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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Seriously, that is what they said, more or less. An AP news article on the latest revision to fourth quarter GDP data told readers:

"Friday’s report also contained a potentially worrisome sign — a weak first estimate of corporate profits. It showed that pretax profits fell 7.8 percent in the fourth quarter after a 1.6 percent drop in the third quarter. Fourth quarter profits were also down 11.5 percent from a year earlier — the steepest annual drop since 30.8 percent plunge in the fourth quarter of 2008 at the depths of the financial crisis."

It is not clear what about this drop in corporate profits is supposed to be worrisome. Corporate profits had risen at the expense of wages during the downturn. The profit share of national income is still well above its pre-recession level. Companies continue to have more profit than they know what to do with, since investment is still slightly below its pre-recession share of GDP, so there is not a plausible story that companies will somehow have to curtail investment due to shrinking profits. So why is AP worried that workers are getting back some of the income share they lost during the downturn.

As the piece notes, consumption was revised upward. The saving rate was reported as 5.0 percent in the fourth quarter, not much different from the 4.8 percent rate recorded in 2013, the low for recovery. The Post and other media outlets gave extensive coverage to economists explaining why consumers were being cautious and not spending their dividend from falling energy prices. The data now indicate that they were not being cautious, that they were pretty much spending it at the same rate as other income. (Well, at least it kept some economists employed.)



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The wage share of GDP has recovered close to half of the ground lost in the downturn. Combining economy-wide wages and corporate profits, the wage share fell by 3.6 percentage points between 2007 and 2012. The data for 2015 show that the wage share has increased by 1.6 percentage points since its trough in 2012. This indicates that a tighter labor market is now allowing workers to achieve some gains at the expense of corporate profits.

This means a huge amount for Federal Reserve Board policy going forward. If the Fed raises interest rates to slow growth and job creation, it can prevent workers from recovering the ground they lost in the downturn.

It is striking that only one presidential candidate, Senator Bernie Sanders, has raised this issue. The others have for some reason chosen not to discuss the Federal Reserve Board and its impact on workers' living standards. (Senator Ted Cruz has discussed the Fed, but said that he wants to bring the gold standard. This would prevent the Fed from taking any steps to boost the economy in a downturn.)

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That's what readers would learn from reading this NYT piece on a Chinese scientist living in exile in Wisconsin, Yi Fuxian, who has been a critic of China's family planning policies. According to the piece, Dr. Yi has warned that China will see a rapid decline in population which will prevent its economy from ever surpassing the United States.

It is not clear what metric Dr. Yi would be using. Presumably he means in GDP, but he is then too late for his warning. According to the I.M.F., China's economy is already more than 10 percent larger than the U.S. economy using a purchasing power parity measure of GDP (15 percent including Hong Kong). According to its projections, China's economy will be more than 30 percent larger by the end of the decade.

While the media like to hype the impact of rising ratios of retirees to workers as somehow devastating to the economy, arithmetic fans know that the impact of demographics is swamped by the impact of productivity growth. If this sounds complicated, 150 years ago more than half of the U.S. population was working in agriculture. Today less than one percent of the workforce is in agriculture, yet we have plenty of food. It makes sense to promote concerns about demographics if the goal is to cut back benefits for seniors, but not if the intention is to discuss economic reality. 

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Is there an editor at the NYT who insists that reporters arbitrarily throw in unneeded and inaccurate adjectives to make their articles longer? An article on President Obama's trip to Argentina twice referred to the Free Trade Area of the Americas as a "free-trade" agreement. Most of the deal was about putting in place a common regulatory structure, not trade. It also increased some forms of protectionism in the forms of stronger and longer patents and copyright protection. The piece could have been shorter and more accurate if it had left out the word "free."

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Arthur Brooks, the President of the American Enterprise Institute and a regular New York Times columnist told readers that he doesn't have access to the Internet. This admission came in the context of a published exchange with Gail Collins, another New York Times columnist.

This fact was revealed in the context of a discussion of the Republican presidential candidates' proposals to have large tax cuts and then make up the lost revenue from waste, fraud, and abuse. Brooks acknowledged this was ridiculous, but then commented:

"The cognitive dissonance isn’t just on the Republican side, however. Sanders proposes showering cash out of helicopters, and as far as I can tell, he is really only proposing higher taxes on the much-regretted billionaires. The truth is that middle-class taxes would have to rise under his spending scenarios."

