Beat the Press is Dean Baker's commentary on economic reporting. He is a Senior Economist at the Center for Economic and Policy Research (CEPR). To never miss a post, subscribe to a weekly email roundup of Beat the Press. Please also consider supporting the blog on Patreon.

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In the last six months Republicans gave up being a party that cares about budget deficits as they happily pushed through large tax cuts (roughly 0.7 percent of GDP over the next decade) and big increases in spending (roughly 0.7 percent of GDP over the next two years). The deficit picture looks much worse today than it did a year ago.

While the few remaining deficit hawks at the Washington Post and the Peter Peterson funded organizations are screaming, the question serious people should be asking is why the markets don't share their concerns. In particular, the bond market, where the "bond vigilantes" live, should be going nuts with much larger deficits now being projected for as far as the eye can see.

It is true that rates have gone up. At just under 2.9 percent, the interest rate on 10-year Treasury bonds is almost half a percentage point higher than it was a year ago. But a 2.9 percent rate is still very low by any reasonable standard. After all, it was over 3.0 percent at the end of 2013 and it was over 5.0 percent in the late 1990s as the deficits were turning to surpluses.

The current 2.9 percent rate is also well below what the Congressional Budget Office (CBO) had projected just a couple of years ago when it expected deficits to stay on their prior no tax cut path. In January of 2016, CBO projected that the interest rate on 10-year Treasury bonds would be 3.7 percent by now. This means that even with the recent run-up, long-term interests are still 0.8 percentage points below what CBO had projected without any major increases in the budget deficit.

This might suggest that the concerns that deficits would sent interest rates through the roof have little basis in reality. After all, long-term interest rates are driven by expectations, and unless investors in the bond market have hugely different expectations about the size of deficits than folks in Washington, they apparently don't believe that the larger deficits we are now looking at are that big a deal.rate

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It is amazing how frequently we hear people asserting that the massive inequality we are now seeing in the United States is the result of an unfettered market. I realize that this is a convenient view for those who are on the upside of things, but it also happens to be nonsense.

Today's highlighted nonsense pusher is Amy Chua, who warns in a NYT column about the destructive path the United States is now on where an disaffected white population takes out its wrath on economic elites and racial minorities. The key part missing from the story is that disaffected masses really do have a legitimate gripe.

We didn't have to make patent and copyright monopolies ever longer and stronger, allowing folks like Bill Gates to get incredibly rich. We could have made Amazon pay the same sales tax as their mom and pop competitors, which would mean Jeff Bezos would not be incredibly rich. We could subject Wall Street financial transactions to the same sort of sales taxes as people pay on shoes and clothes, hugely downsizing the high incomes earned in this sector. And, we could have rules of corporate governance that make it easier for shareholders to rein in CEO pay.

None of the rules we have in place that redistribute upward were given to us by the market. They were the result of deliberate economic policy. (Yes, this is topic of my [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.) It is understandable that the losers from this upward redistribution would be resentful and they likely are even more resentful when the beneficiaries of the rigging just pretend that it was just a natural outcome of the market.

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NYT Magazine piece does a very nice job laying out the argument as to how platform monopolies like Google could be engaging in anti-competitive practices.

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An NYT article discussed a plan being pushed by Ivanka Trump and several Republicans in the Senate which would allow for new mothers to take up to twelve weeks of paid family leave. This would be paid for by delaying their Social Security retirement benefits beyond age 67, which would be when they would now be able to collect full benefits.

The piece quotes Carrie Lucas, the President of the Independent Women's Forum saying:

"Sixty-seven is really late middle age, and many people are really happy to continue working."

We actually have data on the percentage of women age 65 to 69 who are now in the labor force and continuing to work, happy or not. In the most recent data, less than 28 percent of women in the age group were in the labor force. The share is considerably lower for less-educated workers, who would be the ones most in need of paid leave. The share falls off rapidly as women age so that the labor force participation rate for women between the ages of 70 and 74 is less than 16.0 percent.

It also worth noting that a large percentage of these women work at physically demanding jobs like housekeepers or table servers. These women are likely to find it quite difficult to add another six months or year to their working careers.

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This is an assertion in a major Post article on infrastructure, but it doesn't fit with the evidence. Trump is actually only proposing to put up $200 billion (0.09 percent of GDP) over the next decade towards his infrastructure initiative.

