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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That's only a small exaggeration. He touted a study by Steve Rose showing substantial income gains for upper middle class households over the last four decades. The study did not take account of the extent to which incomes rose because households had two earners, as opposed to a situation where people in the household got more pay for each hour worked.

Most people probably expect that a household would have more income if two people are working than one. Economic progress is when people get more money for each hour of work — but hey, if you have a case to sell, you make it up as you go along.

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Back in 2011 the Bank of International Settlements (BIS) began warning of the risks of run away inflation associated with the expansionary monetary policy being pursued by the Fed, the European Central Bank and other central banks. It is still making these warnings. Unfortunately, the NYT presented the warnings as being somehow new information that should interest them, rather than old predictions that had been proven wrong repeatedly.

Even better, the piece tells us that one of the main credentials of Jaime Caruana, the managing director of the BIS, is that he missed the massive housing bubble in Spain:

"It is worth noting that Mr. Caruana is familiar with asset bubbles: He was the head of Spain’s central bank a decade ago when reckless lending among the country’s financial institutions resulted in a boom and eventual bust of Spanish property prices."

Incredibly the piece only presents the views of people who are opposed to expansionary monetary policy. The views of Stephen Jen, a former official at the International Monetary Fund who now manages a hedge fund in London, figure prominently. Jen insists that we have lots of inflation, it's just in asset markets. Actually, most economists would make a clear distinction between inflation in the markets for goods and services and asset markets. The former tend to feed into inflation and can lead to a wage price spiral. The latter cannot unless Mr. Jen has developed a new theory on inflation dynamics.

The piece also misleadingly implies that rising asset prices are an important factor in wage stagnation in the UK telling readers:

"Thanks to aggressive central bank policies, house prices in London are among the most expensive in the world, yet the inflation-adjusted weekly average wage of 470 pounds, or about $632, is still £20 lower than it was before the financial crisis, according to the Resolution Foundation, a British research organization."

Actually, house sale prices don't factor into the inflation index, even if people like Mr. Jen and the reporter writing this piece want them to. The housing component that is used to measure inflation and therefore provides the basis for the real wage calculation cited here is a rental index. This will not be directly affected by house prices. In fact, the low interest rate policies of central banks are likely to go the other direction by making it easier to build more housing and thereby driving down prices.

Also, while there is a strong case that the UK again has a housing bubble (which may now burst in response to Brexit — a good thing), asset prices in most of the world are not out of line with fundamentals. The U.S. stock market has risen roughly in line with GDP from its 2007 peaks, which almost no one considered to be a bubble at the time. Most real estate prices in the U.S. are still far below bubble peaks and only modestly above trends, with the exception of some California cities.

In short, this piece is effectively an opinion piece calling for higher interest rates and an end to expansionary monetary policy. It's just a lot more confused than the typical NYT column.

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Just kidding, AP wouldn't waste readers time on anything so frivolous as the future of the planet. No, it's calling politicians irresponsible because they won't run out and cut Social Security and Medicare.

The piece is headlined, "Medicare, Social Security finance woes." The first sentence tells readers:

"The nation's framework for economic security and health care in retirement is financially unsustainable, but you wouldn't know it from listening to the presidential candidates."

Yep, the programs are unsustainable in the same way that driving west in New Jersey is unsustainable. If you keep going west, you'll end up in the Pacific Ocean. Yes, the programs face a projected shortfall, but if we waited a decade to do anything, and then put in place fixes comparable to what we did in the 1980s, the program would be fine for the rest of the century.

But hey, AP wants us to cut benefits now! You hear that, now! The piece only includes comments from advocates of cuts to emphasize that point.

Also, somehow AP failed to notice the enormous progress that has been made in reducing the projected shortfall for these two programs under President Obama. The combined shortfall has fallen by more than one-third over the eight years of the Obama administration. This is primarily due to slower growth in health care costs.

On this issue, the piece wrongly asserts that further savings in this area are unlikely. This is not true, our doctors get paid more than twice as much in doctors in other wealthy countries. There are enormous potential savings from bringing their pay in line with their counterparts in the rest of the world. There is also enormous room for savings on prescription drugs, medical equipment, and other areas.

