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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There have been many pieces in the media noting that the Republican platform calls for restoring Glass-Steagall and arguing that this is stealing an item from Elizabeth Warren's agenda. While the Republican proposal would presumably restore the separation of investment banks from commercial banks that take government guaranteed deposits, the 21st Century Glass-Steagall Act being pushed by Senator Warren goes well beyond this.

Most importantly, the act would change the priority given to derivatives in bankruptcy. As current law is written, various derivative instruments have priority in bankruptcy proceedings over other liabilities. This allowed non-bank institutions like Lehman to continue to carry through normal business even as their financial situation was deteriorating due to bad mortgage debt. By taking away the priority for derivative contracts, market actors would have serious incentive to evaluate the financial situation of an institution like Lehman. This would likely prevent it from developing the same sort of massive uncovered liabilities that Lehman did in the housing bubble years.

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No, that is not some new concession that the Speaker made to appease Donald Trump, this is his budget wonkiness. According to the analysis of Ryan's budget by the Congressional Budget Office, he would reduce the non-Social Security, non-Medicare portion of the federal budget, shrinking it to 3.5 percent of GDP by 2050 (page 16).

This number is roughly equal to current spending on the military. Ryan has indicated that he does not want to see the military budget cut to any substantial degree. That leaves no money for the Food and Drug Administration, the National Institutes of Health, The Justice Department, infrastructure spending or anything else. Following Ryan's plan, in 35 years we would have nothing left over after paying for the military.

As I have pointed out here in the past, this was not some offhanded gaffe where Ryan might have misspoke. He supervised the CBO analysis. CBO doesn't write-down numbers in a dark corner and then throw them up on their website to embarrass powerful members of Congress. As the document makes clear, they consulted with Ryan in writing the analysis to make sure that they were accurately capturing his program.

For some reason, the media refuse to give Mr. Ryan credit for the position he has openly embraced. The NYT followed this pattern in its editorial implying that Mr. Ryan had compromised his respectable wonkiness in his endorsement of Donald Trump. Ryan has made his career by arguing an extreme position that is far to the right of even most of the Republican party. It is long past time that the media take seriously the position he is advocating.

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An NYT article on insurers' requests for higher premiums in the health care exchanges set up by the Affordable Care Act (ACA) might have misled readers about the reason that insurers face higher costs. The piece noted the request to the federal government for large increases in several states, ranging from 34 to 60 percent. It then quoted Gregory A. Thompson, a spokesman for Blue Cross and Blue Shield plans in five states. 

"...the reason for the big rate requests was simple. 'It’s underlying medical costs,' he said. 'That’s what makes up the insurance premium.'"

Insofar as insurers are seeing sharp increases in costs it is not due to rising health care costs in general. These have been rising relatively slowly. The Commerce Department reports that spending on health care services in nominal terms rose just 5.0 percent over the last year, only slightly faster than the growth in nominal GDP. (Prescription drugs spending rose at a somewhat more rapid 7.0 percent rate in the last year.)

The only plausible explanation for faster cost growth in the exchanges is that the people signing up for the exchanges are less healthy than the population as a whole. This has always been a problem with health care insurance. If only less healthy people sign up, it makes the insurance very expensive. This was the reason that the ACA requires people to buy insurance. (Bizarrely, this became know as the problem of "young invincibles," implying that we needed young healthy people to sign up for the exchanges. Actually it is much more important to have older healthy people sign up for the exchanges, since they pay higher premiums and also have almost no costs.)

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See, it's all very simple. If a father pays his kid $10 to mow his lawn, no one expects the kid to pay Social Security taxes on the money. It's the exact same thing when people work 40 hours a week for an employer, why would we expect them to pay Social Security taxes on their wages?

That is the nature of the argument Steven B. Klinsky, the founder and chief executive officer of the private equity firm New Mountain Capital, gave in a NYT column in defense of the carried interest deduction. This deduction allows hedge fund and private equity fund mangers to pay taxes at the capital gains tax rate (20 percent) instead of the 39.6 percent tax rate they would pay on normal income.

