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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NPR had a bizarre piece on the Labor Department's new overtime rules which seemed intended to undermine support for them. These rules would increase from $23,660 to $50,440, the floor under which salaried workers would automatically qualify for overtime regardless of their work responsibilities.

While the piece does present the views on the new rules of Vicki Shabo, the vice-president of the National Partnership for Women and Families, the bulk of the piece is devoted to presenting the views of employers. No workers who will be affected by this rule were interviewed.

The discussion of the employers' perspective begins with this little exercise in mind reading:

"But employers do not believe it would be a windfall for workers. They say they will be forced to cut costs in other ways if the proposed rules take effect as written — and that workers may not like those changes."

Of course NPR reporters don't know what employers "believe," they know what they say. And it is understandable that they would tell a reporter that they don't like the rules because they hurt workers, as opposed to the possibility that the new rules may hurt profits or force a cut in their own pay. Remarkably, two of the three employers whose views are presented in this piece work at non-profits, even though the vast majority of the workers affected are employed by for profit businesses.

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The landslide victory of left-wing candidate Jeremy Corbyn for Labor Party leader in the United Kingdom has many establishment types bent out of shape. The Blair-wing of the party was literally obliterated, with Corbyn drawing more than four times the votes of his nearest competitor. After giving the country the war in Iraq and the housing bubble whose collapse led to the 2008-2009 recession and financial crisis, the discontent of the Labour Party's rank and file is understandable.

But naturally the elite types are fighting back. In this vein we get a lengthy piece in the New Yorker by film critic Anthony Lane warning us of the evils of Jeremy Corbyn. I will leave for others the discussion of Mr. Corbyn's friends and associates. I am mostly interested in Lane's treatment of Corbyn's economic agenda. He tells readers:

"The national deficit would be erased not through austerity, as practiced by the heinous Conservatives, but through taxes on the rich and by what Corbyn calls 'quantitative easing for people.' This means, we are told, that the Bank of England will print more money: an endearing and almost childlike solution, though not one that has met with unqualified success elsewhere."

First off, "quantitative easing for people" is obviously a political slogan. As such, it is not obviously more silly than "putting people first," or "yes we can." The issue is the substance behind the slogan.

What Corbyn is proposing is directly financing spending by printing money. If that is "childlike" then folks like Paul Krugman have a similar affinity for childlike solutions to economic problems. Just last week, in reference to Japan's continuing economic weakness, Krugman told readers:

"What’s remarkable about this record of dubious achievement is that there actually is a surefire way to fight deflation: When you print money, don’t use it to buy assets; use it to buy stuff. That is, run budget deficits paid for with the printing press."

By stuff, Krugman means things like child care, schools, hospitals, cutting edge Internet, research into clean energy, and other useful items. If the economy is suffering from a lack of demand, the government can directly create it by spending money. And, since the economy is below its potential, it doesn't need tax money to finance this spending, it doesn't even need to borrow, it can simply print the money.

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Josh Barro had an interesting piece where he asked several prominent public finance economists for their assessment of the growth impact of the tax cuts put forward by Jeb Bush as part of his presidential campaign. Barro noted a wide range of opinions, with some expecting little impact and others arguing that it would have a large positive impact on growth.

One of the people in the latter category was Boston University economist Larry Kotlikoff. According to Barro:

"He thought the Bush plan, especially its provision allowing companies to fully and immediately deduct capital expenses from their taxes, would have large and swift economic effects. He said he thought the plan would grow the economy by more than 5 percent, and he thought most of those effects would be felt within the first decade, pointing to Ireland as an example of a country that experienced rapid economic growth after cutting corporate income taxes."

It's interesting that Kotlikoff would seize on the expensing provisions for new investment as being especially important for boosting growth. President Obama actually included expensing of capital investment as part of his stimulus package. He originally continued a limited 50 percent expensing provision that had been part of President Bush's 2008 stimulus package. He then expanded this in 2010 to a full expensing provision for 2011 and 2012.