Actually, if Brooks had access to the Internet he would have been able to discover that Senator Sanders has actually proposed very specific tax increases on the non-billionaire population. He has proposed an increase in the payroll tax to finance his proposal for paid family leave and he also proposed an increase in the payroll tax to pay for his universal Medicare plan.

Sanders does propose to have the bulk of the revenue for his agenda come from taxing the wealthy, but he is quite explicit on this point. The wealthy have been the big gainers from economic growth over the last 35 years, so it doesn't seem absurd on its face to envision that they should bear the bulk of the burden from any need for increased revenue.

Since this conversation expressed a concern with unrealistic proposals from the presidential candidates it is surprising that no one mentioned the Federal Reserve Board. Several candidates have suggested that they would have substantially more rapid growth and job creation. The Fed has made it quite clear that it does not want to see more rapid job creation. They have expressed concern that if the unemployment rate fell substantially below current levels that it would lead to an inflationary spiral. In order to ensure that such a spiral does not develop most members of the Federal Reserve Board's Open Market Committee (FOMC) have indicated a willingness to raise interest rates to keep the unemployment rate from falling.

Given the views of FOMC members, any candidate who indicates a desire to substantially lower the unemployment rate without addressing the Fed's plans is engaged in magical thinking. (Senator Sanders has criticized the Fed's plans to raise interest rates.) For some reason no one in the media has chosen to write about this obvious inconsistency in the plans of the presidential candidates.


Thanks to Robert Salzberg for calling this to my attention.

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No one reads the Washington Post opinion page to learn about the economy. People read it to learn what the Very Serious People have to say about the world. Michael Gerson gave us the latest edition in a column attacking Bernie Sanders and Donald Trump.

Readers learned that this was about the Very Serious People view of the world rather than economic reality in the second paragraph.

"The past several decades have seen both dramatic increases in productivity and the fading of the traditional, American, middle-class dream. The globalization of labor markets (creating competition with skilled workers abroad) and new technology and automation (hollowing out whole categories of labor at home) have placed downward pressure on wages and put a relentless emphasis on acquiring new skills."

Both parts of this assertion are wrong. First, the past several decades have actually been a period of relatively slow increases in productivity growth, as our good friends at the Bureau of Labor Statistics will tell anyone who visits their website. (CEPR offers free tours for Washington Post columnists and editorial writers.) In the years since 1980, when inequality first began to grow, productivity growth has averaged 1.9 percent a year. That is down from 2.5 percent annual growth in the years from 1947 when wages at the middle and bottom grew as fast or faster than those at the top.

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Source: Bureau of Labor Statistics.

Gerson doesn't just get the basic story of productivity growth 180 degrees backward, he also gets the story of globalization wrong. Our manufacturing workers saw their pay lowered by globalization because that was the purpose of the trade agreements we negotiated. The point was to make it as easy as possible to relocate factories in Mexico, China, and other developing countries, putting our workers in direct competition with low-paid workers who were often willing to work for less than one-tenth the wages of our workers.

At the same time we left in place or even increased the barriers that protect doctors, dentists, and lawyers from having to compete with their lower paid counterparts in the developing world or even other rich countries. (Apparently our trade negotiators think that doctors and lawyers lack the skills necessary to compete in the world economy.) For example, doctors still have to complete a U.S. residency program to practice in the United States and dentists have go a U.S. dental school. (We recently starting allowing graduates of Canadian dental schools to practice here as well.)

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At a time when the income inequality is growing ever larger in most wealthy countries the market for work that highlights inequality between generations is growing rapidly. After all, if young people are spending their time yelling about their parents' and grandparents' pensions they won't have any time to get mad about all the money the one percent are taking.

The Wall Street Journal did its part today with a piece telling readers that "older people do better than those of working age." While there is some truth to the story (more in Europe than in the United States), it is primarily because European governments have decided to keep tens of millions of people from working through austerity policies.

At a time when near zero inflation and record low interest rates show that the countries of the regions are suffering from a severe lack of demand the European Commission is pushing countries to cut deficits in order to lower demand still further. Complaining that older people are doing better than the workers who are either unemployed or forced to work in low wage jobs as a result of the weak labor market is like giving someone a severe beating and then noting the better health enjoyed by retirees than the beating victim. It's undoubtedly true, but what exactly is the point?

