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.

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

I'll be moving in the next week, so I will likely not be blogging. Hopefully, I will be up and blogging by next Sunday.

Add a comment

Carlos Lozada, the non-fiction book critic for the Washington Post, promised "an honest investigation" of whether truth can survive the Trump administration in the lead article in the paper's Sunday Outlook section. He delivers considerably less.

Most importantly and incredibly, Lozada never considers the possibility that respect for traditional purveyors of "truth" has been badly weakened by the fact that they have failed to do so in many important ways in recent years. Furthermore, they have used their elite status (prized university positions and access to major media outlets) to deride those who challenged them as being unthinking illiterates.

This dynamic is most clear in the trade policy pursued by the United States over the last four decades. This policy had the predicted and actual effect of eliminating the jobs of millions of manufacturing workers and reducing the pay of tens of millions of workers with less than a college education. The people who suffered the negative effects of these policies were treated as stupid no-nothings and wrongly told that their suffering was due to automation or was an inevitable product of globalization. 

These claims are what those of us still living in the world of truth know as "lies," but you will never see anyone allowed to make these points in the Washington Post. After all, its readers can't be allowed to see such thoughts. (Yes, I am once again plugging my [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.)

This was far from the only major failure of the purveyors of truth. The economic crisis caused by the collapse of the housing bubble cost millions of workers their jobs and/or houses. While this collapse was 100 percent predictable for anyone with a basic knowledge of economics, with almost no exceptions, our elite economists failed to see it coming and ridiculed those who warned of the catastrophe.

Incredibly, there were no career consequences for this momentous failure. No one lost their job and few probably even missed a scheduled promotion. Everyone was given a collective "who could have known?" amnesty. This leaves us with the absurd situation where a dishwasher who breaks the dishes get fired, a custodian that doesn't clean the toilet gets fired, but an elite economist who completely misses the worst economic disaster in 70 years gets promoted to yet another six-figure salary position.

And, departing briefly from my area of expertise, none of the geniuses who thought invading Iraq was a good idea back in 2003 seems to be on the unemployment lines today. Again, there was another collective "who could have known?" amnesty, with those responsible for what was quite possibly the greatest foreign policy disaster in US history still considered experts in the area and drawing high salaries.

When we have a world in which the so-called experts are not held accountable for their failures, even when they are massive, and they consistently look down on the people who question their expertise, it undermines belief in truth. It would have been nice if Lozada had explored this aspect of the issue, but hey, it's the Washington Post.

Add a comment

Apparently, the idea that China would ignore US intellectual property claims as a weapon in Trump's trade war is simply unimaginable to Rampell, the Post's lead economic columnist. It doesn't even merit a sentence in a column devoted to the alternatives China might pursue given the limited amount of US imports on which it can impose tariffs. Since Rampell can't imagine how this weapon can work, let me try.

Suppose that China's government announces that, in response to Trump's latest round of tariffs, it will not be enforcing any of Microsoft's copyrights, starting on September 1, 2018. This means not only that everyone in China would be able to buy computers with Windows operating system and Microsoft's Office Suite without sending Bill Gates a penny, but computers manufactured in China could be sent all over the world without Microsoft collecting anything. The same would be true for Apple's iPhones.

This would also apply to prescription drugs. China could start manufacturing generic versions of drugs like the Hepatitis C drugs Sovaldi and Harvoni, which have list prices of more than $80,000 for a course of treatment. China could make the generic versions available both to its own people and the rest of the world for a few hundred dollars, with the manufacturers still making a healthy profit.

And, that latest Hollywood hit movie? Imagine anyone, anywhere in the world could download it in seconds for free. Of course, the same would apply to new music as well as the older movies and music that still generate money for the entertainment industry.

Does anyone think these moves might get a little attention from US corporations? My guess is that they would probably take notice and probably be threatening Republican members of Congress in a really big way if they didn't act quickly to rein in their president.

But, that's just my speculation.

Add a comment

The Washington Post had an interesting piece on how people with chronic conditions, such as high blood pressure, can now have key measures monitored remotely on an ongoing basis through a new program. This will allow for health care professionals to quickly detect problems and recommend steps to counteract them or to see a physician for care, if needed. As the piece points out, this is likely to lead to both better health outcomes and lower costs, as many patients may take steps to alleviate problems before they become life-threatening issues and need emergency care.