Klinsky argues that this carried interest loophole really is no loophole at all:

"Let’s say a father and a son go into business together to buy the local lawn mowing company for $1,000. The father puts up the money and the son does all the work of having the idea, managing the partnership and so on. They agree to split the partnership’s future profit 80 percent for the father (as the passive, money limited partner) and 20 percent for the son (as the active, hands-on general partner). If years later, the partnership is sold for a profit, there would be long-term capital gain on that profit. The father would own 80 percent of the profit and pay 80 percent of the capital gains taxes. The son would own 20 percent of the profit and pay 20 percent of the capital gains taxes."

See, when folks like Mitt Romney and Peter Peterson get hundreds of millions of dollars a year from their earnings as private equity fund managers it's just the same as kid who goes into business with his father. There's no reason these people should be taxed like ordinary workers.

As a practical matter, the relevant examples here are realtors, car salespeople, and other workers who get paid on a commission. In all these cases, workers' pay depends on the profit to the owner of the business or the customer. In all of these cases, workers are taxed on their commissions in exactly the same way that other workers are taxed on salaries. This is really not a tough call. There is no reason for the I.R.S. to give workers a tax break just because they are paid on commission.

Apparently, Klinsky thinks that the rules that apply to ordinary workers shouldn't apply to the very rich people who run private equity and hedge funds. At least, that is the only thing that we can reasonably infer from his argument.

Of course, the son in his case should, in principle, have to pay normal taxes on the earnings from his labor just as the kid mowing his dad's lawn should in principle pay Social Security tax on his $10. However, because trivial sums are involved and the enforcement issue would be extremely difficult, we don't worry about these cases. When some of the richest people in the country can get away with paying a lower tax rate than a school teacher or firefighter, it is something worth worrying about.

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The Fed rate hike gang got excited yesterday about the release of the June Consumer Price Index data. As the NYT reported, a 0.2 percent June rise in the core CPI took the year over year rate to 2.3 percent. That is slightly above the 2.0 percent target set by the Fed, although the Fed uses the core personal consumption expenditure index, which shows a 1.6 percent advance over the last year.

However even the CPI figure can be a bit deceiving. The shelter component (essentially rent and owners' equivalent rent) accounts for over 40 percent of the core index. This component is the factor responsible for the modest increase in the core CPI in recent months. Excluding the shelter component the core CPI actually fell modestly from 1.6 percent to 1.4 percent over the prior twelve months.

Change in the Core CPI, Excluding Shelter Over Prior Twelve Months

CPI housingSource: Bureau of Labor Statistics.

It is reasonable to exclude shelter when assessing patterns in inflation since its price follows a qualitatively different dynamic than most goods and services. Rent reflects supply and demand conditions in the housing market. The factor driving rent increases is an inadequate supply of housing.

While higher interest rates will in general be expected to dampen inflation by weakening the labor market and putting downward pressure on wages, this would not be the case with rents. Higher interest rates will slow construction and in this way make the shortage of housing worse. For this reason inflation caused by rising house costs would not be a good rationale for raising interest rates.

The piece also touted the Federal Reserve Board's report of a 0.4 percent increase in manufacturing output for June. It is worth noting that this follows a reported decline of 0.3 percent in May. The Fed's manufacturing index is still 0.2 percent below its February level so it is hard to make a case for robust growth in this sector. 

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Sure, everyone knows that $1.3 billion is roughly 9.0 percent of the state's $13.8 billion 2015 budget. That's why the NYT never bothered to put this figure in any context for its readers in an article on how the state is dealing with a sharp falloff in oil revenue.

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Paul Krugman actually did not make any predictions on the stock market, so those looking to get investment advice from everyone’s favorite Nobel Prize winning economist will be disappointed. But he did make some interesting comments on the market’s new high. Some of these are on the mark, but some could use some further elaboration.

