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).
A Reuters piece carried by the New York Times told readers:
"If built, TransCanada’s Keystone XL from Alberta to Nebraska would yield about $2.4 billion (C$3.2 billion) a year for Canada, split between government revenues, shareholder profits and re-investment into the still-recovering Canadian oil patch, according to a Conference Board of Canada research note prepared for Reuters on Thursday.
"That’s because the 800,000 barrels-per-day (bdp) line would provide cheaper shipping and a new outlet for the country’s vast but landlocked oil sands reserves, giving them increased access to the stronger U.S. market. Canadian producers could likely command around $2 more per barrel, analysts and investors said."
Okay, let's check this one. If the pipeline is used at its 800,000 barrels-per-day capacity, it will carry 292 million barrels over the course of a year. If it will lead to an additional $2 per barrel for Canadian producers, as the article reports, this implies an increase in revenue of $584 million a year. That is quite a bit less than the $2.4 billion a year touted in the first paragraph.
This looks like another case where someone is wrong on the Internet.Add a comment
Donald Trump has indicated that he might slap high tariffs on imports from Mexico as a way to make the country pay for his border wall. While it's not clear this makes sense, since U.S. consumers would bear the bulk of the burden from this tax, it would certainly reduce imports from Mexico. It would also would violate NAFTA and WTO rules, thereby opening the door to a trade war with Mexico and possibly other countries.
Many have seen this as taking us down a road to ever higher tariffs, leading to a plunge in international trade, which would have substantial economic costs for everyone. However, Mexico could take an alternative path that would provide far more effective retaliation against President Trump, while leading to fewer barriers and more growth.
The alternative is simple: Mexico could announce that it would no longer enforce U.S. patents and copyrights on its soil. This would be a yuuge deal, as Trump would say.
To take one prominent example, suppose that Mexico allowed for the free importation of generic drugs from India and elsewhere. The Hepatitis C drug Solvaldi has a list price in the United States of $84,000. A high quality generic is available in India for $200. There are also low cost generic versions available of many other drugs that carry exorbitant prices in the United States, with savings often more than 95 percent.
Suppose that people suffering from Hepatitis C, cancer, and other devastating and life-threatening diseases could get drugs in Mexico for a few hundred dollars rather than tens or even hundreds of thousands of dollars in the United States? That would likely lead to lots of business for Mexico's retail drug industry, although it would be pretty bad news for Pfizer and Merck.
The same would apply to other areas. Medical equipment, like high-end scanning and diagnostic devices, would be very cheap in Mexico if they could be produced without patent protections. This should be great for a medical travel industry in Mexico.
There would be a similar story on copyright protection. People could get the latest version of Windows and other software for free in Mexico with their new computers. This is bad news for Bill Gates and Microsoft, but good news for U.S. consumers interested in visiting Mexico, along with Mexico's retail sector. Mexico could also make a vast amount of recorded music and video material available without copyright protection. That's great news for consumers everywhere but very bad news for Disney, Time-Warner, and other Hollywood giants.
Of course, the erosion of patent and copyright protection will undermine the system of incentives that now support innovation and creative work. This means that we would have to develop more efficient alternatives to these relics of the feudal guild system. Among other places, folks can read about alternatives in my book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer (it's free).
Anyhow, this would be a blueprint for a trade war in which everyone, except a few corporate giants, could be big winners.Add a comment
Richard Gonzales, NPR's ombudsman, addressed the question of why NPR does not say that Donald Trump is lying when he says something that is clearly not true. The immediate point of reference was Trump's assertion to an audience at the CIA that the media had invented the feud between Trump and the intelligence agencies, even though Trump had repeatedly made harsh public comments directed at them.
"On Morning Edition, Kelly [NPR reporter Mary Louise Kelly] explains why. She says she went to the Oxford English Dictionary seeking the definition of 'lie.'
"'A false statement made with intent to deceive,' Kelly says. 'Intent being the key word there. Without the ability to peer into Donald Trump's head, I can't tell you what his intent was. I can tell you what he said and how that squares, or doesn't, with facts.'
"NPR's senior vice president for news, Michael Oreskes, says NPR has decided not to use the word 'lie' and that Kelly got it right by avoiding that word."
