Of the companies in the Standard & Poor's 500 index, 353 offer traditional pension plans, as opposed to voluntary savings plans for employees such as 401(k)s. Of those firms, at least 322 pension plans were underfunded as of mid-June. The total shortfall: $226 billion, despite this year's nascent stock market recovery. … The bear market has shrunk the value of their corporate pension funds - overall, by nearly $1 trillion, leaving about $3.69 trillion in assets at the end of 2002. … Some economists are concerned that companies putting more money into their pension plans will have less money for spending on new plant and equipment - thus damaging the economic recovery.

Richard A. Grasso has succeeded at what some would consider an impossible task: making Wall Street gasp in astonishment at someone else's compensation. In interviews yesterday, a dozen Wall Street executives and bankers all said that Mr. Grasso's reported compensation of $12 million and above in the last two years and the $140 million in deferred savings and retirement benefits that the New York Stock Exchange board awarded him on Wednesday were drastically out of line for the exchange's chairman.

… Many bankers will not necessarily complain if someone makes more than they do. After all, "the general bias on the Street is if someone unworthy gets paid more than they deserve, then maybe I'll get paid more than I deserve too," a senior mergers and acquisitions banker at a leading Wall Street bank said.

But some on Wall Street find it unseemly that Mr. Grasso is paid as much or, in some cases, more than they are. This mainly has to do with risk. Many top Wall Street executives who have risen to the top are risk lovers, having proved their mettle concluding deals and trading bonds. Unlike Mr. Grasso, they receive a large portion of their pay in stock-option grants. It is indeed easy to criticize these sky-high numbers — and executives will acknowledge sotto voce that this group is, in the end, overpaid. But the bottom line is that significant chunks of these executives' salaries are tied to their companies' stock prices: if the stock suffers, they all say, so will their bonuses.

Rising medical malpractice liability insurance costs have not significantly reduced access to health care, according to study by the General Accounting Office. The GAO report, "Medical Malpractice: Implications of Rising Premiums on Access to Health Care," studied the experience of physicians in nine states. Five of the states—Florida, Nevada, Pennsylvania, Mississippi and West Virginia—had reported medical malpractice coverage-related problems, while the other four—California, Colorado, Minnesota and Montana—had not. While the GAO found isolated instances of reduced access to health care in the five problem states, it also found that "many of the reported provider actions were not substantiated or did not affect access to health care on a widespread basis."

The GAO noted that "some reports of physicians relocating to other states, retiring or closing practices were not accurate or involved relatively few physicians" in the five problem states. The report added, however, that "continuing to monitor the effect of providers' responses to rising malpractice premiums on access to care will be essential, given the import and evolving nature of this issue."

There is a theoretical case for a deregulated electricity market. But making such a market work, it's now clear, requires at least three preconditions. First, it requires a robust transmission system, yet the recent blackout made it clear that we have now created a system in which nobody has clear responsibility for the transmission network. Second, it needs a watchdog agency with adequate powers to prevent and punish price manipulation; FERC doesn't have those powers. Third, that watchdog must not be an agent of the very companies it's supposed to be policing. Enough said.

I admire the virtues of free markets as much as anyone. But given what we've seen so far, any state government that lets the federal government prod it into deregulation is just plain crazy.

The Chinese official who played host to six-party talks on North Korea's nuclear program said today that the United States was the "main problem" in reaching a diplomatic solution to the crisis, echoing the North's bitter assessment about why the talks had ended in acrimony. … The Bush administration has maintained that North Korea must dismantle its nuclear program before discussions can begin on any benefits it might receive for doing so. North Korea says it is willing to give up its nuclear program, but only if the United States offers a nonaggression treaty first.

"Things are getting better," Mr. Bush told a subdued crowd here. Orders for goods are coming back to the country's factories, the president said, and productivity is on the rise — though he acknowledged that was one reason jobs were disappearing. "The economy is beginning to grow," he said, "and that's what I'm interested in. I believe there are better days ahead."

