Beat the Press is Dean Baker's commentary on economic reporting. He is a Senior Economist at the Center for Economic and Policy Research (CEPR). To never miss a post, subscribe to a weekly email roundup of Beat the Press.

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An NYT article on the Republican tax cut told readers:

"When President Trump adds his distinctive signature to the tax bill, he will also be making a huge bet that the Republican strategy of deep cuts for businesses and wealthy individuals will fuel extraordinary growth across the board.

"Perhaps more than any other American political leader, Mr. Trump knows that long shots, like his own presidential bid, sometimes pay off. In that vein, he and congressional Republicans are arguing that their bitterly contested and expensive rewrite of the tax code will ultimately create more jobs and raise wages.

"If they are proved correct, they will be repudiating not only historical experience, but most experts. From Congress’s own prognosticators to Wall Street’s virtuosos, scarcely any independent analyses project anything like the rosy forecasts offered by the president’s top economic advisers."

While this is a correct assessment of the views of economists, there is another possibility left out of this discussion, the economy may already be on a faster growth path for reasons having nothing to do with the tax cut.

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The nonsense is flowing thick and heavy now that Congress has just voted to hand the bulk of a $1.5 trillion tax cut to the richest people in the country. Vox is out front getting its two cents in, telling us the big problem is the government debt built up by the baby boomers and the Social Security and Medicare that they plan to collect.The context is an interview with Bruce Gibney who is hawking a new book blaming the baby boomers for everything evil.

The confusion is thick and heavy here. For example, Gibney whines about the debt-to-GDP ratio. Fans of economics might refer him to burden of servicing the debt, which is less than 1.0 percent of GDP after subtracting the money rebated by the Federal Reserve Board to the Treasury. By comparison, it was more than 3.0 percent of GDP in the 1990s. It is also worth noting that this burden did not prevent the 1990s from being a very prosperous decade by almost any measure.

Then we get the usual complaint about Social Security and Medicare. Yeah, isn't it outrageous how boomers think that they should be able to have an income and health care after a lifetime working? For what it is worth, boomers get a much worse return on their Social Security than the generations that preceded them, both because they paid a much higher tax rate during their working life and also because of the increase in the normal retirement age from 65 to 67.

Medicare is expensive, but that is because we pay twice as much for our doctors, drugs, and medical equipment as people in other countries. This is a big deal, but not one that has boomers as the villains.

Incredibly, in calculating debt Gibney somehow has not noticed the cost of patent and copyright monopolies that the government grants as a way of paying for innovation. In the case of prescription drugs alone, this costs around $370 billion a year, roughly equal to 40 percent of Social Security spending. (This issue is discussed in Chapter 5 of my [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.) 

If we want to talk about harm to future generations we should also talk about the completely unnecessary austerity pushed by the deficit hawks in the years following the 2008 crash. This has cost us more than $1 trillion a year in lost output ($3,000 per person, per year).

We live in a society where the rich are running wild trying to take everything they can from the rest of us and put in their own pockets. So naturally, that increases the demand for people like Gibney who try to get people to beat up their parents and grandparents and ignore this massive heist by the rich.

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The Republicans in Congress and Donald Trump were really hoping to sock it to the blue states like California and New York, which voted against him by large margins. This is what limiting the deduction for state and local income and property taxes is all about. These states also have relatively high taxes because they try to do things like provide people with decent health care and education.

However, it is not difficult to design a way around the Trump scam. States can impose state-level, employer-side payroll taxes. For the most part, these taxes would be deducted from workers' pay (e.g. if an employer has to pay a 5 percent payroll tax, she will likely reduce her workers' pay by 5 percent), but this has the great advantage that workers will not be taxed on money that they don't see.

If the income tax is reduced by the same amount as the payroll tax, the state gets the same amount of money, the worker ends up in the same place and the Republicans don't get to screw the blue states. Oh yeah, the federal government ends up with less revenue, but that will be happening anyhow as the accountants and tax lawyers get to their games.

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There is a lot of craziness in the era of Trump. According to the Washington Post, a tax bill that gives the overwhelming majority of its benefits to the richest people in the country had "working-class roots." This is pretty loony stuff.

