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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By Cherrie Bucknor and Dean Baker

The 4.9 percent unemployment rate is getting close to most economists’ estimates of full employment. In fact, it is below many estimates from recent years and some current ones. Many policy types, including some at the Federal Reserve Board, take this as evidence that it’s necessary to raise interest rates in order to keep the unemployment rate from falling too low and triggering a round of spiraling inflation.

The argument on the other side is first and foremost there is zero evidence that inflation is about to start spiraling upward. The Fed’s key measure, the core personal consumption expenditure deflator, remains well below the Fed’s target and shows no evidence of acceleration. The same is true of most wage growth measures.

But there is also good reason for skepticism on the current unemployment rate as a useful measure of labor market tightness. Other measures of labor market tightness, such as the percentage of workers employed part-time for economic reasons and the share of unemployment due to voluntary quits, remain close to recession levels.

Most importantly, there has been a sharp drop in labor force participation rates. As a result, in spite of the relatively low unemployment rate, the employment rate is still close to 3.0 percentage points below its pre-recession level. This story holds up even if we restrict ourselves to looking at prime-age workers (between the ages of 25–54), with an EPOP that is close to 2.0 percentage points below pre-recession levels and almost 4.0 percentage points below 2000 peaks.[1]

The response of the proponents of higher interest rates has been to attribute this drop to a problem with prime-age men rather than a lack of demand in the economy. For example, Tyler Cowen argued that less educated men were watching Internet porn and playing video games rather than working. The problem with this explanation is that the decline in EPOPs is comparable for non-college educated men and women. There is also a decline in EPOPs since 2000 for both college educated men and women, albeit a smaller one than for their less-educated counterparts.

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In a blog post earlier this week, former Fed Chair Ben Bernanke argued for a policy of negative nominal interest rates as being preferable to a higher inflation target for boosting the economy in a severe slump. While his concerns about the downsides of a higher inflation target seem somewhat overblown, there is an important negative aspect to his proposal for negative rates that his post overlooks.

If banks have to pay money on the reserves they hold, then they have less incentive to acquire deposits. This could have a large impact on their willingness to keep smaller checking and saving accounts for low- and moderate-income people. They often lose money on these accounts already, but may consider the losses worth bearing in the hope that these customers may have larger accounts in the future and/or rely on the bank for profitable services.

If interest rates on reserves turn negative, then the losses on these accounts would be even larger. This could result in banks charging for accounts that are now free and raising their fees on services for which they already charge. As a result, many low- and moderate-income people are likely to give up their bank accounts.

According to the FDIC, there were 9.6 million households without bank accounts in 2013. This number could grow substantially if banks had to start paying interest on the reserves they held.

There are potential remedies for this situation. Banks could be required to offer basic banking services at little or no cost, with other customers effectively subsidizing this service. Alternatively, we could adopt a system of postal banking which would allow low- and moderate-income households to get basic banking services through the post office.

Either of these routes would offset the risk that negative interest rates could lead to a larger unbanked population. However, without these fixes in place, the prospect of a much larger unbanked population is major downside to a policy of negative interest rates.

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This is another problem with numbers story. Steve Inskeep interviewed Daniel Garza of the Libre Initiative, a Republican group targeting Latino voters in Nevada and Florida, on Morning Edition on Tuesday. In making his case Mr. Garza brought up the issue of the minimum wage:

"On the issue of minimum wage, which is one that is always used as, you know, you don't care for decent wages, here is a case where you have Latino minorities who are at 20 percent unemployment and you want to double the cost to hire them by doubling the minimum wage. How is that going to help young Latinos?"

According to the Bureau of Labor Statistics, the unemployment rate for Hispanics in August was 5.6 percent. Even if Mr. Garza was referring to Hispanic teens, he is still a fair bit off. The unemployment rate for Hispanic teens was 15.0 percent in August, up from 14.5 percent in July.

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That's what a NYT article told readers, although the $1.0 trillion figure may not have been clear. The European Union determined that Apple owes Ireland $14.5 billion in back taxes. While the article indicated that this is a substantial sum, since most readers are probably not familair with the size of Ireland's economy, they likely would not realize how substantial it is.