Mr. Bush's only new announcement today … was the creation of an assistant secretary of commerce for manufacturing, a step clearly intended to reinforce his commitment to bringing back blue-collar jobs. Yet the creation of the position is the kind of action that Republicans, when they were out of office, used to criticize. … Bush said that in creating the post, he would address head-on the loss of what he said were "thousands of manufacturing jobs" in recent years. … Mr. Bush did not say what the duties of the new assistant secretary would be other than to focus "on the needs of manufacturers" ….

… His commitment to bring back manufacturing jobs came despite several recent statements by the chairman of the Federal Reserve, Alan Greenspan, that many of those jobs are most likely gone for good as the United States turns more into a producer of ideas, and less a manufacturer of goods. Instead, Mr. Bush today told the operators of backhoes and bulldozers, "I understand for a full recovery, to make sure people can find work, that manufacturing must do better." … "See, we in America believe we can compete with anybody, just so long as the rules are fair, and we intend to keep the rules fair," he said to cheers.

One factor above all has fueled the insecurity: the nation has lost 2.7 million jobs over the last three years. The recovery has been so weak since the recession ended in November 2001 that the nation's payrolls are down one million jobs from when economic growth resumed. Indeed, the current economic expansion is the worst on record in terms of job growth. The average length of unemployment, more than 19 weeks, spiked this summer to its highest level in two decades. "American workers are doing very badly," said Carl Van Horn, director of the Heldrich Center for Workforce Development at Rutgers University. "All the trends are in the negative direction. There's high turnover, high instability, a reduction in benefits and a declining loyalty on the part of employers. At the same time, expectations for productivity and quality are going up. It's a bad situation from a worker's standpoint."

… "What's unique about the economy today is that even though the recession started in March 2001 and ended apparently in November 2001, here we are in August-September of 2003, and we have far fewer jobs than when we started this whole process," said Lawrence Mishel, president of the Economic Policy Institute. "That has never happened since the Great Depression."

… To many economists, perhaps the most vexing aspect of the economic recovery is that while productivity is growing, workers are enjoying few of the benefits. A study by the Economic Policy Institute found that for low-wage workers (those in the 10th percentile) real hourly wages dropped by seven-tenths of one percent in the first half of this year, for workers in the middle (50th percentile) wages fell one-tenth of one percent, and for workers near the top (90th percentile) wages fell by 1 percent. "We're having good productivity increases without jobs or wages growing." Dr. Mishel said. "That doesn't really help American families so much."

Mr. Bush developed its [No Child Left Behind] central concept — using standardized tests to hold schools accountable for student achievement — as governor of Texas in the 1990's, when the economy was booming. Flush with tax revenues, Texas sent squads of experts to schools labeled as failing to help them sort out their educational program. But the education law, which seeks to replicate Mr. Bush's Texas experiment nationally, is taking force in an economic downturn, and a fierce debate is under way about whether the federal government will provide enough help to schools the law identifies as failing, or simply pass the costs of the law on to the states.

Two things are clear amid the optimism: first, the US remains the global engine of growth; and second, much of the US turnround has been driven by tax cuts and surging government spending. According to the Organisation for Economic Co-operation and Development, fiscal loosening has sent the US structural government deficit - adjusting for its sub-par growth over the past few years - from a surplus of 1 per cent of gross domestic product to a deficit of 4 per cent.

… The good news is that all of these elements combine to form a virtuous circle in the short term. High foreign demand for US bonds lowers yields and strengthens the dollar. Lower interest rates boost the US consumer and US imports and hence raise global growth. US success further boosts demand for US assets. Unfortunately, there is a problem. The accumulation of foreign exchange in Asia is unsustainable. The appetite of foreigners to fund US consumption can last quite a while but not for ever. At some point, the well of finance will begin to run dry, putting downward pressure on the dollar, raising long-term interest rates in the US and damping growth. That is the problem with ever-expanding deficits. They feel good at the time but the consequences promise to be painful.

