"Spending on Balkans Opens Door to Other Tests of Budget's Limits"
Richard W. Stevenson
New York Times, April 24, 1999, page A1
This article discusses the budgetary impact of the emergency request resulting from the military action in Yugoslavia. While many political groups support breaking the budgetary caps which restrict discretionary spending, the two people quoted in this article are both harshly critical of spending in excess of the caps.
One of these sources is identified as the vice-president of the Committee for a Responsible Federal Budget. This organization is described as "a fiscal watchdog group." The Committee for a Responsible Federal Budget was created two years ago with a large grant from the American Express Foundation. It has no grassroots organization, and without this funding probably would not exist.
"G.O.P. Dumps Pension Reform—This Year"
Juliet Eilperin and Helen Dewar
Washington Post, April 24 1999, page A2
This article reports on the apparent decision by the House Republican leadership to drop their plans for restructuring Social Security this year. At one point the article refers to President Clinton's proposal to place general revenue into the Social Security trust fund as a way "to keep Social Security solvent after baby boomers begin to retire in a few years." Actually, while the baby boomers will begin to retire in 2008, Social Security is projected to remain solvent until 2034, at which point all the baby boom cohort will have already retired.
"With Social Security, Life Begins at 70"
Stan Hinden
Washington Post, April 25 1999, page H1
This article presents arguments for repealing the earnings test for people collecting Social Security benefits who are between the ages of 62 and 69. The earnings test reduces workers' benefits by $1 for every $2 earned in the years between age 62 and age 64, and by $1 for every $3 earned in the years between age 65 and age 69 for each dollar earned over the cutoff.
The article implies that a large segment of the population is affected by the earnings test for people who have turned age 65. As of 2002, the cutoff for the earnings test for people over age 65 will be $30,000. Only a very small number of highly paid workers are willing and able to earn this much money after they have reached age 65. For well over 90 percent of the population, this earnings test will be altogether irrelevant after 2002.
There is a very important rationale for the earnings test in the years from age 62 to age 64 which is never mentioned in this article. Most workers already choose to retire before age 65 and start collecting Social Security benefits. However, as a result of retiring early, they get a reduced benefit. A worker retiring at age 62 gets a benefit that is 20 percent lower than at if they retired at age 65.
If there were no earnings test, it is likely that many more workers would opt to start collecting Social Security at age 62, even while they continued to work. This would leave them with a considerably smaller benefit, which may prove insufficient to support them at the point where they actually retire. The point of Social Security is to provide workers with a core retirement income that will keep them out of poverty in their old age. This goal will be undermined if workers are encouraged to retire early with a substantially lower benefit.
"Global Financial Crisis Eases, But Investor Confidence Is Still Shaky"
Paul Blustein
Washington Post, April 26 1999, page A5
This article reports on the background to a meeting of the finance meetings of the G-7 nations. At one point, the article discusses a proposal being considered by the ministers, which would force banks to accept losses on loans when debtor nations have to be bailed out by the IMF. The only view presented on the merits of this proposal is from "bankers and other private-sector representatives," who assert that this would decrease the availability of capital to developing nations.
In fact, lenders to developing nations always get a higher interest rate than lenders to the U.S. or other established industrialized nations. (In some cases, the interest rates on loans to developing nations have exceeded 40 percent.) This difference in interest rates is referred to as a "risk premium." The reason for this risk premium is lenders recognize that there is a significant risk that their loans will not be repaid. The bankers would like to both collect their risk premium and then be reassured repayment through the IMF.
While this basic economic point did not appear in this story, it did get mentioned in a later story when it was made in a presentation by Stanley Fischer, the deputy managing director of the IMF ("A Steeper Price for Risky Investing?" by Paul Blustein, Washington Post, 4/26/99, page E1). It should have been possible to get this argument into an article even if it was not advanced by the IMF's deputy managing director.