While it is a good practice for reporters not to attempt to tell their audiences what is in a politician's head, this is not standard practice at either NPR or other news outlets. It is in fact quite common for reporters to tell us that politicians "believe" or are "concerned" about a particular issue or event.
For example, just yesterday NPR ran a segment on the budget which told us what Republicans "believe:"
"The House GOP's plan, as outlined, would add to the deficit in that it would very likely result in less revenue coming in, but Republicans believe their tax overhaul would generate significant economic growth to make up the difference."
I frequently complain about this sort of mind reading in Beat the Press (e.g here, here, and here). As Ms. Kelly and Mr. Oreskes said, reporters lack the ability to peer in politicians heads to determine what they are really thinking. Unfortunately, they have a tendency to claim that they do in their reporting.
It is understandable that NPR does not want to claim that it knows the state of Donald Trump's mind. It would be a huge step forward if it would apply this standard in its reporting more generally.
Thanks to Keane Bhatt for calling this to my attention.Add a comment
In his column today Thomas Friedman was reasonably arguing for stronger supports for workers who are transitioning between jobs. However, the fundamental premise of his piece, that:
"every worker today will most likely have to transition multiple times to multiple jobs as the pace of change accelerates,"
...directly contradicts the economic assumptions used by the Congressional Budget Office (CBO) and other official forecasters.
While Friedman is asserting that pace of change in the economy will accelerate, in its most recent budget projections, which were highlighted in a front page story in the New York Times, CBO assumed that the pace of change in the economy would slow over the next decade. CBO assumed potential productivity growth will average just 1.3 percent annually over the next decade. This is down from an average of 1.7 percent over the period from 1950 to 2016, and a peak of 2.4 percent annual growth from 1950 to 1973 (Table 2-3).
Of course, it is possible that Friedman will be right and we may see a pace of change equal to the 1.6 percent long period average or even the 2.4 percent rate of the 1950s and 1960s. However, if this is true, then CBO has hugely over-estimated the size of the budget deficits we will be seeing in the next decade. Higher productivity growth will mean more economic growth and more tax revenue and therefore low budget deficits. In other words, if Friedman's claims about accelerating productivity growth are taken seriously, we have no reason to be worried about budget deficits.Add a comment
The NYT ran a front page story on the drop in women's labor force participation rates (LFPR) since 2000. The decline in LFPR for women is noteworthy because many economists have sought to blame the decline in LFPR for men on various problems unique to men. The fact that the LFPR for women has declined also suggests that the problem is on the demand side of the labor market, not the pathologies that afflict the men who are dropping out.Add a comment
Eduardo Porter used his NYT column to discuss how Mexico could put pressure on Donald Trump in a renegotiation of NAFTA. After discussing different pressure points he then turns to the ways in which the deal could be modernized. High on the list was fully opening long-distance trucking, which would put truckers in the United States even more directly into competition with much lower paid Mexican truck drivers. (NAFTA already allows Mexican truck drivers to carry many loads into the United States.)
It is interesting that Porter has no interest in removing the protectionist barriers that help our most highly paid professionals. Under current law, even well established Mexican doctors would get arrested if they practiced in the United States. To be eligible to practice they must complete a U.S. residency program.
If we had free traders involved in this negotiation process, surely they would be able to design an evaluation system that would ensure Mexican doctors met U.S. standards, and then could be allowed to practice in the United States. In the same vein, Mexican dentists are also prohibited from practicing in the United States unless they graduate from a U.S. dental school. (Recently, graduates of Canadian schools have also been allowed.)
Doctors in the United States are paid on average more than $250,000 a year, roughly twice the average in other wealthy countries. Dentists are paid on average $200,000 a year, also twice the average in wealthy countries like Germany and Canada. This protectionism costs patients in the United States more $100 billion a year in higher health care costs (more than $700 per family, per year).
It is striking that the debate over NAFTA is so dominated by protectionists that measures that would reduce the barriers that privilege our most highly paid workers are never even discussed. It should not be surprising that truck drivers and manufacturing workers who do have to face competition would not be happy about trade deals.Add a comment
The NYT decided to scare its readers about the budget deficit with a headline warning "[f]ederal debt [is] projected to grow by nearly $10 trillion over next decade." While the article does put this figure in some context, expressing it as a share of GDP, readers who only look at the headline will undoubtedly be scared by this huge number.