The rest is supposed to come from state and local governments and private investors. As the piece notes, many are dubious whether anything like this amount will be forthcoming. Also, Trump is proposing large cuts to Amtrak and a wide range of other areas of infrastructure spending, so his proposed increase in spending is far less this $200 billion figure.

While the Post wants to assure readers that Trump really expects that his proposal might lead to an increase in infrastructure spending of $1.5 trillion (0.7 percent of GDP) over the next decade, let me suggest an alternative possibility. Trump made big promises about infrastructure spending during the campaign. It is likely that many of his supporters took these promises seriously.

However, Trump really doesn't give a damn about infrastructure and the Republicans in Congress are not willing to increase the deficit, give back part of their tax cut, or reduce military spending to accommodate additional infrastructure spending. Therefore, Trump goes out and touts a plan that everyone knows doesn't add up but still allows him to pretend to be meeting his commitment to his base.

I have no idea if my alternative scenario is accurate, but I would argue that it is at least as plausible as the Post's claim that Trump or anyone else actually expects this plan to produce $1.5 trillion in additional infrastructure spending. Since neither the Post nor I know what is in the heads of Trump and his top aides, how about they just report the plan and what Trump's people say about it, and not claim to know what anyone's real "aims" are.

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As the saying goes, writing for Washington Post means never having to say you're sorry. Hence, the paper never apologized for saying NAFTA had caused Mexico's GDP to quadruple when the true growth was just 84.2 percent. And Robert Samuelson needs never apologize for silly warnings about run away inflation.

The latest line is that we are supposed to be scared about the 0.5 percent inflation rate shown in the Consumer Price Index (CPI) for January. He begins his piece telling readers:

"Anyone looking for good economic news will be disappointed by the latest inflation report, which showed the consumer price index (CPI) advancing by 0.5 percent in January. By itself, this isn’t especially alarming — prices jump around month to month — but it has troubling implications for the future. To some economists, it suggests the possibility of another financial crisis on the order of the 2008-2009 crash.

"Until recently, inflation seemed to be dead or, at least, in a prolonged state of remission. It was beaten down by cost-saving technologies and a caution against raising wages and prices instilled by the Great Recession. From 2010 to 2015, annual inflation as measured by the CPI averaged about 1.5 percent, often too small to be noticed. In 2016 and 2017, the annual rates inched up to 2.1 percent. On an annualized basis, January’s 0.5 percent would be 6 percent."

Sound scary?

Actually, monthly CPI data are pretty erratic. If we are supposed to be scared by January's 0.5 percent figure, we should also have been bothered by the 0.5 percent figure for last September as well the 0.5 percent rate for January of 2017. We also hit 0.5 percent in February of 2013 and again in September of 2012, which followed a 0.6 percent rise in August. In short, the 0.5 percent CPI inflation rate for January really doesn't provide us much basis for concern about rising inflation.

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It seems that bad guys (Russians and others) are using Facebook to spread all sorts of nonsense under false identities. Mark Zuckerberg, Facebook's CEO and very rich person, tells us that he is very concerned about the problem but doesn't know exactly what to do. Congress can help out Facebook and Zuckerberg.

Back in the late 1990s, when the Internet was rapidly becoming an important means of communication, the entertainment industry became concerned about people transferring copies of copyrighted music without permission. It got Congress to pass the Digital Millennium Copyright Act of 1998 (DMCA).

There are many aspects to the DMCA, but the key part is that it imposes harsh punitive damages for anyone who allows copyrighted material to be transferred through their site. If a copyright holder notifies the owner of the site that they have posted their material without authorization, the owner of the site must remove it within 48 hours or face steep penalties.

The site owner is liable for damages even if a third party posted the infringing material. This means that if someone were to post a copyrighted song in the comments section to this blog, CEPR would be liable if it was not removed after notification.

It is important to note that the damages are punitive, not just actual. Suppose someone posts a minor hit from thirty years ago that 20 people download from this site. Given the prices commanded for downloads of old music, the actual damages would be a few cents. Nonetheless, under the DMCA, CEPR could be liable for thousands of dollars in damages. This can be a great model for Facebook and other potential purveyors of fake news.

Here's how it would work. Imagine that I get a posting on my Facebook feed from something that looks dubious. I send a note to Facebook indicating that I don't think that this posting is from a real source. Facebook then has 48 hours to investigate and determine if the source is real. If it determines that it is not real it must notify every person who received the posting, either directly or through its sharing system, that the source was fake.

