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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Yes folks, your friend on the Washington Post opinion page, George Will, wants to reduce your tax burden. He argues that the Corporation for Public Broadcasting (CPB) is a waste of taxpayer dollars. It is forcing average taxpayers to foot the bill for radio and TV shows that members of Congress value.

Naturally, Mr. Will is concerned about the burden that CPB is putting on the pocketbook of Joe and Jill Sixpack. He tells us that it has cost the country $12 billion. Most people may not offhand have a good sense of how much $12 billion is. Unlike Post owner Jeff Bezos (who got rich from his company's exemption from having to collect sales taxes), they don't have that sort of money. They may also not realize that Will was referring to cumulative spending on CPB over 50 years. 

If Will was interested in more honest discussion of the burden imposed by the appropriation for CPB, he could have told readers that the annual spending of $445 million (0.013 percent of total spending), comes to roughly $1.40 per person per year. This means that if we zero out the appropriation, Joe and Jill Sixpack can get themselves another third of a six pack with the savings.

It might have also been worth mentioning in this context the tax deduction for charitable contributions. If someone like the Koch brothers decide to donate $1 billion to their favorite think tank producing nonsense denying global warming, Joe and Jill Sixpack will have to pick up the tab for 40 cents on the dollar, or $400 million, since the Koch brothers will have reduced their tax liability by this amount. Post readers are looking forward to the Will column highlighting the unfairness of a system that makes average taxpayers pick up the tab for whatever it is that the Koch brothers and other billionaires want us to watch.

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The NYT had a very good article on how the fossil fuel industry and other rich donors got the Republican party to be committed to denying the reality of global warming, Unfortunately, the article carried a headline that asserted the Republicans "view" climate change as fake science.

There is nothing in the article to indicate what Republicans actually believe about climate change. There is no reason not to assume that the Republican leadership believes anything different about climate change than the vast majority of educated people in the United States. The article explains how in order to advance their careers in politics they have an interest in denying the reality of climate change. It says nothing about what they believe to be true.

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The NYT had an article on Yahoo CEO's $239 million payout for her five years as CEO of Yahoo. The article says that from the standpoint of shareholders, since the value of the company's stock tripled, she earned her pay. This assessment is extremely misleading. It would be like saying that a firefighter getting paid $10 million earned her pay, because she got three people out of a burning house.

The question is not just the return to the shareholders, but the return compared to what they would have gotten had the next person in line been CEO. As the piece points out, the vast majority (perhaps all) of the gains to shareholders were due to the increase in the value of its stock holdings in Alibaba Group and Yahoo Japan. Ms. Mayer had virtually nothing to do with the rise in value of these holdings, although there were some legal issues that needed to be resolved to allow Yahoo shareholders to reap these gains.

While the resolution of these issues was important to shareholders, lawyers usually are not paid $48 million a year. And of course, Yahoo did actually have to pay lawyers to resolve these issues in any case.

As far as turning around Yahoo's core business, the piece concludes that Mayer failed, but it was likely impossible in any case. While this assessment may be accurate, it doesn't make sense from the shareholder's standpoint to pay someone $239 million to do something that is impossible.

It actually would have been possible to structure a contract for a CEO that based their pay on the rise in Yahoo's stock value net of its holdings in Alibaba Group and Yahoo Japan. (The contract could have even included a performance bonus of $5 to $10 million for overseeing the resolution of the legal issues with these holdings — pretty good pay for very part-time work.) Such a contract would almost certainly have left Ms. Mayer with a much smaller paycheck and Yahoo shareholders with more money.

As it is, shareholders effectively gave up roughly 0.4 percent of the value of the company to cover her pay over the last five years. This can be thought of as the CEO tax.

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That's the question that Neil Irwin poses in his Upshot piece. He points to the drop in the unemployment rate to 4.3 percent, coupled with a drop in the labor force participation rate, and the weak job growth of the last three months. The argument is that these factors taken together could mean that there just are not that many more people interested in working. 