The elder Mr. Janklow has committed numerous traffic violations over the years. News reports in South Dakota said he had been involved in seven previous accidents in the last 10 years, one that resulted in minor injuries, and was cited at least 12 times for speeding from 1990 to 1994, sometimes having exceeded the limit by 20 m.p.h. or more. His penchant for speeding was so well known that he made light of it as governor in a State of the State address in 1999, saying: "Bill Janklow speeds when he drives. Shouldn't, but he does."

The report - entitled "Energy Task Force: Process Used to Develop the National Energy Policy" - and its accompanying Chronology strongly imply that the Administration has, in effect, been paying off its heavy-hitting energy industry contributors. It also very strongly implies that Vice President Dick Cheney lied to Congress.

… On August 2, 2001, Vice President Cheney sent a letter - personally signed by him - to Congress demanding, in essence, that it get the Comptroller off his back. In the letter, he claimed that his staff had already provided "documents responsive to the Comptroller General's inquiry concerning the costs associated with the [Energy task force's] work."

… Then this August's Report was issued. It was not the thorough, comprehensive Report GAO wanted it to be. (Indeed, GAO's Comptroller General has stressed that "the Vice President's persistent denial of access to" records "precluded GAO from fully achieving our objectives and substantially limited our analysis.") … The Report shows that Cheney's claim to Congress, in the August 2, 2001 letter, that responsive documents were provided to GAO, was plainly false. According to the Report, Cheney provided GAO with 77 pages of "documents retrieved from the files of the Office of the Vice President responsive to" GAO's inquiry regarding the Energy Task Force's "receipt, disbursement, and use of public funds."

Perhaps the most pointed of these [requests for more information] was a July 18, 2001 letter from the Comptroller to the Vice President. It noted that GAO had "been given 77 pages of miscellaneous records purporting to relate to these direct and indirect costs. Because the relevance of these records is unclear, we continue to request all records responsive to our request, including any records that clarify the nature and purpose of the costs." (Emphasis added.)

… Plainly, Cheney knows the difference between being responsive; offering a substantial response; and sending insulting non-responsive materials, featuring unexplained phone bills, columns of unidentified figures, and a pizza receipt. Thus, Cheney's claim to have produced responsive documents was a false statement and, all evidence suggests, an intentional one. That means it is also a criminal offense - a false statement to Congress.

By law, the budget office can't include in its official estimates legislative proposals that haven't yet been enacted -- for example, the $400 billion Medicare prescription drug bill, or the need to fix the alternative minimum tax (at least $400 billion, according to CBO, and possibly much more). Similarly, CBO must assume that current law will continue as written, including that the 2001 and 2003 tax cuts will expire as scheduled. But the Bush administration intends for the cuts to be made permanent, as budget director Joshua B. Bolten reaffirmed during a visit to The Post last week. That would cost another $1.1 trillion through 2013 (CBO puts the figure at $1.6 trillion but that includes an equipment depreciation provision that the administration hasn't advocated extending).

CBO's spending estimates must, likewise, be divorced from history: They assume that discretionary spending grows only at the rate of inflation (projected to average 2.7 percent during the next 10 years), though in fact discretionary spending has grown by an annual average of 7.7 percent during the past five years. At the same time, though, CBO must assume that the $79 billion in emergency spending approved by Congress this year to pay for the war in Iraq will be repeated (and grow with inflation) during the next 10 years, for a total of $818 billion. For our calculation, to give the administration the benefit of every doubt, we've taken all those Iraq costs out -- though they will clearly amount to many billions.

Additions to Deficit (in billions)	2008	2013	2004-13
Extend 2001, 2003 tax cuts	$50	$330	$1,133
Fix alternative minimum tax	46	49	400
Medicare prescription drugs	43	64	400
Grow discretionary spending	121	279	1,392
Additional interest	22	137	428
(Subtract Iraq costs)	(-86)	(-98)	(-818)
Total addition to deficit	196	761	2,934
CBO projection	197	(-211)	1,397
Possible deficit	393	550	4,331

The above chart shows how this could all add up. It assumes extension of the tax cuts, a prescription drug bill and a fix for the alternative minimum tax -- all three of which the administration favors. It also assumes a rate of discretionary spending increase equal only to the growth in the economy (more than the administration says it wants but less than past practice).