Since Ireland's GDP is projected to be 229 billion euros this year, the back taxes would be roughly the equivalent of $1 trillion in the U.S. economy. The piece also indicates that with interest included the sum could be $23 billion. This would be the equivalent of $1.5 trillion in the U.S. economy.

Put another way, Ireland's population is just under 4.6 million. This means the $14.5 billion figure would translate into $3,150 for every person in the country. The larger $23 billion figure would come to $5,110 per person.

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In an article on the prospect of a September interest rate hike by the Fed, the NYT pointed out that Esther George, the President of the Kansas City Federal Reserve Board Bank, expressed concern that low interest rates are fueling financial speculation. She has repeatedly given this as a basis for raising interest rates.

It is worth noting that George has never identified an area where prices are obviously out of line with fundamentals. In the two cases in the last 80 years where the collapse of a speculative bubble led to economic downturns, the stock bubble in the 1990s and the housing bubble in the last decade, it was easy for anyone who looked to recognize the bubbles and that they were moving the economy.

In both cases, the wealth generated by the bubbles led to a consumption boom, which would have been difficult to explain any other way. The stock bubble also led to a surge in tech investment as it was a simple matter for people with the right connections, who had no idea what they were doing, to raise hundreds of millions or even billions by issuing stock in Internet start-ups. In the case of the housing bubbles, residential construction hit a post-war high as a share of GDP even as the country's demographics would have suggested it should have been falling.

For these reasons, it was predictable that a collapse of the bubble would lead to a recession, and an especially serious one in the case of the housing bubble. Also, it was easy to see that both were bubbles. In the late 1990s, bubble the price to earnings ratio reached levels that were twice the normal ratio. For this to make sense it would have required either a sustained growth rate of corporate profits that was hugely faster than any forecasters were predicting or a change in investor attitudes to stock, where they were prepared to accept returns that were the same or less than the returns on government bonds. In the case of the housing bubble, with vacancy rates hitting record highs and rents seeing no real increase whatsoever, it was pretty hard to see the run-up in house prices as anything except a bubble.

Given this recent history, it would be reasonable to ask Ms. George where she sees evidence of a dangerous bubble. If her argument is that she wants to slow growth and keep people from getting jobs because of her fear of bubbles, she should be able to produce some evidence to support this fear. To date, she has not. (It's also worth noting that even if we face the risk of a bubble, it is far from clear that higher interest rates are the best tool for addressing the problem.)

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In a Sunday editorial the Washington Post touted the strength of the economy. While it got some things right, it also showed some serious confusion.

At the top of the list is its concern for the declining labor force participation rates for prime-age men (ages 25–54). This is not a men's problem, there has also been a comparable decline in the employment rates for prime-age women. (Employment rates are a better measure than participation rates because many people who are not working continue to look for work as long as they are eligible for unemployment benefits. With stricter eligibility rules in place now than a quarter century ago, a smaller share of the non-employed are counting as unemployed. Using the employment rate gets around this problem.)


As can be seen, the employment rate (EPOP) for prime-age women is down by more than 2.0 percentage points from its pre-recession level and more than 4.0 percentage points from its 2000 peak. This drop is especially striking since the EPOP for women had been rising in the late 1990s and was projected to continue to rise by the Social Security Trustees, the Congressional Budget Office and most other forecasters.

The fact that the EPOP has fallen for prime-age women, and not just men, indicates that the problem is not some peculiarity of prime-age men, but rather a lack of demand in the labor market. This could be remedied by increasing demand in the economy, but this has been prevented by deficit hawks, like the Washington Post and the various Peter Peterson-funded organizations and their followers in Congress. In fact, even in this piece, the government debt is listed as a major problem in spite of the fact that the burden of debt service is near a post-war low.

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A recurring theme of much of the coverage of support for Donald Trump in Appalachian states is that President Obama's efforts to reduce greenhouse gas emissions, and thereby reduce the use of coal, have led to a large loss of coal mining jobs. This loss of jobs supposedly devastated the economy of the region. Voters hope that Trump will bring back the mining jobs and thereby restore the economy of the region. A New York Times article on support for Trump in Eastern Kentucky repeats this theme.

