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).

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The NYT had a major article on the problems of the health care exchanges established under the Affordable Care Act (ACA). The piece implied that the problem is that too many people are opting to go without insurance, even bringing up the silly old line about the lack of young healthy people. (The exchanges need healthy people, it doesn't matter if they are young. In fact, older healthy people are more profitable since they pay higher premiums.)

In fact, fewer people are going without insurance than had been predicted when the ACA was passed. In 2012, before the key provisions of the ACA took effect, the Congressional Budget Office (CBO) projected that the uninsured population would fall to 32 million by 2015. In fact, it fell to 32 million by 2014, a year in which it was projected there would still be 38 million uninsured people. According to data from Gallup, the number of uninsured non-elderly fell to less than 28 million by the fourth quarter of 2015. (The 2012 projections also assumed that all states would expand Medicaid since it preceded the Supreme Court ruling that allowed states to opt out.)

The reason that the health care exchanges have had lower than predicted enrollments is that fewer employers have dropped employer based insurance than expected. This is the sort of thing that a major article on unexpected problems in the exchanges should have noted.

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Gretchen Morgenson had an interesting piece pointing out that it is rare that corporate boards ever clawback substantial sums from CEOs involved in illegal or inappropriate activity. (The immediate context is the clawback of some future performance pay from Wells Fargo CEO John Stumpf.) The issue, as Morgenson presents it, is that boards don't generally do clawbacks except where it is legally required.

The point is that boards do not want to do clawbacks. This raises the obvious question as to why boards would not want to clawback money from CEOs?

Corporate boards are supposed to be working for shareholders. If they have a legal basis for getting extra money for shareholders by taking back pay from a CEO, they should want to do it. The assumption in Morgenson's piece, which is undoubtedly accurate, is that the boards are allied with the CEO. They don't want to take away from money from him/her unless they are forced to by the law.

This is the context in which CEOs like John Stumpf can earn close to $20 million a year, more than 500 times the pay of the median worker. And then we can count on leading policy experts to tell us the problem is that most workers lack the skills to compete in the modern economy.

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In an article reporting on Senate Majority leader Mitch McConnell's statement that he will not bring up the Trans-Pacific Partnership (TPP) in a lame duck session of Congress, the Post asserted:

"Some Republican lawmakers typically inclined to support trade deals have objected to some provisions in the TPP that could hurt tobacco and pharmaceutical companies."

Actually, there are no provisions in the deal as now written that "hurt" tobacco and pharmaceutical companies. The provisions in question don't help the industries as much as they would like.

In the case of the tobacco industry, it is not guaranteed the same access to investor state dispute settlement tribunals as other industries. The pharmaceutical industry only got a guarantee of the equivalent of eight years of marketing exclusivity as protection against biosimilar drugs. While the industry wanted this protection for 12 years, it currently has no guarantee of protection, so the issue is one of how much it will gain.

It is understandable that powerful interests would look to get as much as possible out of a trade and regulatory pact like the TPP, but it is highly misleading to report their failure to get everything they want as being hurt by the deal.

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A headline of a NYT business section piece confidently told its readers that "China manipulates its currency, but not in the way Trump claims." The gist of the argument is that China has recently sold off some of its foreign exchange reserves in order to raise the value of its currency. It goes on to assert that because the inflow of foreign investment into China has slowed, its currency should fall if left to market forces.

Actually, China still holds well over $4 trillion in foreign reserves counting the money in its sovereign wealth fund. Given standard rules of thumb, a country with China's level of imports would be expected to hold between $500 billion and $1 trillion in foreign reserves. These additional holds of reserves have the effect of keeping down the value of China's currency, just as Donald Trump claims. (I will not vouch for the fact that this is what Trump is thinking when he complains about currency management.)

It is also worth noting that even though China's economy has slowed, it is still growing far faster than the economies in Europe, Japan, and the United States. This would be expected to lead to an inflow of capital to China, which would correspond to China running a trade deficit. Instead, China is continuing to run a trade surplus of between 2–3 percent of GDP.

In short, Trump is much closer to the mark on this one than the NYT.

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Most workers suffer serious consequences when they mess up on their jobs. Custodians get fired if the toilet is not clean. Dishwashers lose their job when they break too many dishes, but not all workers are held accountable for the quality of their work.

At the top of the list of people who need not be competent to keep their job are economists. Unlike workers in most occupations, when large groups of economists mess up they can count on the media covering up their mistakes and insisting it was just impossible to understand what was going on.