Finally, it is striking how much ink AP and other news outlets devote to warning of the prospect of higher taxes for these programs when workers face far greater risks from the continuing upward redistribution of income. If most workers get their share of projected wage growth over the next three decades, any tax increases associated with sustaining Social Security and Medicare will be a drop in the bucket. 

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An NYT article on the upcoming elections in Iceland told readers that, "gross national income per capita is down by a quarter since 2007." The I.M.F. doesn't agree. According to the I.M.F. data, per capital GDP in Iceland is around 2.0 percent higher now than its pre-recession peak. That is a very different story.

In fairness, the NYT piece refers to gross national income (GNI), not gross domestic product. Generally these are very close, but in a small country like Iceland they may differ by large amounts. GDP is usually the preferred measure, but it can be inflated by things like foreign companies claiming profits in the country for tax purposes, as happens in Ireland.

If the NYT's GNI numbers are correct, it is most likely due to foreign profits of Iceland's major banks in the bubble years before the crisis. It's not clear that the loss of these profits, which were based on speculation and fraud, is a negative for Iceland's economy.

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Jim Tankersley had an interesting piece arguing that the Brexit vote ended "globalization as we know it." I am less optimistic on that front. The folks who profit from the current path of globalization are incredibly powerful and very effective at working around democracy and things like that. But that aside, the article had an interesting graph that caught my attention. 

The graph shows the ratio of international trade in goods and services to GDP over the last two decades. After rising sharply from 1995 to 2007, it has been largely flat and still has not recovered to its 2007 peak. This change in trends is of course striking.

However, there is another aspect to this story worth considering. In the debate over the productivity slowdown, there is a camp which argues that it is largely illusory. The story goes that we are undercounting GDP, and therefore productivity, because we are missing the value of things like video downloads on the web, undercounting the value of the camera in our iPhones, and other such things.

While there is obviously some non-zero amount here (we are missing some things in our GDP accounting), I have never been convinced that it could be enough to change the basic story. (Remember it has to be cumulative. If we are undercounting by 0.5 percentage points annually, after 20 years we are undercounting GDP by 10 percent.)

But this connects to the trade story in an interesting way. The items that are likely to be missed in GDP accounts are also items that are heavily involved in trade. For example, people everywhere get information, music, and videos off the web. This means that if we are even undercounting GDP by a small amount, like 0.2 percentage points, we may be undercounting trade by a large amount.

In the 0.2 percentage point case, suppose that half of this is in items that cross national borders. This means that we are understating the growth of trade by 0.1 percentage points annually. Over the stretch of time covered by the graph, this would translate into 2.0 additional percentage points of world GDP involved in trade. In this story, it is very plausible that much of the drop in the trade to GDP ratio is a result of mis-measurement, even if the measurement problem is not a big deal from the standpoint of the world as a whole.

There is one other thing worth noting in this story. Suppose the protectionists get defeated and we find a way to finance innovation and creative work other than patent and copyright protection. In that case, drugs are all cheap and books, recorded music and video material all cross borders at zero cost. This explosion in globalization would be associated with a plunge in the trade to GDP ratios. This indicates that it may not be a very good measure of what we are interested in.

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The Washington Post once again got in over its head as it tried to sort out the consequences of the UK's exit from the EU. In article on the implications for the rest of the European Union it told readers:

"A strain of fear is already running through the German government as it contemplates the loss of Britain — whose conservative prime minister, David Cameron, largely backed Chancellor Angela Merkel’s austerity crusade. Berlin now fears a “ganging up” by nations including France, Spain and Italy, which may seek to overthrow Merkel’s austerity-first policy. 

"Yet, if the Germans do not lead, who will? France is too distracted, a nation mired in economic stagnation and a war on terror. The Italians and the Spanish, meanwhile, are still struggling with financial hardship, political volatility and large-scale unemployment."

See the problem here? The article tells us that France, Italy, and Spain can't lead because they are all suffering from serious internal problems. But almost all the problems cited, except for terrorism in France, are a direct result of their economic situation. And, that's right folks, the bad economic situation is the result of the austerity imposed on them by Germany with the backing of David Cameron.

