Beat the Press is Dean Baker's commentary on economic reporting. Dean Baker is co-director of the Center for Economic and Policy Research (CEPR).
As the labor market has tightened, many of us have looked to trends in wage growth to see evidence that we could be hitting full employment. While the tighter labor market has led to gains for those at the middle and bottom of the wage distribution, it has not led to a general acceleration in wage growth. The year-over-year increase in the average hourly wage was just 2.5 percent for November, roughly the same as it has been for the last two years.
In spite of the weak wage growth, news outlets continually tell us that employers are unable to find workers with the necessary skills. The argument is that more people would be hired if only the unemployed workers had the skills required by employers.
This story doesn't fit with the weak wage growth story since there are always workers with the necessary skills — they just might work for competitors or in another city. The way employers attract these workers is by offering a higher wage. If we don't see wages rising, then this story doesn't really make sense. (Employers would always like to find workers who will accept below-market wages; so what?)
Nonetheless, we often see people citing the Bureau of Labor Statistics data on job openings and hires to argue the case that companies can't find workers with the needed skills. There has been a fall in the ratio of monthly hires to job openings over the last decade. This is taken as evidence that employers have positions that are going unfilled because they can't find skilled workers. A closer look at the data indicates otherwise.Add a comment
After all, being a columnist at the NYT is a pretty good gig. Yet he repeatedly shows he doesn't have a clue on the issues on which he pontificates.
In his latest effort he criticizes the people he dubs "radicals" and contrasts them with radicals of prior years. He tells readers:
"Today’s radicals do not want to upend the meritocracy, which is creating a caste system of inherited inequality. They don’t want to stop technical innovation, which is displacing millions of workers."
Really, it is meritocracy that gives us patent and copyright monopolies, that bails out Wall Street billionaires who put their banks into bankruptcy, that protects doctors and dentists from foreign competition? It is meritocracy that gives us a corrupt corporate governance structure that allows CEOs to largely set their own pay? It is meritocracy that gives us fiscal and monetary policies that denied jobs to millions following the collapse of the housing bubble?
That doesn't fit my definition of meritocracy. That sure looks like a rigged system designed to redistribute income upward. (Yeah, I'm plugging my free book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.)
But Brooks makes his case:
"Well, they are wrong that our institutions are fundamentally corrupt. Most of our actual social and economic problems are the bad byproducts of fundamentally good trends."
Okay, if he says so. I thought people were supposed to have to argue for their positions based on evidence, but in David Brooks' "meritocracy" you can make unsupported assertions and get published in the NYT twice a week.Add a comment
A Washington Post article on the Republican tax proposals being considered by Congress implies that they are sharp departure from the plans Donald Trump put forward in the campaign in the benefits it provides to the rich. The headline is "as tax plan gained steam GOP lost focus on the middle class."
This description is pretty much 180 degrees at odds with reality. While Donald Trump always promised to help the middle class, the proposals he put forward during his campaign were hugely tilted toward the rich. The Tax Policy Center's analysis of the last tax cut plan he proposed before the election showed 50 percent of the benefits going to the richest one percent of the population.
In fact, the Republicans are putting in place a tax plan similar to what they campaigned on. If the fact that it mostly helps the rich is a surprise to anyone it is due to the poor quality of reporting during the campaign.Add a comment
This would have been useful information to include in an article on various proposals to alter the program. While the article does helpfully point out the limited size of benefits to the typical recipient, it reports the total cost as $73 billion a year.
Since most people are not very familiar with the size of the federal budget, they may think the food stamp program accounts for a substantial share of their tax dollars. For this reason, it would have been helpful to express this figure as a share of the total budget.Add a comment
Of course, The Washington Post would never make such an assertion, even if there is good reason to think that it is true. Instead, an article on Friday's jobs report told readers:
"President Trump and Republicans on Capitol Hill have said they hope to pass sweeping changes to the tax code by the end of December, a move they believe will create more good-paying jobs and supercharge economic growth."
This is again an inexplicable excursion into mind reading. The Post really has no idea what Republican politicians believe. Why is it so hard to just report what they say and leave the speculation on their true beliefs to readers?