While equipment investment grew at a 12.2 healthy pace in these years, that is not especially impressive since it was still recovering from a drop of nearly 30 percent in 2008 and 2009. By comparison, in the years 2004–2006, equipment investment grew at an 8.6 percent annual rate. This was in the absence of any comparable tax provision and no remotely comparable recession falloff from which to recover. (In 2012, equipment investment was 4.6 percent above the pre-recession peak in 2007. By comparison, in 2006 it was 19.9 percent higher than its 2000 peak.)

It is also worth noting that a temporary credit is likely to provide more of a boost than a permanent credit. Firms have a strong incentive to move their investment plans forward to take advantage of a temporary tax credit. This incentive would not exist with a permanent credit. Therefore it is reasonable to believe that the boost to investment we saw from changing the tax provision for new investment in 2011-2012 would be larger than the boost we would receive from permanently changing the provision, as Jeb Bush has proposed. 


Note: Typos and dates corrected.

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Paul Krugman rightly criticizes the proponents of austerity for claiming Spain as a success story. As Krugman points out, its economy is growing, but it has a long way to go to make up the ground lost in its downturn.

He makes this point in a graph showing log GDP, but this picture is actually too generous. We should care about GDP per capita, and here the story is even worse.

Spain per cap GDP fredgraph

Spain's per capita GDP is still more than 7 percent below its peak in 2007. In fact the current level is roughly the same as in 2003, translating into 11 years of zero growth in per capita GDP. By comparison in 1940, 11 years after the onset of the Great Depression, per capita disposable income was 7 percent higher than its level in 1929.

So with its austerity agenda Spain is doing considerably worse than the United States in its recovery from the Great Depression. Apparently, this now counts at success among the honchos in the euro zone.

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Robert Samuelson used his column today to note the weak productivity growth in recent years. The piece tells that there are two ways to improve living standards for the typical person. We can alter the distribution between the top and everyone else or we can increase output. He tells readers that Democrats tend to emphasize distribution while Republicans emphasize productivity. He then points out that redistribution has limits, since it is a one-time story, whereas more rapid productivity growth leads to ongoing benefits.

There are a few points worth making here. First, while Samuelson is right that redistribution is a one-time story over a long period of time it can be a big story. If the typical worker's compensation had kept pace with productivity growth, their pay would be more than 40 percent higher today. For the median worker with an hourly wage around $18 and and hourly compensation around $22 an hour, this would translate into more than $16,000 a year in addition compensation for a full-time full-year worker. This would be real money for most people.

Furthermore, if compensation were to keep pace with even a slow rate of productivity growth going forward, it would mean that workers would see rising living standards on an ongoing basis. In this respect, much of the political elite in the United States has argued that even modest increases in the payroll tax (e.g. 0.1 percentage point annually) would be devastating and not worth considering. If the idea of raising the payroll tax by 0.1 percentage points annually is a huge deal, the prospect of getting ten times as much by addressing inequality must be an incredibly huge deal. So by the logic of our elite, we should think that addressing inequality has enormous implications for living standards, even if we can't do anything to boost productivity growth.

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We are approaching the 7th anniversary of the collapse of Lehman. As folks recall, this led to a massive financial crisis, with normal interbank lending freezing up, and most of the country's major banks teetering on the brink of bankruptcy. This was when then chair of the Fed Ben Bernanke, along with Treasury Secretary Hank Paulson, and New York Fed bank president Timothy Geithner, ran to Congress and demanded an immediate bailout of the banks, which was known as the TARP. The alternative was economic collapse.

When the House of Representatives shocked the elites by turning down the bailout, in response to a massive outcry against Wall Street across the country, the elites doubled down. Major news outlets like the New York Times, National Public Radio, and the Washington Post started telling us that we would see another Great Depression if the banks didn't get their money. The people who questioned this view were mocked as know-nothings (sort of like the people who warned about the housing bubble before it burst).

Anyhow, as we all know, the House turned around for a voted for a new bill larded with special interest pork, the banks got trillions of dollars in below market interest loans, explicit government guarantees of trillions more in assets, and Treasury Secretary Timothy Geithner's pledge that there would be no more Lehman's, meaning that no matter how badly insolvent a major bank might be, the government would not allow its collapse.