Given the past commitments of the paper to express large numbers in context, a headline telling readers that the Congressional Budget Office (CBO) projections show the debt-to-GDP ratio rising to 89 percent of GDP, would have been more informative. Of course, it likely would have been less scary.
In addition to the headline, the piece is on questionable grounds when it tells readers:
"Such a high level of debt could increase the likelihood of a financial crisis and raise the possibility that investors will become skittish about financing the government’s borrowing."
The link between levels of debt and financial crises is dubious, at best. The United States, Spain, Ireland, and Japan all had financial crises with very low levels of debt to GDP. On the other hand, Japan's ratio of debt to GDP is now close to 250 percent, yet there are no obvious signs of financial instability.
Nor is clear that high debt-to-GDP ratios will cause investors will become skittish. Japan can currently borrow long-term at an interest rate of 0.05 percent. Other countries with high debt-to-GDP ratios like France can also borrow at very low interest rates.
It is also worth noting that much of the cause of the projected rise in deficits is due to a projected rise in interest rates. CBO projects that the 10-year Treasury rate will rise from 2.4 percent today to 3.6 percent by the end of the 10-year forecast period. While this is possible, CBO has been over-projecting interest rates ever since the recession. It did this again last year, projecting a 3.0 percent average interest rate for 2016. The number ended up being 2.1 percent.
It is also worth noting that interest payments on the debt (net of money refunded by the Fed) are projected to still be less than 2.5 percent of GDP by the end of the period in 2027. This is still lower than levels close to 3.0 percent in 1990s. It is also likely to be considerably less than the burden the government will be imposing on the public by granting patent monopolies for prescription drugs, medical equipment, and other areas. These government granted monopolies already cost us almost 2.0 percent of GDP for prescription drugs alone.
Anyone who is actually worried about the burden the government is placing on our children would be far more attentive to the burden posed by these monopolies than the much smaller burden imposed by the debt. Of course, the burden imposed by the imposition of austerity following the recession is far larger than either.Add a comment
The NYT did not bother conceal its enthusiasm for the Trans-Pacific Partnership (TPP) in a news article reporting on President Trump's decision to kill the pact. It repeatedly referred to the TPP as a "free trade" pact, an inaccurate term chosen by its proponents to help promote the deal.
In fact, the TPP is largely protectionist, calling for stronger and longer patent and copyright related protections. While the article notes this fact, it doesn't acknowledge that these incredibly costly forms of protection (which redistribute income upward) are in conflict with principles of free trade and open markets.
The piece also repeats claims from proponents of the TPP that the defeat of the agreement will be a big gain for China at the expense of the United States. It would have been helpful to point out that all of these proponents of the TPP favored bringing China in the WTO with few conditions. This act helped to expand China's economic power enormously.Add a comment
Both the Washington Post and New York Times had pieces about declining support for the left in France and the rise of a nationalist right in both Italy and France. Both pieces attributed the rise in support for the right to people losing from globalization, implying that this is some impersonal process that is causing these people to be losers.
In fact, the losers are suffering because of the insistence of the European Union that its members pursue austerity policies. These policies have led to almost a full decade of near zero per capita GDP growth in France and a drop of more than 10 percent in per capita GDP in Italy. There is nothing inevitable about these policies; they are conscious choices of the political leaders in Europe.
It is incredible that both the Post and Times would neglect to mention the role of austerity in hurting workers. The disgust with elites is understandable.Add a comment
The NYT reported that the people at the gathering of the super rich at Davos are concerned because the population of major democracies no longer buy the lies they tell to justify upward redistribution of income. It told readers:
"At cocktail parties where the Champagne flows, financiers have expressed bewilderment over the rise of populist groups that are feeding a backlash against globalization. ....
"The world order has been upended. As the United States retreats from the promise of free trade, China is taking up the mantle. ....."
"The religion of the global elite — free trade and open markets — is under attack, and there has been a lot of hand-wringing over what Christine Lagarde of the International Monetary Fund has declared a 'middle-class crisis.'"
Of course, the Davos elite do not have a religion of free trade. They are entirely happy with every longer and stronger patent and copyright protections, which is a main goal of the Trans-Pacific Partnership and other recent trade pacts.