So, if Germany is no longer in a position to impose its absurd austerity policies on the rest of the EU, then France, Italy, and Spain can again have normal growth and lower unemployment. Stronger economies would then make these countries much better situated to play a leading role in the European Union: problem solved.

Wasn't that easy?

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Neil Irwin had an Upshot piece trying to work through some of the fallout from the vote to leave the European Union. It is worth elaborating on a couple of the points in this piece.

First, Irwin seems to give financial markets undue credit in having a clue. He argues that the effects of the vote will be transmitted to the economy through financial markets. While this is largely true, financial markets are notoriously fickle. They often over-respond to events or even non-events, the most obvious being the 25 percent plunge in October of 1987 that wasn't linked to anything in the world. This plunge also had only a very limited impact on the economy. For this reason, it doesn't make much sense to project economic affects based on one day's market movements.

Second, Irwin highlights the 8.0 percent plunge in the value of the pound against the dollar as something that is likely to have a substantial impact on the UK economy. This is true, but a little more background here is important.

The UK was running a trade deficit in the neighborhood of 5 percent of GDP (@ $900 billion in the U.S.). This deficit was being in large part fueled by an inflow of foreign money to buy UK real estate, leading to an enormous run-up in housing prices, especially in London. This was unsustainable. (Some folks may have heard about housing bubbles but apparently it was difficult in the UK in the pre-Brexit era to get information on such things.)

Anyhow, the correction for a large trade deficit is a drop in the value of the currency. If the UK had competent economic managers, they would have tried to engineer a drop in the value of their currency. They also would have tried to prevent the bubble from growing so large. The plunge in the pound may now bring about the necessary correction in the trade deficit. It may also stop and even reverse the inflow of foreign capital to buy real estate, thereby crashing the bubble.

If that happens, then the Brexit vote will have merely brought forward events that were inevitable. While Washington Post types will inevitably engage in a round of intense finger-wagging at the Brexit voters, the real problem here was the incompetent management of the UK economy by Prime Minister Cameron and the English Central Bank.

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"Britain's exit from E.U. sends global economy into a tailspin." That was the headline of a Washington Post article on the vote in the U.K.. If you missed the tailspinning economies that's because this is just Washington Post hysteria. Obviously the Washington Post is referring to financial markets. They apparently don't realize the difference between financial markets and the real economy.

And if you don't realize they are very different then you must believe in the horrible recession of 1987. Of course there was no recession in 1987 (or 1988 or 1989), but that was when the stock market plunged more than 20 percent in a single day. This drop, which happened in every major world market, did not correspond to any identifiable event in the economy. Nor did it have any massive fallout on the world economy. But in Washington Post land it was undoubtedly a serious recession.

Unfortunately the headline did not misrepresent the nature of the piece. The first sentence tells readers:

"The global economy faces months — if not years — of slower growth as Britain’s stunning decision to abandon the European Union threw financial markets into a tailspin and darkened the outlook for corporate and consumer spending."

While the UK's departure from the EU will almost certainly have a negative impact on world growth, most of the impact will be on the UK, with a lesser effect on the EU (both will be worse if the EU imposes harsh protectionist measures as punishment — which should be the big story in the media), the impact on the U.S. economy and the rest of the world will likely be minimal.

In terms of hits to the world economy, the 2011 budget agreement that turned the U.S. sharply toward austerity was almost certainly far worse than Brexit. Of course, the Washington Post basically liked that deal so it is unlikely that it would ever make this sort of comparison.

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Back in my teaching days I would use the seriously wrong answers on student exams as valuable information telling me what concepts I need to explain better. Charles Lane's Washington Post column on a universal basic income can be used the same way. Lane clearly does not like the idea of a universal basic income (UBI), but his confused rationale ties together many common misunderstandings.

First, the whole idea of job-killing robots is more than a bit bizarre for a couple of reasons. Robots kills jobs in the same way that technology has always killed jobs. They displace human labor. We used to need far more workers to make a car than we do today, or a ton of steel, or to harvest a ton of wheat. In all of these cases we were able to use technology to accomplish more work with fewer people.

