Beat the Press is Dean Baker's commentary on economic reporting. Dean Baker is a Senior Economist at the Center for Economic and Policy Research (CEPR).
Okay, I know it was not deliberate, but how about in 2018 we get news reporters and columnists to think seriously about the concepts they are using? After all, at least the ones at elite outlets like the Washington Post are pretty well paid and have prestigious positions.
When Dan Balz discusses the Democrats political prospects for 2018 and asks about their economic policy, what does he mean when he asks:
"What is their response to concerns among many workers about the impact of globalization — more free trade or a rollback?"
The reality is that most formal trade barriers in the form of tariffs or quotas are already zero or very low with US trading partners. There is not much room to lower them further with "more free trade." The trade deals that have been recently under negotiation, like the Trans-Pacific Partnership or the Trans-Atlantic Trade and Investment Pact, don't have much to do with reducing traditional trade barriers. Instead, they are primarily about locking in a regulatory structure that is highly business friendly.
This structure includes special tribunals in which foreign investors can bring complaints. These tribunals would overrule domestic laws at the national, state, or local level. (Let me preempt some deliberate stupidity on this issue: the tribunals can't actually take the laws off the books, they can just make the relevant government pay a huge price for keeping the law in question on the books.)Add a comment
I have not generally been in the business of defending Amazon, but I thought I would throw in a word or two of clarification around Donald Trump's claim that the U.S. Postal Service is "dumber and poorer" because of its deal with Amazon. Trump's claim is based on a Citigroup study that found that Postal Service loses an average of $1.46 on each package it ships for Amazon. The Postal Service claims that it profits from its arrangement with Amazon and that it would lose business if it raises its rates.
There actually is a very simple explanation for the differing assessments. The Postal Service has a huge amount of fixed costs in the form of retiree benefits and especially retiree health benefits. Congress has required that the Postal Service pre-fund 75 years of retiree health benefits. This requirement sets the Postal Service apart from private businesses, who do little or no pre-funding of retiree health benefits. It also accounts for almost all of the Postal Service's losses over the last decade.
But the accounting issue is independent of this requirement imposed by Congress. Essentially what the Citigroup study did was impute the largely fixed cost of retiree health benefits to the various sections of the Postal Service's business. If these costs are imputed to its delivery of packages for Amazon, the Citigroup study finds they are coming up short by $1.46 a package.
But this is just bad economics. The question for the Postal Service is whether it is recovering its marginal costs — the additional amount spent on labor, gas, wear and tear on vehicles, etc. — with the prices it is charging Amazon. The Postal Service claims it does (I have not tried to check their calculations), and if that is true, the Postal Service is coming out ahead from its deal with Amazon.
So the loss claimed by the Citigroup study is clearly wrong and Donald Trump is wrong to be using it to attack the Postal Service, Amazon, and Jeff Bezos. On the other hand, Amazon has gotten a subsidy worth tens of billions of dollars since its creation as a result of not being required to collect sales taxes in most states for most of its existence. This subsidy almost certainly exceeds its cumulative profits since it was created, so people do have serious cause to complain about Amazon.Add a comment
The Washington Post ran an article telling readers that employers are finding it difficult to attract qualified workers. As the piece says:
"Firms that save money from the tax cuts may simply be unable to find more workers to hire at the price they are willing to pay."
This is really the core of the problem. There is apparently a huge skills gap among employers at firms across the country. They don't seem to understand basic market principles. If they want to hire more workers, then they have to offer higher wages.
There are always workers out there. They may work for a competitor or live in another city, but for a high enough wage they will change jobs or move. According to the Post piece, many employers don't seem to understand this basic fact, leaving them unable to get the workers they say they need.
The Post piece suggests this problem is widespread. It notes manufacturing and trucking as areas facing serious labor shortages. According to the Bureau of Labor Statistics, the average hourly wage in manufacturing has risen by just 1.6 percent over the last year. That is slightly less than inflation over this period. The average hourly wage has risen by 4.4 percent in trucking over the last year, but this increase comes after a rise of just 1.0 percent in 2016 and a modest decline in 2015. If competent employers were facing a labor shortage, wages would be rising far more rapidly.
It is also worth noting that these labor shortage pieces are 180 degrees at odds with the "robots taking our jobs" story. That is a story of a labor glut. It is incredible that we often see these stories of labor shortages and labor glut running side by side. It would be like having an article warning of bone-chilling cold right next to an article talking about a record heat wave. In principle, one or the other can be the case, but both cannot be true at the same time.Add a comment
The New York Times had an article on President Trump's plans to cut the US contribution to the United Nations. The article told readers:
"Under a formula tied to economic size and other measurements established under an article of the United Nations Charter, the United States is responsible for 22 percent of the United Nations operating budget, the largest contribution. It paid about $1.2 billion of the 2016-2017 budget of $5.4 billion.