The Davos elite also have no objections to protectionist measures, like the U.S. ban on foreign doctors who have not completed a U.S. residency program. This protectionist barrier adds as much as $100 billion a year (@ $700 per family) to the country's health care bill.
Since these measures redistribute income upward to people like them, the Davos elite is perfectly happy with them. They only object to protectionist measures which are intended to help ordinary workers.
The concern in Davos is that the public in western democracies no longer buys the lie that they are committed to the public good rather than lining their pockets. It is nice that the NYT is apparently trying to assist the elite by asserting that they have an interest in "free trade," but it is not likely to help their case much.
Yeah, I am plugging my book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer (it's free).Add a comment
It seems being great again ain't what it used to be. On its first day in office, the Trump administration is pushing an "America First Energy Plan," which it tells us will "increasing wages by more than $30 billion over the next 7 years."
For those who don't happen to know offhand how large $30 billion is relative to projected wages over this period, the Congressional Budget Office tells us that we can expect the cumulative wage bill to be roughly $69,700 billion over the years 2018–2024. This means that the $30 billion wage dividend from removing all those nasty environmental restrictions amount to 0.04 percent of projected wages over this period. For a person earning $50,000 a year, this means Trump's plan will get them another $20 a year, according to the Trump administration's projection.
Of course, this doesn't factor in any costs that might be associated with things like increasing incidences of asthma, heart disease, cancer, or other diseases associated with pollution. Nor does it factor in any losses that workers may experience as result of natural areas being destroyed or made unsuitable for hiking, hunting, fishing or other types of recreation.Add a comment
It is really amazing how major news outlets can't seem to find reporters who understand the most basic things about the economy. I guess this is evidence of the skills shortage.
Bloomberg takes the hit today in a piece discussing areas where the economy is likely to make progress in a Trump administration and areas where it is not. In a middle "muddle through" category, we find "Full-Time Work Is Likely to Stay Elusive for Part-Timers." The story is:
"Trump has highlighted the number of part-time workers in the U.S. economy, saying 'far too many people' are working in positions for which they are overqualified and underpaid. While the proportion of full-time workers in the labor force remains below its pre-recession high, it’s made up most of the ground lost during the downturn. But it hasn’t budged much in the last two years, even as the job market has gotten tighter. Some economists point to the gig economy as the driving force (pun intended) behind part-timers. Others see a broader shift in the labor market that’s left many workers stuck with shorter hours, lower wages and weaker benefits."
Okay, wrong, wrong, and wrong. In its monthly employment survey (the Current Population Survey [CPS]), the Bureau of Labor Statistics asks people whether they are working more or less than 35 hours a week. If they are working less than 35 hours they are classified as part-time. The survey then asks the people who are working part-time why they are working part-time. It divides these workers into two categories, people who work part-time for economic reasons (i.e. they could not find full-time jobs) and people who work part-time for non-economic reasons. In other words, the second group has chosen to work part-time.
If we look at the numbers for involuntary part-time workers, it dropped from 6.8 million in December of 2014 to 5.6 million in December of 2016. That is a drop of 1.2 million, or almost 18 percent. That would not seem to fit the description of not budging much. Of course, Bloomberg may have been adding in the number of people who chose to work part-time, which grew by 1.4 million over this two year period, leaving little net change in total part-time employment.Add a comment
They said it couldn't be done. It would be like the Pope converting to Islam, but the Washington Post did the impossible. It headlined an article on reports that Donald Trump wants to privatize the Corporation for Public Broadcasting and eliminate altogether the National Endowments for the Arts and Humanities:
"Trump reportedly wants to cut cultural programs that make up 0.02 percent of federal spending."
This is an incredible breakthrough. The Post has religiously followed a policy of reporting on the budget by using really big numbers that are virtually meaningless to the vast majority of their readers. One result is that people, including well-educated and liberal people, tend to grossly over-estimate the portion of the budget that goes to things like TANF (@ 0.4 percent), foreign aid (@ 0.7 percent), and food stamps (@1.8 percent).
The fact that it uses really big numbers rather than express these items in some context feeds the claims of right-wingers that we are being overtaxed to support these programs. It also contributes to the absurd belief that large numbers of people are not working but rather surviving comfortably on relatively meager benefits.