The problem with the story is that most of the mining jobs in Kentucky were lost long ago. Even when President Obama took office it was a relatively minor source of employment in the state. The figure below shows coal mining jobs in Kentucky. The number had fallen from close to 30,000 at the start of the 1990s to less than 15,000 by the end of the decade. (It had been close to 50,000 in 1980.)


There was somewhat of an uptick as President Obama came into office due to the surge in world oil prices, but this lasted for less than two years. The current employment level of 6,900 is down about 8,500 from the 2007 levels. By comparison, total employment in Kentucky is over 1,900,000. This means the jobs lost in the mining industry over the last decade are a bit less than 0.5 percent of total employment in the state.

The loss of these jobs has undoubtedly been a huge tragedy for the people directly affected and for the communities in which these jobs are located. However, it does not seem plausible that the actual job loss can explain much about political attitudes across the state.

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A few days ago I argued that one way to get around the tax games that Apple and other corporations play is to require them to turn over a proportion of their stock in the form of non-voting shares. These shares would get the same benefits that any voting shares would receive in the form of dividends and share buybacks, but would give the government no say in the running of the company. This should get rid of most of the opportunities for gaming the tax system and assure the government its targeted percentage of corporate profits.

Bruce Bartlett, who was an economist in the Reagan and Bush I administrations, reminded me of his even simpler approach. Bruce suggests that the government tax corporations at some percentage of their market capitalization on a randomly selected date in the prior calendar quarter.

Suppose that the goal is to get an amount of tax revenue equal to 25 percent of corporate profits (a bit more than we now take in). If the ratio of stock prices to after-tax profits is 24 to 1 (roughly current levels), then the ratio of stock prices to before-tax profit is 18 to 1, implying that profits are 5.6 percent of the share price. If we want to collect 25 percent of the profits in taxes, then we would require companies to pay 1.9 percent of their share price on a randomly selected date from the prior quarter. (Actually, since we are looking at four quarterly payments, each would be one-fourth of this amount, or 0.475 percent of the share price.)

It's difficult to see how corporations can game this one. We also need to have a mechanism for taxing privately held companies. (My addendum would be to have an annual assessment of the company to determine its market value. This would be less precise than actually having a market value to directly rely upon, but there is no reason to assume an obvious bias in the mechanism. Also, if a company felt that the auditors were consistently giving it an excessive valuation, it would provide a strong incentive to go public.)

Anyhow, progressives should be looking for these sort of simple mechanisms for getting the money out of the Apples and other tax schemers in the world. We need the revenue and we also should want to put the tax gaming industry out of business. There are a lot of people getting very rich because of their cleverness in finding ways to get around the tax code. This is a major source of inequality and a waste from an economic standpoint. 


Note: Bruce directs me to a 2007 Tax Notes article by Calvin Johnson as the basis for this idea.

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It is unfortunate that it now acceptable in polite circles to connect a view with Donald Trump and then dismiss it. The result is that many fallacious arguments can now be accepted without being seriously questioned. (Hey folks, I hear Donald Trump believes in evolution.)

The Post plays this game in noting that the U.S. trade deficit with Germany is now larger than its deficit with Mexico, putting Germany second only to China. It then asks why people aren't upset about the trade deficit with Germany.

It partly answers this story itself. Germany's huge trade surplus stems in large part from the fact that it is in the euro zone. The euro might be properly valued against the dollar, but because Germany is the most competitive country in the euro zone, it effectively has an under-valued currency relative to the dollar.

The answer to this problem would be to get Germany to have more inflationary policies to allow other countries to regain competitiveness — just as the other euro zone countries were generous enough to run inflationary policies in the first half of the last decade to allow Germany to regain competitiveness. However, the Germans refuse to return this favor because their great, great, great, great grandparents lived through the hyper-inflation in Weimar Germany. (Yes, they say this.)