"The United States also is the largest single financial contributor, at 28.5 percent, to a separate budget for United Nations peacekeeping operations, which totals $6.8 billion in the 2017-2018 budget finalized in June."
This might have led readers to believe that the combined total of slightly less than $3.1 billion is a substantial cost to US taxpayers. In fact, it is slightly less than 0.08 percent of projected federal spending in 2018. While the value of this spending can be debated, it will not lead to major savings to the government if it is cut back or even eliminated altogether.
It would have been helpful if the NYT had made some effort to put this number in context since virtually none of its readers has any idea of the importance of this level of spending as it is written in the piece.Add a comment
Most economists didn't accept the view that the corporate tax cuts pushed through by the Trump administration and the Republican Congress would lead to a large increase in investment in the United States. (See, for example, this piece by Larry Summers.) This is why few accepted the claim that the additional growth from the tax cut would offset much or all of the revenue lost.
However, The New York Times appears to have accepted the Trump administration's view in an article arguing that European countries may start cutting taxes as well in order to remain competitive. The piece presents the views of two top executives of major foreign companies arguing that other countries will have to respond by also lowering their corporate tax rates.
It is not surprising that executives of major foreign corporations would argue that their companies need tax cuts. After all, the political philosophy that rich people need tax cuts goes beyond the United States. The NYT should have included the views on this topic of someone who does not stand to profit in a major way from large tax cuts elsewhere.Add a comment
No one should have any doubt about the main impact of the Republican tax cuts. These tax cuts are about giving more money to the richest people in the country. After four decades of the largest upward redistribution in the history of the world, the Republican tax cuts give even more money to the big winners.
In TrumpWorld, that makes sense. Instead of spending money to rebuild our infrastructure, reduce greenhouse gas emissions, provide quality child care or affordable college, we’re going to hand more money to Donald Trump and his family and friends.
However, even in the cesspool known as the “Tax Cuts and Jobs Act,” there are some changes for the better. These are worth noting and expanding upon when saner creatures gain power.
Doubling the Standard Deduction
The first and perhaps most important item on this list is the doubling of the standard deduction. This is really a good thing; it means that the vast majority of people will have no reason to itemize their deductions. We will spend over $27 billion this year (an average of almost $200 per household) on fees associated with filing taxes. In addition, many people waste hours of their time preparing documents and then worrying about making mistakes. Anything we can do to make this process simpler and cheaper is for the good.Add a comment
An NYT article on the Republican tax cut told readers:
"When President Trump adds his distinctive signature to the tax bill, he will also be making a huge bet that the Republican strategy of deep cuts for businesses and wealthy individuals will fuel extraordinary growth across the board.
"Perhaps more than any other American political leader, Mr. Trump knows that long shots, like his own presidential bid, sometimes pay off. In that vein, he and congressional Republicans are arguing that their bitterly contested and expensive rewrite of the tax code will ultimately create more jobs and raise wages.
"If they are proved correct, they will be repudiating not only historical experience, but most experts. From Congress’s own prognosticators to Wall Street’s virtuosos, scarcely any independent analyses project anything like the rosy forecasts offered by the president’s top economic advisers."
While this is a correct assessment of the views of economists, there is another possibility left out of this discussion, the economy may already be on a faster growth path for reasons having nothing to do with the tax cut.Add a comment
The nonsense is flowing thick and heavy now that Congress has just voted to hand the bulk of a $1.5 trillion tax cut to the richest people in the country. Vox is out front getting its two cents in, telling us the big problem is the government debt built up by the baby boomers and the Social Security and Medicare that they plan to collect.The context is an interview with Bruce Gibney who is hawking a new book blaming the baby boomers for everything evil.
The confusion is thick and heavy here. For example, Gibney whines about the debt-to-GDP ratio. Fans of economics might refer him to burden of servicing the debt, which is less than 1.0 percent of GDP after subtracting the money rebated by the Federal Reserve Board to the Treasury. By comparison, it was more than 3.0 percent of GDP in the 1990s. It is also worth noting that this burden did not prevent the 1990s from being a very prosperous decade by almost any measure.
Then we get the usual complaint about Social Security and Medicare. Yeah, isn't it outrageous how boomers think that they should be able to have an income and health care after a lifetime working? For what it is worth, boomers get a much worse return on their Social Security than the generations that preceded them, both because they paid a much higher tax rate during their working life and also because of the increase in the normal retirement age from 65 to 67.