This piece also included an inaccurate statement from Jason Furman, who served as President Obama's chief economist. He quotes Furman as saying:
"'They’re [workers] more confidently quitting their jobs to find another. Everything with the way people are behaving is consistent with the strength in the labor market. But wages just aren’t picking up the way we thought they would.'"
In fact, the share of unemployment due to people voluntarily quitting their jobs is much lower than it has been in the past when the unemployment rate got this low. The most recent numbers put the share of unemployment due to voluntary quits at just over 11.0 percent. By contrast in 1999 and 2000, the share was over 13 percent and peaked at more than 15.0 percent. This suggests that workers are much less confident in their job prospects than they were the last time the unemployment rate was near 4.0 percent.
Percent of Unemployment Due to Job Leavers
Source: Bureau of Labor Statistics.Add a comment
The NYT article on the November jobs report notes the fact that the rate of wage growth does not appear to be appear accelerating. To explain why it presents the views of Michael Big, a general contractor in the Chicago area.
The piece tells readers that Mr. Big has had to turn away jobs in recent months because he can't find the needed workers:
"'Unfortunately we don’t have the labor to take all the projects that are coming in,' Mr. Big said. His competitors are having the same problem, he added. 'We’re all grumbling and complaining about the same thing, when we’re not poaching guys from each other.'"
The piece continues:
"Mr. Big’s experience raises a question: If workers are so hard to find, why aren’t companies raising pay? In his case, Mr. Big says that in order to pay more, he would have to charge his customers more, and if he does that, he’ll be outbid by his competitors."
"'The labor is there, but they’re not skilled enough for the wages they’re asking,' Mr. Big said. He said construction workers without special skills were asking $15 an hour, well above the roughly $12 an hour he can afford."
This presentation of the problem indicates the jobs really are not there. If people like Mr. Big are not prepared to pay enough to attract workers, then they really don't have jobs to offer.
This is like if I want to see a doctor, but am only willing to pay $25 an hour. I probably would not find any doctors willing to work for that pay. In this case, I don't really have a job for a doctor, or at least not in an economically meaningful sense. It is no surprise that jobs that offer pay below the market rate are not driving up wages.Add a comment
A Morning Edition segment on the Republican tax cut plan made comparisons to the Reagan tax cuts and referred to the "boom" that occurred following the tax cuts. While the economy did grow rapidly in the years from 1983 to 1986, the main reason was the severity of the 1981–82 recession. Economies tend to bounce back quickly following a severe recession.
We saw the same story in the 1970s. The economy grew at a 5.7 percent annual rate in the thirteen quarters from the fourth quarter of 1982 to first quarter of 1986. This is not hugely different than the 5.3 percent annual growth rate from the first quarter of 1975 to the third quarter of 1977. The key to the more rapid growth in the Reagan recovery was the somewhat greater severity of the 1981–82 recession, which pushed unemployment almost to 11.0 percent.
It is also worth mentioning the poor performance of investment following the reduction in the corporate income tax in 1986. The tax reform act passed in that year lowered the corporate rate from 46 percent to 35 percent, roughly the same size reduction as is included in the current bill. Rather than leading to a boom, investment actually fell as a share of GDP over the next three years.Add a comment
Making mistakes is part of life. Serious people own up to them and correct themselves. Unfortunately, when it comes to NAFTA, this is not the practice of the Washington Post.
Ten years ago today, December 7, 2007, a Washington Post editorial attacked the three leading contenders for the Democratic nomination over their pledge to renegotiate NAFTA. The Post had long been a strong supporter of NAFTA, biasing both its news coverage and opinion pages to push pro-NAFTA views. Its editorial page staff was obviously upset to see Senators Hillary Clinton, John Edwards, and Barack Obama attack their beloved trade agreement.
The editorial, ironically titled “Trade Distortions,” told readers how NAFTA had provided large benefits to the United States. Then it stated:
“Not that any of the Democratic candidates seem to care, but the impact of NAFTA seems to have been both larger and more positive in Mexico than in the United States. Mexico's gross domestic product, now more than $875 billion, has more than quadrupled since 1987.”
This one was a headscratcher for two reasons. First, NAFTA took effect in 1994 — why was the Post telling us about Mexico’s growth since 1987?