Robots are part of the same story. What possible difference can it make if a job is displaced by a robot or a more efficient assembly line? We have seen whole industries, like photographic film, wiped out by digital technology. Would the former workers at Kodak somehow be worse off if they had lost their jobs to robots than to digital cameras?

The point is that robots are productivity growth. Say that a few thousands times until it sinks in. The impact of robots on the economy is nothing more or less than any other innovation that produces the same amount of productivity growth.

And on this account the story is not terribly impressive. Lane cites an analysis by Carl Frey and Michael Osborne that claims that 47 percent of U.S. jobs are at risk due to technology over the next two decades. Now they just said these jobs were at risk, but lets assume we lose them all. That would translate into 3.1 percent annual productivity growth. That is roughly the same rate as we saw in the 1947-1973 golden age, a period of rapid wage growth and low unemployment. Are you scared yet?

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Neil Irwin has an Upshot piece reporting on a study by Mark Zandi projecting that the Donald Trump agenda would be an economic disaster. The piece is a fair assessment (he sees Zandi's projections as plausible, but certainly highly debatable), but it is worth making a couple of additional points.

First, much of the Zandi horror story is premised on the idea that the economy is at full employment and that any further stimulus from larger budget deficits would lead to higher interest rates and/or inflation. If folks believe this then they must also believe that stimulus from infrastructure spending would lead to higher interest rates and or/or inflation.

I am the last person to defend tax cuts for rich people, but I don't do make-it-up-as-you-go-along economics. If you believe that the economy is actually well below full employment and that it would benefit from the boost given by an increase in the budget deficit, then this part of the Zandi horror story does not fit. (The argument that the rich won't spend their tax cut goes the wrong way. The problem from deficits in this story is that they are creating demand in the economy. If the rich save all their tax cuts, then we don't have this problem.)

The other point is that Zandi's assumptions on the evil of Trump's tariffs seem somewhat exaggerated as others, including Paul Krugman, have noted. More importantly, there is actually a serious policy that could be buried in the midst of Trump's bluster.

It would be perfectly reasonable for the United States to try to negotiate a rise in China's currency against the dollar. Yes, I know China is having troubles just now and has actually been trying to keep the value of its currency up by selling dollars. But its holdings of more than $3 trillion in reserves has the effect of keeping down the value of its currency against the dollar, just as the Fed's holding of more than $4 trillion in assets has the effect of holding down interest rates. (Sorry, the logic is inescapable for those who don't do make-it-up-as-you-go-along economics.)

Anyhow, it would make perfect sense to negotiate a path for a higher valued yuan. At the negotiating table it would be perfectly reasonable to threaten various forms of retaliation as pressure, including tariffs. It would also be necessary to put concessions on the table, since the U.S. can't just dictate policy to China, even if Donald Trump is president. (When he makes me Treasury Secretary, my top candidates will be that China doesn't have to pay Bill Gates for Windows or Pfizer for its drug patents, and that they need not worry about market access for Goldman Sachs.)

If China did raise the value of its currency, it would reduce the U.S. trade deficit, boosting demand and creating more jobs, especially in manufacturing. (It would also lower our budget deficits, making deficit hawks happy.) This is a perfectly reasonable policy which should not be banished from consideration because it is associated with Donald Trump. (I have no idea what Trump hopes to get from his tariffs on Mexico.) 

Note: Typos corrected, thanks Robert Salzberg.

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That is what an article in the Washington Post seemed to imply, as it indicated that German Finance Minister Wolfgang Schäuble would have the European Union put up protectionist trade barriers as a way of punishing the United Kingdom if the country voted to leave the European Union. Such barriers would likely prove costly to the people in the European Union.

There have been a number of analyses showing that the UK could see a loss of between 2–5 percent in output if it left the European Union (EU) and suddenly faced substantial trade barriers. While the UK is less important as a trading partner for the EU as a whole than vice-versa, it is a very important trading partner for some members of the EU. For those countries, Schäuble's plans would imply a substantial loss of income. It is striking that a German finance minister would have this sort of power. That could be one reason why people in the UK and other countries have an interest in leaving.

