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.
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- Written by Dean Baker
Jim Tankersley had a piece in the NYT yesterday on the cost per job saved of Trump's tariffs on Chinese washing machines. According to the study, the cost per job saved was $817,000. While that is a steep tab, there are a few points that should be added to this sort of analysis.
First, if the point of the tariffs is to benefit workers, part of this $817,000 cost is going to higher pay to workers who would have jobs with or without the tariff. The study doesn't look at the impact on wages of workers in the industry, but if the goal is to help workers who make washing machines, then this should be factored into the assessment.
The second point is that this is a partial equilibrium analysis. It doesn't look at the overall effect on the economy of a reduction in the money we spend on importing washing machines. While this can be hard to assess, since imports of washing machines from China are a very small part of the total economy, other things equal we would expect that less money spent on imported washing machines would translate into a higher-valued dollar. (We are reducing the supply of dollars on world markets, thereby raising the price of dollars.)
This effect is almost certainly very small, but suppose that the reduced payments for imported washing machines raised the value of the dollar by just 0.01 percent. If this rise in the dollar were fully passed on in lower import prices (it isn't), that would translate in a reduction in the cost of imports to US consumers of $320 million, more than 20 percent of the cost of the tariffs estimated in this study. Even if it would be hard to get any sort of precise numbers, the point is that this is an offsetting effect which could be large relative to the estimated cost of the tariffs.
The third point is that tariffs can sometimes make sense if they allow an industry breathing space to reorganize and regain competitiveness or serve some other goal (e.g. persuading a country to raise the value of its currency). In 1983, Ronald Reagan imposed tariffs on Japanese motorcycles in order to help out Harley Davidson. In 2006, when President George W. Bush wanted to tout the virtues of free trade, he visited a Harley Davidson factory in Pennsylvania which was a major producer of motorcycles for exports. It is unlikely that Harley Davidson would have been exporting motorcycles in 2006 without the tariffs that allowed it some breathing space in 1983.
Of course, none of this means that Trump's washing machine tariffs are a good idea. If they are in fact part of a well-crafted trade and industrial policy strategy, he is managing to keep this strategy secret from just about everyone. It looks mostly like the main effect will just be that we pay more for washing machines, even if the story may not be quite as bad as advertised.Add a comment
- Written by Dean Baker
In keeping with accepted standards in debates on economic policy, we are now getting a debate on Medicare for All that is doing a wonderful job of ignoring the relevant issues. The focus of this debate is what Medicare for All will pay hospitals. As The New York Times tells us, if Medicare for All pays hospitals at Medicare reimbursement rates, many will go out of business.
The reason why this is a bizarre way to frame the issue is that the payments to hospitals are not going to buildings. They are going to pay for prescription drugs (close to $100 billion a year), for medical equipment and supplies, for doctors and other health care personnel. They also pay for hospital administrators, and in the case of for-profit hospitals, some of the money goes to profits. Also, in recent years a growing chunk of the money has gone to buildings, as many hospitals have sought to attract high-end patients by making themselves more upscale than a facility that exists primarily to provide health care.
Anyhow, a serious discussion of payments to hospitals should focus on the costs that hospitals face. There are enormous potential savings on prescription drugs and medical equipment and supplies if the government were to pay for research upfront and allow these items to be sold at free market prices, rather than granting patent monopolies that allow manufacturers of these products to charge prices that are tens or hundreds of times their cost of production.
We could save close to $100 billion a year if we allowed free trade in physicians services (i.e. remove the barriers that prevent qualified foreign doctors from practicing in the United States). We could also save some money on the high pay received by hospital administrators, especially if we reformed the corporate governance structure so that seven and eight-figure salaries were less common. A Medicare for All system also would presumably not be reimbursing hospitals for lavish facilities.
Anyhow, if we are going to have a serious debate on what Medicare for All would pay hospitals then it must focus on the prices and wages that hospitals pay for goods and services. Debating what the government pays hospitals without asking about the cost of these inputs is entirely pointless.Add a comment
- Written by Dean Baker
Economists pride themselves on being the serious social science, the one most deserving of status as an actual science. I will let others make the comparative assessment, but there is an awful lot of nonsense that passes as serious analysis within economics. For cheap fun, I thought I would use a nice spring afternoon to highlight some of my favorites.