This is first and foremost the story of the housing bubble. While it was easy to recognize that the United States and many other countries were seeing massive bubbles that were driving their economies, which meant that their collapse would lead to major recessions, the vast majority of economists insisted there was nothing to worry about.

The bubbles did burst, leading to a financial crisis, double-digit unemployment in many countries, and costing the world tens of trillions of dollars of lost output. The media excused this extraordinary failure by insisting that no one saw the bubble and that it was impossible to prevent this sort of economic and human disaster. Almost no economists suffered any consequences to their career as a result of this failure. The "experts" who determined policy in the years after the crash were the same people who completely missed seeing the crash coming.

We are now seeing the same story with trade. The NYT has a major magazine article on the impact of trade on the living standards of workers in the United States and other wealthy countries. The subhead tells readers:

"Trade is under attack in much of the world, because economists failed to anticipate the accompanying joblessness, and governments failed to help."

Of course many economists did not anticipate the negative impact of trade, but of course many of us did. The negative impact was entirely predictable and predicted. (Here are a few from CEPR, there are many more books and papers from my friends at the Economic Policy Institute.) The argument is straightforward: trade policy has been designed to put manufacturing workers in direct competition with low paid workers in the developing world. This costs jobs and puts downward pressure on the wages of these workers. It also puts downward pressure on the wages of less-educated workers more generally, as displaced manufacturing workers seek jobs in retail and other sectors. Stagnating wages and increasing inequality are the predicted result of this pattern of trade, not a surprising outcome.

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The establishment types are pulling out all the stops in trying to resuscitate the Trans-Pacific Partnership. Hence we get a report from the OECD on the declining growth rate of world trade and a front page article highlighting the report in the Washington Post.

I haven't read the report carefully, but it is worth making two quick points. First, trade has grown rapidly as share of world GDP from 1970 to the 2008 crash. (Interestingly, the world economy was growing more rapidly in the 1960s when there was little increase in the ratio of trade to GDP.) It was virtually inevitable that the rate of growth of trade would slow. Once the volume of trade is very large relative to the economy, it is hard for it to grow too much further.

In other words, once we have removed all the barriers in trade between the U.S. and Canada, we will have seen most of the expected growth in trade and in subsequent years we would expect trade to grow pretty much at the same pace as the economy. If we want to see more trade, then make the economies grow faster, say with larger budget deficits providing stimulus.

The other point is that many economists have argued that GDP growth is being substantially understated due to measurement error. The basic story is that we are getting lots of items free over the Internet that we used to pay for. These free items are not counted in GDP even though the costly ones they replace would have been.

I am a skeptic on this one. Clearly there is some truth to the story, but I doubt it amounts to more than 0.1 percentage point of GDP growth and almost certainly not more than 0.2 percentage points. Nonetheless, the argument is taken seriously by many. Jan Hatzius, the chief economist at Goldman Sachs, argues that the understatement could be as much as 0.75 percentage points.

Whatever the true story, the measurement error occurs overwhelmingly in items likely to be subject to international trade (e.g. music and videos transferred over the web.) This means that however much we are understating GDP growth due to measurement error of this sort, we are likely understating trade growth by close to twice this amount. That could help to explain a substantial portion of the reported slowing of trade growth.

It is also worth noting that stronger and longer patent and copyright protection (as required in trade deals like the TPP), which can be equivalent to tariffs of several thousand percent on the protected items, would be expected to slow both overall economic growth and the volume of international trade.

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When the issue is trade deals, like the Trans-Pacific Partnership (TPP), the New York Times throws out its usual journalistic standards to push its pro-trade deal agenda. Therefore it is not surprising to see a story in the news section that was essentially a misleading advertisement for these trade deals.  

The headline tells readers that Donald Trump's comments on trade in the Monday night debate lacked accuracy. The second paragraph adds:

"His aggressiveness may have been offset somewhat by demerits on substance."

These comments could well describe this NYT piece.

For example, it ostensibly indicts Trump with the comment:

"His [Trump's] first words of the night were the claim that “our jobs are fleeing the country,” though nearly 15 million new jobs have been created since the economic recovery began."

It is not clear what the NYT thinks it is telling readers with this comment. The economy grows and creates jobs, sort of like the tree in my backyard grows every year. The issue is the rate of growth and job creation. While the economy has recovered from the lows of the recession, employment rates of prime age workers (ages 25–54) are still down by almost 2.0 percentage points from the pre-recession level and almost 4.0 percentage points from 2000 peaks. There is much research showing that trade has played a role in this drop in employment.