I’ll start with what is right. First, Krugman points out that the market is horrible as a predictor of the future of the economy. The market was also at a record high in the fall of 2007. This was more than a full year after the housing bubble’s peak. At the time, house prices were falling at a rate of more than 1 percent a month, eliminating more than $200 billion of homeowner’s equity every month. Somehow the wizards of Wall Street did not realize this would cause problems for the economy. The idea that the Wall Street gang has some unique insight into the economy is more than a bit far-fetched.

The second point where Krugman is right on the money (yes, pun intended) is that the market is supposed to be giving us the value of future profits, not an assessment of the economy. This is the story if we think of the stock market acting in textbook form where all investors have perfect foresight. The news that the economy will boom over the next decade, but the profit share will plummet as workers get huge pay increases, would be expected to give us a plunging stock market. Conversely, weak growth coupled with a rising profit share should mean a rising market. Even in principle the stock market is not telling us about the future of the economy, it is telling us about the future of corporate profits.

Okay, now for a few points where Krugman’s comments could use a bit deeper analysis. Krugman notes the rise in profit shares in recent years and argues that this is a large part of the story of the market’s record high, along with extremely low interest rates. Actually, the profit story is a bit different than Krugman suggests.

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Bloomberg is really pushing the frontiers in journalism. In order to give readers a balanced account of a proposal by Representative Peter DeFazio to impose a 0.03 percent tax on financial transactions (that's 3 cents on every hundred dollars) it went to the spokesperson for the Investment Company Institute, the chief investment officer from Vanguard, and an academic with extensive ties to the financial industry. It also presented an assertion on the savings from electronic trading from Markit Ltd. Based on this diverse range of sources, Bloomberg ran a headline:

"Democrats assail Wall Street with plan that may hit mom and pop."

If Bloomberg was interested in views other than those from the financial industry, it might have found some people who supported the tax to provide comments for the article. Or, it might have tried some basic arithmetic itself.

Most research finds that trading is price elastic, meaning that the percentage change in trading in response to a tax is larger than the percentage increase in trading costs that result from the tax. The non-partisan Tax Policy Center assumed an elasticity of -1.25 in its analysis of financial transactions taxes.

This means that it the tax proposed by DeFazio would raise the cost of trading by 20 percent, then trading volume would decline by 1.25 times as much, or 25 percent. Investors would pay 20 percent more on each trade, but would be trading 25 percent less. This means that their trading costs would actually fall as a result of the tax. (With trading at 75 percent of the previous level, but the per trade cost at 120 percent of the previous level, the total cost of trading would be 90 percent of the prior level.)

The only way "mom and pop" get hurt in this story is if they make money on average on their trades. That is a hard story to tell. If mom and pop are lucky and sell their stock when it is high then some other mom and pop are unlucky and buy the stock when it is over-valued. As a general rule, trading will end up being a wash. (If we stopped trading altogether that would be a problem, but the taxes on the table would just raise costs to where they were 10 or 20 years ago.)

Of course there is someone that gets hurt by less trading -- the folks who were making money on the trades -- that's right the financial industry. So, Bloomberg's sources could expect to take a huge hit if Congress were to pass a tax like the one proposed by Mr. DeFazio. Based on the elasticity figure used by the Tax Policy Center and the revenue estimate from the Joint Tax Committee, DeFazio's proposed tax would cost the financial industry more than $50 billion a year. Since it may not sound very compelling to hear a multi-millionaire complain about the prospect of a pay cut, it sounds much better to make up a story about mom and pop investors.

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The Washington Post reported on new projections on national health care spending by the Centers for Medicare and Medicaid Services (CMS). The projections are that health care costs will outpace the growth of the economy, rising from the current 17 percent of GDP to 20 percent by 2025. It then provides readers with a warning from Katherine Hempstead, a researcher at the Robert Wood Johnson Foundation:

"Even under the rather optimistic assumption that health care spending grow no more quickly than the economy itself; we will, before long, be forced to choose between an unpleasant combination of significant tax increases and/or cuts in defense and non-health spending."