Myth 1: The Robots Are Taking All the Jobs
The "robots taking the jobs" story gets top place both because it is completely ridiculous and it is widely taken seriously in policy discussions. The story is ridiculous because it is directly contradicted by the data. Robots taking all the jobs is a story of rapid productivity growth. It means that we can produce the same output with fewer workers because the robots are doing work that used to be done by people. That is the definition of productivity growth.
But the productivity data refuse to cooperate with this story. This is not hard to discover. The Bureau of Labor Statistics releases data on productivity every quarter. The data show that productivity growth has been very weak in recent years, averaging just 1.3 percent annually since 2005. This compares to a rate of productivity growth of 3.0 percent in both the period from 1995 to 2005 and the long Golden Age from 1947 to 1973.
The job-killing robots story is sometimes diverted into a scenario that is just around the corner instead of being here today. Of course, we can’t definitely rule out that at some point in the future productivity will not accelerate sharply, but it is worth noting that this pickup does not seem to be on the immediate horizon. Investment is not especially high as a share of GDP, averaging 13.4 percent over the last three years. That compares to 14.2 percent from 1999 to 2001, and 14.4 percent from 1980 to 1982, its post-war peak.Add a comment
- Written by Dean Baker
The New York Times told its readers that the government plans to spend $37.2 million ("nearly $40 million" in first sentence) on two new tent cities for migrants coming over the border and applying for asylum. Most readers probably have no idea how much money this is to the federal government. If the paper was actually trying to provide information, it would have told readers that this is equal to approximately 0.0008 percent of spending this year.Add a comment
- Written by Dean Baker
The push for universal Medicare was given new momentum by Bernie Sanders campaign for the 2016 Democratic nomination. While it is still quite far from becoming law in even an optimistic scenario, it is certainly now treated as a serious political position. This is probably best demonstrated by the fact that the Medicare for All (M4A) bill put forward by Washington representative Pramila Jayapal has 107 co-sponsors, nearly half of the Democratic caucus in the House.
As much progress as M4A has made, it will still be a huge lift to get it implemented. A universal Medicare system would mean shifting somewhere around 8 percent of GDP ($1.6 trillion at 2019 levels) from the private system to a government-managed system. It would also mean reorganizing the Medicaid program and other government-run health care programs, as well as the Medicare program itself. The current system has large co-pays and many gaps in coverage, such as dental care, that most proponents of M4A would like to fill. It also has a large role for private insurers in the Medicare Advantage program, as well as the Part D prescription drug benefit.
The difficulty of a transition is demonstrated by the fact that there is no agreed-upon mechanism for paying for this expansion of Medicare. Instead of a specific financing mechanism, the Jayapal bill features a menu of options. Actual legislation, of course, requires specific revenue sources, not a menu. The fact, that even the most progressive members of the House could not agree on a financing proposal that they could put their names to, shows the difficulty of the transition.
If it is not likely that we will get to M4A in a single step, then it makes sense to find ways to get there piecemeal. There have been a variety of proposals that go in this direction. Many have proposed lowering the age of Medicare eligibility from the current 65 to age 50 or 60. The idea is that we would bring in a large proportion of the pre-Medicare age population, and then gradually go further down the age ladder. (We can also start at the bottom and move up.)Add a comment
- Written by Dean Baker
Neil Irwin had a New York Times article warning readers of the potential harm if the Fed loses its independence. The basis for the warning is that Donald Trump seems prepared to nominate Steven Moore and Herman Cain to the Fed, two individuals with no obvious qualifications for the job, other than their loyalty to Donald Trump. While Irwin is right to warn about filling the Fed with people with no understanding of economics, it is wrong to imagine that we have in general been well-served by the Fed in recent decades or that it is necessarily independent in the way we would want.
The examples Irwin gives are telling. Irwin comments:
"The United States’ role as the global reserve currency — which results in persistently low interest rates and little fear of capital flight — is built in significant part on the credibility the Fed has accumulated over decades.
"During the global financial crisis and its aftermath, for example, the Fed could feel comfortable pursuing efforts to stimulate the United States economy without a loss of faith in the dollar and Treasury bonds by global investors. The dollar actually rose against other currencies even as the economy was in free fall in late 2008, and the Fed deployed trillions of dollars in unconventional programs to try to stop the crisis."