Anyhow, this issue has actually gotten considerable attention from economists and other policy types. Unfortunately, it is very difficult to force a country in the euro zone — especially the largest country — to run more expansionary policies. As a result, Germany is forcing depression conditions on the countries of southern Europe and running a large trade surplus with the United States.

The other part of the difference between Germany and China and Mexico is that Germany is a rich country, while China and Mexico are developing countries. Folks that took intro econ courses know that rich countries are expected to run trade surpluses.

The story is that rich countries are slow growing with a large amount of capital. By contrast, developing countries are supposed to be fast growing (okay, that doesn't apply to post-NAFTA Mexico), with relatively little capital. Capital then flows from where it is relatively plentiful and getting a low return to developing countries where it is scarce and can get a high return. 

The outflow of capital from rich countries implies a trade surplus with developing countries. Developing countries are in turn supposed to be borrowing capital to finance trade deficits. These trade deficits allow them to build up their capital stocks even as they maintain the consumption standards of their populations.

In the case of the large trade surpluses run by China and other developing countries, we are seeing the opposite of the textbook story. We are seeing fast growing developing countries with outflows of capital. This is largely because they have had a policy of deliberately depressing the value of their currencies by buying up large amounts of foreign reserves (mostly dollars.)

So the economics textbooks explain clearly why we should see the trade deficits that the U.S. runs with China and Mexico as being different than the one it runs with Germany. And that happens to be true regardless of what Donald Trump may or may not say.

By the way, this piece also asserts that "Germany on average has lower wages than Belgium or Ireland." This is not true according to our friends at the Bureau of Labor Statistics.

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The efforts by many elite types to deny basic statistics and to tout the new technologies transforming the workplace are truly Trumpian in their nature. According to the OECD, productivity growth in the UK was essentially zero between 2007 and 2014 (the most recent year for which it has data). So we would naturally expect that the Guardian would run a column telling us that globalization and new technologies are making old workplace relations obsolete.

As John Harris tells readers:

"In a world in which businesses can survey their order books on an hourly basis and temporarily hire staff at the touch of a button, why would they base their arrangements on agreements that last for years?"

Well, a big part of the story is that the UK (like the U.S.) has a very weak labor market. This was a result of conscious policy decisions. The Conservative government put in a policy of austerity that had the effect of reducing demand in the UK and slowing the rate of job creation. In this context, of course employers get to call the shots.

Serious people would address the context which has denied workers bargaining power. It is not "technology" as Harris and his elite Trumpians would like to pretend, it is macroeconomic policy. But Harris has no time for talking about macroeconomic policy. He dismisses a plan put forward by Labor Party Leader Jeremy Corbyn to produce full employment as, "either naive or dishonest" adding "but they reflect delusions that run throughout Labour and the left."

There we have it, in elite Trumpland we don't have to deal with data or arguments; we can just dismiss people and ideas with ad hominem arguments.

If the Guardian allowed a serious person to address the set of questions raised in this piece they would look not only at the macroeconomic policies that have denied ordinary workers bargaining power, but also the government policies that allow the winners to win.

At the top of the list would be the policies that have favored the financial sector. Even the I.M.F. has noted that the financial sector is undertaxed relative to other industries. A modest financial transactions tax applied to the non-equity UK market would do wonders for increasing the efficiency of the sector. (The U.K. already taxes equity trades at a rate of 0.5 percent.) 

We should also ask about the extent to which government granted patent and copyright monopolies are redistributing income upward. Patent monopolies are created by governments, they don't grow out of the technology. And we should also ask whether the corporate governance structure is effectively allowing shareholders to control the pay of CEOs and other top executives. The structure clearly does not work in the case of the U.S., I suspect the problems are similar in the U.K., if not as bad.[1]

Not everything in Harris' piece is wrong. It would be great to see the left more focused on shorter workweeks and longer vacations. (Many on the left already are.) And certainly there needs to be more focus on non work aspects of life. But the diagnosis of the basic problem in this piece has more to do with Donald Trumpland than the real world.

[1] These and other topics are discussed in my forthcoming book, "Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer." Coming soon to a website near you.

 Note: An earlier version identified Labor's leader as "Jerry Corbin." Thanks to several people for pointing out this error.