And the result? Cumulative deficits of $4.3 trillion through 2013 -- three times the CBO's official projection. To look at it another way, in 2008 -- the point at which the administration insists the deficit will be cut in half -- the deficit would be just under $400 billion. By 2013, it would be $550 billion. This, remember, envisions only policy changes favored by the administration plus a remarkable level of spending discipline; if spending were to continue to grow at the rate of the past five years, the deficit would exceed $1 trillion by 2013. Indeed, even if the administration could hold discretionary spending to its stated goal of 4 percent growth, the cumulative deficit would total $3.3 trillion through 2013.

The economy grew at a revised annual rate of 3.1 percent in the second quarter, the government reported yesterday, and the unexpected strength led economists to raise their forecasts for the rest of the year. Among the positive signs in the report were the continued strength of consumer spending; the rebound of capital investment by businesses; the leanness of business inventories, which fell; and a jump in corporate profits. A surge in military spending connected with the war in Iraq was also a big contributor to second-quarter growth.

… Corporate profits continued their recovery, bolstered by the tax cut that the Bush administration and Congress approved earlier this year. One of the provisions increased the immediate depreciation write-off to 50 percent from 30 percent for goods purchased after May 5. The Commerce Department estimated that the new depreciation provision added $18.8 billion to after-tax corporate profits in the second quarter. Adjusted for inventories and capital consumption, after-tax profits rose 15.9 percent in the second quarter, to $670.7 billion.

… While he is optimistic, Mr. Berner [chief United States economist at Morgan Stanley] still warned that "we still have a lot of data to get through." He said that the economy faced some headwinds from higher interest rates, higher energy prices, weak economic growth abroad and continued reluctance by companies to rehire laid-off workers. He is also worried that the data he is looking at is still more positive about the economy than many of the comments from corporate executives as they made their recent earnings announcements. "If people remain cautious too long that can become a self-fulfilling prophecy," he said.

Federal regulators have ordered Genentech, the biotechnology company, to stop circulating misleading promotions for its Nutropin growth hormone, according to a letter released yesterday.In its promotion on Nutropin, Genentech's materials described the hormone's potential benefits but omitted important information about possible side effects, the Food and Drug Administration said in its letter. … Studies have shown higher death rates with Nutropin, compared to a placebo, when it is given to patients with acute critical illnesses, like multiple accident trauma. "Therefore, the potential benefit of treatment continuation with growth hormone in patients having acute critical illnesses should be carefully assessed in light of the important risks, which were not even presented in these promotional materials," the F.D.A. letter said.

Halliburton, the company formerly headed by Vice President Cheney, has won contracts worth more than $1.7 billion under Operation Iraqi Freedom and stands to make hundreds of millions more dollars under a no-bid contract awarded by the U.S. Army Corps of Engineers, according to newly available documents. The size and scope of the government contracts awarded to Halliburton in connection with the war in Iraq are significantly greater than was previously disclosed and demonstrate the U.S. military's increasing reliance on for-profit corporations to run its logistical operations. Independent experts estimate that as much as one-third of the monthly $3.9 billion cost of keeping U.S. troops in Iraq is going to independent contractors.

The Bush administration yesterday approved a major rollback of clean air enforcement rules for the nation's oldest and dirtiest power plants in a move hailed by industry leaders but bitterly criticized by environmentalists and some lawmakers. For the first time, thousands of aging coal-fired power plants, oil refineries and factories will be able to upgrade their facilities -- and extend their operational lives -- without having to install costly anti-pollution equipment previously required under the Clean Air Act. … The new rule, signed by Acting Environmental Protection Agency Administrator Marianne L. Horinko, would apply to about 17,000 plants and facilities, including about 540 older coal-fired plants that produce half the country's electricity and have the worst record of air pollution.

Meanwhile, the General Accounting Office (GAO) reported this week that the EPA had relied on industrial "anecdotes" to determine that weakening pollution rules would have minimal health and economic impacts. "Because the information is anecdotal, EPA's findings do not necessarily represent the program's effects across the industries subject to the program," the GAO reports. [Cf. Item 287.]