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An article in the NYT on China's plans to create a market for trading permits to emit greenhouse gases told readers that China has the world's second-largest economy after the United States. According to the International Monetary Fund's estimates, China's economy is currently more than 20 percent larger than the U.S. economy, using a purchasing power parity measure. This measure, which applies a common set of prices to the goods and services produced in both countries, is clearly the correct measure of output to use in an analysis of greenhouse gas emissions.

The piece also wrongly asserts that:

"Chinese emissions per person are still somewhat less than the average per capita figure in the United States, although the gap has been narrowing."

While it is true that the gap in per person emissions has been narrowing, the U.S. still emits more than twice as much per person as China.

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In a rare, serious column discussing various proposals to improve labor market outcomes, David Brooks makes the common "problem with men" mistake. The piece refers to men dropping out of the labor force at alarming rates and then endorses programs to induce men to get over cultural stereotypes and apply for jobs in fast-growing occupations dominated by women, like nursing and teaching.

Actually, the labor market experience of less-educated men has not been very different from the experience of less educated women, as was shown in a recent paper by Brian Dew. The employment rate for men between the ages of 25 and 34 with a high school degree or less is down by 8.2 percentage points from its peak in 1999. For women, it is down by 6.9 percentage points.

For less-educated workers between the ages of 35 and 44 the employment rate is down by 4.1 percentage points from a 1999 peak for men and 9.7 percentage points for women. For older prime-age workers (45 and 54) the employment rate is down 3.3 percentage points from a 2000 peak for men and by 6.7 percentage points for women.

The fact that there have been sharp declines in employment rates for both less-educated men and women indicates the problem is more likely a problem of weak demand than some gender-specific problem with men. Nonetheless, policies to overcome gender stereotypes are a good thing, as are policies to end sexual harassment and other factors that keep women out of many higher paying jobs.

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It is common to look at the ratio of new hires to job openings to get a sense of the tightness of the labor market. The idea is that if there is a high ratio of hires to openings, employers are not having trouble finding workers, whereas a low ratio means that jobs are going unfilled. This means either that employers are unable to find qualified workers, or that they are not willing to offer the market wage for some reason.

The Post had an article about the Trump administration's plans to reduce the pay and benefits for federal government employees. It notes the arguments of Trump administration economists that federal employees are overpaid. It is worth noting that the ratio of hiring to openings in the federal government is far lower than in the pre-recession period.

The table below shows this ratio for several major sectors in the first six months of 2007 compared with the most recent six months.

      Ratio of Hires to Job Openings
           
    Jan-June '07 May-Oct '17
Total Private   1.16   0.93  
Retail   1.78   1.08  
Accomodation and Food Service   1.59   1.13  
Private minus retail &food service   1.02   0.87  
Health Care & Social Assistance   0.67   0.54  
Federal Government   1.61   0.42  
S&L Education   1.13   0.92  
S&L Other   0.57   0.55  

Source: Bureau of Labor Statistics.

As can be seen the ratio of hiring to openings is just over one quarter of its pre-recession level. This suggests that the federal government is already having a difficult time getting qualified workers given current pay and benefit packages. If it reduces pay and benefits further, then the federal government will presumably have an even more difficult time attracting qualified workers.

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David Sirota, Josh Keefe, and Alex Kotch, writing at International Business Times, reported that a provision inserted into the Republican tax bill will provide large benefits to former holdout Senator Bob Corker, as well as President Trump. The provision would allow income from real estate investment trusts to be taxed at a 20 percent rate, as opposed to the 37 percent tax rate paid by high income individuals.

According to Corker's disclosure forms, he makes between $1.2 million and $7.0 million annually in this sort of income. (We don't know how much Donald Trump earns in this type of income since he broke his campaign promise about releasing his tax returns after his audit was completed.) If we plug in the top end $7 million figure, Corker could be saving as much as $1,190,000 from this late addition to the tax bill.

By comparison, much has been made of Senator Marco Rubio's effort to change the refundability rules on the child tax credit, thereby giving more money to moderate-income families. According to calculations by the Center on Budget and Policy Priorities, with this change, a married couple with two children, earning $30,000 a year, will get back an additional $800 a year.

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Source: International Business Times and Center on Budget and Policy Priorities.