(I believe Hempstead is referring to age-adjusted spending. Per capita spending is virtually certain to rise relative to per capita income, due to population aging.)

There are three points worth noting on these projections. First, the CMS projections have been notoriously inaccurate in the past. In the 1990s, health care spending was projected to be more than 25 percent of GDP by 2030. This doesn't mean the most recent projections will be wrong, but people should know they are highly uncertain.

The second point is that U.S. costs are already hugely out of line with costs in other wealthy countries with no obvious benefits in terms of outcomes. We currently pay more than twice as much per person for our health care as people in other wealthy countries yet rank near the bottom in life expectancy.

As our costs grow further relative to costs in other countries, it will require a strengthening of protectionist measures to sustain this growing gap. In other words, there are huge potential savings from people receiving health care in other countries. (Also, there would be enormous savings from allowing adequately trained foreign doctors to practice in the United States.) If the protectionists ever lose their control of national policy we could see a sharp drop in costs from opening up to trade in health care services. (The potential savings would more than an order of magnitude larger than even the most optimistic projections of gains from the Trans-Pacific Partnership.)

The third point is that the U.S. economy has suffered from a shortfall in demand ever since the collapse of the housing bubble. If this "secular stagnation" continues, then we will not need tax increases and/or spending cuts to pay for health care. If we face a shortfall in demand then we can simply finance additional health care spending with deficits. In the context of an underemployed economy, this will boost growth and create jobs.

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That's what folks must have been wondering after reading this Bloomberg piece singing the praises of Antonio Weiss's work on restructuring Puerto Rico's debt. The piece told readers:

"Weiss, 49, a former Lazard Ltd. investment banker who spent almost two decades on Wall Street, became a champion for the island’s cause — a debt crisis with a human toll."

A debt crisis having a human toll, imagine that.

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Eduardo Porter argued in his column that part of the story of growing inequality is a failure of competition policy. The argument is that increased concentration in a number of industries has led to rents being shared by high earning employees in the largest firms. Porter cites research from Jason Furman, the current head of the Council of Economic Advisers, and Peter Orszag, the former chief of the Office of Management and Budget, which support this view.

While Porter mentions a number of firms that might fit this story, he neglected to mention Uber. Uber is striking in that it appears to be trying to form a monopoly by using its political power (it hired David Plouffe, President Obama's chief political adviser, as a lobbyist) to maintain an unsettled regulatory structure in the industry. While Uber is prepared to act in defiance of existing regulations, and then use its power to prevent legal sanctions, smaller competitors are likely to be less comfortable operating in defiance of the law. While a clear set of regulations would help to level the playing field, Uber is working hard to prevent modernized regulations from coming into effect.

This is exactly the sort of situation that leads to concentration of wealth (Uber's stock now has a market value of $68 billion), without generating efficiency gains for the economy. It is a good illustration of the problem noted in Porter's column.

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It speaks to the truly bizarre nature of political reporting that a person who calls for eliminating most areas of the federal government in the next three decades (exceptions are Social Security, Medicare and Medicaid, and the Defense Department) is viewed as a thoughtful moderate, but that is how the NYT and the rest of the media treat House Speaker Paul Ryan. Somehow, we are supposed to ignore the fact that Speaker Ryan has repeatedly proposed budgets that would eliminate federal funding for education, infrastructure, the Justice Department, the National Institutes of Health and just about every other area of federal spending.

The NYT is worried that the rise of Donald Trump and the conservatives in the House will prevent him from continuing his serious discussions of budget issues. Or at least that is what they claim to be worried about.