Meanwhile, the US Public Interest Research Group reports this week that 2002 was the worst smog season in recent years. (Smog is ground-level ozone caused by pollution from power plants, vehicles, and other sources, and is linked to asthma and other ailments.) Monitors in 41 states and Washington recorded 8,818 instances of unhealthy smog levels last year - nearly twice the violations of the national health standard in 2001.

The United States said today that it was close to accepting an agreement, which it had rejected last December, to help poor nations buy generic medicines through exemptions from trade rules. The reversal by Washington — meant to improve the access of millions of people in those countries to expensive patented medicines for AIDS and other diseases — could enhance the Bush administration's international standing and prevent the collapse of global trade talks to be held in Mexico next month. After weeks of intensive negotiations, the United States won assurances that countries would not take advantage of the arrangement to increase exports of generic drugs to nations that are not poor and do not have a medical emergency, diplomats involved in the discussions said.

… The European Union and Switzerland, the other big producers of medicines, signed off on a deal last December to allow poor nations to buy generic medicines to fight these diseases. But the United States, with the strong approval of the American pharmaceutical industry, blocked the deal by exercising the veto that every member nation possesses at the World Trade Organization. That move … put the United States in the embarrassing position of being the lone nation opposing a solution to make vital drugs affordable for the poorest people on earth.

According to official figures from the World Bank and the Mexican government:

• Economic growth has been slow. Since 1985, Mexico has seen per capita real growth of just 1%, compared to 3.4% from 1960 to 1980.
• Job growth has been sluggish. There has been little job creation, falling far short of the demand in Mexico from new entrants into the labor force. Manufacturing, one of the few sectors to show significant economic growth, has seen a net loss in jobs since NAFTA took effect. This is despite a 45% increase in productivity.
• The new jobs are not good jobs. Some 60% of the employed do not receive any of the benefits mandated by Mexican law. At least one-third of the economically active population works in the informal sector.
• Wages have declined. The real minimum wage is down 60% since 1982, 23% under NAFTA. Contractual wages are down 55% since 1987. Manufacturing wages are down 12% under NAFTA.
• Poverty has increased. The number of households living in poverty has grown 80% since 1984, with some 75% of Mexico’s people now below the poverty line. Income distribution has become more lopsided, leaving Mexico with one of the hemisphere’s most unequal societies.
• The rural sector is in crisis. Four-fifths of rural Mexico lives in poverty, over half in extreme poverty.
• Imports surpass exports. With many of those exporters importing most of their inputs, Mexico’s balance-of-trade looks worse today than before NAFTA.
• The environment has deteriorated. The Mexican government estimates that the economic costs of environmental degradation have amounted to 10% of annual GDP, or $36 billion per year. These costs dwarf economic growth, which amounted to only $9.4 billion annually.

In many ways, Mexico got what NAFTA promised: trade and investment. Unfortunately, these have not translated into benefits for the Mexican population as a whole or into improvements in the country’s fragile environment. As other governments in Latin America and the Caribbean consider signing on to the Free Trade Area of the Americas a self-described “NAFTA for the hemisphere” they would do well to look at Mexico and think very, very carefully about what they wish for.

"The insurance industry has not underwritten properly," said [Donald] Zuk, chief executive of SCPIE Holdings, a Los Angeles-based malpractice insurer. "I don't hesitate to say that at all." … [He] said insurers must get smarter about pricing their premiums to make a profit, something the industry didn't do very well during the 1990s.

… Just to meet current electrical demand will cost $2 billion, Bremer said, while a national system to deliver clean water will cost an estimated $16 billion over four years. … A State Department official said the Bush administration is preparing to seek a "huge" supplemental spending bill from Congress.

To tap one source of cash, a "very intense dialogue" is underway with Iraq's 25-member governing council about the need to open the country to foreign investment, Bremer said. That includes deciding the fate of 192 state-owned enterprises -- most significantly the oil industry, which Bremer believes should remain in Iraqi hands.