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Zachary Karabell, the head of global strategies at Envestnet, got the story badly wrong in a Post Outlook section piece arguing that the Fed's model of inflation is wrong. The piece highlights the relatively rapid growth in the last two quarters and argues that this should be leading to inflation. That is not what the Fed's model would predict.

In the Fed's model, the change in the rate of inflation is tied to the level of unemployment. While the unemployment rate is at a level where the model predicts rising inflation, the rate of GDP growth is largely besides the point. The economy has had much more rapid GDP growth at earlier points in the recovery. For example, growth averaged 4.9 percent in the third and fourth quarters of 2014. It averaged 2.9 percent in the second and third quarters of 2015.

The question is primarily one of how rapidly productivity can grow. The labor market is getting tighter, although with the employment-to-population (EPOP) ratio of prime-age (ages 25 to 54) still below pre-recession levels and well below 2000 levels, it is likely that we still have some ways to go before reaching full employment. Once that point is reached, the economy will only be able to grow at the rate of labor force growth determined by demographics (around 0.5–0.7 percent) plus the rate of productivity growth.

Productivity growth had been averaging less than 0.7 percent annually from 2012 to 2017, and most projections had assumed slow growth would continue. However, it grew at more than a 3.0 percent annual rate in the third quarter and seems on track to again grow at a rate above 2.0 percent in the fourth quarter. If we can sustain a faster rate of productivity growth, the economy will be able to sustain a faster rate of GDP growth even when the labor market is fully employed.

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An NYT article on the winners and losers from the bill listed among the losers people who buy individual insurance, since it will leave insurers "stuck with more people who are older and ailing." The issue here is ailing, not older. The exchanges can already charge different prices based on their age. While the law limits the band between age groups, so it's not exactly equal to the difference in costs, this is a relatively small matter. The health of the people within an age group makes far more difference.

It is also important to note that many of the people who are predicted to go uninsured because of the repeal of the mandate are people who would have otherwise gotten Medicaid. These are people who would effectively get free insurance if they applied on the exchanges but won't make the effort without the mandate.

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The NYT seems confused on how the new lower limit on mortgage interest deduction in the Republican tax bill would work. It told readers:

"The bill does retain significant subsidies, allowing home buyers to deduct interest on mortgages as high as $750,000."

In fact, the bill allows homeowners to deduct interest on $750,000 of principal, regardless of the size of the mortgage. While the phrasing in the NYT piece might have led someone to believe that they could not deduct any interest on an $800,000 mortgage, in fact, they would be able to deduct almost all of their interest.

If a homeowner was paying 4.0 percent interest on an $800,000 mortgage, they would be able to deduct the interest on $750,000, or $30,000, from their taxable income. They would only lose out on the opportunity to deduct the $2,000 in interest on the $50,000 in principal above $750,000. Furthermore, after four or five years, when they had paid some of the principal, this homeowner would again be able to deduct the full amount of interest paid on their mortgage.

This distinction is important since the reduction in the cap on mortgage principal eligible for the interest deduction (from $1,000,000 to $750,000) is likely to have a very limited impact on the housing market. The doubling of the standard deduction and the cap on deductions for state and local income and property taxes are likely to be far more important.

 

Note: Typo corrected, thanks Raleedy.

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Everyone remembers Marco Rubio walking the union picket lines, demanding stronger enforcement of workplace safety rules, and strong fiscal stimulus to counter unemployment. Oh, wait, Senator Rubio has been on the other side of all these issues. He has opposed strengthening workers' rights to organize, stronger enforcement of workplace safety rules, as well as stimulus measures to counter unemployment.

That's okay, in New York Times-land he still gets to be a "longtime champion of the working class." The context is Senator Rubio's fight for making more of the child tax credit refundable. His threat to hold out on this issue earned a slightly more generous provision that will net a single mother earning $20,000 about $300 a year.

This would be equivalent to an increase in the minimum wage of 15 cents an hour for a full-time year-round worker. It is equal to roughly 0.15 percent of the gains for the richest 0.1 percent of taxpayers. It's great that we have The New York Times to tell us that Rubio is a champion of the working class, most of us would probably never realize it based on his actions.