While this program as described in the piece sounds like a substantial improvement in health care, it is interesting how it would appear in our national income accounts and measures of health care inflation. If better monitoring of blood pressure and other risk factors leads to fewer strokes and heart attacks, and therefore fewer people coming in for treating emergencies, it will mean that less health care is being provided in our GDP accounts.

The savings also would not appear as a reduction in health care costs in measures like the Consumer Price Index (CPI). The CPI measures the increase in the price of specific goods and services. If we need fewer services because we have found ways, such as better monitoring, to improve people's health, it is not picked up in the index.

This method of accounting is why some of us have advocated pulling health care spending out of GDP measures instead looking at what we spend net of health expenditures and then using various measures of health status to determine the extent to which we are making progress. After all, we care about how long and how well people live, not how many bypass surgeries they receive.

Add a comment

In case you were wondering how large that $33 billion increase in military spending that the other NATO countries agreed to was, it comes to roughly 0.16 percent of their collective GDP. Apparently Donald Trump was impressed with this commitment since he called it "really amazing."

Add a comment

No one wants to pay higher taxes, but we all understand the need when there is a good cause. Therefore, consumers shouldn't have any issues paying an extra $20 billion a year ($200 billion over a 10-year budget horizon) to force China to pay Boeing, Pfizer, Microsoft and other major US corporations more money for their patent and copyright monopolies.

This is explicitly the story, as the Post reports:

"Administration officials said the tariff fight is aimed at forcing China to stop stealing American intellectual property and to abandon policies that effectively force U.S. companies to surrender their trade secrets in return for access to the Chinese market.

"'These practices are an existential threat to America’s most critical comparative advantage and the future of our economy,' said Robert E. Lighthizer, the president’s chief trade negotiator."

Of course, the cost to US consumers is likely to be far more than $20 billion a year if the Trump administration wins its trade war, since it will mean that the prices of goods and services we import from China will be higher because they have to pay more money to US corporations for these intellectual property claims.

However, this will create some good-paying jobs. There will be more demand for economists doing research on the causes of inequality.

 

Addendum:

In a rush, I followed standard media practice instead of good reporting. The proposed $20 billion in tariffs comes to roughly $150 per family per year.

Add a comment

As we remain mired in the longest period of weak productivity growth in recorded US history, the NYT ran yet another piece on coping with the problem of automation creating mass job displacement. This one is focused on the developing world and asks how developing countries could cope with massive displacement of workers in agriculture and manufacturing.

Incredibly (perhaps not incredibly) the possibility of ignoring the patent and copyright monopolies that rich countries demand does not appear on the list of remedies. If new technologies were available in a free market without these government imposed monopolies, it would mean that developing countries could hugely increase their agricultural and manufacturing output at very low cost.

That should be a good story for them, not a crisis. But apparently, reporters are not allowed to raise questions about patent and copyright monopolies in The New York Times.

Add a comment

That's the implication of this piece warning that a tight labor might force companies to raise wages and this could be hard on many companies' profits. We know that profit shares are near record highs, especially after the Trump tax cut substantially reduced companies' tax liabilities.

This means that the vast majority of companies should be able to easily absorb higher wages without passing the cost on in prices. Undoubtedly some companies are not well-situated because they are less efficient or face weak demand for their products. These companies may go out of business.

This is what happens in capitalism. It is how productivity increases and living standards improve through time. Inefficient companies shrink and go out of business, while more dynamic companies grow and prosper.

The piece also bizarrely highlights the 2.7 percent increase in workers' pay over the last year as though it is a big bonanza. This is just equal to the rate of inflation over this period, so in effect, the WSJ is upset that in an economy with 4.0 percent unemployment workers have enough bargaining power to keep even with inflation.

Add a comment

Any newspaper can hire reporters, but The New York Times hires mind readers. Yes, they are at it again. In an article on Trump's demand that other NATO countries increase their military spending to 2.0 percent of GDP the NYT tells readers;

"Mr. Trump, who appears to have a special animus toward Germany, believes that Berlin has developed a vibrant social system and thriving export-driven economy unfairly and on the back of the United States, by not spending enough on defense."

It's so great that we have the NYT to tell us that Trump really has such incredibly absurd beliefs. The idea that Germany's economy would somehow have suffered horribly if it had spent an additional 1.0 percent of GDP on the military is pretty crazy, especially since it has suffered from a serious lack of demand for the last decade.

This doesn't mean that military spending would be the best use of Germany's resources. But it's very hard to make a case that additional spending, even if it were entirely wasteful from a social and economic standpoint, would have devastated Germany's economy. In fact, it probably would have led to somewhat stronger growth and surely would have benefitted the other EU countries that are Germany's largest trading partners.