As a result, the major banks are all back on the their feet, the Wall Street honchos are richer than ever, and they are again running around telling us how we should run the economy and the country. (That mostly involves giving them more money.)

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Sorry folks, but sometimes politicians and political figures say things for public consumption, not because they actually reflect reality. This is why reporters should tell us what these figures say, not to assume that what they say reflects the truth.

Therefore, when Attorney General Loretta Lynch sent out a memo saying that the Justice Department would seek criminal prosecutions of individuals in cases of white collar crime, the NYT should have reported that she sent out a memo. It should not have an article headlined, "Justice Department sets sights on Wall Street executives." Of course the NYT does not know that the Justice Department will actually go through with criminal prosecutions, it just knows that the Attorney General sent out a memo indicating that she wants it to. We will know for sure that this memo accurately reflects policy when we see high level corporate officials indicted for criminal activity. 


Thanks to Robert Sadin for calling this one to my attention.

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The Washington Post began its editorial on Jeb Bush's tax cut proposal by telling readers, that it is "worth taking seriously." Most of the rest of the editorial is telling us the opposite. The basic story is that everyone gets a tax cuts, with the biggest savings going to the wealthy. That is projected to reduce revenue by $3.2 trillion over the next decade (@ 1.5 percent of GDP), but the magic growth elixir will get us back $2.0 trillion of this shortfall. 

Paul Krugman and others have beaten up on this story (can they really sell this one yet again?), so I'll just focus on one aspect I find especially annoying. While the proposal will sharply limit deductions for things like catastrophic medical bills and state and local taxes, it allows the deduction for charitable givings to remain unlimited. (Actually, the current cap of 50 percent of adjusted gross income stays in place.)

I have nothing against charities, but we need to look at this one with clear eyes. The presidents and top executives of many non-profits currently get pay in the high hundreds of thousands of dollars or even millions of dollars. Is it really necessary to subsidize these paychecks with taxpayer dollars?

For example, some hedge fund honcho may give tens of millions of dollars to a foundation that he has created with his college buddy, who runs the show for $2 million a year. Since our hedge funder is in the 43 percent bracket (ignoring their carried interest tax break), taxpayers are effectively picking up $860k of his college buddy's pay. That's equal to approximately 500 person-years of food stamps.

Now I want to help struggling foundation presidents as much as the next person, but isn't there a better use of taxpayer dollars? It doesn't seem unreasonable to say that if non-profits are going to enjoy tax subsidies that we get to set some rules, such as a cap on what any of its employees can earn.

The president of the United States gets $400k a year. That seems like a reasonable cap for the president and other employees of non-profits. If they can't find good help for this wage then maybe they aren't the sort of organization that deserves the taxpayer's support.


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If you have been worried about the demographic crisis leaving us with too few workers or the technological revolution leaving us with too few jobs, my friend Noah Smith now warns us of the crisis of too little land. The problem is that we have too much money going to owners of land, who are not entirely accurately referred to as "landlords" by Noah.

There are a few problems with this story. First, the trend for an increasing share of income to go to land owners is less clear than he suggests. In the United States (I know Noah is referring to the OECD as a whole, but if the U.S. can be an exception, it's not a law of capitalism) there was no trend for an increasing share of income going to land owners until the eighties. This makes it at least a shorter term story here than the one dating from the 1950s in Europe.

In the U.S. the rise in property values relative to GDP has coincided with a sharp drop in interest rates over this period. This is exactly what we would expect. Land prices rise when interest rates fall, just as the price of a bond or any other asset that provides an annual payout rises. The point is that it is far from clear that we are staring at some inexorable trend.

The second point is the logic of ever rising land prices is far from clear. Yes, there are economies of agglomeration, people benefit from clustering in or near cities. But this has always been true. What has changed is the ability to quickly communicate over long distances has increased enormously. The fact that we have the Internet, while not eliminating the benefits of agglomeration, surely has to reduce them.

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The Labor Department released new data this morning on job openings and turnover. The release showed a big jump in openings in July compared with June or July of 2014. In the past this has been taken as evidence of the economy's strength and also as an indication that employers are having problems get workers with the needed skills.