This is a possibility, but there are some important data points pointing in the opposite direction. First, it is worth noting that the biggest drop in the employment-to-population ratio (EPOP) occurred among women between the ages of 25 to 34. Their EPOP fell by 0.9 percentage points in May, from 72.3 percent to 71.4 percent. This is not a group that anyone expects to be dropping out of the labor force in large numbers. This looks like a fluke, which indicates the decline in EPOP reported for May may just be due to measurement error rather than something that actually exists in the world. (These data are erratic, so a movement like this is not uncommon.) 

In terms of factors pointing the other way, wage growth actually appears to be slowing, with the year-over-year rate of increase in the hourly wage dropping to 2.5 percent compared with 2.7 percent earlier in the year. If we take the average of the last three months compared with the average of the prior three months, the annual rate is just 2.2 percent. We don't expect wage growth to be slowing as the labor market gets tighter.

Similarly, the percentage of unemployment due to people voluntarily quitting their jobs is relatively low at 11.7 percent. This is below the pre-recession levels, which often exceeded 12.0 percent and far below the peaks hit in 2000, which got above 15 percent. Workers still seem reluctant to leave a job if they don't have a new job lined up.

There also is no increase in the length of the workweek. At 34.4 hours the average workweek is 0.1 hour shorter than its duration two years ago. We would expect employers to try to be getting more hours out of each worker if they were having trouble finding new workers.

In short, while 4.3 percent is a relatively low unemployment rate (and below most economists' estimates of full employment) there are important ways in which the labor market does not look like one at full employment. Hopefully, the Federal Reserve Board will give us the opportunity to learn the answer to this question.

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The NYT rightly criticized Donald Trump's decision to pull the U.S. out of the Paris climate agreement, but part of its criticism is not right. It dismissed the idea that reducing greenhouse gas emissions would lead to job loss as "nonsense" that comes from "industry-friendly sources." While the claim that reducing greenhouse gas emissions will lead to job loss may be nonsense, it is, in fact, the result that comes from standard economic models that are used all the time to project the impact of regulation policy, tax policy, health care, and trade policy.

These models are all full employment models, which means that everyone who wants to work at the market wage for their skills has a job. The way that reducing greenhouse gases reduces employment is by reducing the real wage. For example, if gas and electricity cost more, and wages have not risen to account for this increase, the real wage will be less. In these models, at a lower real wage fewer people will decide to work.

So, if complying with our Paris commitments causes the real wage to be 1.0 percent lower, then this may lead 0.5 percent fewer people to want to work, which translates into roughly 800,000 fewer people working. (These numbers are hypothetical, not taken from actual models.) So when Trump is citing models showing job loss associated with reducing greenhouse gas emissions, he is actually relying on mainstream economics (there is still a considerable range in this modeling, as some is almost deliberately dishonest).

There is one other point worth making on this topic. The military spending that Trump is so fond of also kills jobs in these models. Pre-Iraq War, we were on a path to be spending around 2.0 percent of GDP on the military. Instead, we're looking at 3.3 percent now. A decade ago, CEPR contracted with Global Insight, one of the main econometric consulting firms, to project the impact of a sustained increase of 1.0 percentage point of GDP increase in military spending. It cost 700,000 jobs after two decades, mostly in construction and manufacturing.

In short, people may well want to reject the projections from these models — their track records have been pretty bad — but Trump is not just making this stuff up. And, the same sorts of models are widely used in other contexts (can you say "Trans-Pacific Partnership?"). 

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The Washington Post shamelessly uses both its news and opinion pages to push trade agreements. It famously even lied about Mexico's GDP growth to tout the benefits of NAFTA, absurdly claiming it had quadrupled between 1987 and 2007 (the actual figure was 83 percent, according to the International Monetary Fund).

