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Economic Reporting Review

November 8, 1999:

Budget reporting incompetence; WTO misrepresentations; bioengineering debate

By Dean Baker

Social Security and the Budget | Trade | Genetic Modification | Mining | Europe | Outstanding Stories


"In Social Security Debate, Politics Is Key Player"
Eric Pianin
Washington Post, October 30, 1999, page A4

This article provides background on the current budget standoff between the Republican Congress and President Clinton. At several point it misrepresents the issues involved.

In explaining the spending limits implied by keeping the non-Social Security budget in balance, the article states that "the Republicans must spend only $14 billion of the surplus to finance new programs." The projected surplus assumes that existing programs will be cut in real terms (adjusting for inflation). If the Republicans were just going to keep spending constant in real terms, there would be no money left for new programs, and the budget targets would already be exceeded.

The article also asserts that "for decades, Congress and the White House used the huge surpluses in Social Security to mask the true extent of the budget deficit." In almost every official budget document, such as the president's budget and the Congressional Budget Office's Economic and Budget Outlook, both the unified budget deficit and "on-budget" deficit are shown right alongside each other. The latter measure excludes the Social Security surplus. If this latter measure is actually the better measure of the budget deficit, as is suggested in this article, then it would have been very simple for the media to report the "on-budget" deficit. If the White House and Congress were able to "mask" the true size of the deficit, it is only because the media were incompetent in its reporting on the budget.

The article also characterizes the government bonds held by the Social Security trust fund as "IOUs." All bonds are IOUs by definition; however, other government or corporate bonds are never referred to as IOUs in the media. Characterizing the Social Security bonds in this manner has the effect of deprecating their value.

"Parties Closer Than They Seem in Budget Fight"
Alison Mitchell
New York Times, November 1, 1999, page A1

"Charges Fly On Social Security"
Associated Press
Washington Post, October 31, 1999, page A10

"Clinton Vetoes 1 Percent Budget Cut, But Seeks Accord on Aid Bill"
Richard W. Stevenson
New York Times, November 4, 1999, page A16

"Giving In On Foreign Aid Bill, G.O.P. Finds An Election Issue"
Tim Weiner
New York Times, November 4, 1999, page A16

"Congress Reaches Deal on Foreign Aid"
Eric Pianin and Juliet Eilperin
Washington Post, November 5, page A13

These articles discuss the status of the current debate over the federal budget. They imply that Congress would drain money from the Social Security system if it spent a portion of the Social Security surplus. In reality, the Social Security system will not be affected at all by the outcome of this budget debate, as has been pointed out in previous articles (see e.g. "Hands-Off Social Security Vow Ignores Reality, Experts Say," by George Hager, Washington Post, 10/10/99, page A5; or "Noble Talk of Saving Social Security Is Muted by Political Gamesmanship," by Richard W. Stevenson, New York Times, 9/29/99, page A20; and ERR, 11/1/99).

"Vote on Spending Bill Sets Up Another Fight"
Eric Pianin
Washington Post, November 3, 1999, page A4

"Congress Blesses a 1 Percent Budget Cut, But Clinton Won't"
Tim Weiner
New York Times, November 3, 1999, page A1

Both of these articles imply that recent levels of federal spending have been lavish or excessive. The Post article comments that the Republican Congress "has gradually moved towards the Democrats in showering funds on domestic and defense programs." The Times article comments that Republican spending proposals had "bloated the budget" with $21 billion in new spending.

There is no obvious justification for the comments about excessive spending in these articles. Spending on discretionary programs has been nearly constant in recent years when adjusted for inflation, and it has fallen when measured as a share of GDP.

See more on Social Security.



"Trade Body Summit Targeted for Protest"
Anne Swardson
Washington Post, November 2, 1999, page A1

This article discusses plans for protests at the WTO summit which is scheduled to be held in Seattle at the end of the month. The article misrepresents many facts about the WTO and recent patterns of trade.

For example, it repeatedly asserts that the WTO is committed to opening trade. This is inaccurate. While its rules are designed to facilitate foreign investment, such as a U.S. auto manufacturer building a factory in Indonesia, in other areas the WTO has taken little action to facilitate trade, while in some areas it rules are intended to impede free trade. In the case of professional services, such as those provided by doctors, lawyers and other highly paid professionals, the WTO has done virtually nothing to facilitate international trade and competition. In the case of intellectual property claims, such as patents and copyrights, the WTO has worked to impose these protectionist barriers on developing nations, at an enormous cost to their consumers.

The article also refers to statistics and studies which are intended to show the benefits from the recent growth in trade. It makes no reference to the near consensus among economists that trade has been one of the factors that has increased wage inequality in the United States over the last two decades.

In addition, the article mischaracterizes the context in which the WTO came into existence five years ago, claiming that it "was hailed as the solution to the world's trade problems." The WTO certainly was not universally regarded in this manner at the time. The Clinton administration had to fight to gain Congressional approval for the WTO, at one point using the (false) claim that the WTO agreement provided the largest tax cut in the history of the world as a rationale for supporting the agreement.

This article on the planned WTO protests relies on extensive comments from several supporters of the WTO. It includes only one brief statement from anyone associated with the protestors.

"Clinton Is Seeking China Trade Deal by End of Month"
David E. Sanger
New York Times, November 2, 1999, page A1

This article reports on President Clinton's efforts to reach an agreement under which China will enter the WTO. At several points it characterizes the administration's goal as "opening markets" in China. While in some cases this is true, the Clinton administration has also worked very hard to close certain markets, insisting that China enforce U.S. copyright and patent protections. Imposing these protections led to a shutdown of many factories producing compact discs and videos, and raised the prices on these products by several hundred percent.