One problem with this story is that many of the openings are showing up in retail trade and restaurants, which are not areas where we ordinarily think the skill requirements are very high (which does not mean that the work is not difficult). The chart below shows most of the sectors responsible for the jump in openings. The biggest rise is professional and business services, which includes many highly skilled occupations, but also includes temp help and custodians. The point here is that it is not clear what is going on in these markets based on the rise in openings. If employers were really having trouble getting the workers they need then they should be offering higher pay. Thus far, they are not.

Book2 536 image001

                              Source: Bureau of Labor Statistics.

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David Brooks discussed the rise of Jeremy Corbyn on the left in the Labor Party in the United Kingdom and Bernie Sanders on the left in the United States, along with Donald Trump and Ben Carson on the right. He argues that none of these people could conceivably win election. He therefore concludes that their support must stem from a psychological problem which he identifies as expressive individualism.

This is an interesting view. Of course, Brooks' assessment of who is electable may not be right. For example, the Democrats have often nominated centrist figures, such as Michael Dukakis, because they were ostensibly more electable than their more progressive alternatives. While we can't know the counterfactual, there is little logic in picking a candidate whose views you do not share, because they are electable, when in fact they are not.  

But the more important question ignored in Brooks' analysis is how people are supposed to respond when the party they have supported consistently pursues policies at odds with fundamental principles of their core constituencies. In the case of the Labor Party in the U.K., and the administrations of Bill Clinton and Barack Obama in the United States, the wealthy have received the overwhelming majority of the benefits of economic growth.

This has been due to policies that have favored the financial sector and trade deals that have disadvantaged ordinary workers to benefit major corporate interests. In both countries, there was no effort to prosecute bankers who had violated the law during the housing bubble years. The Clinton administration pushed to remove constraints on the financial sector, even while leaving its government guarantees in place. President Obama has opposed a financial transactions tax in the United States, which would take tens of billions annually out of the pockets of the financial industry. His administration has also worked actively to block the introduction of such a tax in Europe.

He has also pushed the Trans-Pacific Partnership, which would increase the cost of prescription drugs for the countries in the agreement. It is also likely to worsen the U.S. trade deficit in manufactured goods, since more foreign earnings would be diverted to be paying for drugs and other patent-protected products. Of course the Clinton administration explicitly pushed for the over-valued dollar that is the origin of the large U.S. trade deficits.

It is impressive to see Brooks argue that trying to turn the Democratic Party toward an agenda that supports workers rather than the rich is a psychological problem. 


Note: spelling for Jeremy Corbyn has been corrected, thank folks.

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That is what it told readers in its article writing up the data. The piece indicated surprise that wages are not rising more rapidly given the relatively low unemployment rate:

"Over the past 40 years, unemployment has almost never been as low as it is today, with the exception of a few years in the late 1990s."

This part is not quite right. The unemployment rate was below the 5.1 percent rate reported for August from May of 2005 until April of 2007, so an unemployment rate this low is not quite that rare.

The other part of the story that has been widely noted is that employment rate, the percentage of the population that has jobs, is down by more than three percentage points from its pre-recession level. This is true even if we just look at prime-age (ages 25-54) workers.

Since no one has a very good story as to why 3 million plus people just decided that they didn't feel like working, the most obvious explanation is that these are people who still want to work but have given up looking for jobs because of the weak state of the labor market.

It is also worth noting that if this decline in the labor force reflects something other than the weakness of the labor market, virtually no one saw it coming before the recession. The economists who want to blame some supply-side factor as the cause of the reduction in the size of the labor force therefore need to explain why they were unable to see this factor before the recession. They also need to explain why anyone should believe their understanding of the economy is better today than it was in 2007.  

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Most of the reporting on China and its current economic problems refers to it as the world's second largest economy. This is true if its GDP is measured on a currency conversion basis, in other words taking its GDP and effectively converting it into dollars at the official exchange rate.

However economists more typically use purchasing power parity measures of GDP. These involve using a common set of prices for goods and services in all countries. By this measure China's GDP is already more than 5 percent larger than the GDP of the United States, not counting Hong Kong.