But this was the less important gaffe in this sentence. Mexico’s GDP “has more than quadrupled?” That is a pretty incredible claim on its face. If GDP quadruples in two decades, it implies an annual growth rate of 7.2 percent. While many developing countries have a brief spurt where they grow at this pace for two or three years, sustaining this sort of growth for two decades is truly extraordinary. China managed to do it, but not many other countries have. Was there another China growth miracle hiding south of the border that had somehow had gone unnoticed?
It turns out there wasn’t. According to the International Monetary Fund, adjusting for inflation, Mexico’s GDP went from 6,564 billion pesos in 1987 to 12,088 billion pesos in 2007. That translates into cumulative growth of 84.2 percent, quite a bit different from the “more than quadrupled” claimed by the Washington Post. Rather than being a near-record-setting growth pace, this translates into a thoroughly mediocre 3.1 percent annual rate of growth.
On a per capita basis, Mexico’s growth trailed growth in the United States, averaging just 1.5 percent annually, compared to 1.9 percent in the United States. That’s not the expected story. Poor countries are supposed to be catching up to rich countries.
So how did the Post get this one so badly wrong? It’s possible that it looked at Mexico’s nominal GDP growth. This measure doesn’t adjust for the effects of inflation. Since Mexico had a very serious problem with inflation over most of this period, its nominal GDP did more than quadruple.
In fact, Mexico’s nominal GDP increased by more than a factor of 50, from 217.6 billion pesos in 1987 to 11,403.3 billion pesos in 2007. That certainly qualifies as “more than quadrupled.”
However, runaway inflation hardly makes a good case for NAFTA. While concerns over inflation have arguably been excessive in recent decades, inflation running well into the double digits is certainly a problem. In any case, higher inflation is hardly an outcome worth boasting about.
Anyhow, whatever the cause of the original error, the really disturbing part of the story is the Post’s refusal to correct it even after I called it to their attention. People view a newspaper like the Post as authoritative. As long as the mistaken numbers on Mexico’s growth appear on the paper’s website, it is possible that readers will find the piece and assume the numbers are correct. This is why serious newspapers append a correction to the bottom of an article or column that includes a major error.
For some reason, the Post has chosen not to acknowledge and correct its error over the last ten years. Let’s hope we don’t have to write a second edition of this piece in 2027.
 This uses 2008 constant pesos.Add a comment
Now that we seem on the edge of giving lots more tax dollars to Donald Trump and his rich friends, the deficit hawks feel newly empowered and have Social Security and Medicare clearly in their sights. Robert Samuelson is on the job, telling us that we haven't prepared for the aging of the population.
His primary weapon is a new report from the OECD on the aging problem. The report says that the ratio of the over 65 population to the 25 to 65 population is projected to rise from 0.124 in 2015 to 0.196 in 2050. Oh wait, I made a mistake, that was the increase in this ratio in the thirty five years from 1945 to 1980. The ratio is projected to rise from 0.246 in 2015 to 0.379 in 2050.
The ratio is projected to rise faster in the next 35 years than it did in the earlier period, but the rise in the ratio in the earlier period did not prevent the country from enjoying huge increases in living standards. The same should hold true over the next 35 years. Real compensation per hour is projected to rise by roughly 60 percent over the the 35 years from 2015 to 2050.
Suppose we had a huge 5.0 percentage point increase in the payroll tax to pay for Social Security and Medicare taxes over this period. This would still leave workers with 50 percent more compensation after-tax than what they have today. Are we scared yet?
Normal productivity growth swamps the impact of demographics, as fans of arithmetic everywhere know. I should also point out, if the robot and artificial intelligence enthusiasts are even half right, productivity will increase far more than the wage projections in the Social Security trustees report assumes.
At this point, all good Beat the Press readers are yelling that most workers have not seen their share of wage growth. The money has gone to CEOs, Wall Street types, doctors and other high end professionals. If that continues over the next 35 years most workers will have a very difficult time dealing with any increase in payroll taxes.
That point is exactly right, which is why the living standards of our children depend hugely on reversing the upward redistribution of the last four decades. That is the point of Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.