It's too bad it took getting Donald Trump in the White House to get the paper to do some serious budget reporting.Add a comment
The NYT did a great service for the Davos elite in a piece that ostensibly criticized them for being unwilling to support fundamental change that would give more power to ordinary workers. It told readers:
"Davos is — at least rhetorically — consumed with worries about the shortcomings of globalization. About the deepening anxieties of the middle class in many developed economies. About the threat of trade protectionism and its attendant hit to economic growth."
This is 180 degrees at odds with reality. The Davos elite have been the most enthusiastic supporters of stronger and longer patent and copyright protections. These protections raise the price of the protected items by tens or even hundreds of times their free market price. This is the equivalent of tariffs of several thousand or even tens of thousands of percent. (Davos mainstay Bill Gates is one of the main beneficiaries of this protectionism.)
These forms of protectionism have the same effect on economic growth as the tariffs that supposedly bother the Davos set so much, except their impact is far larger. This is most notable in the case of prescription drugs. The United States spends $430 billion a year on drugs that would likely cost around $60 billion in a free market. While patent and copyrights provide an incentive for research and creative work, there are almost certainly more efficient mechanisms for accomplishing this task. (See my [free] book Rigged, chapter 5.) As an example of a more efficient route, Forbes recently ran a piece arguing for the greater efficiency of a government takeover of the company Gilead Sciences so that it could make its Hepatitis C drug Sovaldi (list price $84,000) available for free to patients.
The Davos elite are just fine with this protectionism and in fact have consistently sought to expand it in trade deals like the Trans-Pacific Partnership or the TRIPs provisions of the WTO. They seem utterly unconcerned about its negative impact on growth.
The Davos elite are also unconcerned about protectionism that benefits highly paid professionals like doctors and dentists. The United States bars hundreds of thousands of highly qualified doctors by requiring that they first complete a residency program in the United States. As a result of this protectionism we pay our doctors twice as much as the average for other wealthy countries, adding more than $80 billion a year to our health care bill.
For these reasons, it is 180 degrees wrong to describe the Davos elite as being opposed to protectionism. While they surely like to be portrayed as free traders, it is not true. They support protectionism as long as it redistributes money from the rest of the world to people like them.Add a comment
The Peter Peterson Gang and its accomplices like to scare people with talk of the extraordinarily high debt-to-GDP ratio. As folks familiar with economics know, the nominal value of the debt means almost nothing. Insofar as we can talk meaningfully of a burden being imposed on our children it would be the interest that we have to pay on the debt. This is actually near a post-war low measured as a share of GDP. This measure nets out the interest payments that are rebated from the Fed to the Treasury, so it is somewhat different than the measure of net interest often shown.
Source: Congressional Budget Office.
Of course, the interest burden of the debt is just one way that we make commitments for future generations. When the government grants patent and copyright monopolies it is allowing companies to charge prices that are far above the free market price for their products. This is effectively a privately collected tax. The sums involved are quite large. In the case of prescription drugs alone we pay $430 billion a year for drugs that would cost around $60 billion in a free market. The difference of $370 billion is almost 2.0 percent of GDP, a sum that is more than twice as large as the interest burden on the debt.
We do need to provided an incentive for research (see Rigged, chapter 5 — it's free), but there are almost certainly more efficient mechanisms for providing incentives than patent protection, at least for prescription drugs. But more importantly for the issue at hand is that the government is obligating these payments long into the future.
If we are worried about the well-being of our children, the fact that the government is making them pay an extra $370 billion a year for drugs, and much more for other items as well, should be every bit as concerning as if the government raised taxes itself by $370 billion a year. Of course, this assumes that the issue is actually a concern for the well-being of our children. If the goal is to scare people into supporting cuts to Social Security and Medicare, then the debt-to-GDP ratio is the right measure.Add a comment
The NYT had a strange editorial this morning on the World Economic Forum in Davos in which it posed the question:
"The question now is whether these gilded champions of globalization will choose to address inequality or proceed with the business of wining and dining as usual."
It is difficult to understand why anyone would expect this group of people, who are there primarily because they are super rich, to be leaders in the fight against inequality. This is especially bizarre when we remember that many (most?) of the super rich got their wealth by rigging the rules so that they could profit at the expense of the rest of society.
The list of people in this category starts at the top. Bill Gates owes his enormous wealth to a near monopoly (less today than ten or twenty years ago) on the operating system in personal computers. This would not have been allowed back in the days when anti-trust laws were being enforced.