The piece also suffers from serious lapse in economic reasoning. After touting the relatively high living standards of retirees, it tells readers:

"Younger workers are grappling with flat or falling pay, decreased job security and less-affordable housing, sapping the spending power that helps fuel the economy."

If the problem in the economy is a lack of spending power (it is), then the relatively high pensions of retirees is helping. After all, the economy doesn't care whether a euro is spent by a young person or a retiree, it creates the same amount of demand.

Apparently this piece can't decide why retirees' pensions are bad for the economy, it just wants to convince readers that they are evil.

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It is apparently very appealing to many people to think that the loss of jobs in manufacturing and the resulting downward pressure on the wages of large segments of the working class was simply an inevitable result of globalization. For example, in an otherwise excellent piece on the closing of a Carrier factory in Indiana that makes heating and cooling equipment, the NYT told readers:

"The relentless loss of American manufacturing jobs, however, goes back nearly half a century, driven largely by forces beyond the control of any president. The advances of technology, the diffusion of industrial expertise around the world, the availability of cheap labor and the rise of China as a manufacturing powerhouse would have disrupted the nation’s industrial heartland even without new trade deals."

Actually, presidents could have sought to put in place the same sort of barriers that protect our doctors, lawyers, and other professionals from foreign competition. There are millions of very bright people in Mexico, India, China and other developing countries who would be happy to train to U.S. standards and work as doctors and lawyes in the United States. However, because these groups have far more political power than manufacturing workers, we have maintained walls that largely prevent foreign professionals from competing with our own doctors and lawyers.

The result is that these professionals have seen substantial increases in real wages over the last four decades and the rest of us pay hundreds of billions of dollars more each year for health care, legal services, and other items. The cost to the economy from this protectionism is almost certainly an order of magnitude greater than any potential gains from a trade deal like the Trans-Pacific Partnership. In spite of the enormous economic costs, the power of these professions largely prevents economists or the media from even discussing the protectionism enjoyed by professionals.

Thanks to Keane Bhatt for calling this one to my attention. 

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President Obama's allies in the media are working hard laying the groundwork for Congressional approval of the Trans-Pacific Partnership (TPP). Robert Samuelson did his part with a column warning that it would be "dangerous" if the next president repudiated the TPP. I suppose the piece is worth some brownie points with the administration, but it doesn't make much sense.

He tells readers:

"The United States has had continuous annual trade deficits since 1976, well before the North American Free Trade Agreement (1994) and China’s joining the World Trade Organization (2001). The explanation is that the dollar is widely used to settle trade transactions, to make cross-border investments and — for governments — to hold as international reserves.

"The resulting dollar demand on foreign exchange markets raises the dollar’s value in relation to other currencies. This makes U.S. exports more expensive and imports into the United States cheaper."

There is a big difference between the relatively modest trade deficit (@ 1 percent of GDP) the United States ran in most of the years from 1976 to 1997 and the much larger trade deficits the United States ran in the years after the East Asian financial crisis in 1997. This was when developing countries began accumulating massive amounts of reserves. As a result the deficit expanded to a peak of almost 6 percent of GDP and is now somewhat over $500 billion (@ 3 percent of GDP).

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I generally restrict my comments on this blog to economic issues. But the Post really went over the top in its criticisms of Donna Edwards when it endorsed her opponent Chris Van Hollen in the race for the Democratic nomination the fill the open Maryland senate seat.

Before commenting, I should say that I know Representative Edwards and consider her somewhat of a friend. I also know and like her opponent, with whom I went to college many years ago.

Anyhow, the Post complained that Edwards is too ideological and uncompromising. By contrast, it argued that Van Hollen can make the compromises needed to get things done. The editorial told readers:

"Her allergy to compromise, comparable to the disdain expressed by tea party Republicans, is what has brought Congress to a standstill. She is proof that doctrinaire ideology is alive and well on both sides of the aisle."

Comparing Representative Edwards to the Tea Party is way over the top. The Tea Party denies reality in fundamental areas. It insists that human caused global warming is not happening. The Tea Party contends the 2008 economic collapse was because the government forced banks to make loans to minorities. It also complains that government spending is out of control on programs other than the ones Tea Party supporters like (Social Security, Medicare and Medicaid, and the military). 