Just as is the case with the DMCA, Facebook could face stiff penalties, say $10,000 a shot, for failing to act within the 48-hour time frame. This would ensure that Facebook would have a powerful incentive to move quickly to prevent the spread of fake news and false stories.

My guess is that Facebook has the technical expertise to meet this requirement. But if it doesn't, who gives a damn? This is a reasonable expectation of a system like Facebook and if Mark Zuckerberg and his crew lack the competence to meet it, then a better run competitor will take its place.

See, this is all fun and easy. It just requires a Congress that cares as much about protecting democracy as the copyrights of Disney and Time-Warner.

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Donald Trump is proposing to eliminate the National Endowments for the Arts and Humanities, as noted in an NYT column today. Each agency received just under $150 million in the 2017 budget, an amount that is equal to just under 0.004 percent of total spending. Another way to think about the money the government spends promoting the arts and the humanities is comparing it to spending on Donald Trump's golfing trips.

According to calculations from the Center for American Progress Action Fund, we were on a path to spend $59.25 million on Donald Trump's golfing for each year he is in the White House. This means that by ending funding for either the Endowment for the Arts or the Endowment for the Humanities we can pay for two and a half years of Donald Trump's golf trips. If both are shut down, it would cover the cost of five years of Donald Trump's golf trips.

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Source: See text.

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In an NYT Upshot column, Neil Irwin correctly points out that the Trump administration is very optimistic about GDP growth, it then adds that it shouldn't be. Irwin is certainly right about the optimistic part but should be more cautious in declaring the optimism wrong.

Irwin breaks down the factors that contribute to growth, labor, capital, and multifactor productivity growth. Labor growth is likely to be slow for the simple reason that the baby boom generation is moving into its sixties and seventies. They are now retiring in large numbers. This will seriously dampen the pace of labor force growth. While there is some room for more people to come into the labor market, even getting back to the peak prime-age (ages 25 to 54) employment to population ratios of 2000 would only around 0.3 percentage points to rate of labor force growth. We could have more immigrant workers, but that doesn't seem likely in the current political environment.

There could be an uptick in investment, which is the ostensible rationale for the big corporate tax cut. Irwin rightly is skeptical on this prospect. Historically, investment has not been very responsive to tax rates or the after-tax rate of profit, which in theory should be the key factor. The latter was already at post-World War II highs even before the tax cut, while the investment share of GDP has been mediocre.

The key issue is multifactor productivity. This is the increase in productivity that is the result of better organizing workplaces and introducing new technologies. Multifactor productivity growth has been very weak in recent years. It has averaged just over 0.4 percent a year since 2005. That compares to 1.6 percent annually from 1995 to 2005.

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The Washington Post has long had a hostile attitude toward unions, which it expresses in both its opinion and news sections. (As an example of the latter, this front page article complaining about high pensions for public sector workers in California, highlighted the case of Bruce Malkenhorst Sr., a retired city administrator, who received a pension of more than $500,000 a year. Only after reading down in the piece do readers discover that Mr. Malkenhorst was awaiting trial for misusing public funds. Of course, as an administrator, he was not a typical public employee or a union member.)

The latest expression of hostility is from editorial writer Charles Lane. Lane is upset that public sector employees can be required to pay representation fees to the unions that represent them as a condition of working in a unit that is represented by a union. There is much about the current situation that draws his wrath.

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The Washington Post reported on new health care spending projections from the Centers for Medicare and Medicaid Services (CMS) which show spending rising to almost 20 percent of GDP by 2026 compared to 17.9 percent in 2016. It is worth noting that these projections have consistently overstated cost growth. For example in 2005, CMS projected that health care costs would rise to 19.6 percent of GDP in 2016.

The piece also notes that prescription drugs are projected to be the most rapidly growing component of health care costs. It is worth mentioning that prescription drugs are only expensive because of government-granted patent monopolies. The free market price is typically less than 10 percent of the patent monopoly price and often less than 1 percent. The generic versions of drugs that sell for tens of thousands of dollars or even hundreds of thousands of dollars in the United States often cost just a few hundred dollars.

A number of Democratic senators have proposed legislation that would have the government pay for research upfront. This would mean that new drugs could sell at generic prices. This would eliminate all the corruption associated with the current system, including the incentive to lie about the effectiveness and safety of drugs. It would likely save more than $380 billion a year (just under 2.0 percent of GDP) on prescription drug expenditures.