Other Davos characters owe their wealth to government granted patent and copyright monopolies which they lobby to make ever stronger and longer. Others owe their wealth to financial dealings that would not be possible without free government too big to fail insurance and the exemption of the financial sector from the sort of sales taxes paid by other sectors. (Yes, I am repeating the themes of my book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer [it's free].)
It's difficult to see why anyone would expect policy guidance on anything other than securing the wealth of the super wealthy from this sort of gathering. Would we expect major advancements on animal rights from a gathering of hunters?
In a measure of how out of touch this crew is with reality the NYT tells us:
"Also on the agenda is a preoccupation from last year that automation will soon put millions of people out of work."
While it is of course possible that automation will lead to a sharp uptick in productivity growth, in fact most countries, including the United States have been struggling with very low productivity growth over the last decade. Most economists have been concerned that slow productivity growth would persist for the indefinite future. This is the basis for concern about government budget deficits (at least for folks who know economics) as well as the reason some folks worry about an aging population. This is also the reason the Federal Reserve Board raised interest rates: it was concerned about too many jobs, not too few.
Anyhow, there is nothing wrong with some shysters fleecing the super rich with silly stories about massive job loss due to automation, but that is not the sort of thing that serious people need concern themselves with.Add a comment
Ivan Krastev, a permanent fellow at the Institute for Human Sciences in Vienna, had an interesting NYT column on the disenchantment of the European public with the meritocrats who have been largely running governments there for the last three decades. Krastev's main conclusion is that the public doesn't identify with an internationally-oriented group of meritocrats who possess skills that are easily transferable from their home country to other countries.
While this lack of sufficient national identity may play a role in the dislike of the meritocrats, there is a much simpler explanation: they have done a horrible job. Much of Europe continues to suffer from high unemployment, or low employment rates, almost a decade after the collapse of housing bubbles sent the continent's economy in a downward spiral. The meritocrats deserve the blame for both the weak recovery and allowing dangerous bubbles to grow in the first place. In most countries, most of the population has seen declining incomes over the last decade in spite of the substantial technological progress we have seen over this period.
Incredibly, Krastev writes of this failure of the meritocrats as though it is just something that happened as opposed to something they did.
"But what happens when these teams start to lose or the economy slows down? Their fans abandon them."
Of course the economy didn't just slow down, the meritocrats mismanaged it. It is not surprising that the public would want to turn away from experts who perform badly in their area of expertise, even if they might be really smart. The fact that almost none of the experts acknowledge their failure and instead look to blame it on impersonal forces, like technology, is not likely to further endear them to workers who are used to be held responsible for the quality of their work.Add a comment
Max Ehrenfreund features a rather silly debate among economists about explanations for the housing bubble (wrongly described as the "financial" crisis) in a Wonkblog piece. The debate is over whether subprime mortgages were central to the bubble. Of course, subprime played an important role, but the focus of the piece is on new research showing that most of the bad debt was on prime mortgages taken out by people with good credit records.
I sort of thought everyone knew this, but whatever. The more important point is that economists continue to treat the housing bubble as something that snuck up on us in the dark and only someone with an incredibly keen sense of the housing market would have seen it. (I focus on the bubble and not the financial crisis, because the latter was very much secondary and really a distraction. By 2011, our financial system had been pretty much fully mended, yet the weak economy persisted. This was due to the fact that we had no source of demand in the economy to replace the demand generated by the housing bubble.)
Anyhow, there was nothing mysterious about the housing bubble. We had an unprecedented run-up in real house prices with no remotely plausible explanation in the fundamentals of the housing market. This could be clearly seen by the fact that rents were just following in step with the overall rate of inflation, as they have generally for as long as we have data. (This is nationwide, rents have outpaced inflation in many local markets, as have house prices.) The bubble should also have been apparent as we had record vacancy rates as early as 2002. The vacancy rate eventually rose much higher by the peak of the market in 2006.
It should also have been clear that the collapse of the bubble would be bad news for the economy. Residential construction reached a peak of 6.5 percent of GDP, about 2.5 percentage points more than normal. (When the bubble burst it fell to less than 2.0 percent of GDP due to massive overbuilding.) Also, the housing wealth effect led to an enormous consumption boom as people spent based on $8 trillion in ephemeral housing wealth.