If the Post can identify an issue where Edwards has been comparably out of touch with reality then they should share it with readers. Otherwise they owe Ms. Edwards an apology. The Post may think Edwards approach is unproductive, but that is not the same thing as bringing your own reality to policy debates.

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Kevin still thinks that we don't especially protect doctors, or at least not more than any other country. His key factoid is that 25 percent of our doctors were educated in foreign medical schools and then entered U.S. residency programs. He argues that this is roughly the same percentage as for other wealthy countries.

There are two important reasons why this means less than the NCAA basketball tournament scores about the issue at hand. First, we should expect many more foreign doctors would want to work in the U.S., than say in the U.K., because doctors in the U.S. earn more than twice as much as doctors in the U.K. If you're a "free trader" who has a hard time understanding this point, suppose that we paid twice as much for oil as they do anywhere else in the world. Where do we think the oil would go?

The second point is why would anyone care about the 25 percent number? I have had endless people defiantly given me this statistic as if they have shown something other than their own ignorance. What percent of our shoes comes from overseas? What percent of our clothes? Of our toys? My guess is that it would be around 70–90 percent in each category.

Suppose that just 25 percent of our consumption came from abroad in these categories because we had huge import tariffs. By the Kevin Drum standard I could say, "What do you mean we have protectionism, 25 percent of our shoes, clothes, and toys are imported."

Kevin also argues that this is an immigration issue, not a trade protection issue. Nope, it isn't. If doctors from the U.K., Germany, or India wanted to work in the construction industry, in restaurant kitchens, or as nannies for rich people, they probably would not have any problem. But they would get arrested if they worked as doctors. The issue isn't being in the U.S. or even working in the U.S., the issue is that the protectionists won't let them work in the United States as doctors.

Finally, it is worth considering the potential numbers here compared with current immigration flows. At present, we have around 1.4 million immigrants a year. Suppose we brought in 50,000 additional doctors a year for the next decade. This would be a net increase of 500,000 doctors, increasing the supply by more than 50 percent. That would hugely affect the market for doctors and likely be more than sufficient to bring their wages down to world levels.

However, this inflow of doctors would imply a net increase of immigration flows of less than 4.0 percent. If we double the number to account for immigrants of dentists, lawyers, and other currently protected professionals, we're still only talking about an increase in immigration of less than 8.0 percent. If we think that this is too many immigrants, we could reduce the flow of immigrants in other areas by an offsetting amount. 

In short, we do prop up the pay of our doctors through protectionism. We can argue whether it is good policy or not, but we can't argue that our barriers are not protectionist.

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Most newspapers try to avoid the self-serving studies that industry groups put out to try to gain public support for their favored policies. But apparently the New York Times does not feel bound by such standards. It ran a major news story on a study by Citigroup that was designed to scare people about the state of public pensions and encourage them to trust more of their retirement savings to the financial industry.

Both the article and the study itself seem intended to scare more than inform. For example, the piece tells readers;

"Twenty countries of the Organization for Economic Cooperation and Development have promised their retirees a total $78 trillion, much of it unfunded, according to the Citigroup report.

"That is close to twice the $44 trillion total national debt of those 20 countries, and the pension obligations are 'not on government balance sheets,' Citigroup said."

Okay folks, how much is $78 trillion over the rest of the century for the 20 OECD countries mentioned? Is it bigger than a breadbox?

The NYT has committed itself to putting numbers in context, where is the context here? Virtually none of the NYT's readers has any clue how large a burden $78 trillion is for the OECD countries over the rest of the century. The article did not inform readers with this comment, it tried to scare them. That is not journalism.

For those who are keeping score, GDP in these countries for the next 80 years will be around $2,000 trillion (very rough approximation, not a careful calculation) so we're talking about a big expense, roughly 4 percent of GDP, but hardly one that should be bankrupting.

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I usually think Kevin Drum makes pretty good arguments even when I disagree with them, but his trade case really strikes out badly. He wants to take issue with my argument that we protect doctors with average paychecks of more than $250k a year, while deliberately putting autoworkers in direct competition with their low paid counterparts in the developing world.