The NYT piece continues:

"He [Trump] singled out Ford for sending thousands of jobs to Mexico to build small cars and worsening manufacturing job losses in Michigan and Ohio, but the company’s chief executive has said 'zero' American workers would be cut. Those states each gained more than 75,000 jobs in just the last year."

It is not surprising that Ford's CEO would say that shifting production to Mexico would not cost U.S. jobs. It is likely he would make this claim whether or not it is true. Furthermore, his actual statement is that Ford is not cutting U.S. jobs. If the jobs being created in Mexico would otherwise be created in the United States, then the switch is costing U.S. jobs. The fact that Michigan and Ohio added 75,000 jobs last year has as much to do with this issue as the winner of last night's Yankees' game.

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We have seen a number of sharp swings in oil prices over the last two decades. Clearly the underlying fundamentals of the market are the main factor in determining the price, but the fact that Wall Street-types spend tens of billions of dollars speculating on the stuff can also play a role.

NPR assured us otherwise in a Morning Edition segment today. They gave a comment from an economist who said the impact of speculation was essentially zero, effectively mocking all the folks who complained about it.

This position is not one universally held by economists. For example, this paper from the St. Louis Federal Reserve Bank analyzed recent movements in oil prices. It found that speculation had the effect of exaggerating movements in both directions by around 15 percent. The implication is that when oil prices hit their all time high of $150 a barrel in 2008, speculation might have been responsible for more than $20 of this price. This would cost U.S. consumers more than $12 billion over the course of a year if the impact lasted that long. This is equal to 0.08 percent of GDP at the time or more than one third of the gains the International Trade Commission projects for the Trans-Pacific Partnership.

While the paper still supports the idea that the fundamentals of supply and demand are the main factors determining price, it does provide evidence that speculation can play an important role. If the analysis in this paper is correct, then people would not be wrong to be bothered by speculation in the oil market.

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The NYT ran a short AP piece on Social Security and "why it matters." The piece wrongly told readers that Social Security is "a main driver of the government's long-term budget problems." This is not true. Under the law, Social Security can only spend money that is in its trust fund. If the trust fund is depleted then full benefits cannot be paid. The law would have to be changed to allow Social Security to spend money other than the funds designated for the program and in that way contribute to the deficit.

The piece also plays the "really big number" game, telling readers:

"the program faces huge shortfalls that get bigger and bigger each year.In 2034, the program faces a $500 billion shortfall, according to the Social Security Administration. In just five years, the shortfalls add up to more than $3 trillion.

"Over the next 75 years, the shortfalls add up to a staggering $139 trillion. But why worry? When that number is adjusted for inflation, it comes to only $40 trillion in 2016 dollars — a little more than twice the national debt."

Since this is talking about shortfalls projected to be incurred over a long period of time, it would be helpful to express the shortfall relative to the economy over this period of time, not debt at a point in time. This is not hard to do, since there is a table right in the Social Security trustees report that reports the projected shortfall as being equal to 0.95 percent of GDP over the 75-year forecasting horizon. By comparison, the costs of the war in Iraq and Afghanistan came to around 1.6 percent of GDP at their peaks in the last decade.

The piece also gets the reason for the projected shortfall wrong. It tells readers:

"In short, because Americans aren't having as many babies as they used to. That leaves relatively fewer workers to pay into the system. Immigration has helped Social Security's finances, but not enough to fix the long-term problems.

"In 1960, there were 5.1 workers for each person getting benefits. Today, there are about 2.8 workers for each beneficiary. That ratio will drop to 2.1 workers by 2040."

Actually, the drop in the birth rate and the declining ratio of workers to beneficiaries had long been predicted. The reason that the program's finances look worse than when the Greenspan commission put in place the last major changes in 1983 is the slowdown in wage growth and the upward redistribution of wage income so that a larger share of wage income now goes untaxed.

In 1983, only 10 percent of wage income was above the payroll tax cap. Today it is close to 18 percent. This upward redistribution explains more than 40 percent of projected shortfall over the next 75 years.