Add a comment

It's not clear how the paper made these determinations, but it does assert them to be true in the second paragraph of an article on the Trump administration's plans to reduce the rights of federal employees:

"The administration describes Trump’s new rules, issued in May, as an effort to streamline a bloated bureaucracy and improve accountability within the federal workforce of 2.1 million."

While it is certainly possible that the Trump administration is motivated by a desire to make government more efficient, given its willingness to grant no-bid contracts to politically connected companies, government efficiency does not seem to be a priority for the Trump administration. A plausible alternative that the Post seems to rule out with this assertion is that Trump is attacking a group of workers that he sees as political enemies.

Add a comment

I sometimes go under the professional name of "No One" as in "no one saw the financial crisis coming." I apparently need to use this identification again when it comes to a trade war with China.

On Morning Edition today, Jeff Greene interviewed Jonah Goldberg, senior editor at National Review. Mr. Goldberg told Greene how conservatives are free traders so they generally are opposed to Trump's tariffs. He then suggested that a way out for Trump would be to focus on China's intellectual property "theft," since everybody agrees this is a problem.

This is where I come in. I don't particularly consider the fact that China doesn't pay Microsoft, Pfizer, and Boeing what they think they are owed to be a problem for people who are not major stockholders in these companies. As a basic proposition, the more money China sends to these companies, the larger its trade surplus in other areas.

More generally, as a basic proposition, it is more than a bit bizarre that so many economists can somehow believe both that without patent and copyright monopolies and related protections, there would be no incentive for innovation and that technology causes inequality. If we have a problem with inequality due to "technology,"  it is due to the way in which we assign property rights. Shorter and weaker patents and copyrights mean less money to the people on top and more money for everyone else.

That seems pretty simple, but recognizing an $8 trillion housing bubble ($12 trillion relative to today's economy) also seemed pretty simple. There is a reason people say that economists are not very good at economics.

Add a comment

The second fact appeared in a NYT article reporting on how nursing homes are frequently understaffed; the first did not. As many doctors angrily told me after reading a column I did on the protections that inflate doctors' pay, nursing assistants save lives.

Yes, we pay lots of money for health care in this country, more than twice as much as the average for other wealthy countries. Unfortunately, we don't have better outcomes to justify this spending. A big part of this story is how much we pay our doctors and how little we pay less politically powerful workers in the health care industry. (Yes, inflated drug and medical equipment prices and a cesspool insurance industry are also big parts of the story, all discussed in Rigged [it's free].)

Add a comment

With Donald Trump's trade war with China heating up I thought I should bring in Mr. Arithmetic to clarify the situation. Trump apparently thinks that he holds all the cards in this one because the US imports much more than it exports to China.

As I pointed out previously, China has other weapons. For example, it can just stop respecting US patents and copyrights altogether, sending items all over the world that don't include any royalty payments or licensing fees. This could reduce the price of patented drugs by 90 percent or more and make all of Microsoft's software free.

But even ignoring the other weapons that China has in a trade war, the idea that the country can't get by without the US market doesn't fit the data. At the most basic level, China exported a bit more than $500 billion in goods and services to the United States last year. This comes to a bit more than 4.0 percent of its GDP, measured on a dollar exchange rate basis.

As many analysts have noted, much of the value of these exports is not actually valued-added in China. For example, the full value of an iPhone produced in China will be counted as an export to the United States even though most of the value comes from software developed in the United States and parts imported from other countries. Perhaps 40 percent or more of the trade deficit reflects value-added from other countries. (On the flip side, many of the imports from other countries include value-added from Chinese products.)

But let's ignore this issue. Suppose Donald Trump's get-tough trade policies reduce our imports from China by 50 percent, a huge reduction. This would come to roughly 2.0 percent of China's GDP. Will this have China screaming "uncle?"

Probably not. As Mr. Arithmetic points out, China's trade surplus fell by 4.4 percentage points of GDP from 2008 to 2009, yet its economy still grew by more than 9.0 percent that year and by more than 10.0 percent the next year. While all of China's annual data should be viewed with some skepticism, few doubt the basic story. China managed to get through the recession without a major hit to its growth.

Of course, that drop in exports was due to an unexpected economic crisis, this one would be due to a politically motivated trade war. Mr. Arithmetic does not expect China to be giving in any time soon.