"G-7 Pledges Effort To Boost Growth"
Paul Blustein
Washington Post, April 27 1999, page E1
"Little Urgency on the Eve of World Bankers' Meeting"
David E. Sanger
New York Times, April 27, 1999, page E1
Both of these articles report on the meeting of G-7 finance ministers in Washington. The Post article notes that Europe continues to have slow growth. It contrasts the argument of its central bankers, that major changes in labor practices are needed, with the view of its politicians, that lower interest rates are necessary.
It is worth noting that many of the world's most prominent economists agree with the politicians. (See "An Economists' Manifesto on Unemployment in the European Union," BNL Quarterly Review, # 206, 9/98.) It also is worth noting, that even after a recent interest rate cut, the real interest rate set by the European Central Bank is still more than 1.5 percent. By contrast, Alan Greenspan allowed the real interest rate set by the Federal Reserve Board to fall to zero when the U.S. was suffering the effects of a recession in 1992.
The Times article notes Treasury Secretary Rubin's criticisms of Japan's slow growth. It also notes Rubin's view that Japan's recession has contributed to the problems of other East Asian countries. It is worth noting that in the fall of 1997, Japan had attempted to organize a bailout fund to help boost East Asian nations out of their economic downturn. Treasury Secretary Rubin worked to prevent the establishment of this fund, insisting that the bailout should be handled by the IMF. (See "East Asian Fund Summit Stresses Trade, Leaving Bailouts to IMF," by Paul Bluestein, Washington Post, 11/27/97, page B11).
The article also reports on a communique in which the ministers expressed concern about Russia's economic problems, and then adds that "Mr. Rubin clearly remains skeptical about the ability of Prime Minister Yevgeny Primakov to deliver on Russia's commitments." Rubin did not express similar concerns about prior Russian governments that were controlled by "reformers." During their years in power, these reformers managed to contract the economy by close to 50 percent, a performance unmatched by a country that was not suffering either a war or natural disaster. By contrast, it appears that Primakov has managed to bring stability to the Russian economy and has even restored growth to its industrial sector. (See "Signs of Stability Are Identified in Russia's Economy," by Neela Banerjee, New York Times, 4/14/99, page C5; ERR, 4/19/99.)
"IMF Agrees to Make Loan, But Not Send Cash, to Russia"
David E. Sanger
New York Times, April 29, 1999, page A12
"IMF Ready To Resume Russia Aid"
Paul Blustein
Washington Post, April 29 1999, page E1
These articles discuss the IMF's plans to extend new loans to Russia to keep it from defaulting on its previous loans to the IMF. Both articles suggest that the loan is very important to Russia. For example, the Times article asserts that a default "would undercut whatever strands of credibility the country still has with private investors."
Actually, the loan is probably at least as important to the IMF as to Russia. The IMF almost never allows nations to fall into default on their loans. The only nations are considered to be in default are rogue states such as North Korea and Libya. Default status effectively means that the IMF has given up negotiating with a nation on its economic policies. If it fell into default, Russia would be the first country with a democratically elected government to obtain this status. This precedent, particularly if Russia's economy subsequently recovered, could encourage other nations to break off negotiations with the IMF.
These article both note that past loans from the IMF appear to have been siphoned off into private bank accounts. Neither article points out that this happened under previous governments run by "reformers," not the current government.
"Consensus Backs Relief for Poor Nations in Debt"
Paul Blustein
Washington Post, April 30 1999, page E3
This article reports on growing support for substantial debt relief for the world's poorest nations. At one point it discusses efforts by Jubilee 2000, an international coalition of non-government organizations, to secure debt relief for poor countries. The article noted that the IMF and World Bank dismiss the views of these groups as "soft-headed," claiming that debt-relief alone will not help people in these nations.
As is noted in the article, most of the poor nations that have followed the IMF's policy suggestions have actually ended up deeper in debt. This evidence suggests that the IMF's views may be at least as soft-headed.
"Big Steel's Problems Are Home Grown"
Leslie Wayne
New York Times, April 29, 1999, page C1
This article discusses the decline in employment in traditional integrated steel mills. It argues that most of the problems for these mills has been attributable to competition from upstart mini-mills. This claim is not supported by the charts accompanying the article. These charts show the annual output of mini-mills rising by approximately 15 million tons over the period from 1979 to 1998, and the volume of imports rising by 25 million tons over the same period.
