
Washington Post, April 17 1999, page E1

"Greenspan Denounces Growing Protectionism"
Richard W. Stevenson
New York Times, April 17, 1999, page C1

"U.S. Trade Deficit Continues to Balloon, Hitting $19.4 Billion"
Richard W. Stevenson
New York Times, April 21, 1999, page C1

The first two articles report on a speech in which Federal Reserve Board Chair Alan Greenspan warned of growing "protectionist" views in the country. In the speech, Greenspan noted that some workers will occasionally be hurt by trade, but that it will produce benefits for the economy as a whole.

While increased trade may increase GDP, the number of workers who lose may be quite large. Real wages for most of the work force have declined over the last 20 years due to increasing inequality. Virtually all economists agree that increased trade was one of the factors that contributed to the growth in inequality.

These articles do not indicate whether Greenspan's concern about "protectionism" extends to areas such as restrictions on foreign doctors practicing in the United States or copyrights and patents. These forms of protectionism carry enormous costs for U.S. consumer and taxpayers. For example, according to OECD data, the average doctor in the United States had an income of $196,000 in 1995. By comparison, the incomes of doctors in Japan, Denmark and Sweden averaged $107,000, $81,100 and $55,900, respectively. Health care outcomes provide no evidence that doctors in these countries are any less well qualified than doctors in the United States, since all of them have the same or higher life expectancies at various ages.

If barriers to foreign doctors were lowered so the annual salary earned by U.S. physicians were more in line with international competition, perhaps $100,000 per year, it would save the economy more than $60 billion a year in doctors fees. More than $30 billion annually could be returned directly to taxpayers (approximately $250 per household), since the government pays for nearly half of the country's health care.

From the articles, it does not seem that Alan Greenspan was referring to this type of protectionism. It appears that the only type of protectionism that Greenspan was referring to in his speech was trade restraints that might protect the jobs and wages of non-college educated workers. The second Times article also expresses a concern that a surge in the size of the trade deficit may increase support for this type of protectionism.

"Plant Sterility Research Inflames Debate on Biotechnology's Role in Farming"
Barnaby J. Feder
New York Times, April 19, 1999, page A18

This informative article examines efforts by agricultural companies to control the reproduction of crops through bio-engineering. The article notes some of the issues surrounding this technology, then comments, "critics say the problem is that market forces make it inevitable that a handful of businesses will use breakthroughs in ways that maximize their profits, leaving farmers totally dependent on chemicals they manufacture."

Actually, to be profitable, biotechnology depends almost completely on the government-granted monopoly provided by patents. In a free-market system, there would be little if any profit to be made through the development of these technologies.

"World Economy Passes From Crisis to Caution"
Paul Blustein
Washington Post, April 17, 1999, page A1

This article discusses the apparent stabilization of financial markets in developing nations. At one point it comments on the recent financial crisis in Brazil, and asserts that Brazil was "forced to raise interest rates ever higher to induce investors to keep their money in the country."

Actually, Brazil was forced to raise interest rates by the IMF, which made it a condition of any further assistance. As was argued by Harvard economist Jeffrey Sachs, it's not clear that Brazil had anything to lose by a further drop in its currency, nor that any decline would be long-lasting.

"Zhu's Trip to U.S. Ends on Bright Note"
John Pomfret
Washington Post, April 17, 1999, page A11

This article reports on the outcome of Chinese Premier Zhu Rongji's trip to the United States. The article quotes several people asserting that Zhu's liberalization policies have created considerable opposition, but are "what's right for China." Later in describing the strength of the opposition to Zhu, it states that "Zhu cannot even get reliable statistics about growth in his own country…. While Zhu's aides set the growth rate at 7.8 percent, few Western economists believe it surpassed 5 percent."

The poor quality of China's statistics may reflect a lack of support for Zhu's liberalization policies, as the article indicates, but everyone agrees that China's economy continues to grow. By contrast, other nations in East Asia are in the midst of a steep recession. In the last year, Hong Kong's economy declined by 5.7 percent, Thailand's by 8.0 percent, and Indonesia's by 13.9 percent. The fact that China's economy is not open in the same way as these other countries is generally accepted as being the main reason that it has been able to continue to grow during this period.

"I.M.F. Warns Global Economy Could Slow This Year and Next"
Paul Lewis
New York Times, April 21, 1999, page C10

This article discusses the IMF's latest set of economic growth projections. The only person who is quoted or cited in the article is C. Fred Bergsten, the President of the Institute for International Economics, and a strong supporter of the IMF's policies. According to Bergsten, the IMF is concerned that developing nations may recovery too quickly and therefore may not adopt the policies it is urging: "The fund is afraid that if recovery starts, the countries of Asia, Latin America and Eastern Europe will back off from the deep structural and economic reforms the recent crisis showed they must make."

It is not clear that the financial crisis demonstrated that structural reforms in these nations are necessary. The one major developing nation that has managed to maintain strong growth throughout this period is China. Most economists attribute this the fact that has not thus far opened up its economy in the manner advocated by the IMF. In other countries in East Asia, such as Korea and Thailand, the liberalization of capital flows at the IMF's insistence, was a major factor in the debt run-up that led to the crisis.

"Rubin: Fix Global System in Small Steps"
Paul Blustein
Washington Post, April 22, 1999, page E1

This article reports on a speech by Treasury Secretary Robert Rubin in which he laid out his view of the necessary changes in the world financial architecture. At one point it noted that Rubin would support a plan in which the IMF would allow nations to default on their debt, "provided the government was genuinely trying to put its economic house in order."

One of the major factors creating instability in world financial markets has been the complete inability of the IMF to determine whether a nation had, or was getting, its economic house in order. For example, the IMF issued extremely positive country reports about Indonesia, Thailand and Korea just before their financial crisis in the late summer and fall of 1997.

It also praised the economic agendas of the Russian "reformers" who managed to shrink the economy by close to 50 percent in seven years. It has been extremely critical of the new Russian government, which has actually succeeded in restoring growth in the industrial sector over the last year. (See "Signs of Stability Are Identified in Russia's Economy," by Neela Banerjee, New York Times, 4/14/99, page C5; ERR4/19/99.) Unless the IMF develops the ability to recognize sound economic policies, there is little reason to believe that giving it greater discretion in international financial matters will enhance stability.