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I see that I got cited at the top of a NYT column this week. Desmond Lachman, an economist at the American Enterprise Institute (who I know and respect) had a column warning about the rise of bubbles around the world and the risk of their collapse. The first sentence tells us, "no one seemed to have anticipated the world’s worst financial crisis in the postwar period." Yeah, well I realize I wasn't very successful in getting my warnings across, but I sure did try.

Anyhow, I would say that Lachman is about half-right on the current situation. Many economies do seem to be seeing new bubbles. The housing markets in Canada, Australia, and the UK seem especially out of line. The bursting of bubbles in these markets is likely to be bad news for these countries; however, I don't see comparable bubbles in the U.S. and most other major markets. If the more clearly identifiable bubbles burst, it does not look like 2008 all over again and a worldwide recession. (China looks bubbly too, but they have managed to go four decades without a recession, so I wouldn't bet against them at this point.)

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Ryan Avent had a nice piece in the NYT this morning pushing the argument that Jared Bernstein, Josh Bivens, and I (among others) have been making for years, that higher wages can be a force driving more rapid productivity growth. The basic point is straightforward, when labor is expensive, employers have more incentive to find ways to use less of it. In this story, anything we can do to push up wages, like promoting unionization or raising minimum wages, is likely to lead to higher productivity.

The one important point that Ryan misses in this piece is that we may already be seeing a turning point. The tightening of the labor market over the last two years has led to upward pressure on wages, especially for those at the middle and bottom of the wage distribution. As Jared and I noted:

"The real weekly earnings for full-time, low-wage workers are up by more than 3 percent over the past two years. Real weekly earnings for the median African American worker have risen by more than 5 percent over the past two years, while the increase for Hispanics has been more than 4 percent."

This rise in wages is the result of the fact that the Fed allowed the unemployment rate to keep falling to its current 4.1 percent rate rather than hiking interest rates enough to keep it near the 5.0 percent level that most economists considered the best we could do without triggering spiraling inflation.

It also looks as though higher wages may be producing the productivity dividend that we predicted. Productivity grew at a 3.0 percent annual rate in the third quarter, after growing 1.5 percent in the second quarter. With the latest projections showing GDP growth in the fourth quarter at 3.3 percent, productivity growth is likely to come in over 2.0 percent in the fourth quarter. This follows five years in which productivity growth averaged less than 0.7 percent annually.

Productivity data are notoriously erratic, so it is too early to declare the trend of weak growth over, but these are promising signs. And, there is no doubt that workers at the middle and bottom have seen decent wage growth over the last two years. These are important points to add to Ryan's piece.

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This is a frequent mistake in reporting on the tax proposal, as in this Post article telling us:

"Under the Trump plan, pass-through businesses get a substantial reduction in taxes."

This is wrong since pass-through corporations already don't pay any taxes, so their taxes can't be reduced unless we have a negative income tax for them. The tax cut applies to income from pass-through corporations.

This distinction matters for two reasons. First, it means that taxpayers with the same income will pay different tax rates depending on its source. Under the plan passed by the Senate, anyone can get a 23 percent reduction in their tax bill if they arrange for their income to come through a pass-through corporation.

While this tax break is not likely to do much to promote economic growth, it will be rocket fuel for the tax shelter industry. There will be a flood of pass-through corporations created as higher-earning workers, like doctors and lawyers, arrange to have their income paid to them from their pass-through corporations rather than as normal wage income. (Yes, this is supposed to be illegal, but the Republicans have spent two decades gutting the IRS's enforcement capabilities. If you think the IRS, given its current resources, will be able to prevent widespread evasion, please contact me so I can sell you some digital currency.)

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We all know that folks involved in debates on economic policy are not very good at arithmetic. That's why almost no one was able to see the $8 trillion housing bubble that sank the economy. But we can always speculate about what the world would look like if arithmetic mattered.

Right now, the Republicans are claiming that cutting the corporate income tax rate from 35 percent to 20 percent will lead to a huge surge of investment and growth. They claim that the additional growth from this tax cut will produce $1.5 trillion in extra revenue. This is why they say they can have a tax cut that totals to $1.5 trillion without increasing the budget deficit.