It would have also been worth pointing out that the economic policies imposed by Germany have cost the EU a decade of growth and needlessly kept millions of people out of work. This policies are based on some sort of quasi-religious belief in the virtues of balanced budgets and have been shown to be unmoved by evidence. It is reasonable to believe that if the European Union had pursued policies to promote rather than stifle growth, Europeans would have a more positive attitude toward it.

The article also wrongly refers to the Trans-Atlantic Trade and Investment (TTIP) pact as a "free-trade" deal. It isn't. With few exceptions, the trade barriers between the U.S. and Europe are already very low and it would not be worth a great deal of time devising a pact to push them to zero. Rather the TTIP is about regulations and investment. Many of its provisions, such as stronger and longer copyright and patent protection, are actually protectionist in nature.

Politicians call pacts like the TTIP "free-trade" agreements because then quasi-intellectual types, like the people who write for newspapers, will then think they have to support them.

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Steve Rattner had a column in the NYT warning that 401(k) accounts are proving to be an inadequate replacement for traditional defined benefit accounts. While the points he makes are exactly right (people lose too much money in fees, make bad investment choices, and don't put enough money aside), one of the figures he cites may have misled readers about the state of workers' finances.

Rattner cites a study by Alicia Munnell, the director of the Center for Retirement Research at Boston College, which finds that households have an average of $111,000 in retirement accounts. While the figure is accurate, it refers to an average which is skewed by the large holdings of the wealthy, and only includes people with retirement accounts.

A more meaningful figure can be found in the same report. It gives a summary of the assets of the middle decile of households with someone between the ages of 55 to 64. This shows holdings in 401(K)s and IRAs of just $40,100. In fairness, this group still has a substantial amount of assets in defined benefit accounts (the report puts the figure at $153,700), but if the question is the extent to which 401(k)s have been a successful replacement, it is appropriate to exclude these assets. (Yes, there will be some substitution, so people would have more money in 401(k)s if they did not have DB pensions.)

Anyhow, Rattner is right about the basic story, but the picture is somewhat worse than this $111,000 figure might lead people to believe.

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We usually like to think of people holding positions of responsibility in places like the United States and Europe as rational actors who make reasoned decisions based on the evidence presented them. Apparently this is not the case if the New York Times is to be believed.

According to the NYT, the leading figures in the European Union are prepared to act like spurned lovers if the people of the United Kingdom vote this week to leave the European Union. One might think that a rational course of action might be recognizing the decision of the people in the UK and then trying to negotiate terms for their future relationship that are mutually advantageous. Instead, the leaders of the EU are apparently planning punishment.

The article begins by telling readers:

"The rest of the European Union nations are looking at the possibility of a British departure from the bloc with disbelief, trepidation and anguish. But they are also preparing to retaliate."

It goes on to give more details of the plans for punishment. Apparently a friendly divorce is out of the question for the EU honchos.

Rational people in the EU might also ask why people in one of the EU's largest member states would think they are better off outside of the European Union. After all, the benefits of the federal government are evident to most people living in the United States, why is that not the case in much of Europe.

Somehow the leaders of the EU are apparently incapable of asking whether maybe they are doing something wrong. For example, perhaps the austerity that has cost the continent a decade of growth and needlessly subjected millions of people to unemployment and underemployment is not a good way to go. Given the competence and integrity of the folks running the EU it is certainly understandable that many in the UK would want to leave.

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Bryce Covert had a column in the NYT this morning arguing that the performance of the economy in a president's term is largely out of their control. There is considerable truth to this. Business cycles have a dynamic that is largely outside of the president's control. President Reagan was fortunate in having a severe recession in the first year of his administration. Memories being what they are, voters blamed the recession on Reagan's predecessor, while giving Reagan credit for the robust recovery which was largely inevitable.

Similarly, world events can have enormous impact in ways that are largely outside of the president's control. Jimmy Carter had the bad fortune to be sitting in the White House when the Iranian revolution took 6 million barrels a day of oil production off world markets, more than quadrupling oil prices.

But it is possible to take the powerless president story too far. First, as the piece notes, the president appoints members of the Federal Reserve Board. The next president will come into office with two vacancies on the seven person Board of Governors. In addition, the will have the opportunity to pick a new Fed chair (or reappoint Janet Yellen) in their first year in office. The Fed can have an enormous near-term influence on the economy. At the moment, if it were to raise rates, as many policy types advocate (including some at the Fed), it would slow growth and reduce job creation.