This point is important in understanding China's impact on the world economy. If its economy slows significantly, the reduction in its imports of oil and other inputs will reflect its size based on its purchasing power parity GDP, not the exchange rate measure. This is why the recent uncertainty in China is having so much impact on the price of oil and other commodities. The reporting should acknowledge this fact.

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The NYT had a piece on how Mexico's economy remains weak and the government is again plagued by corruption. At one point it comments that:

"Growth has been slower under Mr. Peña Nieto’s presidency than the annual 2.3 percent average in the two decades before he took office."

It is worth noting that a 2.3 percent growth rate is extremely weak for a developing country. It means that Mexico was actually falling further behind the United States even before the slowdown under President Nieto. Furthermore, as the article points out, it appears that workers are seeing little or no benefit from even this limited growth, as wages remain quite low.

Last year marked the twentieth anniversary of the implementation of NAFTA. At the time there was much celebration in the media and among economists anxious to pronounce the deal a huge success. While it is always possible that Mexico's economy would have performed even worse without NAFTA, its actual record is not much to boast about.

It is worth singling out the Washington Post in this context which periodically celebrates the rise of the middle class in Mexico in the post-NAFTA era. The Post famously invented numbers to make its pro-NAFTA case, telling readers back in 2007 that Mexico's GDP had quadrupled since 1987. The actual increase was 83 percent. It has never bothered to correct this one.

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It is amazing how economic reporters and many economists continue to be obsessed with the topic of deflation. They seem to hold the view that when inflation crosses zero and turns negative, then something happens. This is in spite of the fact that there is zero (as in none) reason to believe this would be the case in theory and zero evidence that it is the case in reality.

Yet, we once again see the NYT tell readers in a piece on the current agenda of European Central Bank (ECB) President Mario Draghi:

"Inflation, at 0.2 percent in August, was unchanged from June and July. The rate is still well short of the European Central Bank’s official target of just below 2 percent.

"Some economists remain concerned that the eurozone could yet slip into deflation, which has already infected some eurozone countries like Greece."

Suppose that inflation went from 0.2 percent to -0.2 percent so that the euro zone was experiencing deflation. Why would this be any worse than a decline from 0.6 percent to 0.2 percent? The problem is that the inflation rate is too low. Any drop in the inflation rate makes the situation worse. It has the effect of raising real interest rates and raising the real value of debt, but crossing zero doesn't matter, the drop in the inflation rate is all that matters.

There is a story that can be told of spiraling deflation, where deflation feeds on itself, except we never see this. Even Japan never experienced spiraling deflation. We did have something like spiraling deflation at the start of the Great Depression, but there is little reason to believe any countries face this threat now and certainly not from having their inflation rate slip a few tenths of a percentage point below zero. (As I've pointed out in times past, our measurements are not even accurate enough to ensure that a reported 0.2 percent inflation rate is in fact above zero.)

Anyhow, the deflation obsession continues. I suppose like the belief in a flat earth, it is impervious to evidence.

It is probably worth mentioning that the deflation in Greece is not seen by the ECB as a problem. It is by design. Greece needs to regain competitiveness with Germany and other northern euro zone countries. This could be done by these countries having higher inflation rates, for example as a result of larger budget deficits in these countries. The euro zone has quite explicitly chosen to not go this route. As a result, the only route for Greece to regain competitiveness is through deflation.

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Washington Post editorial writer Stephen Stromberg told Post readers that President Obama is not a climate hypocrite for talking about climate change even as he opens areas in the Arctic for drilling. Stromberg was responding to environmental groups who argued that if we are to prevent dangeorous levels of global warming, we will have to leave large amounts of the world's oil in the ground. They argue opening the Arctic for drilling is a serious step in the wrong direction.

Stromberg's response is that the environmentalists are engaged in confused thinking. He cites a column by Michael Levi at the Council of Foreign Relations:

"'[M]ore oil production in one place generally means less oil production elsewhere — that’s how markets and prices work — which substantially blunts the effect' that Arctic drilling would have on global greenhouse emissions."

In other words, Stromberg is arguing that if we drill more oil out of the Arctic, it will be offset by less oil coming from other places. This assertion is largely true, but it leaves out an important part of the picture.