Medicare is expensive, but that is because we pay twice as much for our doctors, drugs, and medical equipment as people in other countries. This is a big deal, but not one that has boomers as the villains.
Incredibly, in calculating debt Gibney somehow has not noticed the cost of patent and copyright monopolies that the government grants as a way of paying for innovation. In the case of prescription drugs alone, this costs around $370 billion a year, roughly equal to 40 percent of Social Security spending. (This issue is discussed in Chapter 5 of my [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.)
If we want to talk about harm to future generations we should also talk about the completely unnecessary austerity pushed by the deficit hawks in the years following the 2008 crash. This has cost us more than $1 trillion a year in lost output ($3,000 per person, per year).
We live in a society where the rich are running wild trying to take everything they can from the rest of us and put in their own pockets. So naturally, that increases the demand for people like Gibney who try to get people to beat up their parents and grandparents and ignore this massive heist by the rich.Add a comment
The Republicans in Congress and Donald Trump were really hoping to sock it to the blue states like California and New York, which voted against him by large margins. This is what limiting the deduction for state and local income and property taxes is all about. These states also have relatively high taxes because they try to do things like provide people with decent health care and education.
However, it is not difficult to design a way around the Trump scam. States can impose state-level, employer-side payroll taxes. For the most part, these taxes would be deducted from workers' pay (e.g. if an employer has to pay a 5 percent payroll tax, she will likely reduce her workers' pay by 5 percent), but this has the great advantage that workers will not be taxed on money that they don't see.
If the income tax is reduced by the same amount as the payroll tax, the state gets the same amount of money, the worker ends up in the same place and the Republicans don't get to screw the blue states. Oh yeah, the federal government ends up with less revenue, but that will be happening anyhow as the accountants and tax lawyers get to their games.Add a comment
There is a lot of craziness in the era of Trump. According to the Washington Post, a tax bill that gives the overwhelming majority of its benefits to the richest people in the country had "working-class roots." This is pretty loony stuff.Add a comment
An article in the NYT on China's plans to create a market for trading permits to emit greenhouse gases told readers that China has the world's second-largest economy after the United States. According to the International Monetary Fund's estimates, China's economy is currently more than 20 percent larger than the U.S. economy, using a purchasing power parity measure. This measure, which applies a common set of prices to the goods and services produced in both countries, is clearly the correct measure of output to use in an analysis of greenhouse gas emissions.
The piece also wrongly asserts that:
"Chinese emissions per person are still somewhat less than the average per capita figure in the United States, although the gap has been narrowing."
While it is true that the gap in per person emissions has been narrowing, the U.S. still emits more than twice as much per person as China.Add a comment
In a rare, serious column discussing various proposals to improve labor market outcomes, David Brooks makes the common "problem with men" mistake. The piece refers to men dropping out of the labor force at alarming rates and then endorses programs to induce men to get over cultural stereotypes and apply for jobs in fast-growing occupations dominated by women, like nursing and teaching.
Actually, the labor market experience of less-educated men has not been very different from the experience of less educated women, as was shown in a recent paper by Brian Dew. The employment rate for men between the ages of 25 and 34 with a high school degree or less is down by 8.2 percentage points from its peak in 1999. For women, it is down by 6.9 percentage points.
For less-educated workers between the ages of 35 and 44 the employment rate is down by 4.1 percentage points from a 1999 peak for men and 9.7 percentage points for women. For older prime-age workers (45 and 54) the employment rate is down 3.3 percentage points from a 2000 peak for men and by 6.7 percentage points for women.
The fact that there have been sharp declines in employment rates for both less-educated men and women indicates the problem is more likely a problem of weak demand than some gender-specific problem with men. Nonetheless, policies to overcome gender stereotypes are a good thing, as are policies to end sexual harassment and other factors that keep women out of many higher paying jobs.Add a comment
It is common to look at the ratio of new hires to job openings to get a sense of the tightness of the labor market. The idea is that if there is a high ratio of hires to openings, employers are not having trouble finding workers, whereas a low ratio means that jobs are going unfilled. This means either that employers are unable to find qualified workers, or that they are not willing to offer the market wage for some reason.
The Post had an article about the Trump administration's plans to reduce the pay and benefits for federal government employees. It notes the arguments of Trump administration economists that federal employees are overpaid. It is worth noting that the ratio of hiring to openings in the federal government is far lower than in the pre-recession period.