The second point is that both President Clinton and Bush II sat on expanding asset bubbles, stock in the case of Clinton and housing in the case of Bush II. While these bubbles grew, they had a positive impact on the economy raising incomes and boosting growth. However the collapse of the bubbles was inevitable and devastating in both cases. Clinton had the good fortune to leave office before the impact of the collapse on the economy was fully realized. Bush II was less lucky.

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The NYT had two articles on occupational licensing requirements today and there was not one mention of the restrictions that lead us to pay twice as much for our doctors as other wealthy countries. It is illegal to practice medicine in the United States unless you completed a U.S. residency program. In other words, under the law, all of those doctors trained in Canada, Germany, the United Kingdom and other wealthy countries can't be trusted to provide people in the United States with medical care.

This is called "protectionism." We all know it is stupid, self-defeating, backward looking, etc. when it comes to steelworkers, textile workers, and other workers who tend to be less educated. But somehow all our great proponents of free trade can't seem to notice the protectionism that benefits doctors. And this is real money. The average pay of doctors in the United States is more than $250,000 a year. If they were paid in line with the average for other wealthy countries the savings would be on the order or $100 billion a year or a bit more than $700 per household. 

Anyhow, it striking to see the topic of unnecessary occupational licensing restrictions being addressed but zero discussion of the most costly one of them all. Hasn't the NYT heard about doctors?

FWIW, our dentists are over-protected and over-paid also. Until recently, dentists have to graduate a U.S. dental school to practice in the U.S. In the last few years, we began to allow graduates of dental schools in Canada.

Perhaps at some point our doctors and dentists will  have to get by without protectionism and learn to compete in the global economy — but reporters will probably have to notice first.

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Paul Krugman devoted his column on Friday to a mild critique of the drive to take the United Kingdom out of the European Union. The reason the column was somewhat moderate in its criticisms of the desire to leave EU is that Krugman sympathizes with the complaints of many in the UK and elsewhere about the bureaucrats in Brussels being unaccountable to the public. This is of course right, but it is worth taking the issue here a step further.

If we expect to hold people accountable then they have to face consequences for doing their job badly. In particular, if they mess up really badly then they should be fired. There is a whole economics literature on the importance of being able to fire workers as a way of ensuring work discipline. Unfortunately this never seems to apply to the people at the top. And this is seen most clearly in the cases of those responsible for economic policy in the European Union.

The European Central Bank (ECB) was amazingly negligent in its failure to recognize the dangers of the housing bubbles in Spain, Ireland, and elsewhere. Its response to the downturn was also incredibly inept, needlessly pushing many countries to the brink of default, thereby inflating interest rates to stratospheric levels. Nonetheless, when Jean-Claude Trichet retired as head of the bank in 2011, he was applauded for his years of service and patted himself on the back for keeping inflation under the bank's 2.0 percent. (For those arguing that this was the bank's exclusive mandate, it is worth noting that Mario Draghi, his successor, is operating under the same mandate. He nonetheless sees it as the bank's job to maintain financial stability and promote growth.) 

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Greg Mankiw used his NYT column to discuss the weak growth the U.S. economy has experienced over the last decade and goes through five explanations. To my view there's not much complicated about the story. We lost a huge amount of demand when the housing bubble collapsed and there is nothing to replace it. That is essentially #4, presented as secular stagnation by Larry Summers. Regular BTP readers know the story well, so let me briefly comment on the other four.

The first one, that the economy actually is growing rapidly but we are missing it because the gains are not picked up in our measurements, really flunks the laugh test. The items identified are things like getting music and information free on the web or being able to use our smart phones as cameras. These are great things, but if you try to put a price tag on them (in the old days most people would buy a cheap camera every ten years or so), they are pretty small.

Furthermore, there were always benefits from new products that weren't being picked up (also costs — try getting by without a cell phone — the need for a cell phone and the monthly service is not included as a negative in the data), what these folks have to show is that the annual size of these benefits has increased. If you want to be generous, give them a 0.1 percentage point of GDP and tell them to shut up.