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That's what careful readers of the administration's budget must assume. After all, the budget tells us that we should expect savings of $59 billion in 2028 from reducing "improper payments Government-wide" (Table S-2). However, we build up to these large annual savings very gradually. There is nothing noted for savings in 2019 and just $1 billion in 2020. Even in 2024, the last year of a hypothetical second Trump administration, the projected savings are only $6 billion. 

If we assume that these improper payments were always there, but it will take vigilant effort and ten years to weed out the full $59 billion (and even in 2028 there could still be more improper payments) it means that we could be improperly spending more than $50 billion a year throughout the Trump administration. And that is their assessment.

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Hey, I thought it was just a way to give a middle finger to low-income people for getting government aid, but the Washington Post tells readers that the plan to provide baskets of food in place of the current cash-like system where we allow people to buy the food they want:

"It would do this [hugely cut spending on food stamps] in part by requiring many beneficiaries to accept food deliveries in addition to financial assistance, a change the White House believes will improve nutrition quality and cut back on costs."

It's good we have the Post to tell us what the White House really believes. Otherwise, we might think bad things about them.

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Most newspapers try to reserve such editorializing for the opinion pages, but a NYT article on the Trump budget told readers:

"Yet for all of the talk of fiscal restraint, Mr. Trump’s budget also amounted to an institutional surrender to the free-spending ways of Capitol Hill, which Mr. Mulvaney said had surprised the president and prompted him to refrain from even bothering to advocate deficit reduction."

This is far from the only issue with this piece. The headline tells readers that the budget would "[add] $7 trillion to deficits." This is the cumulative deficit projected over the 10-year budget horizon. It should be described as the addition to the "debt." The amount is equal to 21.4 percent of the end of period GDP.

There are some other items worth noting. My additions are in parentheses.

"The White House budget request would add $984 billion (have a deficit of 4.7 percent of GDP) to the federal deficit next year..."

"Last week, Mr. Trump signed a two-year bipartisan budget deal, struck by congressional leaders largely without his involvement, to boost both domestic and military spending by $300 billion (0.74 percent of GDP)."

"That law increases military spending by $195 billion (0.48 percent of GDP) over the next two years and nondefense spending by $131 billion (0.32 percent of GDP) over the same period. The White House is proposing $540 billion (2.6 percent of GDP) in nondefense spending for 2019 — $57 billion below the new spending cap set by Congress."

"The plan contains at least $1.8 trillion (0.8 percent of GDP) in cuts to federal entitlement programs such as Medicaid, Medicare and food stamps."

"The centerpiece of Mr. Trump’s budget is a plan to devote $200 billion (0.09 percent of GDP) over the next decade in new spending to improve the country’s crumbling infrastructure, starting with $44.6 billion in 2019 (0.21 percent of GDP)."

"Mr. Trump’s plan would also allocate $13 billion in new spending to tackle opioid abuse through prevention, treatment and recovery support services as well as mental health programs."

The $13 billion is a five year total which is equal to 0.00012 percent of projected GDP or 0.059 percent of the budget over this period.

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One of the major changes in the Republican tax plan that became law at the end of last year was a limit of $10,000 on the deduction for state and local income taxes. This was explicitly designed as an attack on liberal states like California and New York, which provide relatively high quality services for their residents, and therefore have higher taxes. Many Republicans openly boasted that these states would face pressure to reduce their taxes, and therefore also cut funding in areas like education and health care, if state and local taxes were not deductible for all of their residents.

Republicans may exaggerate the effect of imposing a higher tax burden on these states. (For those keeping score, there was already a net outflow of money from states that tend to vote Democratic to those that vote Republican.) However, there is no doubt that it is harder for state and local government to raise revenue in a context where state and local taxes are not fully deductible than in a context where they are. In other words, Republicans are absolutely right in believing that they are hurting the finances of liberal states.

There have been various plans put forward to counter the Republican tax plan, but New York’s governor, Andrew Cuomo, is taking the lead with his proposal for an employer-side payroll tax that will substitute for a portion of the state income tax. This is a way to preserve the deductibility of a substantial portion of the tax revenue the state raises.

Cuomo proposes to have a 5 percent payroll tax on wage incomes in excess of $40,000. This tax would be phased in over a three-year period. It would also be voluntary so that companies did not want to go this route would not be required. Workers at companies that did go the payroll tax route would be subject to a different tax schedule that took account of the payroll tax paid by their employer.