First, the dollar is a global reserve currency, it is not the only global reserve currency. Central banks also use euros, British pounds, Japanese yen, and even Swiss francs as reserve currencies. This point is important because we do not seriously risk the dollar not be accepted as a reserve currency. It is possible to imagine scenarios where its predominance fades, as other currencies become more widely used. This would not be in any way catastrophic for the United States.
On the issue of the dollar rising in the wake of the financial collapse in 2008, this was actually bad news for the US economy. After the plunge in demand from residential construction and consumption following the collapse of the housing bubble, net exports was one of the few sources of demand that could potentially boost the US economy. The rise in the dollar severely limited growth in this component.
The other example given is when Nixon pressured then Fed Chair Arthur Burns to keep interest rates low to help his re-election in 1972. This was supposed to have worsened the subsequent inflation and then severe recessions in the 1970s and early 1980s. The economic damage of that era was mostly due to a huge jump in world oil prices at a time when the US economy was heavily dependent on oil.
While Nixon's interference with the Fed may have had some negative effect, it is worth noting that the economies of other wealthy countries did not perform notably better than the US through this decade. It would be wrong to imply that the problems of the 1970s were to any important extent due to Burns keeping interest rates lower than he might have otherwise at the start of the decade.
It is also worth noting that the Fed has been very close to the financial sector. The twelve regional bank presidents who sit on the open market committee that sets monetary policy are largely appointed by the banks in the region. (When she was Fed chair, Janet Yellen attempted to make the appointment process more open.) This has led to a Fed that is far more concerned about keeping down inflation (a concern of bankers) than the full employment portion of its mandate.
Arguably, Fed policy has led unemployment to be higher than necessary over much of the last four decades. This has prevented millions of workers from having jobs and lowered wages for tens of millions more. The people who were hurt most are those who are disadvantaged in the labor market, such as black people, Hispanic people, and people with less education.
Insofar as the Fed's "independence" has meant close ties to the financial industry, it has not been good news for most people in this country.Add a comment
- Written by Dean Baker
The people who completely missed the housing bubble, the collapse of which sank the economy in 2008 and gave us the Great Recession, are again busy telling us about the next recession on the way. The latest item that they want us to be very worried about is an inversion of the yield curve. There has been an inversion of the yield curve before nearly every prior recession and we have never had an inversion of the yield curve without seeing a recession in the next two years.
If you have no idea what an inversion of the yield curve is, that probably means you’re a normal person with better things to do with your time. But for economists, and especially those who monitor financial markets closely, this can be a big deal.
An inverted yield curve refers to the relationship between shorter- and longer-term interest rates. Typically, a longer-term interest rate, say the interest rate you would get on a 30-year bond, is higher than what you would get from lending short-term, like buying a three-month Treasury bill.
The logic is that if you are locking up your money for a longer period of time, you have to be compensated with a higher interest rate. Therefore, it is generally true that as you get to longer durations, say a one-year bond compared to three-month bond, the interest rate rises. This relationship between interest rates and the duration of the loan is what is known as the “yield curve.”
We get an inverted yield curve when this pattern of higher interest rates associated with longer-term lending does not hold, as was at least briefly the case last week. For example, on Wednesday, March 27th, the interest rate on a three-month Treasury bill was 2.43 percent. The interest rate on a ten-year Treasury bond was just 2.38 percent, 0.05 percentage points lower. That meant that we had an inverted yield curve.Add a comment
- Written by Dean Baker
The NYT had an article reporting on how the reduction of immigration had led to a shortage of workers in many industries, highlighting the case of residential construction. While there have been modest increases in real wages in residential construction, the data don't provide evidence of a serious shortage of workers.
Since 2000, the inflation-adjusted average hourly wage for production and nonsupervisory workers in the industry has increased by 14.3 percent, an average of 0.7 percent annually, as shown below.
Real Wages in Residential Construction
Source: Bureau of Labor Statistics.