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The media often feel the need to be balanced in its coverage of Republicans and Democrats even when the evidence doesn't lend itself to much balance. We got a strange example of such an effort at balance in a NYT article reporting on a piece on the Affordable Care Act by President Obama that ran in the Journal of the American Medical Association. According to the NYT piece, Obama said that he would like to see larger subsidies for the health insurance policies in the exchanges, that he would like people to be able to buy into a public plan like Medicare, and he would like to rein in the drug companies.

After laying out the changes that President Obama would like to see in the Affordable Care Act the piece tells readers:

"Mr. Obama accused Republicans of 'hyperpartisanship' without saying what he might have done differently."

This assertion makes no sense since the whole article is describing an agenda that President Obama would like to see, if not for the obstruction of Republicans. In other words, Obama was very specific about what he might have done differently, at least according to the article.

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No, I'm not engaging in name calling, this is based on Barton Swaim's self-description of his abilities in his Washington Post column on the United States being in decline. Swaim, a contributing columnist to the Washington Post complained to readers that the United States is becoming a European-style regulatory state, then added:

"...neither the country’s political class nor its voters seem to care that the national debt has reached literally incomprehensible levels..."

In fact, the numerate among us have little difficulty comprehending the level of debt. If we look at the publicly held debt, it's a bit more than 75 percent of GDP. If we include the debt held by Social Security and other government trust funds it is a bit more than 100 percent of GDP.

Of greater relevance than these debt to GDP figures is the interest burden associated with the debt. Currently this is around 0.8 percent of GDP, after we net out the money rebated from the Fed. This compares to an interest burden of over 3.0 percent of GDP in the early 1990s.

This article referring to the debt by someone who claims that he finds it "literally incomprehensible," follows by a day a NYT column by Steven Rattner who told readers that he found Social Security and Medicare's projected shortfalls "terrifying."

It might be helpful if these papers could insist that the people who write on the debt and deficit have some understanding of the issues, as opposed to people who by their own admission find the topics "literally incomprehensible" or "terrifying." If Swaim had a better understanding of the debt he might have even re-evaluated his thesis that the United States is in decline.

I should add that the United States today has a much larger implicit liability, relative to the size of the economy, in the form of patent and copyright liabilities than would have been the case in prior decades. These are commitments that the government has made of the public's money to the holders of these property claims in order to compensate them for innovative and creative work. Unfortunately, there is no record of the size of these commitments in the government's accounts.

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Apparently the answer is "no." Steven Rattner used his NYT column to make the important complaint that we are starving large areas of the federal government, leading to a deteriorating infrastructure and poor quality public service. All of this is fine. It has been said a few hundred thousand times, but it can't hurt to say it a few hundred thousand more.

But then Rattner tells us:

"Yes, we needed to bring the deficit down. And yes, we still face terrifyingly large obligations in years to come as baby boomers retire and expect to receive Social Security and Medicare benefits."

And how did he know we needed to bring the deficits down? Is this something he got from his parents? He sure didn't get it from any reasonable assessment of the state of the economy. The problem with overly large deficits is high interest rates and then high inflation rates if we accommodate the high interest rates with easy money. When since the downturn have interest rates been high? When has the inflation rate been too high? It's cute that Mr. Rattner remembers what his parents told him, but it would be nice when giving advise on economic policy if he relied on economics instead.

As far as the "terrifying large obligations": really? We raised Social Security and Medicare taxes in the 1980s. If we raised them by the same amount somewhere in the next three decades these programs would be fully funded for the rest of the century. It's too bad that Mr. Rattner finds this "terrifying."

There is one last point on which I am going to seriously beat up the budget whiners from now on. When we give patent and copyright monopolies to private companies and individuals the government is just as much imposing a tax on future generations as when we hand them government debt. If any budget "expert" ignores these commitments, which run into many trillions of dollars over the next decade, they are either incompetent or dishonest. Either way, anyone who tries to talk about the government deficit without factoring in the size of these obligations does not deserve to be taken seriously.