The crisis hangover story is also widely told. Firms are scared to invest, banks are scared to lend. This one also seems to defy the data. First, until the recent downturn in investment following the collapse of oil prices and the rise in the trade deficit following the run-up in the dollar, investment was pretty much back to its pre-recession share of GDP. Banks are also lending at their pre-recession rate. So it's a nice story to humor reporters, but there is nothing in the world to support it.

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Back in January, when the Congressional Budget Office (CBO) issued its annual Budget and Economic Outlook, the Washington Post and other deficit hawk types seized on the projections of rising deficits and debt to GDP ratios in the latter part of its 10-year projections. There was another round of cries for deficit reduction, with cuts to Social Security and Medicare again holding center stage.

Some of us took the opportunity to point out that the projections of rising deficits hinged almost entirely on CBO's projections that interest rates would rise sharply in the next few years. In effect, it assumed that interest rates would soon return to levels that were similar to their pre-crash levels. CBO had made the same assumption in its prior six Budget and Economic Outlooks. It had been wrong.

It now looks like it will be wrong again, at least for its 2016 prediction on rates. It projected in January that the 10-year Treasury bond rate would average 2.8 percent. It has averaged less than 2.0 percent through the first five and half months of the year and is currently hovering near 1.6 percent.

This means that if interest rates are going to return to "normal" or near normal levels, it is likely to be further in the future than previously believed. Don't bet on that causing the deficit hawks to give up their attacks on Social Security and Medicare, but hopefully the rest of the world will take them even less seriously than is currently the case.

One final point: it would be good if interest rates did rise because it would mean the economy was getting stronger, so there is no reason to celebrate low interest rates. However, in the context of an economy than is still far from having recovered from the collapse of the housing bubble, low interest rates are better than high interest rates.

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That's right, he's upset that the Federal Reserve Board didn't raise interest rates this week. He tells readers:

"Until a year or two ago, there was good reason for the Fed to continue with its extraordinary monetary policy. But with the U.S. economy nearly back to full employment, and incomes rising, and core inflation running close to 2 percent, it’s well past the time to start easing back on the stimulus by raising rates."

The idea here is that we need to start raising rates or the labor market will get so tight that we will have problems with rising inflation. Or so it seems. But then we get:

"This isn’t about preventing future inflation — right now, all the signals are that that risk is pretty low. But it is about weaning the U.S. and global economy off an addiction to zero interest rates that have badly distorted the price of financial assets relative to the price of everything else."

Okay, so we don't actually have a problem with inflation, we have a problem with the price of financial assets being distorted. Pearlstein never quite fills in the details, but implicitly he is saying that we have problems with asset bubbles.

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No, I'm not talking about its decision not to raise interest rates yesterday, I mean the release of May data on industrial production. The data showed a decline in manufacturing output in May of 0.4 percent. The output levels for both March and April were also revised downward. Over the last three months production has been declining at a 2.4 percent annual rate.

This indicates that the manufacturing sector continues to be a drag on the economy and is likely to mean further job losses in the months ahead. The report is yet another warning that the economy is not moving along at a healthy pace.

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There have been several pieces in the media complaining that the Fed is having a hard time raising interest rates from their current unusually low level. This is true, but the basic story here is quite simple: the economy remains very weak.

The growth rate has averaged just 2.0 percent for the last five years and may well fall below that pace in 2016. That is not an environment in which it makes sense for the Fed to be raising interest rates.

The recent news reports make it sound like the problem is that the Fed can't raise interest rates, as though this is a goal in itself. The real point is that we should want to see a strong economy in which it might be necessary for the Fed to raise interest rates to prevent overheating. The fact that the economy is not stronger means that people are unable to get jobs, or full-time jobs, or jobs that fully utlilize their skills.

It also means that we are foregoing an enormous amount of potential output. We could be devoting resources to the spread of clean energy, educating our kids, or providing better health care. But because there is not enough demand in the economy, resources just sit idle.

This is a real and huge problem. The fact that the Fed can't raise interest rates? Sorry, not in the same ballpark.

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