In short, there was really no excuse for economists missing the bubble or not recognizing the fact that its collapse would lead to a severe recession. The signs were very visible to any competent observer.Add a comment
Readers of the NYT article on Donald Trump's pick to be Secretary of Health and Human Services might have gotten this impression. The piece told readers:
"His [Price's] resentment of government intervention in medicine drove Mr. Price to become involved in the Medical Association of Georgia early in his career, and his work there led him to run for office in 1995, when the House seat in his district opened up."
If Mr. Price really does resent government intervention then surely he would be outraged by protectionist rules that prohibit hundreds of thousands of qualified doctors from practicing medicine in the United States and bringing doctors' pay in line with pay in other wealthy countries. (Doctors can't practice medicine in the United States unless they complete a U.S. residency program.)
Presumably, Mr. Price is also outraged by government granted patent monopolies that raise drugs by ten or even a hundred times their free market price. These protections are equivalent to tariffs of several thousand percent. The story is the same with medical equipment which is also made expensive by these government interventions. (We need a mechanism to pay for innovation, but there are more efficient routes. See Rigged, chapter 5 [it's free]).
If Mr. Price doesn't object to protectionism for doctors and drug companies then the NYT is wrong in saying that he has resentment of government intervention in medicine. It seems more plausible that Price resents government actions that reduce the incomes of doctors. It would be helpful if the Times did not confuse these issues.Add a comment
The NYT decided to tout the risks that higher tariffs could cause serious damage to industry in the UK following Brexit:
"For Mr. Magal [the CEO of an engineering company that makes parts for the car industry], the threat of trade tariffs is forcing him to rethink the structure of his business. The company assembles thermostatic control units for car manufacturers, including Jaguar Land Rover in Britain and Daimler in Germany.
"Tariffs could add anything up to 10 percent to the price of some of his products, an increase he can neither afford to absorb nor pass on. 'We don’t make 10 percent profit — that’s for sure,' he said, adding, 'We won’t be able to increase the price, because the customer will say, "We will buy from the competition.'"
The problem with this story, as conveyed by Mr. Magal, is that the British pound has already fallen by close to 10 percent against the euro since Brexit. This means that even if the EU places a 10 percent tariff on goods from the UK (the highest allowable under the WTO), his company will be in roughly the same position as it was before Brexit. It is also worth noting that the pound rose by roughly 10 percent against the euro over the couse of 2015. This should have seriously hurt Mr. Magal's business in the UK if it is as sensitive to relative prices as he claims.
It is likely that Brexit will be harmful to the UK economy if it does occur, but many of the claims made before the vote were wrong, most notably there was not an immediate recession. It seems many of the claims being made now are also false.Add a comment
I blogged yesterday on how "Davos Man," the world's super-rich, is very supportive of all sorts of protectionist measures in spite of his reputation as a free trader. I pointed out that Davos Man is fond of items like ever stronger and longer patent and copyright protections and measures that protect doctors, dentists, and other highly paid professionals. Davos Man only dislikes protectionism when it might benefit folks like autoworkers or textile workers.
I thought it was worth pointing out that the protectionism supported by the Davos set is real money. The chart below shows the additional amount we pay for prescription drugs each year as a result of patent and related protections, the additional amount we pay for physicians as a result of excluding qualified foreign doctors, and the total annual wage income for the bottom 50 percent of wage earners. (I added 5 percent to the 2015 wage numbers to incorporate wage growth in the last year.)
As can be seen, the extra amount we pay for doctors as a result of excluding foreign competition is more than 7 percent of the total wage bill for the bottom half of all wage earners. The extra amount we pay for drugs as a result of patent protection is roughly one third of the total wage bill for the bottom half of wage earners. Of course, we would have to pay for the research through another mechanism, but we also pay higher prices for medical equipment, software, and a wide variety of other products as a result of patent and copyright protections. In other words, there is real money here.
Davos Man isn't interested in nickel and dime protectionism, he wants to rake in the big bucks. And, the whole time he will run around saying he is a free trader (and get most of the media to believe him).
Note: This is corrected from an earlier version which used a much lower figure for the wage bill for the bottom half of the workforce. Thanks to Nate Fritz for calling this to my attention.Add a comment