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 highlighting the latest Beat the Press posts.

Please also consider supporting the blog on Patreon.

Follow on Twitter Like on Facebook Subscribe by E-mail RSS Feed

(This post originally appeared on my Patreon page.)

The prospect of free public college is shaping up as one of the major divides between the more progressive candidates (Bernie Sanders and Elizabeth Warren) and the more centrist candidates (Joe Biden and Pete Buttigieg). Buttigieg in particular has been especially vocal in his opposition to making college free for everyone.

He has argued that it would be regressive to tax middle class people to pay for the children of the wealthy to go to college. Buttigieg argues instead that he would make public colleges free for children of families earning less than $100,000. He would have a sliding scale for families with incomes between $100,000 and $150,000, and have families with incomes over $150,000 pay full tuition.

Sanders and Warren have argued that college should be seen as a right, comparable to attending a public grade school, and that we shouldn’t expect people to pay for it. They also point to the strong political support for universal programs, like Social Security and Medicare, as opposed to anti-poverty programs like Temporary Assistance for Needy Families (TANF) or food stamps.

While these are important arguments for universal free college, there is another side of this issue that has been largely neglected. Specifically, Buttigieg and other proponents of means-testing tuition seem to have not grappled with the administrative difficulties of their plan.

It is one thing to write down on paper how much we think families at various income levels should pay for their kids’ college. Implementing this payment schedule in practice is a very different story.

Economists tend to believe that people respond to incentives. The Buttigieg plan gives families enormous incentives to make their income appear smaller than it actually is.

Add a comment

The NYT and Washington Post gave us more of their fraternity ritual budget reporting in talking about the new $738 billion military budget agreed to by Congress and Donald Trump. This is known as fraternity ritual reporting because everyone knows that the number $738 billion is completely meaningless to the overwhelming majority of NYT and Post readers. Nonetheless, reporters put it down knowing that it conveys no information, because that is the ritual.

If the papers were actually interested in providing information to their readers they could have told them the budget comes to just under 3.4 percent of GDP. Alternatively, they could have said that it accounts for a bit less than 17 percent of projected federal spending for the fiscal year. But no one expects these newspapers to be in the business of providing information.

Add a comment

Dawn Niederhauser, CEPR’s Development Department here. It’s the time of year when I highjack Dean’s blog to ask that you consider making a year-end donation to CEPR. As you may have heard, it’s CEPR’s 20th Anniversary this year. Yep, Dean has been calling out bad economic reporting for two decades now, and while he’s definitely made an impact over the years, there’s much more work to do.

So please, click here and donate in Dean’s honor today. Help us to help Dean keep those reporters on their toes!

Many thanks for your support. And as Dean always says, don’t believe everything you read in the papers…

Add a comment

Washington Post columnist Charles Lane took a story from a German TV show to lecture his readers about health care costs. According to Lane, the show featured a  German civil servant who had a daughter with a rare and fatal spinal condition. Her only hope was a $330,000 operation in a clinic in Colorado. Her German insurance company refused to pay for it, forcing the guy to try an on-line fundraiser, which also failed.

No reason to go any further with the TV show, but Lane's takeaway is that:

"neither Germany nor any other country on Earth, major or minor, does is 'guarantee' everyone health care, in the sense of assuring them all the care they want, at a price they can afford, no matter what.

"Trade-offs in health care are real and not merely the result of insurance company or drug company greed."

This is a warning against an expansive Medicare for All plan, such as the one being pushed by Bernie Sanders.

It's worth thinking about Lane's German TV show a bit more carefully. Let's ask why some medical treatments are very expensive, regardless of whether it is the government, private insurers, or the patient who pays.

A major reason that many treatments involving new drugs are expensive is that the government granted the companies patent monopolies. It is true that money had to be spent on the research, but at the point the drug is available to patients, that research was already done. In almost all cases the cost of manufacturing and distributing the drug would not require anyone to have an online fundraiser even in the absence of insurance.

We do have to pay for the research, but government-granted patent monopolies are an extremely inefficient mechanism. (See Rigged chapter 5, for a discussion of alternatives [it's free].) In addition to creating the horrible problem of making otherwise cheap drugs costly, patent monopolies also give companies an incentive to misrepresent the safety and effectiveness of their drugs in order to sell them as widely as possible. This is an important part of the story of the opioid epidemic.