The article refers to an estimate, from critics of legislation reducing quotas on imported steel, that this measure would cost consumers $6 billion a year. By comparison, if the government relaxed protectionist measures that prevent foreign doctors from practicing in the United States, and the average income of doctors fell to $100,000 a year (a pay rate far higher than the European average), it would save consumers $70 billion a year.
"Labor Costs Rose 0.4% in Quarter"
John M. Berry
Washington Post, April 30 1999, page E1
This article discusses the 0.4 percent increase in labor costs for the first quarter reported by the Labor Department's employment cost index (ECI). This increase was considerably below most economists' expectations, and considerably below the 0.8 percent-0.9 percent quarterly increases chalked up over the last several years. The article notes that this report suggests that there is no inflationary pressure anywhere in the economy, and then adds, "the good news for workers was that even with only a 3 percent gain in compensation…they stayed well ahead of inflation, since consumer prices were up only 1.7 percent over the same period."
While this is good for workers, it is not "news." All of the increase in real wages occurred prior to this year. In the last quarter (the "news" in the ECI), the rate of inflation was 0.4 percent, the same as the rate of growth of compensation, implying that real compensation did not increase at all over this period.
The article also includes a comment from "economist Stan Shipley of Merrill Lynch" who asserts that inflation adjusted wage gains are near their 30-year high. There were several years in the '70s in which real wage growth was considerably faster than in the last two years. Also, the latest numbers in the ECI imply that real wages are barely growing.
The only other person cited in the article is Ian Shapardson, chief U.S. economist for High Frequency Economist. On the slow wage growth reported by the ECI, he commented, "this looks great."
"In Europe, Cuisine du Gene Gets a Vehement Thumbs Down"
Rick Weiss
Washington Post, April 24 1999, page A1
This article notes the strong opposition within Europe to genetically engineered products. It points out the reasons that many European nations have strict rules prohibiting such products.
"Student Critics Push Attacks on an Association Meant to Prevent
Sweatshops"
Steven Greenhouse
New York Times, April 25, 1999, Section 1 p18
This article reports on efforts by student groups, the UNITE trade union and the Interfaith Center on Corporate Responsibility to challenge an association set up to monitor labor conditions in factories in developing nations. These groups argue that the association provides the corporations whose factories are being monitored with too much control over the monitoring process.
"Pirate-Proof Digital Music? So Far That Does Not Compute"
Neil Strauss
New York Times, April 24, 1999, page B1
"Internet Distribution Threatens To Rewrite the Music Business"
Rob Pegoraro
Washington Post, April 29 1999, page A1
These articles discuss the extensive efforts being made by the recording industry to develop a computer system that will prevent music from reproduced. It notes that existing technology already allows music to be easily downloaded of the web and reproduced. In order to protect its copyrights, the recording industry is attempting to replace this technology with one that limits the extent to which music can be reproduced.
This is yet another example of the enormous inefficiency associated with copyright protection. In this case, the industry is trying to roll back technology in order to be able to increase the cost to consumers of obtaining recorded music. The cost to consumers of this type of protectionism vastly exceeds the costs of the protectionist measures that usually are the topic of trade debates. (See "Greenspan Criticizes U.S. Protectionism" by John M. Berry, Washington Post, 4/17/99, page E1; ERR, 4/26/99. )
"Debt-Relief Plan Is Flawed, 5 Nations Say"
Paul Lewis
New York Times, April 24, 1999, page B2
This article discusses a confidential report by the IMF which acknowledges that its program to help heavily indebted nations has failed. The article presents some of the key evidence indicating the failure of the IMF policies. It also includes comments from two of the non-governmental organizations that have been working on this issue.
Dean Baker is a senior research fellow at the Preamble Center and at the Century Foundation.
Recent articles can be found on the websites of the New York Times and Washington Post.
[ FAIR | Economic Reporting
Review | last week |
next week |
latest | Mail/Suggest]