The administration is eager to draw money and manpower from foreign governments. But a number of countries have said they would remain reluctant unless the United Nations is given greater authority in managing postwar Iraq. Bremer, citing progress in the U.S.-led reconstruction effort, strongly questioned the wisdom of shifting significant responsibility to the United Nations. "What exactly is it that happens on the ground that makes things better if the U.N. is in charge of reconstruction?" Bremer said. "How does the situation on the ground get better?"

Even if the economy rebounds strongly over the next few years, the federal budget deficit could climb for the rest of the decade if Congress adopts proposals strongly supported by President Bush, the Congressional Budget Office said today. Offering a sharp contrast to recent projections by the White House, which had said the budget deficit would hit $475 billion next year and decline significantly after that, the Congressional report warns that annual deficits could rise rather than fall. The nonpartisan office said the deficit would be $480 billion next year but could reach a cumulative total of $5.8 trillion by 2013. … {t]he new analysis is … based on fairly cautious assumptions. It assumes that economic growth will surge next year and remain solid for the rest of the decade.

The biggest reason for potentially much higher deficits is the added cost of legislation that both the White House and the Republican majority in Congress support. That agenda includes making almost all the tax cuts of the past three years permanent, which Congressional analysts said would cost $1.5 trillion over 10 years. It also includes the cost of a major new prescription drug program for the elderly, supported by Republicans and Democrats, that would cost $400 billion over 10 years. And it includes the cost of overhauling the Alternative Minimum Tax, which under current law is expected to force tens of millions of taxpayers to pay much higher taxes as their incomes rise with inflation. That change, supported by Republicans and Democrats alike, would cost an additional $400 billion over 10 years. Those adjustments alone would add about $500 billion to the deficit over the next 5 years and about $2.7 trillion over 10 years. If government spending continues to increase at anywhere near the rates of the past five years, the deficit would surge far higher.

That would be in sharp contrast to Mr. Bush's outlook. Last month, the White House Office of Management and Budget projected that the deficit would peak at $475 billion next year and decline to just $62 billion in 2008.

… When the office assumed that discretionary spending would remain absolutely flat, not even keeping pace with inflation, the projected cumulative deficit over the next 10 years would shrink by $1.2 trillion. That prospect would entail deep cuts in real spending, adjusted for inflation.

But if spending climbs in line with overall economic growth, Congressional analysts estimated that the projected deficits would swell by $1.4 trillion over 10 years. And if spending continued to climb as fast as it has in the past five years, the deficits would swell by $2.8 trillion over 10 years.

… Edward McKelvey, an economist at Goldman Sachs who has predicted steep new deficits for the next 10 years, said today's report had reinforced his views. "Our pessimistic view of the budget outlook will remain very much intact," Mr. McKelvey wrote in a research note today after seeing the Congressional report.

While the median CEO pay increase was 6% in 2002, median pay rocketed 44% for chiefs of the 50 companies that announced the biggest layoffs in 2001, according to the study. At the 30 companies with the greatest shortfall in their employees' pension funds in 2002, CEOs that year made 59% more than the CEO median reported in BusinessWeek's annual executive compensation report, the study said. Among the 24 companies with the most offshore subsidiaries in tax-haven countries, CEOs earned 87% more than the median pay for the last three years, the study concluded.

… Thirty firms with a collective pension deficit of $131 billion at year-end in 2002 paid their chief executives a total of $352 million that year, according to the study. The authors also pointed at a growing trend of securing executive pension plans with special trusts, even as pensions for rank-and-file workers were sinking. "This study picked up on a number of important themes that are emerging in the post-Enron environment," said Brandon Rees, research analyst at the AFL-CIO's office of investment. "One of the most important ones is that executives are sheltering their retirement plans from the risks that everyone else is expected to shoulder."

Some experts noted that CEO pay would be expected to reflect the leader's ability to make a company more efficient and boost shareholder value, even if that required layoffs. "The key question is did the executive get a bonus for doing layoffs, or did he or she get a bonus for cutting costs and riding through the tough times," said Matt Ward, president of Westward Pay Strategies in San Francisco.