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That one is apparently not on the agenda, at least according to Amanda Taub's NYT "The Interpreter" piece. The piece notes the declining support for center right and center left parties in most western democracies. While it notes that people feel unrepresented by these parties, it never states the obvious, these parties have consistently supported monetary, fiscal, trade, and intellectual property policies that redistribute an ever-larger share of income to people like Bill Gates and Robert Rubin.

It should not be surprising that most of the public is not enthralled with this outcome and the parties that promote it. And yes, there are alternatives, as I point out in my (free) book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.

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The Washington Post's editorial page is notorious for refusing to own up to its mistakes. In true Trumpian spirit, the paper still has not corrected an editorial touting the success of NAFTA which absurdly claimed Mexico's GDP had more than quadrupled between 1987 and 2007. The correct number was 84.2 percent.

Anyhow, Fred Hiatt, the editorial page editor, is now complaining again about the horrible harm that will be caused by future deficits. In any plausible scenario, the potential harm from a too large deficit is dwarfed by the trillions of dollars of lost output, and the millions of people needlessly unemployed, as a result of the Post and its allies pushing for austerity following the Great Recession.

The Post's editorial staff both lack any knowledge of economics and lack integrity.

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I know and respect E.J. Dionne, but I'm afraid I have to get out a heaping dump truck full of ridicule for his whining about the "agony of the moderate left." Yeah, times can be difficult for these politicians. After all, when their half measures fail to produce results for those who they claim to represent, they get voted out of office and then are stuck earning multi-million dollar salaries in the private sector or doing six-figure speaking gigs for Wall Street banks.

This compares to life for the more actual left who actually have a far better track record in doing things like recognizing housing bubbles that will sink the economy and knowing that cheap stimulus is inadequate to fuel recovery from a severe recession. There are few people with big bucks who are anxious to have such views promulgated, which means you don't often hear them in places like The Washington Post.

Anyhow, the only reasonable response to E.J. Dionne is "life is tough."

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The article discusses the agenda of Andrew Yang, a New York-based businessperson, whose political agenda is centered on dealing with mass job displacement due to robots and artificial intelligence. Such mass displacement implies rapid productivity growth, presumably along the lines of the 3.0 percent growth the country saw in the long Golden Age from 1947 to 1973 and again from 1995 to 2005.

This sort of rapid productivity growth would make it possible to reach the 3.0 percent growth rate that Republicans projected when they passed their tax cuts. (GDP growth is the sum of productivity growth and employment growth.) In the years since 2005, productivity growth has been close to 1.0 percent. The Congressional Budget Office and most other forecasters have projected that slow rates of productivity growth would continue. However, the robots taking our jobs crew strongly disagree.

Somehow, most reporting has failed to recognize the relationship between job-killing robots and GDP growth. If we do see the more rapid productivity growth envisioned by those concerned about job-killing robots, then deficits will certainly not be a problem. The country will be seeing enormous growth in its productive capacities and will need lots of spending to keep workers employed and fully utilize its capacity.

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It's always important to remember that the problem of high drug prices is almost entirely a government-created problem in the form of patent monopolies. In the absence of these monopolies, almost all drugs would be cheap. In many cases, the free market price is less than 1.0 percent of the patent monopoly price.

It would have been helpful to note this fact in this NYT piece on a Trump Administration plan to lower drug prices to patients. Several Democratic members of Congress, including Senators Sanders, Warren, and Gillibrand, have proposed legislation that would have the government pay for the cost of researching and testing new drugs. By allowing new drugs to sell at generic prices, public funding would not only reduce costs but would also eliminate the enormous incentive for lying about the safety and effectiveness of drugs that exist under the current system.

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The NYT should have its presses washed out with soap. In an article about plans to impose work requirements for Medicaid it told readers:

"The ballooning deficits created by the budget deal that President Trump signed into law Friday and the recent tax bill are likely to add urgency to the party’s attempts to wring savings from entitlement programs."

This needs a big "what the f**k are you talking about?" The Republicans do everything they can to increase the deficit with tax cuts and additional spending for the military and now there is "urgency ... to wring savings from entitlement programs."

Sorry, not on this planet. The Republicans have made it as clear as they possibly can they don't give a damn about deficits. When a Republican says anything about deficits at this point, the only appropriate response is derisive laughter. They have zero right to be taken seriously and the NYT misleads its readers by implying otherwise.

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