This is where the real money is. Folks like Robert Samuelson and the billionaire Peter Peterson are trying very hard to distract us from going after the rich, and instead go after our parents' Social Security and Medicare. It's a cheap trick, but they won't give up trying.
It is also worth mentioning in this respect that the GDP we've lost as a result of failing to rein in the growth of the housing bubble, and not having an adequate fiscal stimulus following its collapse, dwarfs any tax increases that may be needed to fund Social Security and Medicare in the years ahead. But Robert Samuelson and the Peterson gang would rather not have us talk about that fact either.Add a comment
Ross Douthat goes over what he sees as the good and the bad in the Republican tax plans in his column today. He notes the ending of the mandate that people buy health care insurance in the Senate version of the bill and then says:
"In the long run any universal health insurance system will be on a firmer political footing if it finds a way to work without requiring people to buy a product they don’t want."
A "universal" system does mean that everyone has to have health insurance even if they don't want it. It is possible to effectively make people "buy" insurance through the back door if it is paid for with tax revenue. In this case, people pay for their premiums through their taxes, but they don't directly "buy" insurance.
It's possible that Douthat is arguing for some Medicare for All type system, but it's also possible that he doesn't really want a universal health care system.
Thanks to Robert Salzberg for calling this to my attention.Add a comment
The NYT has an article discussing the ways in which Mick Mulvaney is changing the Consumer Financial Protection Bureau in his capacity as an acting director. There is one item on which it is somewhat misleading. The piece indicates that Mulvaney's status as an acting director is an accident, telling readers that Trump could appoint a new director, but the confirmation process could take months.
While confirmation can be lengthy, depending on the quality of the nominee (Republicans do control the process), Trump has obviously made a decision not to put up a nominee for the directorship. Cordray's decision to resign before his term ended was widely expected. Most administrations would already have a candidate in mind whose name could be submitted as soon as the resignation was announced. However, a nominee for director would be subject to various disclosure requirements and would also have to testify before the Senate. After being approved the director could only be removed for cause.
By contrast, an acting director is not required to make the same sorts of disclosures, nor do they have to demonstrate their competence to the Senate. Also, the acting director serves entirely at the will of the president. Trump can remove Mulvaney any time he chooses for any reason whatsoever.
Trump has followed a similar path with the position of the Comptroller of the Currency and the Commissioner of the Internal Revenue Service. In each case, he has an acting head of agencies that are supposed to operate in a non-political manner. As with Mulvaney, Trump has the ability to remove these heads any time he chooses.
This abuse of the appointment process has received little attention. It threatens the integrity of all three agencies.
Add a comment
That could have been the headline, at least if the New York Times article reporting on the action is accurate. The NYT told readers that when Clinton first created the Grand Staircase National Monument in 1996:
"When Mr. Clinton formed Grand Staircase, the move halted plans for a coal mining project there that would have brought desperately needed jobs to a poor county."
Since the demand for coal is not hugely elastic, if coal was being mined from the area that became the monument, it would have largely displaced coal that was being mined elsewhere in the United States. As it was, employment in the coal industry fell from roughly 90,000 in 1996 (0.08 percent of total employment) to 52,000 in the most recent data (0.03 percent of total employment). The decline in employment in areas now producing coal would have been even sharper if the Grand Staircase had been open to mining, according to the NYT.Add a comment
Robert Samuelson used his column today to say he doesn't understand budget deficits. This is hardly a surprise to regular readers of his column. But, he bizarrely argues that because he is confused, everyone else is also.
Samuelson tells readers:
"The truth is that we don’t fully understand the effects of budget deficits on the business cycle."
No, "we" do understand the effects of budget deficits. It really is pretty simple, deficits increase demand compared to a balanced budget or surplus. Of course, not all spending or taxes are equal. Direct spending on goods and services has more impact than transfer payments, and transfer payments have more impact on demand if they go to lower income people who will spend them than higher income people who save much of their income. The same is true of taxes.
Also, it is important to note that the budget only captures a portion of the government's commitments of revenue. Government-granted patent and copyright monopolies can easily involve a commitment in excess of $1 trillion a year (4–6 percent of GDP) in payments for rents. These are effectively privately collected taxes.