It is also worth noting that the loss in wage income for most workers to upward redistribution swamps the size of any tax increases that could be needed to maintain full funding for the program. While AP wants to get people very worried over possible tax increases in future years, it would rather they ignore the policies (e.g. trade, Fed policy, Wall Street policy, patent policy) that have taken money out of the pockets of ordinary workers and put it in the hands of the rich.

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As is widely known the Washington Post never misses an opportunity to blame the victims of policy for bad outcomes, rather than rich and powerful folks who design policy. We are treated to yet another example of this charade with the Post running a major article that claims that video games are a major reason that fewer young men are working today than 15 years ago.

The basic story is that many young men, particularly those with less education, have dropped out of the labor force in the last 15 years. According to survey data, they appear to be spending much of their time playing video games. They also report to be relatively happy. See, all you people who thought it was a bad economy are mistaken, the problem is the video games are just too much fun.

Okay, that's a great Trumpian level of analysis, but let's get back to the real world. Less-educated young men are not the only group with declines in employment rates. In fact, the drop in employment rates among less educated women over the last 15 years has been even sharper. Furthermore there has been a decline in employment rates among all groups of prime-age workers (25–54), even those with college degrees.

This general drop in employment rates might suggest that the real problem is a lack of demand. In other words, young men are not working for the same reason young women are not working, the Washington Post and other advocates of austerity have been successful in reducing demand in the economy by reducing the government budget deficit. So the problem has little to do with video games, the problem is the policy, but hey, if the Post can use video games to distract attention from what its favored policies are doing to people — why not?

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You don't remember casting that vote? Well, you didn't actually cast it, but if you have a 401(k) someone like Blackrock CEO Larry Fink cast the vote for you.

Most middle-income people have 401(k)s for their retirement and most of this money is in mutual funds. These mutual funds have control over the proxy votes for the shares they hold. This means that funds like Blackrock, which has more than $5 trillion in assets, have enormous say over the distribution of income in this country. And, as Gretchen Morgenson points out in her NYT column this morning, these folks almost always endorse outlandish pay packages for CEOs. As they say in Wall Street circles, what's a few million dollars between friends?

So, if you're upset about an economy where the rich keep getting richer, just remember, you voted for it, sort of.

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The NYT did what we should expect newspapers to do when reporting on presidential campaigns, it told readers that Donald Trump's energy plans don't make any sense. In the first paragraph of a piece on a speech Donald Trump gave in Pittsburgh, the NYT told readers that his promise to increase production of both coal and natural gas is "impossible." This is of course true, since the fuels are substitutes. In fact, the main reason coal production has fallen sharply in the last five years has been the boom in low cost natural gas from fracking. If we increase the latter further, then it is almost inevitable that it will result in a further drop in coal production.

Mr. Trump may not know he is promising the impossible, but now NYT readers do.

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Fareed Zakaria used his Washington Post column to tell readers that there are no simple solutions, it's just too complicated. The point is that the gods have condemned us to suffer slow growth and rising inequality. In addition to making the absurd point that we should be worried because people are having fewer kids (just imagine, the robots will take all the jobs and we won't have any workers) Zakaria tells us that nothing seems to work.

"Facing these forces [globalization, an aging workforce, and technology], leaders have no easy path to restore growth and revive their countries. Deep, radical reforms are unpopular and in this climate do not seem to lead to roaring growth. Ireland, Portugal and Mexico have all enacted broad market reforms, and yet, growth has not come booming back. Japan has spent hundreds of billions on stimulus plans and yet it is just muddling along. Thus, even the leaders who come to office with strong public approval and much promise find themselves trapped by the same forces. Very quickly their approval ratings begin to drop and new populist anger grows. Italy’s reformist prime minister, Matteo Renzi, has seen his numbers fall below 30 percent. The populist Greek leader, Alexis Tsipras, is down to 19 percent."

Well, that seems to cover the bases, right? Except that there is a lot to show for the stimulus in Japan (which could be far more aggressive, since the country has negative long-term interest rates and is still facing near zero inflation). Since Abe took over at the end of 2012 the employment-to-population ratio in Japan has risen by 2.5 percentage points. This would be the equivalent of adding 6.2 million jobs in excess of the endogenous growth in the population in the United States. By contrast, the employment-to-population ratio has risen by just 1.1 percentage point in the United States over this period, in spite of the strong job growth of the last three years.

This might help to explain why Mr. Abe's approval rating is at 60 percent, a marked contrast with the rating of other leaders on Zakaria's list. One can debate whether or not Keynesian-style stimulus is simple, but the world looks much less complicated if we talk about the real world honestly and not ignore facts that contradict our message.