He quotes my comment that we ban foreign trained physicians unless they go through a U.S. residency program. He then comments:

"Cars made overseas are required to meet American standards. You can't just build anything you want and sell it here. In the case of doctors, the doctor herself is the product, and we require the product to meet American standards. Aside from the minor jolt of hearing a human being called a "product," there's not really much difference. You can argue that standards for cars and standards for doctors are poorly designed, but that's a much subtler case to make. One way or another, both doctors and cars are going to be required to meet certain standards."

Umm, the reason that cars overseas meet American standards is because we negotiated a set of standards for them to meet. In other words, that is what our trade negotiators were doing so that they could place U.S. autoworkers in direct competition with low paid workers in Mexico, China and elsewhere.

Our trade negotiators could have been negotiating standards for foreign residency programs. (I know Donald Trump says they are stupid, but they can't possibly be that stupid.) This would mean that other countries could establish residency programs that ensure that doctors in Germany, Canada, and hopefully many other countries were trained to a level where they were as good as U.S. trained doctors. The reason this didn't happen is because doctors have much more political power than autoworkers.

Sorry Kevin, you're a knuckle-scraping Neanderthal protectionist.

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The proponents of the protectionist Trans-Pacific Partnership (TPP) trade agreement are getting ever more shrill as it becomes clearer that the public is not buying what they have to sell. David Ignatius does the rant for the deal in his column in the Post today. The title of his column warns against "Trump and Sanders' dangerous revolt against free trade."

The first point that everyone should remember is "free trade" is just a term that the proponents of these deals throw around to make themselves feel virtuous and so that they can call their political opponents names. These deals are actually about selective protection, where protections that benefit some groups are left in place, while other groups (i.e. ordinary workers) are forced to compete with much lower paid workers in the developing world.

As far as the protectionism in the TPP, the deal is quite explicitly about increasing the length and strength of patent and copyright protection. Yes, that is "protection" as in "protectionism." Patent and copyright protection do serve a purpose in providing an incentive for innovation and creative work, but all forms of protection serve a purpose. The question that serious people ask is whether there is a better way to serve the purpose.

There are lots of reasons for thinking that our rules on patent and copyright protection are already too strong, as they have led to massive abuses. This is especially true in the case of prescription drugs. To take one prominent example, generic versions of the Hepatitis C drug Sovaldi can be profitably manufactured for $300 to $500 per treatment. The list price for the drug in the United States is $84,000.

And raising the price of a drug by more than 10,000 percent as a result of patent monopoly causes all the economic waste and corruption that imposing a 10,000 percent would. The market doesn't care that we call the intervention a "patent" rather than a "tariff."

The TPP will also do nothing to reduce the protectionist barriers that allow our doctors and dentists to earn twice as much as their counterparts in other wealthy countries. Unlike autoworkers and textile workers, doctors and dentists have the political power to protect themselves from being forced to compete with their lower paid counterparts in the developing world.

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That is the question millions are asking, or at least the question that people who talk about whether China's government is holding down the value of its currency should be asking. Neil Irwin is on that list.

In a NYT column today he argued that China is no longer holding down the value of the yuan to maintain a competitive advantage in trade. He pointed to their recent sale of reserves to keep the yuan from falling against the dollar and other currencies. However, however his discussion ignores the country's massive holdings of foreign exchange reserves. 

The conventional rule of thumb is that a country needs reserves that are equal to six months of imports. In China's case this would be $1 trillion. The country in fact holds more than $3 trillion in reserves. These excess reserves would be expected to keep down the value of the Chinese yuan against the dollar in the same way that the Fed's holding of more than $3 trillion in assets is thought to hold down long-term interest rates.

As long as China's central bank holds such a large amount of reserves, it is deliberately keeping down the value of its currency. As a practical matter, we would expect a rapidly growing developing country like China to be running large trade deficits. While its surplus is down from its peak of more than 10 percent of GDP in the last decade, it is still more than 2.0 percent of GDP.

The U.S. trade deficit with China and other matters hugely in the context of an economy that is below full employment. The trade deficit creates a gap in demand that cannot be easily filled from other sources. In principle we could run a larger budget deficit to fill the $500 billion gap (@ 3.0 percent of GDP) created by the trade deficit, but this has proven to be politically impossible.

For this reason, the trade deficit is hugely important since it directly leads to more unemployment. Also, since the wages of the workers at the middle and bottom of the labor market depend hugely on the strength of the labor market, the trade deficit directly reduces the wages of large segments of the U.S. workforce, contributing to the rise in inequality.