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While Elizabeth Warren is praising the European Union's crackdown on Apple's Ireland tax scheme, Jack Lew and the Obama Treasury Department are going to bat for corporate tax cheating. Warren is far too optimistic about the prospect of a successful crackdown. These folks are prepared to spend a lot of money to hide their profits from tax authorities and they are likely to find accomplices in many Irelands around the world.

It would be good to look in a different direction. I remain a big fan of my proposal for companies to turn over non-voting shares of stock to the government. In that case, what goes to the shareholders also goes to the government. Unless you cheat your shareholders, you can't cheat the government.

I know this is probably too simple to be taken seriously in policy circles, but those who care about an efficient and effective way to collect corporate taxes should be thinking about it.

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Okay, they only consider the latter a mystery, but for those who follow the data both are equally mysterious. The piece was titled "an economic mystery: why are men leaving the workforce?" The piece noted the reduction in the percentage of prime-age men in the workforce from nearly 100 percent in the 1960s to 88.3 percent at present. It then said that no one really knows why there has been this decline.

Actually, it really is not much of a mystery. While the piece wants to attribute it to the peculiar situation men face in the labor market, it is worth noting that there has also been a sharp decline in the percentage of prime-age women in the labor market. (Actually, a better measure is simply looking at the share of people who are employed. Many workers stop saying they are looking for jobs when they are no longer eligible for unemployment benefits. With a sharp reduction in eligibility for benefits over the last three decades, people who are not working are now much less likely to say they are looking for work.)

The figure below shows the percentage of prime-age women that are working since 1990.

Employment Rate for Women, Ages 25-54

women EPOP

                                                                 Source: Bureau of Labor Statistics.

The chart shows that after rising sharply from 1993 to 2000. It then fell sharply following the 2001 recession and again in 2007–2009 recession. It has since risen in the recovery but it is still 3.8 percentage points below the peak hit in 2000. The pattern among prime-age men is similar, although the employment rate is now 4.8 percentage points below the 2000 peak. (Remember the EPOP for women had been rising before the 2001 recession and was projected at the time to continue to rise.)

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No one expects NYT columnists to have any knowledge of the topics on which they write, which is a very good thing for David Brooks. In his column belittling the impact of the Affordable Care Act (ACA), he never once mentioned the requirement that insurers charge everyone the same premium, regardless of their health.

Brooks focuses on the health care exchanges, which do in fact have fewer participants than expected. The main reason for the shortfall is not that fewer people are being insured, as Brooks implies, it is rather that fewer employers dropped coverage than expected. (Brooks also repeats the silly "young invincible" story, that the problem is too few young healthy people signing up. The exchanges need healthy people, and it is actually better if they are older healthy people, since older people pay higher premiums.)

Brooks argues that the exchanges are disproportionately drawing lower-income people, which makes them another low-income program, like Medicaid, rather than a universal program like Medicare. Apparently Brooks did not realize that the ACA also requires that all insurers charge patients the same premium regardless of their health condition. This was a huge change in the insurance market since it means that even people with serious health problems, like cancer survivors and people with heart conditions, can get insurance at the same price as anyone else of the same age.

Before the ACA, these people could expect to pay tens of thousands of dollars a year for insurance, if they could get it at all. As a practical matter, this meant that before the ACA most people really didn't have insurance against serious health conditions. Often these conditions would force a worker to leave their job, which was generally the source of their insurance. Once they left their job, they would then be forced to buy insurance in the individual market where insurers could charge them a premium based on their health condition. The ACA fundamentally changed this situation, but apparently Brooks never noticed.

Note: I wanted to get folks the actual data (bonus points to anyone who can get this info to Brooks before he writes his next column on the topic). In 2012, before the key provisions of the ACA took effect, the Congressional Budget Office (CBO) projected that the uninsured population would fall to 32 million by 2015. In fact, it fell to 32 million by 2014, a year in which it was projected there would still be 38 million uninsured people. According to data from Gallup, the number of uninsured non-elderly fell to less than 28 million by the fourth quarter of 2015.