I will have much more to say countering the Zakaria/mainstream establishment line in my forthcoming book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer, coming soon to a website near you.

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Paul Krugman used his column to berate reporters for not highlighting when candidates are lying. The basic point is that reporters are in a position to know that a candidate is saying something that is outright false, whereas the typical reader/viewer likely doesn't have the time to check the truth of a particular claim. Not doing this basic service encourages lying, since candidates will freely change positions and make claims that are not true if they know they will not pay a price for lying.

The immediate context is the presidential debate next Monday. Krugman notes in passing that reporters tend to pass on fact checking and instead engage in theater criticism:

"One all-too-common response to such attacks involves abdicating responsibility for fact-checking entirely, and replacing it with theater criticism: Never mind whether what the candidate said is true or false, how did it play? How did he or she 'come across'? What were the 'optics'?

"But theater criticism is the job of theater critics; news reporting should tell the public what really happened, not be devoted to speculation about how other people might react to what happened."

This is a point I have often made in the past. I would carry the complaint even a step further than Krugman. Not only is theater criticism the job of theater critics, the amateur criticism in which highly paid reporters engage is the sort of thing we all do all the time. All of us engage in conversations with people over the course of our lives. In doing so, we are constantly assessing their confidence, whether they are acting defensive, whether they are forceful, and whether they appear sincere. Reporters have no comparative advantage in this area.

We will have roughly 100 million people watching the debate on Monday night. There is no reason to believe that the judgement of the reporters covering the debate on the relative confidence and outward sincerity of Donald Trump and Hillary Clinton will be any more accurate and insightful than the judgement of the typical viewer among the 100 million.

By contrast, most of the 100 million will not know if Trump has yet again changed his tax proposal, has made up new stories about the origins of birtherism, or is saying nothing coherent on trade policy. This is where reporters can add value. They should save the theater criticism for their family and friends.

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Nashville's public radio station complained that the construction companies simply can't find workers. This is in spite of the fact that they pay $12 an hour to start and that the pay could go as high as $22 an hour for the most experienced workers.

It is interesting that the radio station has decided that this is the pay construction workers should get even though the market seems to be saying that the pay should be higher. This raises the question of whether the station would complain about a doctors shortage if no doctors answered the call at a $30 an hour pay rate. (Their actual pay averages more than $250,000 a year, although most put in far more than 40 hours a week.)

Just as a point of reference, if the minimum wage had kept pace with productivity growth over the last fifty years it would be over $18 an hour now. So Nashville's public radio station apparently believes that as a matter of principle (it's not the market) construction workers should be earning less than a productivity adjusted minimum wage. It is also worth noting that these are jobs that typically carried some wage premium — as opposed to working at a fast food restaurant — both because they often require considerable skills and then tend to be physically demanding and dangerous.

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The Trans-Pacific Partnership (TPP) has little to do with free trade. The trade barriers between the United States and the other countries are already very low, with few exceptions. In fact, the United States already has trade deals with six of the 11 countries in the TPP. The TPP is primarily about installing a corporate-friendly structure of regulation, as well as increasing protectionist barriers in the form of stronger and longer patent and copyright and related protections. (It doesn't matter if you and your friends like patent and copyright protection, they are still protectionism.)

President Obama is pulling out all the stops in pushing the TPP and it seems the NYT has decided to abandon journalistic principles to join this effort. It featured a confused article reporting that people in the United States favored trade, which randomly flipped back and forth between the terms "trade," "trade agreements," and "free trade." As everyone, except apparently the people who work for the NYT, knows these are not the same thing.

It is hard to believe that many people in the United States would be opposed to trade. Imports and exports combined are more than a quarter of GDP. Many of the products we now import, like coffee, would either not be available at all, or extremely expensive without trade. It's difficult to believe that many people in the United States would support autarky as an alternative to the current system.

If people are asked about "trade agreements," it is not clear what they think they are referring to. The United States has been involved in hundreds of trade agreements over the last seven decades. These agreements hugely reduced trade barriers between the U.S. and the rest of the world, leading to large increases in trade and large drops in price. Of course most of these benefits accrued before 1980, but it seems unlikely that many of the people polled on the topic would have a clear idea of the costs and benefits of the trade deals negotiated since World War II.