There is a similar story with medical equipment. There are a whole range of treatments that are very costly, not because the equipment is expensive to manufacture, but because the manufacturer has a patent monopoly on it. If we didn't rely on patent monopolies to finance the development of this equipment, it would be cheap as well.

What about the poor German civil servant looking at a $330,000 bill for his daughter's operation. Well, Lane doesn't tell us much about the operation, so we don't know exactly what caused the high cost, but it is true that many specialists in the United States are very highly paid, earning $400k or $500k a year, or more. It is possible that this procedure involved a considerable amount of time from one or more of these highly paid specialists, which would make it expensive, although probably not get us to the $330,000 range. (Two full days of work from someone earning $500k a year would be just $4,000, assuming 250 workdays a year.)

But the fact that these specialists can get $500k a year is not an accident. We have rigged the market to ensure that they are in short supply and can set their own terms.

Add a comment

NPR had a piece on how the percentage of prime-age men (ages 25 to 54) in the workforce remains low, despite the relatively strong labor market. While the basic point is true, there are a couple of important qualifications. First, this is not a new story. The share of men who are employed has been dropping for a half-century. The second point is that, contrary to what is implied in the piece, the decline in employment rates has occurred for men at all education levels.

On the first point, if we look at business cycle peaks, we have a decline in prime-age employment to population (EPOP) ratios of 9.1 percentage points, taking business cycle peaks, from 95.6 in 1967 to 86.5 percent in the November data. (This assumes we are at a business cycle peak, which may prove not to be true.) I use employment rates since the decision to look for work, and therefore be counted as part of the workforce, is affected by the structure of unemployment benefits, which has been frequently changed over this period.

Most of this drop took place prior to 1990 when the prime age male EPOP peaked at 90.0 percent, 5.6 percentage points below its 1967 peak. The drop in the remaining 29 years has been just 3.5 percentage points, as shown below.

Prime Age (ages 25-54) Male Employment to Population Ratios

male EPOPs

Source: Bureau of Labor Statistics.

The other point is that the drop in EPOPs has occurred at all education levels, as is actually shown in a figure included in the piece. While the decline has been sharpest for less-educated workers, the figure shows a drop in EPOPs for prime-age men with a college degree of roughly five percentage points between 1975 and 2018. The drop for those with some college and with just a high school degree is larger (roughly 8.0 percentage points and 10.4 percentage points, respectively), but clearly, this drop cannot be explained by declining demand for workers with less education by itself.

In fact, if the story is that trade and technology have led to a decreased demand for workers with less skill, the implication is that it should have led to an increase in demand for workers with more skill. Other things equal, we would have expected that to mean an increased, or at least constant, EPOP for prime age men with college degrees.

In short, there clearly has been a drop in employment among prime age men, but this is not a new story, nor is it a simple story of changing skills demand in the labor market.

Add a comment

A very large portion of U.S. workers will earn more than $2 million. That's not in a year, but in a working lifetime. That makes a huge difference.

Apparently that point is too subtle for the people who write headlines for the Washington Post. The headline of an article on Senator Warren's income from consulting fees told readers, "Sen. Elizabeth Warren earned nearly $2 million consulting for corporations and financial firms, records show."

As people who read the article would learn, this amount was earned over roughly twenty years, meaning that the average payments were in the neighborhood of $50,000 a year. While that is still a considerable chunk of change, it is common for a lawyer of Ms. Warren's stature to earn millions of dollars a year. (I'm not saying that's justified, it just happens to be the reality.)

In any case, there is a huge difference between earning $2 million in a single year or a short period of time and earning it over a long portion of a person's career. The people who write headlines for major newspapers should understand this point.  

Add a comment

This vocabulary problem is apparent in a lengthy (and interesting) piece on efforts by drug companies to push opioids in large part by denying their addictiveness. These companies would have had far less incentive to lie about the dangers of opiods if they were selling at generic prices from the day they were approved by the Food and Drug Administration.