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Seriously, the Post ran a major front page article in its Sunday business section telling us that "big business lost Washington." The piece does acknowledge that business lobbies are still very effective in getting special deals for their industry, like favorable tax treatment for offshore profits and low-cost access to public lands for fossil fuel extraction, but it complains that business leaders are not openly setting the national agenda.

It's not clear where exactly business leaders are seeing their needs go unmet. One of the most fundamental items on the national agenda is returning to full employment. Here the business community, lead by groups like the Peter Peterson funded organization "Fix the Debt," along with the Washington Post, played a large role in pushing the government towards austerity in 2011. The result was sharply slower growth and much less job creation than would otherwise be the case.

This has been good news for many businesses, since the weak labor market led to an extraordinary leap in the profit share of national income. The cost to the rest of the country has been enormous, with millions of people needlessly being kept from working and tens of millions forced to accept much lower pay than would have been the case in a healthy labor market.

It's more than a bit bizarre to complain that the business interests who were able to impose such enormous costs on the rest of society in order to advance their agenda have no power in Washington. Of course it is understandable that they would prefer the public not recognize their power.

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In pushing trade agreements it is fair to say anything, even if it has no relationship to the truth. Therefore it is not surprising to see Fareed Zakaria pushing the Trans-Pacific Partnership (TPP) by claiming that it will boost growth and attacking Bernie Sanders for opposing "trade policies that have lifted hundreds of millions of the world’s poorest people out of poverty."

First, the impact on growth will be trivial. According to the International Trade Commission's assessment, the TPP will boost the annual growth rate over the next fifteen years by less than 0.02 percentage points. And, this projection does not take account of the negative impact of the protectionist measures in the TPP, such as stronger and longer copyright and patent protection. These measures have the same impact on the protected items as tariffs of several thousand percent.

Zakaria then gets into straight out confusion when he tells readers that the TPP is a good deal for the United States because:

"Asian countries have made most of the concessions. And because their markets are more closed than the United States’, the deal’s net result will be to open them more."

Actually in standard trade theory, most of the benefits from lowering tariffs accrue to the countries that lower them. In trade theory, it benefits their consumers. Overall, trade balances are not affected. This is why the very pro-TPP Peterson Institute shows that by far the largest gains to TPP accrue to Vietnam. It lowers its tariffs by the most under the terms of the deal.

In terms of the attack on Bernie Sanders for opposing the world's poor, Zakaria is again confused. In the standard trade story, capital is supposed to flow from rich countries like the United States to poor countries in the developing world. That would mean rich countries run trade surpluses and poor countries run trade deficits. This allows poor countries to sustain consumption levels even as they build up their capital stock.

The world actually looked like this in the early and mid-1990s, especially for the fast-growing countries of East Asia. Malaysia, Vietnam, South Korea, and Thailand all had very large trade deficits even as their economies grew very rapidly. This reversed following the East Asian financial crisis in 1997. The terms imposed by the Clinton Treasury department through the I.M.F. forced these countries to start running large trade surpluses. As a result, the countries in the region had considerably slower growth in the subsequent two decades than they did from 1990 to 1997.

There is no reason, in principle, that these countries could have not continued to grow rapidly along the standard path of running trade deficits. It was a policy decision to force them to run trade surpluses. In other words, this is yet another gratuitous swipe at Bernie Sanders of the sort that readers have come to expect from the Washington Post.

At the end of the day, the TPP is about increasing the power of large corporations, who contribute heavily to political campaigns and offer former politicians high-paying lobbyist jobs, at the expense of the people of the region. Its proponents will say whatever they think is necessary to sell the pact, even if it has nothing to do with reality.

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The NYT had a piece headlined "economists discuss differences that divide them," which contrasted the views on the economy of Michael Gapen, chief United States economist at Barclays, and Stephanie Pomboy, founder of MacroMavens, an independent economics consulting firm. The first item where they presented contrasting views was on consumption patterns.

While Gapen thinks consumption will be strong the rest of the year and beyond, Pomboy is quoted as saying:

"After the bursting of the housing bubble and the Great Recession, there has been a generational shift away from spending toward saving among consumers. The great consumer credit boom of the 1980s, 1990s and 2000s is over. The savings rate has moved higher and this new impulse to save leads to a sluggish pace for growth."