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It’s always dangerous when followers of an insular cult gain positions of power. Unfortunately, that appears to be the case with the Washington Post editorial board and the Federal Reserve Board Cultists.

The Federal Reserve Board Cultists adhere to a bizarre belief that the 19 members (12 voting) of the Federal Reserve Board’s Open Market Committee (FOMC) live in a rarified space where the narrow economic concerns of specific interest groups don’t impinge on their thinking. According to the cultists, when the Fed sits down to decide on its interest rate policy they are acting solely for the good of the country.

Those of us who live in the reality-based community know that the Fed is hugely responsive to the interests of the financial sector. There are many reasons for this. First, the twelve Fed district banks are largely controlled by the banks within the district, which directly appoint one third of the bank’s directors. The presidents of these banks occupy 12 of the 19 seats (5 of the voting seats) on the FOMC.

The seven governors of the Fed are appointed by the president and approved by Congress, but even this group often has extensive ties to the financial industry. For example, Stanley Fischer, the current vice-chair, was formerly a vice-chair of Citigroup.

The third main reason why the Fed tends to be overly concerned with the interests of the financial sector is that its professional staffers are often looking to get jobs in the sector. While jobs at the Fed are well-paying, staffers can often earn salaries that are two or three times higher if they take their expertise to a bank or other financial firm. As economic theory predicts, this incentive structure pushes them toward viewpoints that often coincide with those of the industry.

The net effect of these biases is that the Fed tends to be far more concerned about the inflation part of its mandate rather than the high employment part, even though under the law the two goals are symmetric. If the Fed tightens too much and prevents hundreds of thousands or even millions of workers from getting jobs, most of the top staff would not be terribly troubled and it is unlikely anyone would suffer in their careers. On the other hand, if they allowed the inflation rate to rise to 3.0 percent, it is likely that many top officials at the Fed would be very troubled.

There is very little basis in economic research for maintaining that a stable 3.0 inflation rate is more costly to the country than having 1 million people being needlessly unemployed, but the view coming from the Fed is that the former is much worse than the latter. The Fed cultists at the Washington Post and elsewhere want us to just accept that this is the way the world works. It’s not surprising that some folks don’t quite see it that way. 

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The sequester put in place as part of the 2011 budget agreement is continuing to bite, as most areas of discretionary spending are seeing their budget cut in real terms. One of the areas slated for the biggest proportional cuts in the Bureau of Labor Statistics (BLS). Ready to head for the barricades?

Okay, I know that the data produced by the BLS doesn’t sound especially sexy. After all, we aren’t talking about children going hungry or pregnant women being denied medical care. But on a per dollar basis, I would argue that BLS funding is among the best investments out there.

The purpose of the data collected by the BLS is to let us know how the economy is doing. Based on the data it produces we can know who is getting ahead and who is falling behind. We can know whether college degrees are really paying off, or paying off equally for everyone. We can know how long people spend being unemployed after losing a job or how much less they are likely to make when they find a new job.

Yes, we all have common sense understandings of these issues. We have friends, neighbors, and co-workers all of whom have experiences in the labor market, dealing with health care insurance, planning for retirement. These impressions are valuable, but sometimes our impressions are wrong. Our immediate circles of contacts may not be typical. The data from BLS lets us get beyond these impressions to get a fuller picture of the economy.

This matters hugely for important policy decisions. Right now there are many people who are anxious to have the Federal Reserve Board raise interest rates to slow the economy and the pace of job creation. The key factors in whether this makes sense are the pace of inflation, the pace of wage growth, and the extent of unemployment or various forms of under-employment.

We should want the best possible data on all of these items. It would be an enormous tragedy if the Fed raised rates and prevented hundreds of thousands of workers from getting jobs, and millions from getting pay increases, because it thought the inflation rate was higher than it actually is.