The table below shows this ratio for several major sectors in the first six months of 2007 compared with the most recent six months.
|Ratio of Hires to Job Openings|
|Jan-June '07||May-Oct '17|
|Accomodation and Food Service||1.59||1.13|
|Private minus retail &food service||1.02||0.87|
|Health Care & Social Assistance||0.67||0.54|
As can be seen the ratio of hiring to openings is just over one quarter of its pre-recession level. This suggests that the federal government is already having a difficult time getting qualified workers given current pay and benefit packages. If it reduces pay and benefits further, then the federal government will presumably have an even more difficult time attracting qualified workers.Add a comment
David Sirota, Josh Keefe, and Alex Kotch, writing at International Business Times, reported that a provision inserted into the Republican tax bill will provide large benefits to former holdout Senator Bob Corker, as well as President Trump. The provision would allow income from real estate investment trusts to be taxed at a 20 percent rate, as opposed to the 37 percent tax rate paid by high income individuals.
According to Corker's disclosure forms, he makes between $1.2 million and $7.0 million annually in this sort of income. (We don't know how much Donald Trump earns in this type of income since he broke his campaign promise about releasing his tax returns after his audit was completed.) If we plug in the top end $7 million figure, Corker could be saving as much as $1,190,000 from this late addition to the tax bill.
By comparison, much has been made of Senator Marco Rubio's effort to change the refundability rules on the child tax credit, thereby giving more money to moderate-income families. According to calculations by the Center on Budget and Policy Priorities, with this change, a married couple with two children, earning $30,000 a year, will get back an additional $800 a year.
Source: International Business Times and Center on Budget and Policy Priorities.Add a comment
Zachary Karabell, the head of global strategies at Envestnet, got the story badly wrong in a Post Outlook section piece arguing that the Fed's model of inflation is wrong. The piece highlights the relatively rapid growth in the last two quarters and argues that this should be leading to inflation. That is not what the Fed's model would predict.
In the Fed's model, the change in the rate of inflation is tied to the level of unemployment. While the unemployment rate is at a level where the model predicts rising inflation, the rate of GDP growth is largely besides the point. The economy has had much more rapid GDP growth at earlier points in the recovery. For example, growth averaged 4.9 percent in the third and fourth quarters of 2014. It averaged 2.9 percent in the second and third quarters of 2015.
The question is primarily one of how rapidly productivity can grow. The labor market is getting tighter, although with the employment-to-population (EPOP) ratio of prime-age (ages 25 to 54) still below pre-recession levels and well below 2000 levels, it is likely that we still have some ways to go before reaching full employment. Once that point is reached, the economy will only be able to grow at the rate of labor force growth determined by demographics (around 0.5–0.7 percent) plus the rate of productivity growth.
Productivity growth had been averaging less than 0.7 percent annually from 2012 to 2017, and most projections had assumed slow growth would continue. However, it grew at more than a 3.0 percent annual rate in the third quarter and seems on track to again grow at a rate above 2.0 percent in the fourth quarter. If we can sustain a faster rate of productivity growth, the economy will be able to sustain a faster rate of GDP growth even when the labor market is fully employed.Add a comment
An NYT article on the winners and losers from the bill listed among the losers people who buy individual insurance, since it will leave insurers "stuck with more people who are older and ailing." The issue here is ailing, not older. The exchanges can already charge different prices based on their age. While the law limits the band between age groups, so it's not exactly equal to the difference in costs, this is a relatively small matter. The health of the people within an age group makes far more difference.
It is also important to note that many of the people who are predicted to go uninsured because of the repeal of the mandate are people who would have otherwise gotten Medicaid. These are people who would effectively get free insurance if they applied on the exchanges but won't make the effort without the mandate.Add a comment
The NYT seems confused on how the new lower limit on mortgage interest deduction in the Republican tax bill would work. It told readers:
"The bill does retain significant subsidies, allowing home buyers to deduct interest on mortgages as high as $750,000."
In fact, the bill allows homeowners to deduct interest on $750,000 of principal, regardless of the size of the mortgage. While the phrasing in the NYT piece might have led someone to believe that they could not deduct any interest on an $800,000 mortgage, in fact, they would be able to deduct almost all of their interest.
If a homeowner was paying 4.0 percent interest on an $800,000 mortgage, they would be able to deduct the interest on $750,000, or $30,000, from their taxable income. They would only lose out on the opportunity to deduct the $2,000 in interest on the $50,000 in principal above $750,000. Furthermore, after four or five years, when they had paid some of the principal, this homeowner would again be able to deduct the full amount of interest paid on their mortgage.
This distinction is important since the reduction in the cap on mortgage principal eligible for the interest deduction (from $1,000,000 to $750,000) is likely to have a very limited impact on the housing market. The doubling of the standard deduction and the cap on deductions for state and local income and property taxes are likely to be far more important.