The incentive to mislead clinicians and the public about the safety and effectiveness of drugs is one of the main problems of using patent monopolies as a way to finance research. It would be good if reporters were allowed to talk about this fact.

Add a comment

The NYT had an article that focused on Buchanan County, Virginia as an example of a left-behind area in the United States. The county's economy had centered on coal.

While the discussion implies that its downturn is a recent story, the data presented in the piece shows that most of the decline occurred more than two decades ago. The county had more than 5,000 coal mining jobs in the early 1980s. This had fallen to just over 1,000 by the late 1990s. While there was some uptick in coal jobs from 2009 to 2013, the current level is not very different from the level of twenty years ago.

This pattern of decline is also captured in the data on per capita disposable income shown in the article. This fell from around 85 percent of the national average in the early 1980s to around 65 percent by the end of the decade. There have been fluctuations since then, but it is roughly at the same level today.

The timing here is important, since it is wrong to imply that the decline of the coal areas is a new phenomenon. There was a sharp downturn in coal employment in the 1980s, that bottomed out in the late 1990s. Since then the changes have been largely cyclical. By contrast, the loss of millions of manufacturing jobs due to trade in the last decade was a much more recent and far-reaching phenomenon.  

Add a comment

The Washington Post had an article telling readers "retail drug prices declined last year for the first time since 1973." While the article refers to a study done by the Center for Medicare and Medicaid Services, it is not clear that this decline would have much meaning for anyone. As the piece notes, many people were still paying more for drugs in 2018 than 2017 because they faced higher deductibles and co-pays from insurance.

It is also important to note that this study only looked at the retail drug market. That excludes drugs purchases by hospitals, nursing homes, and other institutions. If their spending is included, total spending on prescription drugs rose by 4.0 percent in 2018. Furthermore, it is on a path to increase by more than 8.0 percent in 2019 (National Income and Product Accounts, Table 2.4.5U, Line 121).

The piece also notes a sharp increase in the cost of health insurance in 2018, which it speculates could have been due to an increase in taxes on insurance in 2018. That does not appear to be the cause since insurance costs have been increasing even more rapidly in 2019.

The Bureau of Labor Statistics reports that the cost of health care insurance (administrative expenses and profits -- not premiums) increased by 20.1 percent over the last twelve months and rose 2.1 percent in October alone. This rise cannot be explained by a tax increase that took effect at the start of 2018.

Add a comment

(This piece originally appeared on my Patreon page.)

Economists are continually developing new statistical techniques, at least some of which are useful for analyzing data in ways that allow us to learn new things about the world. While developing these new techniques can often be complicated, there are many simple things about the world that economists tend to overlook.

The most important example here is the housing bubble in the last decade. It didn’t require any complicated statistical techniques to recognize that house prices had sharply diverged from their long-term pattern, with no plausible explanation in the fundamentals of the housing market.

It also didn’t require sophisticated statistical analysis to see the housing market was driving the economy. At its peak in 2005 residential construction accounted for 6.8 percent of GDP. This compares to a long-run average that is close to 4.0 percent. Consumption was also booming, as people spent based on the bubble generated equity in their homes, pushing the savings rate to a record low.

The existence of the bubble and the fact that it was driving the economy could both be easily determined from regularly published government data, yet the vast majority of economists were surprised when the bubble burst and it gave us the Great Recession. This history should lead us to ask what other simple things economists are missing.

For this holiday season, I will give three big items that are apparently too simple for economists to understand.

1)Profit shares have not increased much -- While there has been some redistribution in before-tax income shares from labor to capital, it at most explains a small portion of the upward redistribution of the last four decades. Furthermore, shares have been shifting back towards labor in the last four years.

2) Returns to shareholders have been low by historical standards -- It is often asserted that is an era of shareholder capitalism in which companies are being run to maximize returns to shareholders. In fact, returns to shareholders have been considerably lower on average than they were in the long Golden Age from 1947 to 1973. 

3) Patent and copyright rents are equivalent to government debt as a future burden – The burden that we are placing on our children through the debt of the government is a frequent theme in economic reporting. However, we impose a far larger burden with government-granted patent and copyright monopolies, although this literally never gets any attention in the media.

Add a comment