Anyhow, it's unfortunate that Samuelson is confused on this issue. It is even more unfortunate that the Post could not find an economic columnist who understands economics.Add a comment
Sure, Republicans say this, but did we think that they would say that they expect their tax plan to increase the debt by $1.5 trillion, but rich people need tax cuts? Given their endless tirades about deficits under President Obama, Republicans are pretty much required to say that their tax cuts will pay for themselves regardless of what they actually believe.
So why don't we recognize this very simple fact and stop telling people what Republicans believe, as this NYT article does?
"But the bill’s passage was made possible by a near-complete Republican embrace of the idea that about $1.5 trillion of tax cuts will pay for themselves, by producing enough economic growth and additional federal revenue to offset their costs to the Treasury.
"That belief was contradicted by several studies, including one from Congress’s official economic scorekeeper, which Republicans dismissed as overly pessimistic."
The NYT's reporters have no idea what Republican members of Congress believe about the fiscal impact of their tax cut, so they should not be implying that they do. As a practical matter, they may have no beliefs on the issue whatsoever. They get and keep their jobs by doing what their donors want them to do, not by thinking about the economic impact of the bills they pass.Add a comment
The Republican tax bill is an abomination. It gives hundreds of billions of dollars in tax breaks over the next decade to the country's richest people. The Trump family alone stands to pocket more than $1 billion from the reduction in the estate tax and other provisions in the bill.
Furthermore, instead of making the tax code simpler, it creates all sorts of new gaming opportunities. Corporations will have enormous incentive to have their profits show up in tax havens, where they will be able to escape U.S. taxation altogether.
The new rules on pass-through businesses means that anyone is a complete schmuck if they don't arrange a 23 percent tax deduction by having their pay come through their own pass-through. And the repeal of the Johnson Amendment means that rich people will now be able to get taxpayers to subsidize their unlimited campaign contributions by donating to the Church of Republican Politicians.
But one argument repeatedly made by opponents of the bill — that it imposes some huge burden on children — is just painful to see. What do these people think they are saying when they make this assertion?Add a comment
One of the issues that has been raised in the debate over tax cuts is how fast the economy can grow. The Congressional Budget Office (CBO) is projecting growth averaging just 1.9 percent annually over the next decade. This is based on the assumption that the labor force will grow on average by 0.5 percent annually and productivity will grow by 1.4 percent.
By contrast, the Trump administration is arguing that with its tax plan the economy can grow 3.0–4.0 percent annually. It appears that the consulting firm McKinsey Global Institute agrees with the Trump administration's projections on growth, but not due to its tax plan.
The Washington Post reported on a new study from McKinsey which projects that one third of all jobs in the United States will be lost due to robots and artificial intelligence by 2030. This rate of job loss translates into an annual rate of productivity growth of 3.1 percent, roughly the same pace of growth seen during the 1947 to 1973 Golden Age and the period from 1995 to 2005.
If the economy actually sees the productivity growth predicted by McKinsey and the CBO labor market projections prove accurate, then growth should average a bit more than 3.5 percent over the next decade. If this is the case, workers should receive much larger wage increases than they have had in recent decades. Also, the more rapid growth should mean much smaller budget deficits.
It is important to note that the McKinsey report is effectively a baseline projection. It is saying that growth will be considerably faster than is now projected by CBO assuming no change in policy, including no large tax cuts. In fact, if the McKinsey report is correct, it is difficult to see the rationale for tax cuts that predominantly benefit the richest people in the country.Add a comment
When the Washington Post advertises for reporters, do they include "mind reading skills" as a necessary qualification? They gave us yet another example of these skills in an article discussing Republican efforts to craft a tax bill that will be able to get the support of 50 senators.
The piece told readers:
"Many Republicans believe the economic growth that will be unleashed by the tax cuts will be worth it, potentially creating such an economic boom that new revenue will come in from job creation and corporate investment."