Note: Typo corrected, thanks Raleedy.Add a comment
Everyone remembers Marco Rubio walking the union picket lines, demanding stronger enforcement of workplace safety rules, and strong fiscal stimulus to counter unemployment. Oh, wait, Senator Rubio has been on the other side of all these issues. He has opposed strengthening workers' rights to organize, stronger enforcement of workplace safety rules, as well as stimulus measures to counter unemployment.
That's okay, in New York Times-land he still gets to be a "longtime champion of the working class." The context is Senator Rubio's fight for making more of the child tax credit refundable. His threat to hold out on this issue earned a slightly more generous provision that will net a single mother earning $20,000 about $300 a year.
This would be equivalent to an increase in the minimum wage of 15 cents an hour for a full-time year-round worker. It is equal to roughly 0.15 percent of the gains for the richest 0.1 percent of taxpayers. It's great that we have The New York Times to tell us that Rubio is a champion of the working class, most of us would probably never realize it based on his actions.Add a comment
I see that I got cited at the top of a NYT column this week. Desmond Lachman, an economist at the American Enterprise Institute (who I know and respect) had a column warning about the rise of bubbles around the world and the risk of their collapse. The first sentence tells us, "no one seemed to have anticipated the world’s worst financial crisis in the postwar period." Yeah, well I realize I wasn't very successful in getting my warnings across, but I sure did try.
Anyhow, I would say that Lachman is about half-right on the current situation. Many economies do seem to be seeing new bubbles. The housing markets in Canada, Australia, and the UK seem especially out of line. The bursting of bubbles in these markets is likely to be bad news for these countries; however, I don't see comparable bubbles in the U.S. and most other major markets. If the more clearly identifiable bubbles burst, it does not look like 2008 all over again and a worldwide recession. (China looks bubbly too, but they have managed to go four decades without a recession, so I wouldn't bet against them at this point.)Add a comment
Ryan Avent had a nice piece in the NYT this morning pushing the argument that Jared Bernstein, Josh Bivens, and I (among others) have been making for years, that higher wages can be a force driving more rapid productivity growth. The basic point is straightforward, when labor is expensive, employers have more incentive to find ways to use less of it. In this story, anything we can do to push up wages, like promoting unionization or raising minimum wages, is likely to lead to higher productivity.
The one important point that Ryan misses in this piece is that we may already be seeing a turning point. The tightening of the labor market over the last two years has led to upward pressure on wages, especially for those at the middle and bottom of the wage distribution. As Jared and I noted:
"The real weekly earnings for full-time, low-wage workers are up by more than 3 percent over the past two years. Real weekly earnings for the median African American worker have risen by more than 5 percent over the past two years, while the increase for Hispanics has been more than 4 percent."
This rise in wages is the result of the fact that the Fed allowed the unemployment rate to keep falling to its current 4.1 percent rate rather than hiking interest rates enough to keep it near the 5.0 percent level that most economists considered the best we could do without triggering spiraling inflation.
It also looks as though higher wages may be producing the productivity dividend that we predicted. Productivity grew at a 3.0 percent annual rate in the third quarter, after growing 1.5 percent in the second quarter. With the latest projections showing GDP growth in the fourth quarter at 3.3 percent, productivity growth is likely to come in over 2.0 percent in the fourth quarter. This follows five years in which productivity growth averaged less than 0.7 percent annually.
Productivity data are notoriously erratic, so it is too early to declare the trend of weak growth over, but these are promising signs. And, there is no doubt that workers at the middle and bottom have seen decent wage growth over the last two years. These are important points to add to Ryan's piece.Add a comment
This is a frequent mistake in reporting on the tax proposal, as in this Post article telling us:
"Under the Trump plan, pass-through businesses get a substantial reduction in taxes."
This is wrong since pass-through corporations already don't pay any taxes, so their taxes can't be reduced unless we have a negative income tax for them. The tax cut applies to income from pass-through corporations.
This distinction matters for two reasons. First, it means that taxpayers with the same income will pay different tax rates depending on its source. Under the plan passed by the Senate, anyone can get a 23 percent reduction in their tax bill if they arrange for their income to come through a pass-through corporation.
While this tax break is not likely to do much to promote economic growth, it will be rocket fuel for the tax shelter industry. There will be a flood of pass-through corporations created as higher-earning workers, like doctors and lawyers, arrange to have their income paid to them from their pass-through corporations rather than as normal wage income. (Yes, this is supposed to be illegal, but the Republicans have spent two decades gutting the IRS's enforcement capabilities. If you think the IRS, given its current resources, will be able to prevent widespread evasion, please contact me so I can sell you some digital currency.)Add a comment