When it comes to the TPP, there is very little by way of free trade promotion in this deal. As noted, most barriers between the member countries are already low. This is why the non-partisan International Trade Commission (ITC) projected that the gains to GDP when the effect of the deal is mostly felt in 2032 will be just over 0.2 percent of GDP. This is just over a month of normal economic growth.

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I am waiting for the Washington Post to make this obvious point. (The same is probably true about wherever Post owner Jeff Bezos lives.) The reason we should expect this piece is that the paper ran a piece that effectively pronounced people who refuse to sell their houses to accommodate development as anti-social characters who are driving up housing costs for everyone else.

The claim is true. If people will make land available at a lower cost to developers then it will reduce the cost of building more housing units. While some of the gains from cheaper land will go into the developers' pockets, some of it will undoubtedly be passed on in lower rents, as more units will put downward pressure on prices.

All of this is true, exactly as the Post piece says. However, the same argument applies to the land held by Bill Gates and other rich people. If they would make it available to developers at a low cost then it would mean that there could be more housing, which would put downward pressure on prices.

There is an argument that Gates and other rich people may be willing to make their land available at the market price, but this would be extremely expensive and therefore not help efforts to provide low cost housing. However, for someone who owns a home, it can be argued that the market price is the price at which they would be willing to sell it. (Markets are supposed to be about free exchange.) If they are not willing to sell the property at a low price, then the situation is not qualitatively different from Bill Gates being unwilling to sell his estate at a low price.

The issue here seems to be that Gates and other rich people are deemed to be entitled to their large plots of land, even if it makes housing less affordable, whereas the typical person is not. We are supposed to think that the non-affluent person insisting that their property rights be respected — even at the cost of raising housing costs for others — is a bad person. But because Bill Gates is rich, we don't talk about his impact on housing prices.

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Europe and the United States both shifted their fiscal policies from stimulus to austerity in 2011. Most economists see this as a major factor explaining the weak recovery from the 2008–2009 recession. Incredibly, in his latest Washington Post column assessing the weakness of the economy, Robert Samuelson never mentions the shift to austerity.

Actually, the column is more than a bit confused since it starts by making the case that the Fed actually should be raising interest rates since the economy is now at or near full employment. This is an argument that the economy is now strong and risks inflation due to too much demand.

But most of the piece then turns to the argument that central banks can't boost the economy the way they had in the past. He tells readers:

"One explanation lies in the high and unsustainable debts that fueled the Great Recession. “Debt recoveries are not the same as ordinary business cycle recoveries,” Harvard economist Carmen Reinhart [yes, that is Reinhart of the famous Reinhart and Rogoff Excel spreadsheet error that helped launch worldwide austerity because they couldn't be bothered to check their calculations] recently told a conference at the Peterson Institute. Consumers and companies cut debt loads and rebuild savings. Lenders are more restrained in their lending; borrowers are more restrained in their borrowing. All this curbs spending.

"A variant — one often made by this reporter — is that the recession’s severity, almost entirely unanticipated by economists, business leaders and government officials, has made households and enterprises more precautionary and protective. They save more and spend less to shield themselves against future slumps and unpredicted calamities."

The problem with both variants of the "reluctant to spend" story is that neither households nor businesses were especially reluctant to spend, as those with access to Commerce Department data know. The figure below shows consumption as a share of GDP. As can be seen, it has been near post-war highs in the years since the recession, as the savings rate has been unusually low. The investment share of GDP has also been comparable to the pre-recession level. Housing construction has been depressed — for the mysterious reason that there was severe overbuilding in the bubble years.


In addition to the austerity which sharply reduced demand from the government the other factor depressing demand (which is not allowed to be mentioned in the pages of the Washington Post) is the trade deficit. The U.S. is still running a trade deficit of roughly $500 billion a year (@ 2.8 percent of GDP). This has the same impact on demand in the economy as if government spending were cut by an additional $500 billion. The demand generated by the housing bubble filled this demand gap, but in the absence of the bubble, there is nothing to fill the gap.

All of this is pretty simple and straightforward, but our elite types don't like us talking about the trade deficit as a problem. So, we end up with folks like Robert Samuelson telling us it is all very mysterious.

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The NYT had an article discussing proposals by Hillary Clinton and Donald Trump to increase spending on infrastructure. The article likely left many readers confused.