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Thomas Friedman once again stumbled into trade policy, telling us that the Trans-Pacific Partnership (TPP) is exactly the sort of trade deal that tough negotiator Donald Trump would have gotten. Unfortunately, he gets some of the big things badly wrong.

First, he would have us believe that the TPP is a really good deal for the U.S. because the tariffs that we eliminate on imports are mostly small, whereas the tariffs other countries will eliminate on our exports are in some cases very large. He cites Vietnam’s “peak tariffs of over 50 percent on cars and machines” and refers to over 18,000 foreign tariffs that will be eliminated as a result of the TPP.

While it might be good if Vietnam eliminated its tariffs on U.S. cars and machines, it is highly unlikely that the U.S. will ever export any significant number of cars and machines to Vietnam. It is certainly possible that U.S. corporations General Motors and GE will export cars and machines (???) to Vietnam, but these products will almost certainly be produced in other Asian countries. That might be good for the bottom lines of General Motors and GE, but not especially good news for workers in the United States.

The 18,000 tariffs are a joke line that the Obama administration came up with for ill-informed members of Congress and pundits. As Public Citizen points out, the U.S. exports in less than half of these 18,000 categories and in most of the others the volume of exports is trivial. Among the 18,000 tariffs on the Obama administration’s list are Malaysia’s shark fin tariffs, Vietnam’s whale meat tariffs, and Japan’s ivory tariffs. (Would Donald Trump really spend time negotiating the removal of these tariffs?)

But the really good part is when Friedman told readers about how the TPP gets tough on enforcing intellectual property rules for U.S. corporations:

“He certainly would have insisted on strong intellectual property protections for America’s software industry, one of our greatest export assets, and taken an approach to pharmaceuticals that splits the difference between what the big drug companies want in the way of intellectual property protection time for their products and what the generic manufacturers want.”

Getting more money for Microsoft and Merck is of course good news for shareholders of Microsoft and Merck, but it’s bad news for the rest of us. As the Peterson Institute’s new study of the impact of the TPP pointed out:

“The model assumes that the TPP will affect neither total employment nor the national savings (or equivalently trade balances) of countries.”

If the trade balance of the United States does not change, and we get more money for Microsoft’s software and Merck’s drugs, then we must get less money for everything else. It is hard to see why most people would be celebrating a rise in the U.S. trade deficit in manufactured goods and other items that is offset by higher royalty and patent fees for our software and drug companies.

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The Washington Post had a piece on the latest efforts by centrist Democrats to counter the rise of the progressive wing of the party. It tells readers:

"Many of them pushed in the 1990s, under President Bill Clinton, to expand global trade and deregulate the financial sector. They now concede those efforts did not go according to script, particularly for middle-class workers, but they are not calling for a full rewrite in response."

Actually, increasing inequality was an entirely predictable outcome of expanded trade with developing countries with large amounts of low-paid labor. Reduced wages for manufacturing workers and less-educated workers is exactly what the Stolper-Samuelson theory, one of the bedrocks of trade theory, predicts. 

In fact, since the trade agreements of the last quarter century left in place or increased protections for highly paid professionals and also increased patent and copyright protections, it is difficult to believe anyone would not have expected the upward redistribution that occurred. It certainly was entirely predictable at the time.

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The Washington Post ran a major piece pointing out some of the difficulties involved in shifting over to a universal Medicare system as advocated by Senator Bernie Sanders. While the piece notes many of the problems, it never mentions that the United States pays hugely more per person for its health care with little obvious benefit in terms of outcomes. As a result, there would be enormous potential savings from switching to a universal Medicare-type system.

For example, according to the OECD, the UK spends less than half as much per person as the United States. This means that if the United States could get its costs down to UK levels, it would save more than $20 trillion (@ $60,000 per person) over the next decade. While accomplishing a transition to a more efficient system would be difficult, as the piece notes, but the potential gains are enormous.

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Actually that is not quite what Pearlstein said. The billionaire-owned Post, which has largely turned itself in recent weeks into a Bernie Sanders attack organ, apparently wanted yet another hit piece. Pearlstein in fact told readers that if the country elected Senator Sanders, and he was able to implement his policies to make the United States more like Scandinavia, then we would have to get used to a higher unemployment rate (twice). 