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George Will used his column to complain that the Federal Reserve Board is redistributing upward with its low interest rate policy. Since this is a source of confusion that extends well beyond Will, it is worth taking a few minutes to address this issue directly.

The essence of the argument is that low interest rates drive up asset prices like stock and assets, thereby increasing the wealth of people who own these assets. Since the rich own most of these assets, especially stock, the argument is that the higher asset prices are helping the rich at the expense of the rest of us.

Before addressing the logic of this point, it is first worth examining the extent to which asset prices have risen as a result of low interest rates. The pre-recession peak of the S&P 500 was 1576 on October 1, 2007. Since then the market has risen by roughly 35 percent to 2130. The economy has grown by just over 25 percent over the same period. Virtually no one thought there was a stock bubble in 2007. (I warned people about the market at the time, not because of a stock bubble, but rather because I expected the crash of the housing bubble to lead to a severe recession, which the market was not anticipating.)

If the market wasn’t in a bubble in 2007, it’s hard to make the case it faces one today. Also, if there has been a permanent shift to higher profits (which I don’t believe, but many economists claim), then the price to trend earnings ratio would be roughly the same today as it was before 2007.

For those keeping score, the federal funds rate was 5.0 percent in October of 2007 and the 10-year Treasury rate was 4.5 percent. That compares to today’s rates of around 0.3 percent for federal funds and 1.6 percent for 10-year Treasury bonds. If the argument is that low interest rates have given us a stock bubble, the Fed has not bought itself much for its efforts.

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In his Washington Post column this morning, E.J. Dionne warns of liberals who suffer from nostalgia in believing that we can just bring back and expand the New Deal agenda from the 1930s. He also complains about the amnesia of conservatives who forget all the ways in which government investments in infrastructure, education, and research and development paved the way for economic growth.

Although these points are well-taken, the piece suffers from myopia in failing to acknowledge how the elites have stacked the deck in ways that both redistribute income upward and slow growth. To take some of the most obvious examples, while trade deals like NAFTA have been quite explicitly designed to put our manufacturing workers in direct competition with low-paid workers in the developing world, with the predictable impact on wages, we have maintained protections for doctors, lawyers, and other highly paid professions.

No serious person can believe that the only way someone can become a competent doctor is to complete a residency program in the United States. Yet, this is the law. It costs us close to $100 billion a year in higher health care payments and allows U.S. doctors to have average earnings of more than $250,000 a year.

We also continually make patent and copyright protections longer and stronger redistributing a massive amount of income upward. We will spend close to $430 billion in 2016 on prescription drugs that would likely cost around one-tenth of this amount in a free market. (Drug patents are equivalent in their distortionary effects as tariffs in the range of 1,000 to 10,000 percent.)

And, we have an incredibly bloated financial sector that pulls away five times as much resources from the productive economy as it did forty years ago. If the sector were subject to the same sort of sales tax as the rest of us pay when we buy items in stores, it would likely shrink by more than 50 percent, saving the country over $100 billion a year in fees on useless trading.

Unfortunately, Dionne omits mentions of these and other items which are responsible for the massive upward redistribution of the last four decades. I suppose these are things that you are not allowed to say in the Washington Post

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Adam Davidson had an interesting NYT Magazine piece on Donald Trump and the central Pennsylvania economy. His basic point, that Trump's proposals for high tariffs will not revitalize the region is undoubtedly correct, but there are a few points that should be made.

First, productivity and technological change has been far more important for jobs in manufacturing than trade, but that doesn't mean trade has not still been a big deal. We have seen rapid productivity growth in manufacturing through the whole post-war period, but the number of jobs in the sector remained roughly constant, with cyclical fluctuations, from the late 1960s until the end of the 1990s. Since the labor force was growing over this period, it did mean that the manufacturing share of employment was falling.

However, the absolute number of jobs plummeted at the start of the last decade as the trade deficit exploded. The drop was more than 20 percent even before the 2008 recession.