Add a comment

Like the Supreme Court, the Fed has considerable independence from day-to-day politics. It has seven governors who are appointed by the president and approved by the Senate. They can serve 14 year terms, although most do not stay for the full period.

The Open Market Committee that sets interest rate policy also includes the twelve district bank presidents. Five of these twelve bank presidents have a vote at any point in time, although all twelve take part in the discussion. The bank presidents are appointed through a somewhat opaque process that has historically been dominated by the financial industry, although this process was opened up somewhat during Janet Yellen's tenure as Fed chair.

This process insulates the Fed from the whims of the president and other political figures. However, there is nothing inappropriate about the president or any other elected official commenting on Fed policy, as The New York Times implies in this piece.

Given the close ties of the bank presidents, and often the governors, to the financial industry, a Fed that is considered off limits for political debate is likely to be overly responsive to the concerns of the financial industry. This is likely to mean, for example, excessive concern over inflation and inadequate attention to the full employment part of the Fed's mandate. It is understandable that the financial industry would like to keep the public unaware of the importance of the Fed's actions, but the public as a whole does not share this interest.

Add a comment

The top of the hour lead into Morning Edition (sorry, no link) told listeners that hiring will be down for June because employers can't find workers. Of course, employers who understand basic economics can find workers: they just raise pay to pull them away from competitors.

We aren't seeing any large-scale increases in pay despite near-record profit shares. This suggests that either employers really are not short of workers or that they are too incompetent to understand the basics of the market.

Add a comment

That's the implication of this CNBC piece that claims that hiring is down because businesses can't find qualified workers. If this is really the problem, then the solution, as everyone learns in intro economics, is to raise wages. For some reason, CEOs apparently can't seem to figure this one out, since wage growth remains very modest in spite of this alleged shortage of qualified workers.

Businesses should be well-positioned to absorb higher wages since their profits have soared over the last two decades. In the years from 1980 to 2000, the beneficiaries of upward redistribution were higher paid workers like CEOs, Wall Street-types, and highly paid professionals like doctors and dentists. Since 2000, there has been a substantial shift from wages to profits, as the after-tax profit share of national income has nearly doubled, as shown below.

Book2 9000 image001

Source: Bureau of Economic Analysis and author's calculations.

The profit shares include one-third of the foreign profits of US corporations based on new research showing that this is really just profit shifting to evade taxes. If after-tax profit shares were back at their 2000 level, it would imply another $600 billion a year in wage income or almost $4,000 per worker in additional wages.

Add a comment

The paper owned by the man who got incredibly rich by avoiding state and local sales taxes is upset because workers are getting Social Security disability payments that average less than $1,300 a month. Since the US has one of the least generous disability programs of any wealthy country, this might seem like a strange concern. Here's the picture from the OECD.

 

 

disability gdp

Source: OECD.

Of course the Post is also a paper that gets hysterical over the prospect that truck drivers will get pay increases. In short, these are folks who practice crude class war. They are okay with some crumbs for the poor, but anything that is good for ordinary workers means giving up money that could be in the pockets of the Bezoses of the world.

Add a comment

It is common practice for people who completely missed the housing bubble to warn about another impending debt crisis which will sink the economy when it bursts. In this vein, we have a New York Times editorial telling us about the dangerous increase in credit card debt.

The piece tells readers:

"And now rates are now rising at time when household debt reached a record $13.21 trillion in the first quarter. Household debt service payments as a percentage of disposable income hit 5.9 percent in the first quarter, according to the Federal Reserve, a figure not reached since just before the Great Recession. Average credit card debt per borrower is about $5,700 and growing at a rate of 4.7 percent while wages are growing at about 3 percent. That can’t continue forever."

Since they had the Fed's data on debt burdens in front of them, they should have known the full picture, which is below.

fredgraph

Are you scared?

The piece also includes several other silly comparisons, starting with the comparison of the growth in average household debt to the growth in the average hourly wage. The czar of apples-to-apples insists they use average household income, which in nominal terms is growing at roughly the same rate. The editorial also repeatedly compares wealth to the 2007 bubble peaks. Surprise! We haven't recovered.

The basis of the piece is the bad news that when the Fed raises interest rates it will mean higher interest payments on credit card debt. I am happy to have the NYT as an ally in the battle against unnecessary interest rate hikes, but the burden on credit card debt hardly tops the charts as a reason. Suppose interest rates rise 2.0 percentage points (a huge increase) on $1 trillion in credit card debt. That comes to $20 billion a year or about $150 a year per household. That's not altogether trivial, but not a concern that keeps me awake at night.