Actually, this is an area where we have data, so we don't just have to speculate about the future. Consumption has actually been quite high in recent years as shown below.


Consumption is almost 69 percent of GDP. The only time it has been a higher share of GDP was 2011 and 2012 when the payroll tax holiday was in effect, raising disposable income. So Ms. Pomboy is clearly mistaken on this point. Consumers obviously are quite willing to spend, and in fact are spending a considerably larger share of their income than in the 1980s, 1990s, or 2000s, the exact opposite of what she claims in this piece.

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That is what they warned, but they didn't quite put it to readers that way. Instead the subhead warned that meeting President Obama's goal of reducing emissions by 80 percent by 2050 would cost $5.28 trillion.

Yes folks, that sounds pretty scary. After all, $5.28 trillion over the next 34 years is bigger than a bread box, possibly much bigger. 

Of course, it is unlikely that many of the WSJ's readers have a clear idea of how big the economy will be over this 34-year period, so they  are not likely to be in a good position to assess how much of a burden this would be. Since annual output will average more than $20 trillion a year (in 2016 dollars), this sum comes to about 0.9 percent of projected GDP. (This context is included near the bottom of the piece.) By comparison, the cost of the Iraq and Afghanistan wars at their peak was roughly 2.0 percent of GDP, implying that they imposed more than twice the burden on the economy as President Obama's proposal to cut greenhouse gas emissions.

Another comparison that might be useful is the loss of potential GDP due to the austerity measures demanded by the Republican Congress and supported by many Democrats. In 2008, before the financial crisis, the Congressional Budget Office (CBO) projected that potential GDP in 2016 would 22.5 percent higher than in 2008. It now projects that potential GDP in 2016 is just 12.0 percent higher in 2016 than it was in 2008.

This decline in potential GDP is roughly ten times as large as the projected costs from meeting President Obama's targets for greenhouse gas emissions. Even if just half of this cost was due to austerity (as opposed to a mistaken projection by CBO in 2008 or unavoidable costs of the crisis) then the cost of austerity would still be more than five times as large as the costs of meeting President Obama's targets for greenhouse gas emissions.

And, as the piece notes, the estimates do not take account of any benefits from reduced damage to the environment. For example, we might have fewer destructive storms, flooding of coastal regions, and forest fires in drought afflicted regions.

It is also worth noting that the WSJ piece entirely focuses on the high-end estimate in the study, the low-end estimate is just over one quarter as large.

These are all reasons why readers might not take the conclusion of the piece very seriously:

"'It’s a sad comment on the political debate. This will affect people’s children and grandchildren,' Mr. Heal [the author of the study] said."

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The Federal Reserve Board has enormous power over the nation’s economy. Its efforts to promote growth through pushing down interest rates in the wake of the Great Recession have almost certainly created more than one million jobs, while saving homeowners hundreds of billions of dollars in mortgage interest. (The Fed has become especially important in the context of a Congress that shows little interest in doing anything to promote growth and jobs.)

But the Fed doesn’t always act to promote growth and employment. The current debate at the Fed over raising interest rates is posing the question of whether the Fed should be deliberately trying to slow the rate of growth and job creation. Just as pushing interest rates down earlier in the recovery helped to boost growth, raising them now would slow growth.

There are various reasons being put forward by proponents of rate hikes, but most of them center on the idea that we risk seeing the inflation rate rise if the rate of job growth doesn’t slow. The concern is that strong job growth will lead to a tighter labor market, which will allow workers to get higher wages. Higher wages can get passed on in higher prices, and pretty soon we will have a wage price spiral like we did in the 1970s. To prevent this from happening, proponents of higher rates argue that we should raise rates now to reduce the risk.

The central story here is that we are debating a risk of higher inflation in the future, against a certainty of higher unemployment and weaker labor markets in the present. People may differ on how they view this trade-off, which is why it is important to ask who sits at the table making the decision.