"Senate Passes Trade Bill, Including Caribbean"
Eric Schmitt
New York Times, November 4, 1999, page A7

This article reports on a trade bill that would remove tariff barriers to imports from the Caribbean and sub-Saharan Africa. While the article includes comments from several supporters of the bill, it does not quote or cite anyone who opposed the bill. Many groups did oppose this legislation because of the policy changes it required from African nations as a condition of benefiting from tariff reductions.

The article also includes an unanswered statement from Sen. William Roth (R.-Del.) that the bill would create 121,000 jobs in the textile industry. This would imply an increase of more than 20 percent in employment in that industry. It is completely implausible that this trade measure could have an impact of this magnitude.

See more on trade.



"Gene-Altered Corn's Impact Reassessed"
Rick Weiss
Washington Post, November 3, 1999, page A3

This article reports on a set of studies presented at a symposium that supposedly show that genetically altered corn does not pose a threat to monarch butterflies, and thereby the larger environment. The article implies that these studies had largely ended scientific concerns about this particular source of risk, as indicated by the article's sub-head: "Studies Funded by Biotech Consortium Find Little Risk to Monarch Butterfly."

The view presented in this article is contradicted by a New York Times article on the same symposium ("No Consensus On the Effects Of Altered Corn on Butterflies," by Carol Kaesuk Yoon, 11/4/99). This article highlights the conflicting views among the scientists at the conference, quoting several experts who found the studies inclusive. The Times also notes these experts' concern about the role of the bio-tech industry in supporting this research and presenting it to the public before it had been peer-reviewed. (See "Outstanding Stories of the Week.")



"Senator Leads Move to Block Ruling on Strip Mines"
Frances X. Clines
New York Times, October 30, 1999, page A8

"White House Backs W.Va. on Mine Dumping"
Tom Kenworthy and Juliet Eilperin
Washington Post, October 30, page A2

These articles discuss the impact of a decision by a Federal District Court judge to block strip mining in West Virginia because it violates environmental regulations. Both articles uncritically report claims that this ruling will cost a large number of miners their jobs.

West Virginia has been losing mining jobs at the rate of 15 percent annually, primarily as a result of strip mining replacing underground mining. Strip mining employs very few people. If the practice were outlawed in West Virginia, it may actually on net increase employment in mining, since some of the remaining jobs in underground mining may survive a bit longer.



"European Central Bankers Raise Key Rate a Half-Point"
Edmund L. Andrews
New York Times, November 5, 1999, page C4

This article reports on the decision of the European Central Bank to raise its short-term interest rate by half of a percentage point, to 3.0 percent. At one point, the article comments that "because European interest rates are still low, economists throughout the region greeted the rate increase today as a fairly painless precaution."

Given the high level of unemployment and excess capacity throughout Europe, interest rates are not low. Since inflation in the euro nations is just 1.0 percent, the real short-term interest rate (the nominal interest rate minus the inflation rate) will be 2.0 percent after this rate hike. By comparison, Alan Greenspan allowed the real interest rate in the United States to remain at virtually zero over the two years from 1992 to 1994. At the time, the United States economy was recovering from a recession which was not nearly as severe as the slump affecting Europe.

The high unemployment currently being experienced across Europe is exactly the result that standard economic theory would predict from the European Central Bank's high interest rate policy. Many of the world's leading economists argued this point in a statement issued at the end of last year. (See "An Economists' Manifesto on Unemployment in the European Union," BNL Quarterly Review, 9/98.)

While the article refers to views held by "economists throughout the region," only two are cited in the article. Both of the economists cited are employed by financial firms.

See more on Europe.



"Reassessing Ecological Risks of Genetically Altered Crops"
Carol Kaesuk Yoon
New York Times, November 3, 1999, page A1

This article assesses views among scientists on the potential environmental hazards posed by genetically altered foods. It points out that the United States Department of Agriculture (USDA) has never rejected an application for a genetically engineered crop. It also presents the view of several scientists that the evidence that provided the basis for the USDA approval was often of questionable quality.

The perspective on genetically engineered crops presented in this article is quite different from that of previous reporting (e.g. see "New Trade Threat For U.S. Farmers," by Melody Peterson, New York Times, 8/29/99, Section 1 page 1; "Fearful Over the Future, Europe Seizes on Food," by Roger Cohen, New York Times, 8/29/99, Section 4 page 1; see also ERR, 9/6/99). These articles implied that there was no rational basis for concern about the safety of genetically altered crops and that the issue was simply a pretext for protectionist measures.

"School a Rare Luxury for Rural Chinese Girls"
Elisabeth Rosenthal
New York Times, November 1, 1999, page A1

This article examines the education system in rural China. Schools generally charge fees that are a considerable drain on the income of the rural population. Many parents therefore do not send their children to school. Disproportionately, they choose not to pay the fees for their daughters, which means that most girls do not attend school in many parts of the country.

"Patent Fight Tests Drug Firm's Clout"
Charles R. Babcock
Washington Post, October 30, 1999, page A1

This article reports on the lobbying efforts of Schering-Plough Corp., a major pharmaceutical manufacturer, to have its patent on the allergy drug Claritin extended by three years. If they succeed, it will cost consumers billions of dollars, since the patent protected price is four to five times the free market price.

"Sponsors Want to Keep Gene Test Deaths Secret"
Rick Weiss and Deborah Nelson
Washington Post, October 30, 1999, page A1

"NIH Not Told of Deaths in Gene Studies"
Deborah Nelson and Rick Weiss
Washington Post, October 30, 1999, page A1

These articles report on the efforts of drug companies and researchers to keep secret deaths associated with tests of various gene therapies. According to the articles, the reason for the secrecy is to prevent bad publicity that could hurt stock prices.


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

ERR is edited by Jim Naureckas.

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