While this is better than in some industries, this pace of wage growth is well below the economy-wide average rate of productivity growth. It is difficult to argue that the industry is hit by a labor shortage if wages are not even keeping pace with productivity growth, although it is not surprising that employers, like the ones quoted in this piece, complain about having to pay high wages.Add a comment
- Written by Dean Baker
The New York Times ran one of its periodic pieces on how bad things are in Japan. The gist of this piece is that China's economic slowdown is hurting Japan, so Japan may have been mistaken to rely on China as a major export market. As the subhead tells readers:
"A slump in exports raises questions about how effective Prime Minister Shinzo Abe’s economic policies would have been without Chinese help."
This is a truly bizarre sort of argument. China has the largest economy in the world on a purchasing power parity basis. It is also very close to Japan geographically. It would be utterly nuts for Japan not to turn to China as a major market for its exports.
Furthermore, most projections show that China's economy is slowing, not going into a recession. But, even if it does fall into a recession, it is unlikely that it will last forever. If China has a growth rate of 5.0 percent annually coming out of the recession (far below its recent pace), it will be by far the fastest growing market in the world in absolute size. Japan's businesses would surely want access to this market.
The piece also paints a dire picture of Japans economy that is at odds with reality. It comments:
"Longstanding problems like deflation, bureaucracy and a shrinking population added friction to the country’s growth.
"As deflation pushed down prices, companies struggled to increase profits. Deflation generally discourages consumers from making major purchases as they wait for lower prices and better deals."
Japan's rate of deflation has only exceeded 1.0 percent in 2009. With a rate of deflation of 1.0 percent, a $20,000 car would sell for $100 less if buyers waited six months. It is unlikely that many consumers will make that decision. In this respect, it is worth noting that computer prices have fallen at double-digit annual rates for most of the last four decades. This has not impaired sales in the computer industry in any obvious way.
The piece also bizarrely asserts:
"Increasing government spending has also proved tricky.
"Japan has the highest level of debt in the industrialized world, so finding money to spend can be difficult."
Actually, Japan borrows long-term at a negative nominal interest rates, meaning that investors pay the Japanese government to borrow money from them. That means finding money to spend is in fact very easy. (Its interest burden is lower as a share of GDP than in the United States.)
More generally, the picture of Japan as an economic basket case turns reality on its head. As I wrote a few months back:
"According to the IMF, Japan's per capita GDP has increased by an average rate of 0.9 percent annually between 1990 and 2018, while this is somewhat less than the 1.5 percent rate in the United States, it is hardly a disaster. In addition, average hours per worker fell 15.8 percent in Japan over this period, compared to a decline of just 2.9 percent in the United States."
The story of Japan's economy being in desperate straits is entirely a media invention, it is not based in reality.Add a comment
- Written by Dean Baker
That is not quite what he said, but it is pretty much in the same spirit as what Buttigieg said about trade and jobs, according to the Washington Post. The post told readers:
"Buttigieg has said six times as many jobs were lost because of automation as trade from 2000 to 2010."
This is more or less right in the same way that Nebraska will get far more rain over the course of 2019 than the rain that caused the recent flooding. And, the assertion makes about as much sense in the context of the floods as in the context of jobs lost to imports.
Productivity growth (the term that economists use for Buttigieg's "automation") averages roughly 2.0 percent annually. This means that, in a workforce of 150 million people, we lose roughly 3 million jobs a year to productivity growth. Since the workforce averaged roughly 134 million in the last decade, we would have lost roughly 27 million jobs due to productivity growth.
By comparison, we lost 3.4 million manufacturing jobs from 2000 to 2007 (before the crash) as the trade deficit exploded. So, Buttigieg can accurately say that we lost more than six times as many jobs due to productivity growth than due to trade. And, this doesn't change by one iota the fact that the huge run-up in the trade deficit devastated millions of families and whole communities in places like Ohio, Michigan, Pennsylvania, and Indiana.
It is also striking the Buttigieg is worried about automation proceeding too quickly. Pretty much the whole economics profession has the opposite concern, that productivity growth is too slow. Productivity growth has averaged just 1.3 percent annually over the last decade. In fact, the NYT just ran a column telling readers that we should expect that productivity growth will remain slow forever more.
In principle, productivity growth is associated with rising real wages and shorter work hours. It is striking that Buttigieg is apparently concerned about something that is so directly at odds with both the data and standard economics.Add a comment