Jobs in Manufacturing

manu jobs2Source: Bureau of Labor Statistics.

This sharp decline in manufacturing employment had negative effects in many regions of the country, although it's possible that the impact in central Pennsylvania was less than in other manufacturing regions. Also, the threat of job loss, often due to trade, is an important factor affecting workers' bargaining power and therefore their ability to secure pay increases.

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There are serious arguments to be made against raising the minimum wage to $15. At this point we really don't have enough data to say with much certainty what the employment impact will be. But we do know that the story that Peter Salins tried to sell readers in his NYT column is wrong.

Salins, a professor of political science at Stony Brook University and a senior fellow at the Manhattan Institute, is a big advocate of an expanded earned income tax credit as an alternative to a higher minimum wage. He tells readers of his estimate that a $15 minimum wage would cost 3 million jobs and then adds:

"Regardless of the magnitude of job cuts caused by a minimum-wage increase, all the workers who lost jobs as a result would be ineligible for the earned-income tax credit. In most states they would receive unemployment insurance for up 26 weeks at a level well below their former earnings; after that, their income would fall to zero."

The problem with this story is that it completely misrepresents the nature of the low-wage labor market. The jobs that pay near the minimum wage tend to be high turnover jobs. According to the Bureau of Labor Statistics' Job Opening and Labor Turnover Survey, over 6.0 percent of the workers in the hotel and restaurant sector leave their job every month. That comes to more than 72 percent annually. In the strong labor market at the start of the century the turnover rate was over 8.0 percent monthly.

Given this rate of turnover, the story of job loss due to the minimum wage is not a story of people losing their jobs and going without work for the rest of the year. It's a story of people taking longer to find jobs when they lose or leave their job. This means that there will be few workers who go without work for a whole year and see their income falling to zero, as described by Salins.

It is possible that a higher minimum wage will lead to enough job loss that the net effect will be to reduce the annual pay of a large portion of low-wage workers. This is a reasonable concern, which we will be better able to answer as we experiment with higher minimum wages, but it will not be a story of millions of losers going without employment altogether, as Salins implies.

It is striking how plans to raise the minimum wage invariably brings out calls for an expanded Earned Income Tax credit (EITC) from conservatives. This is a good policy, hopefully it will be part of the mix of measures that will raise the income of low-wage earners. (A full employment policy from the Federal Reserve Board is also a big part of this picture.) It is worth noting that in standard economic models, the EITC will also lead to lower employment, since it requires more taxes and/or more borrowing, which leads to economic distortions, slower growth, and fewer jobs.

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The Washington Post is at it again, using a front page piece to repeatedly tell readers that the protectionist pacts crafted by recent administrations are "free trade." The phrase appears in each of the first two paragraphs.

Of course, the deals are not about free trade. They do deliberately place U.S. manufacturing workers in direct competition with low-paid workers in the developing world. This has the predicted and actual effect of lowering their wages. However, the deals leave in place the protections for highly paid professionals like doctors and lawyers.

It is still illegal to practice medicine in the United States unless you go through a U.S. residency program here. As a result of protectionist measures our doctors earn on average more than twice as much as doctors in other wealthy countries. This costs us roughly $100 billion a year in higher health care bills. "Free traders" would be upset about this.

The trade deals also put in place longer and stronger patent and copyright protections. As a result of these protections, we will spend over $430 billion this year on prescription drugs that would cost around one-tenth of this amount in a free market. Of course, protectionism like this is not free trade.

Educated types think they have to support free trade, so labeling these trade deals as "free trade" pacts undoubtedly wins them support among a substantial segment of the population. However, it is not accurate.

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It would have been worth reminding people of this fact in an article on a proposal in California to lower drug prices. The piece might have led readers to believe that the proposal was interfering with a free market. Actually, it is limiting the ability of companies to take advantage of a government granted monopoly.

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