While almost no independent economists agree that growth will be large enough to produce this much revenue, it is at least a coherent position. Tax cuts can boost growth, and higher growth does mean more tax revenue. The problem with this story is that the Republicans are apparently no longer talking about reducing the corporate income tax to 20 percent, they are planning just to reduce it to 21 percent. Nonetheless, they are still claiming it will produce enough growth to generate $1.5 trillion in additional revenue.

Fans of arithmetic everywhere should be ridiculing the Republican leadership for flunking third-grade math. If a cut in the tax rate to 20 percent produces enough growth to generate $1.5 trillion in revenue, then a cut to 21 percent must produce somewhat less growth and therefore less revenue. In effect, the Republicans are now saying that they can get the same amount of growth and revenue regardless of the size of the tax cut.

In Republican Tax Cut World, we must have a story that looks something like this:

Size of Tax Cut                                                       Revenue Generated from Additional Growth

15 percentage points to 20 percent                           $1.5 trillion

14 percentage points to 21 percent                           $1.5 trillion

13 percentage points to 22 percent                           $1.5 trillion

12 percentage points to 23 percent                           $1.5 trillion

11 percentage points to 24 percent                           $1.5 trillion

10 percentage points to 25 percent                           $1.5 trillion

9 percentage points to 26 percent                             $1.5 trillion

8 percentage points to 27 percent                             $1.5 trillion

7 percentage points to 28 percent                             $1.5 trillion

6 percentage points to 29 percent                             $1.5 trillion

5 percentage points to 30 percent                             $1.5 trillion

4 percentage points to 31 percent                             $1.5 trillion

3 percentage points to 32 percent                             $1.5 trillion

2 percentage points to 33 percent                             $1.5 trillion

1 percentage points to 34 percent                             $1.5 trillion

Yes, this is pretty damn ridiculous, but fortunately for the Republicans, knowledge of arithmetic is rare in Washington policy circles, so they will likely get away with claiming the same revenue dividend from additional growth, even with a smaller tax cut.

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This line inexplicably appeared in the middle of an NYT article about a contract between the Communications Workers of America and AT&T which provides job protection and pay increases for 20,000 workers. It also apparently includes a commitment from AT&T to bring some jobs back to the United States.

There is nothing in the piece that identifies any policy being pushed by President Trump which would keep more low- and middle-skilled jobs in the United States. His actions to date do not demonstrate this sort of commitment. For example, he has displayed little interest in reducing the value of the dollar against currencies, which is the most immediate determinant of the relative competitiveness of the United States. He has supported the tax plans being pushed by congressional Republicans, which will altogether exempt the foreign profits of U.S. corporations from being taxed by the United States.

He also has done nothing to increasingly expose more highly skilled workers, like doctors and dentists, to international competition, which would reduce the pressure on less-skilled workers. And, he has pushed measures to increase protectionism for patents and copyrights, as well as imposing rules on digital commerce on our trading partners. These would have the effect of increasing the income of US corporations from foreign countries which would, other things equal, mean increased deficits in the areas that employ and low- and middle-skilled workers.

It seems like the comment about Trump wanting to keep low- and middle-skilled jobs in the United States was largely a throwaway line. It would have been best just to throw it away rather than include it in an otherwise solid article.

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Fox News and Atlantic Magazine have zero shame. The latter has a major article telling readers that Social Security is "the grandparents stealing from the grandchildren."

The piece is a cornucopia of misstatements about Social Security and Medicare, most importantly implying that today seniors get some big windfall from the programs and that it somehow comes at the expense of our grandchildren. Both parts of this claim are seriously wrong.

In the case of Social Security, most people retiring in the near future will actually get back from the program roughly the same amount that they paid in, using standard interest rates. Low- and-moderate income people will get back somewhat more, whereas "high earners" (defined as people earning around $75,000 a year) will get back less.

The average value of Medicare benefits will exceed tax payments, but this is due to the high cost of medical care in the United States. While we don't have better health care outcomes in the United States than in Germany, Canada, or other wealthy countries, we do pay around twice as much per person as these other countries. The difference is the greater price of drugs and medical equipment, the cost of insurance, and the pay of doctors. A serious article would look at how these big actors in the health care industry are stealing from our grandchildren, but not the Atlantic.