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Robert Samuelson has a column this morning on the impact of globalization on national economies. At one point the piece tells readers:

"Globalization has also punished the United States. From 2004 to 2006, the Federal Reserve raised short-term interest rates by 4.25 percentage points, believing that long-term rates on bonds and mortgages — which affect the economy more — would follow. They didn’t. If they had, would the 2008-2009 financial crisis have been avoided or softened? Then-Fed Chairman Ben Bernanke later argued that a 'global savings glut' of dollars — flooding into bonds — kept long-term rates down."

This comment leaves out a very important part of the story. Foreign central banks, most importantly China's, were buying up massive amounts of U.S. government bonds in this period. Their goal was to prop up the dollar against their currencies so that they could continue to run large trade surpluses and leaving the United States with large trade deficits. The trade deficit peaked at just under 6.0 percent of GDP ($1.1 trillion in today's economy) in 2005.

Since the central banks were buying up long-term bonds it is not surprising that long-term interest rates stayed low in spite of the Fed's decision to raise short-term rates. The impact of the foreign central banks policy on long-term interest rates is the same as the recent Fed policy of quantitative easing. Markets don't care if bonds are purchased by the Central Bank of China or Japan or the Fed, it has the same impact on bond prices and interest rates.

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The NYT had an interesting piece noting criticisms from the left and right directed at the Federal Reserve Board over its monetary policy decisions. It concludes with a comment from Princeton University professor and former Fed vice-chair Alan Blinder, saying that the Fed cannot do much to either reduce inequality or government indebtedness.

This is not accurate. From February of 1994 to March of 1995, the Fed made a decision to raise its short-term interest rate from 3.0 percent to 6.0 percent. This was done to slow the economy and the rate of job creation. This was due to the fact the unemployment rate was falling into or below the level that the Fed models showed were consistent with stable inflation. In these models, if the unemployment rate was allowed to fall much below 6.0 percent, the inflation rate would begin to accelerate, leading to a problem of spiraling inflation.

In the summer of 1995, after the economy had slowed, the Fed chair Alan Greenspan pushed the Fed to lower interest rates even though the unemployment was below most estimates of full employment. He insisted that the Fed allow the unemployment continue to fall over the next four years even as it crossed 5.0 percent and eventually 4.0 percent in 1999 and 2000. This period of low unemployment was the only time in the last 40 years in which workers at the middle and bottom of the wage distribution saw sustained growth in real wages.

This is how Fed policy can affect inequality. If the Fed had not been pushed by Greenspan, who is not an orthodox economist, it likely would have raised interest rates during this period and prevented the low unemployment and real wage growth of this period.

It is also worth noting that the Fed's policy was also the basis for the budget surpluses at the end of the decade. In 1996, after all the Clinton-Gingrich tax increases and spending had been passed into law, the Congressional Budget Office (CBO) projected a deficit for 2000 of close to $250 billion (2.5 percent of GDP). The fact that we had a surplus of roughly the same amount was not due to changes in budget policy, but rather the fact that we had an unemployment rate of 4.0 percent rather than the 6.0 percent projected by CBO. (The tax from capital gains created by the stock bubble also helped.)

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The NYT had a piece on the proposals that various candidates have proposed to rein in Wall Street. The piece reports that former Secretary of State Hillary Clinton has proposed applying the normal income tax rate of 39.6 percent to capital gains on assets held less than six years rather than the 20 percent tax rate. (In both cases, capital gains for high income taxpayers are also subject to a 3.8 percent surtax connected with with Affordable Care Act.) It would have been helpful to point out that the lower capital gains tax currently only applies on assets held at least one year, so very short-term gains already do not qualify for the lower tax rate. Also, Secretary Clinton's proposal would phase down the tax rate to 36 percent for assets held between 2–3 years, 32 percent for 3–4 years, on down to 20 percent for assets held more than six years.

It also would have been worth more discussion of the proposals for financial transactions tax. According to an analysis by the Tax Policy Center of the Urban Institute and the Brookings Institution, a tax like the one proposed by Senator Bernie Sanders would reduce Wall Street's income from trading by more than $75 billion a year. This dwarfs the impact of all the other measures discussed in this article, including the Dodd-Frank financial reform act.

Note: An earlier version of this post had said that Clinton's proposal would have the 20 percent rate on assets held for more than two years. Thanks to Robert Salzberg for correcting this error.

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