First, it briefly described the two candidates' proposals:

"Mrs. Clinton has said that if she is elected president, her administration would seek to spend $250 billion over five years on repairing and improving the nation’s infrastructure — not just ports but roads, bridges, energy systems and high-speed broadband — and would put an additional $25 billion toward a national infrastructure bank to spur related business investments. Mr. Trump said he wanted to go even bigger, saying his administration would spend at least twice as much as Mrs. Clinton."

It is unlikely many readers have a very good idea of how much money $250 billion is over the next five years. This comes to $50 billion a year, which is a bit less than 1.2 percent of projected federal spending over this period, or roughly 0.25 percent of projected GDP. Donald Trump's proposal is presumably twice as much. (It is not clear exactly how the $25 billion infrastructure bank would work, so it's not easy to come up with a figure for the related spending.)

The piece also somewhat misrepresented the argument being put forward by former Treasury Secretary Larry Summers:

"Today, with maintenance lacking and interest rates low, a host of influential economists, including Lawrence H. Summers, who served as Treasury secretary under President Bill Clinton, argue that America’s need for better infrastructure is so great that it could increase its debt load and still come out ahead.

"In a telephone interview, Mr. Summers laid out his case: The federal government can borrow at something like 1.0 percent interest a year, and through enhanced productivity it would reap something like 3 percent a year in higher tax receipts."

There are two separate issues at stake. First, it is possible that additional spending on infrastructure will lead to an increase in GDP, but also require more taxes in the future. Suppose that if we spent an additional 0.25 percent of GDP on infrastructure over the next five years it would result in GDP being 0.1 percent larger in subsequent years (a very low rate of return) than would otherwise be the case.

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The NYT seems determined to do the equivalent of birtherism with public pensions, implying that there is some conspiracy in the way they do their accounting. The paper ran a major business section article today headlined, "a sour surprise for public pensions: two sets of books."

The "surprise" should hardly be a surprise to anyone familiar with public pension systems. Pensions calculate liabilities based on the expected rates of return for the assets they hold. This calculation tells governments how much they should expect to put into the fund each year on order to meet their obligations to their retirees. If they do their projections correctly (this is not an issue raised in the piece) then this should be the number that governments are most interested in.

However, the piece highlights "the second set of books." This is market value of pension funds assets and liabilities. This is where the pensions would sit today if they wanted to cash out of the system, which is exactly the situation described in the piece. The market value would make a pension look considerably worse, since they would have to use a lower discount rate (typically the interest rate paid on either Treasury bonds or municipal bonds) to assess the liability of the funds.

The fact that the latter would show a worse situation for pensions is hardly a secret, nor is it particularly hard to determine the larger liability, at least to a close approximation. If anyone has a knowledge of the projected stream of payouts for a pension, it is a simple matter to throw this up on Excel spreadsheet and apply a different discount rate to it.

In other words, this is a great non-scandal, just like President Obama's real birth certificate.

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The NYT had a good article on the lobbying effort by Mylan, the manufacturer of EpiPen, to have its product labeled as a preventive drug by the federal government. If EpiPen can get this label, then insurers will not be allowed to require patients to make a copayment. This means that patients will not directly see the price of the drug, although it will be passed on in the form of higher insurance premiums. Mylan is betting that this will make it easier to charge prices that are several thousand percent above its cost of production.

The piece reports on Mylan's intensive lobbying campaign to gain preventive status. Mylan has paid for research, paid consulting fees to academics, and paid patient advocacy groups to promote use of EpiPen and help gain it the status of a preventive medicine.

This is exactly the sort of corruption that is predicted by economic theory when government intervention creates a large gap between the protected price and the free market price. While EpiPen would likely sell for $10–$20 in a free market, its patent protection allows it to sell for several thousand percent above this price. Economic theory predicts that a tariff of 10–20 percent will provide incentives for the beneficiaries to lobby to increase the benefits of this protection. In the same way a patent monopoly that raises the price of the protected product by 2000 percent will provide similar incentives, except they will be several orders of magnitude larger.

This is relevant to the Trans-Pacific Partnership (TPP) since one of its main outcomes will be to make patents and related protections, especially for prescription drugs, longer and stronger. While its proponents, including the news sections of major newspapers like the NYT, call the TPP a "free trade" agreement, most tariff barriers between the countries in the deal are already low. The effects of increased patent and related protections will almost certainly have a greater impact than the modest reduction in tariffs provided for in the deal.

Therefore the TPP can more accurately be thought of as a protectionism pact. It will increase the number and importance of EpiPen-type incidents in the United States and other countries in the TPP.

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