It would be a much greater concern if Fed rate hikes kept 2–3 million people from working and lowered the wages on 30 or 40 million low- and moderate-wage workers by reducing their bargaining power. There is some value in keeping your eye on the ball and actually knowing something about the topics on which you write.

Add a comment

Bloomberg doesn't seem quite as scared as the Washington Post, which worries that if truckers earn $60,000 a year it would sink the economy. But it also seems really disturbed that employers can't get more drivers without paying them more. This one is, in some ways, even more over the top than the Post piece. It wants to blame the government.

The story here is that there are restrictions on hours, which used to be tracked using paper records but now are verified electronically. This makes cheating more difficult.

"Under the old regime, a driver making 40 cents a mile might drive 750 miles in 15 hours, averaging 50 miles an hour and making $300. His paperwork would claim 11 hours at 68 mph. Now, however, his time is electronically tracked and the 11-hour limit is strictly enforced. At 50 mph, he makes only $220."

So, in the good old days, a driver putting in 15 hours a day pulled down $300, or $20 an hour. If we converted this into an hourly wage, with a 50 percent overtime premium after 8 hours, this comes to $16.21 an hour. In this story, the hourly pay actually rises somewhat to $22 an hour because of the evil regulations, but because the worker is putting in 27 percent fewer hours, her daily pay falls.

In any case, it is striking that no one seems to think that higher pay might be a good way to solve this shortage. I guess no one believes in market solutions at Bloomberg.

Add a comment

You can make a very good living coming up with stories about how the US trade deficit is a good thing. After all, the jobs that are lost are overwhelming the jobs of less-educated workers. In addition, the fact that trade takes away the jobs of millions of less-educated workers puts downward pressure on the pay of people without college degrees more generally.

That means that the folks with college and advanced degrees, who are largely protected from international competition by protectionist measures (e.g. professional licensing requirements that exclude foreign-educated doctors, lawyers, dentists etc.) get to enjoy higher standards of living through two channels. First, they get to buy all those imported goodies (cars, television sets, clothes, etc.) at lower prices. Second, the help in areas like restaurant work, construction, landscaping etc. all get paid less, meaning lower prices for domestically produced goods. What's not to like?

For this reason, it is hardly surprising to see David Frum's piece in the Atlantic touting the wonders of the US trade deficit with China. Aren't we lucky we have folks like Frum and magazines like The Atlantic to straighten out those stupid workers who can't see how wonderful it is that they lose their jobs to import competition? I'm sure Frum and the Atlantic would have published the same lecture if we had free trade in physicians', dentists' and lawyers' services and protection for manufactured goods, so that our trade deficit was due to payments to foreign professionals (working under contract, so the payment goes to their employer).

Anyhow, I have written endlessly on this topic. Given the amount of money to support dreck on the other side I can't respond to all of it, but here are a couple of pieces for folks who may want a bit more background. It is also covered in the first chapter of my [free] book Rigged.

Note: "Frum" was misspelled in an earlier version.

Add a comment

The Washington Post had yet another hysterical piece about how "America's Severe Trucker Shortage" could undermine the economy. While the piece features the usual complaints from employers about how they can't get anyone to work for them no matter how much they pay, the data indicate they aren't trying very hard. Here's the inflation adjusted average hourly pay for production and non-supervisory workers in the trucking industry since 1990.

Real Hourly Wage: Truck Transportation, Production and Non-Supervisory Workers

truck real pay

Source: Bureau of Labor Statistics.

As the figure shows, the real hourly wage for workers in the industry is still more than 10 percent below its 1990 peak. While this would include some workers who are not truckers (for example, the people handling orders), truckers would be the bulk of employees and certainly, if their pay was rising rapidly it would show up in the data.

The piece includes this incredible assertion: "economists say, if competition for truckers pushes up prices so quickly that the country faces uncontrolled inflation, which can easily lead to a recession," although it doesn't actually name any economists who say anything like this. There are a bit less than 1.3 million production and non-supervisory workers in the trucking industry. Suppose their pay went up by an average of $20,000 a year, which would be more than a 40 percent increase. (The Bureau of Labor Statistics puts their average pay currently at just $46,000 a year.) 

This huge pay increase would then add $20 billion to costs in the economy, or roughly 0.1 percent of GDP. (It's a bit less than 10 percent of what we pay our doctors each year.) It would be very interesting to see if the Post could find any economist who would say that this would lead to "uncontrolled inflation."

Add a comment