While the unemployment rates in these countries are somewhat higher than in the United States, the employment rates are also higher. According to the OECD, the percentage of people between the ages of 15 and 64 who are working is 75.5 percent in Sweden, 74.4 percent in Norway, and 73.2 percent in Denmark compared to 68.9 percent in the United States. If the United States had the same share of its population working as Denmark employed, 10 million more people would have jobs. If we had the same employment rates as Sweden, 15 million more people would be working.

The reason that these countries can have both a higher employment rate and unemployment rate is that more people in these countries are in the labor market. This is in part because they have more family friendly policies, such as long periods of paid parental leave and good publicly supported child care. (The employment gap is much larger for women than men.) It is also because they have better education systems that ensure even people at the bottom have decent educations. And, they don't incarcerate almost one percent of their population like the United States.

Pearlstein also cites a paper by Daron Acemoglu, Thierry Verdier, and James Robinson which argues that countries with strong welfare states like the Scandanavian countries don't produce the same sort of innovation as countries like the United States. This paper relies far more on hand-waving than data to make its case. These countries have high rates of new business formation and innovation by most measures.

Pearlstein also cites an analysis by the Tax Policy Center which argues that a financial transactions tax can only raise $50 billion a year rather than the $75 billion a year assumed by Sanders campaign. (He proposes this tax to pay for free college for all.) It is worth noting that this difference is due to the fact that the Tax Policy Center assumes that trading of stocks and other assets is highly responsive to the tax. Under the Tax Policy Center's assumptions, the decline in trading expenses would actually be larger than the revenue raised through the tax. This means that the entire burden of the tax would be borne from Wall Street in the form of less revenue from trading. (This assumes that less trading — falling back to 1990s levels — does not reduce the ability of firms to raise capital.)

It would be very impressive if a tax could raise $50 billion a year by eliminating wasteful trading on Wall Street. It would have been useful if Pearlstein had pointed out this implication of the Tax Policy Center's analysis.

Anyhow, it is clear that the billionaire owned Post is prepared to do its part to undermine a candidate who wants to reduce the wealth and power of billionaires. It is also not surprising that it very much objects to a candidate who thinks billionaires should pay taxes.



For a fuller set of comparisons between the United States and the larger group of Nordic countries, see CEPR's chartbook.

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Paul Krugman has agreed to use his blog this week as a jumping off point for great CEPR papers of the past (yes, I'm kidding), but he gives us a great segue into an old paper on unionization rates in Canada with his latest blogpost. In his post Krugman makes the simple point that if inevitable forces like globalization and technology were responsible for the decline in unionization rates in the United States then we should expect to see a comparable decline in Canada. After all, Canada's economy is even more exposed to trade than the United States and the country has all the same technologies that we enjoy south of the border.

Yet, Canada has seen only a modest decline in its unionization rate over the last three decades. It is still close to 28 percent, compared to just 11 percent in the United States.

The CEPR paper, by former research associate Kris Warner, explains that the difference is the result of differing institutional structures around the unionization process. In most Canadian provinces (labor law is set at provincial level in Canada, as opposed to the national level in the United States), workers can organize through a process of majority sign-up. This means that if a majority of workers in a bargaining unit sign cards indicating their desire to join a union, then the employer must recognize the union.

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Paul Krugman had a blogpost this morning that included a simple chart showing that Mexico's per capita GDP has actually diverged from U.S. per capita GDP in the years since NAFTA. This is not supposed to happen, our econ textbooks tell us that poor countries are supposed to grow more rapidly than rich countries and this should have been especially true with Mexico post-NAFTA.

There should not be anything particularly controversial about Krugman's post, after all it comes directly from World Bank data, but it is worth noting that the World Bank tried to tell an opposite story. Back in 2004, on the tenth anniversary of NAFTA, the World Bank published a study that purported to show a convergence of per capita GDP between Mexico and the United States in the years since NAFTA was passed.

We tried to set them straight, since we knew the data did not support this claim. The World Bank refused to acknowledge the obvious error (it seems their study used exchange rate measures instead of purchasing power parity measures of GDP) and presumably continues to this day to treat their study as being valid. Perhaps Krugman's simple chart will force them to acknowledge the truth.

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