Under the current system, 12 of the 19 people on the Federal Reserve Board’s Open Market Committee (FOMC) are presidents of the Fed’s district banks. (Five of these bank presidents have a vote at any given meeting.) The district banks are actually owned by the banks in the district, with the presidents appointed through a process that is dominated by the banks. This means that banks have a grossly disproportionate voice in determining the country’s monetary policy.

This is likely to tilt monetary policy towards being more focused on fighting inflation than might be the case if the Fed was entirely a public institution, since bankers tend to be very concerned about even modest increases in the rate of inflation. Also, as a practical matter, it is unlikely that too many bank presidents are directly hurt by the fact that the unemployment rate is higher than it could be.

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Thomas Friedman once again urged both major parties to compromise to get things done in his NYT column. He argues that compromise is the only way to get things done. To make his case he lists a number of issues where he argues compromise is necessary, leading with:

"How will we improve Obamacare?"

Friedman probably missed it (hard to get information about Washington politics at The New York Times), but the Republicans have made repeal of the Affordable Care Act (ACA) a sacred cause. They routinely demand the destruction of the ACA in their campaigns. They voted dozens of times to repeal the ACA and have celebrated any bad news that could be associated with the program. This is in addition to all the phony stories about the ACA killing jobs and forcing employers to switch to part-time workers that the Republicans have invented.

In this context, at this point doing anything to further Obamacare would amount to complete surrender on core Republican principles, not a compromise. But you would have to know something about Washington politics to be aware of this fact.

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The NYT has a major piece on the skepticism towards Hillary Clinton's job creation proposals in the coal mining regions of Virginia. While there undoubtedly is much ground for skepticism about the prospects for such proposals, it is worth noting that most of the coal mining jobs in this region were lost long ago.

Employment in coal mining in Virginia peaked at just under 25,000 in 1982. By 1992 it was under 14,000 and it was below 10,000 by the end of the decade.

Employment in Mining in Virginia
virginia coal

Source: Bureau of Labor Statistics.

Since 2000, the number of mining jobs has generally stayed close to 10,000, but it has fallen off to 8,300 over the last three years according the Bureau of Labor Statistics new series on mining jobs. While any job loss is a horrible story for the people directly affected, especially when it occurs in an already depressed region, the bulk of the mining jobs had been lost more than two decades ago.

In other words, the loss of mining jobs is not something new due to efforts to slow global warming. It is due to increased productivity in the coal industry, and more recently, competition from low cost natural gas from fracking. 

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We all have come to appreciate the economic wisdom of no one. After all, no one saw the housing bubble and no one expected the recovery to be so weak. So when no one talks, people listen.

That's why people were impressed to see no one make an appearance in Robert Samuelson's column. Samuelson notes the weak 1.2 percent economic growth in the first half of 2016, which he says puts us at the edge of a recession. He contrasts this with the relatively healthy job growth which he inaccurately describes as "booming." (The 200,000 monthly rate of job growth is certainly respectable, but not exactly a boom.) Samuelson then tells readers:

"No one really understands the gap between the GDP and job figures."

No one certainly does understand the gap. First and foremost, no one realizes that the slow growth in the second quarter was simply an inventory story. Final demand grew at a 2.4 percent annual rate in the second quarter. No one also knows that GDP growth is likely to be considerably faster in the third quarter as inventory accumulations raise growth. No one knows that the Atlanta Fed's GDPNow projection shows GDP growth of 3.4 percent for the third quarter. In other words, no one knows that a recession is not now on the horizon.

No one also knows that the gap between relatively weak GDP growth and relatively strong job growth has been a feature of this economy for the last five years. It means that productivity growth has been very weak, averaging less than 1.0 percent annually. No one attributes this weak productivity growth to the weak labor market. Workers have been forced to take jobs at low wages, which means that businesses have incentive to create low wage jobs. (Think of the greeters standing around in Walmart or the people working the midnight shift at a 7-Eleven. These jobs likely would not exist if the companies had to pay $15 an hour.)

No one recognizes that several other points in Robert Samuelson's column are wrong or confused. For example, Samuelson comes up with an wholly implausible story on the difference between the rate of job growth and GDP growth:

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