It's good the Post's reporters have this mind reading ability. The rest of us might just think that Republicans are saying utter nonsense about tax cuts and economic growth because, at least publicly, they can't just say "we are trying to give more money to our wealthy campaign contributors." This is, of course, what they are in fact doing, so some of us might think it is what they intend to do.Add a comment
The Republicans had planned to include a trigger mechanism in their tax plan, which would have automatically raised taxes in the event of budget deficits that exceeded targets. This is classically bad economic policy. It means that if growth slows and the economy falls into a recession, the government would be raising taxes. Such a tax increase when the economy is already slowing would further dampen growth, making a downturn worse.
This is very basic economics. The fact that the Republicans were prepared to include it in their bill indicates that they either have very little knowledge of economics or they don't care about the economic impact of their tax plan. It would have been helpful if the media had highlighted this issue since it offers considerable insight into how the Republican leadership is thinking about this tax plan.Add a comment
On Morning Edition yesterday, Representative Jeb Hensarling, the chair of the House Financial Services Committee, was interviewed by David Greene. At one point, Greene asked him about the Republican tax cut proposal. After blaming President Obama for the slow growth of the last eight years, Hensarling commented:
"Every time we've had a pro-growth fundamental tax reform, be it under President Reagan, President Kennedy — you can even go all the way back to President Coolidge. We have seen paychecks increase, economic growth be ignited and actually more revenues come into the government."
It would have been helpful for Greene to have corrected Hensarling here. We had a big tax cut that was sold as "pro-growth" under President George W. Bush. This was not followed by strong growth and, in fact, the recovery following the tax cuts ended with the collapse of the housing bubble that gave us the Great Recession. This was the basis for the weak growth that Hensarling was complaining about in his prior comment.
The strongest period of growth since the 1960s followed a tax increase put in place by the Clinton administration in 1993. While it is not plausible to attribute this growth to the tax increase, obviously it did not prevent the growth.
It would have been helpful to point these facts out to listeners, some of whom might have been misled into believing Hensarling's claims.Add a comment
The Washington Post proudly told readers that the economy had reached potential GDP in the third quarter of 2017 and therefore future GDP growth will have to be far slower than in the recent past, averaging just 1.8 percent over the next decade. While this is true based on the projections of the Congressional Budget Office (CBO) and most independent forecasters, it would have been worth noting that these projections have been very far from the mark frequently in the past.
CBO and other forecasters completely missed the economic crash caused by the collapse of the housing bubble. At the time, they projected potential productivity growth of 1.9 percent annually, rather than the roughly 1.0 percent rate we have seen over the last decade. CBO also completely missed the upturn in productivity growth that began in 1995. They had thought the slowdown rate of roughly 1.4 percent would continue indefinitely, instead productivity growth increased to close to a 3.0 percent annual rate over the next decade.
It is highly misleading to imply that these productivity growth projections are hard and fast numbers, given the dismal track record of the recent past. In this respect, it is worth noting that productivity growth was over 3.0 percent in the third quarter. If fourth quarter GDP is in line with the most recent projections, it will be well over 2.0 percent for the fourth quarter as well. While it is far too early to say that we are on a higher productivity track, it is certainly a possibility given these numbers.
If productivity growth remains over 2.0 percent, then 3.0 percent is perfectly plausible growth target for reasons that have nothing to do with the proposed tax cut. The rise in productivity growth is more likely due to a tightening of the labor market leading businesses to make greater efforts to economize on their use of labor. This means both that the least productive jobs go unfilled (e.g. greeters at Walmart and the midnight shift at convenience stores) and firms invest more in labor saving technology.
It is also worth noting that the "robots taking our jobs" folks have to believe that the Washington Post is spewing nonsense in this piece. Robots taking our jobs is a story of very rapid productivity growth. The Post is giving us a story of extremely slow productivity growth. Rapid is the opposite of slow — but many of our leading public intellectuals have not yet been able to grasp this fact.Add a comment
The New York Times discussed the prospects for the Republican tax bill, comparing the difference in Republican attitudes towards the tax bill and the efforts to repeal the Affordable Care Act. In its effort to explain this difference, it told readers:
"But lowering taxes is, at heart, what makes a Republican a Republican."
The problem with this assertion is that the Republican plans actually raise taxes for close to half of middle-income families, as the New York Times has reported. Given the structure of this tax cut and prior Republican tax cuts it would seem more accurate to say that cutting taxes for rich people is what makes a Republican a Republican.Add a comment