The other part of the story is the implication that somehow the Social Security and Medicare received by seniors is limiting our ability to ensure a decent standard of living for our children and grandchildren. This is lunatic land. As the Republicans are showing right now, we are not near any limits in our ability to run larger deficits. We could always impose higher taxes on the rich who have been the big gainers from economic growth over the last four decades, due to their rigging of the economy.

We could also reverse some of the rigging. For example, ending patent monopolies on prescription drugs and allowing them to be bought at free market prices would save us close to $370 billion a year, roughly half of which would take the form of savings to the government. Expansionary fiscal and monetary policy that allows the unemployment rate to fall to lower levels also disproportionately benefits those at the bottom of the income ladder, benefiting our children and grandchildren by giving their parents jobs and the bargaining power to get pay increases at those jobs.

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Did you hear the one about...? Okay, it's not that funny, but the Washington Post tells us that the Republicans are now considering a 21 percent corporate tax rate instead of the 20 percent rate that was in the bill passed by both the House and Senate.

The reason this matters is that the Republicans are assuming their tax bill will lead to additional growth, which they claim means $1.5 trillion in new revenue over the next decade. While virtually no economists outside of the administration accept this claim (the Joint Tax Committee assumes one third of this growth effect), the ostensible basis for the claim is the incentive for new investment based on a 20 percent corporate tax rate.

The problem here is that a 21 percent corporate tax rate means less of a reduction in taxes than a 20 percent corporate tax rate. This means it should provide less incentive to invest and a smaller increment to growth and revenue. But apparently, the Republicans don't intend to change their $1.5 trillion target implicitly leaving their growth assumption unchanged even though they've changed the basis for the assumption.

Welcome to the modern Republican Party: Up is Down, Night Is Day, and American is Great Again.

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As the labor market has tightened, many of us have looked to trends in wage growth to see evidence that we could be hitting full employment. While the tighter labor market has led to gains for those at the middle and bottom of the wage distribution, it has not led to a general acceleration in wage growth. The year-over-year increase in the average hourly wage was just 2.5 percent for November, roughly the same as it has been for the last two years.

In spite of the weak wage growth, news outlets continually tell us that employers are unable to find workers with the necessary skills. The argument is that more people would be hired if only the unemployed workers had the skills required by employers.

This story doesn't fit with the weak wage growth story since there are always workers with the necessary skills — they just might work for competitors or in another city. The way employers attract these workers is by offering a higher wage. If we don't see wages rising, then this story doesn't really make sense. (Employers would always like to find workers who will accept below-market wages; so what?)

Nonetheless, we often see people citing the Bureau of Labor Statistics data on job openings and hires to argue the case that companies can't find workers with the needed skills. There has been a fall in the ratio of monthly hires to job openings over the last decade. This is taken as evidence that employers have positions that are going unfilled because they can't find skilled workers. A closer look at the data indicates otherwise.

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After all, being a columnist at the NYT is a pretty good gig. Yet he repeatedly shows he doesn't have a clue on the issues on which he pontificates.

In his latest effort he criticizes the people he dubs "radicals" and contrasts them with radicals of prior years. He tells readers:

"Today’s radicals do not want to upend the meritocracy, which is creating a caste system of inherited inequality. They don’t want to stop technical innovation, which is displacing millions of workers."

Really, it is meritocracy that gives us patent and copyright monopolies, that bails out Wall Street billionaires who put their banks into bankruptcy, that protects doctors and dentists from foreign competition? It is meritocracy that gives us a corrupt corporate governance structure that allows CEOs to largely set their own pay? It is meritocracy that gives us fiscal and monetary policies that denied jobs to millions following the collapse of the housing bubble?

That doesn't fit my definition of meritocracy. That sure looks like a rigged system designed to redistribute income upward. (Yeah, I'm plugging my free book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.)

But Brooks makes his case:

"Well, they are wrong that our institutions are fundamentally corrupt. Most of our actual social and economic problems are the bad byproducts of fundamentally good trends."

Okay, if he says so. I thought people were supposed to have to argue for their positions based on evidence, but in David Brooks' "meritocracy" you can make unsupported assertions and get published in the NYT twice a week.

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