Given this background, it's not surprising to see a piece that bemoaned the fact that Vietnam will not be able to get the large gains from the Trans-Pacific Partnership (TPP) projected for it in several models:

"Economists say Vietnam would have been one of the biggest winners of the deal. A 2016 study by the Peterson Institute of International Economics found that the Obama-era trade deal would have increased Vietnam’s gross domestic product by 8.1 percent by 2030, the most of any country in the deal, and expanded its exports by nearly a third. Economists expected the deal to expand access to foreign markets for Vietnamese producers of apparel, footwear and seafood, as well as stimulate economic reforms within the country."

While many readers may see the rejection of the TPP by Trump (and likely Congress as well) as a serious misfortune for Vietnam, the good news is that the vast majority of the projected gains for Vietnam came from the reduction or removal of its own tariffs. This is something that the country can, in principle, do tomorrow if it wants those big 8.1 percent gains promised by the model cited.

Furthermore, Vietnam will not have to pay the higher prices for drugs and other items subject to longer and stronger patent and related protections as a result of the TPP. The model cited by the Post forgot to include the impact of the increase in these protections on economic growth. While most of the tariffs being reduced as a result of the TPP were already low, patent and copyright protections often raise the price of the protected items by several thousand percent above the free market price.

The other point worth mentioning is that the computable general equilibrium (CGE) models, like the one used to give this projection of gains for Vietnam from the TPP, have a horrible track record. In the case of the U.S. trade deal with Korea, the version of this model used by the United States International Trade Commission not only failed to predict the explosion in the U.S. trade deficit with Korea which followed the implementation of the deal, its prediction of the industries that would gain or lose from the pact had basically zero correlation with what actually happened.

In other words, there is little reason for Vietnam to spend time worrying about the projections from the CGE models showing it suffered as a result of the TPP's demise. Of course, the models can be useful for advancing a political agenda.

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I kind of love how ridiculous things get repeated endlessly by people who claim to be informed. In his NYT column, Avik Roy warned us against taking seriously the Congressional Budget Office's (CBO) projections of a surge in the uninsured under the Republican health care plan.

"First, some caution regarding the C.B.O.’s numbers. The C.B.O. is chock-full of committed and talented public servants, but the agency is neither omniscient nor infallible. In 2010, when the Affordable Care Act was signed into law by President Barack Obama, the C.B.O. predicted that by 2017, 23 million Americans would be enrolled in the law’s new insurance exchanges. Only about 11 million actually are.

"That’s because the C.B.O. failed to account for how the A.C.A.’s insurance regulations would drive premiums up for relatively healthy individuals. A new study by researchers at the Department of Health and Human Services finds that for people buying coverage on their own, premiums have more than doubled in the Obamacare era. Most adversely affected have been those whose incomes — while modest — were not low enough to qualify for sufficient amounts of the A.C.A.’s insurance subsidies.

"While the C.B.O. was overly optimistic in 2010 about Obamacare, there’s a strong case that it is being overly pessimistic about the new House bill, the American Health Care Act."

Actually, CBO was overly pessimistic about Obamacare. If we look to CBO's last report on the Affordable Care Act, before the exchanges began operation in 2014, it projected that there would be 29 million people uninsured as of 2017 (Table 3). In its most recent analysis, it puts the number of uninsured in 2017 at 26 million (Table 4). In other words, the number of people who are uninsured under the ACA is 3 million fewer than CBO had predicted back in 2012.

In what world is overestimating the number of uninsured "overly optimistic?" It is true that fewer people are in the exchanges than CBO expected. This is due to the fact that more people have qualified for Medicaid and also more people are receiving employer-provided insurance, as fewer companies than expected dropped coverage.

But, so what? The point was to get people insured, not necessarily to have them insured through the exchanges.

So remember the facts when you read Roy's NYT column giving his prognostications for the Republican health care reform. Here's a guy who couldn't even bother to get the basic numbers on the ACA right. 

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Using arithmetic in economic policy debates is always dangerous, but that would seem to be the implication of the NYT's designation of Germany's $64.8 billion trade surplus with the United States as "mammoth." Since China's $347.0 billion trade surplus was more than five times as large, it would seem that China's surplus has to be five times massive. It usually is not talked about that way in the NYT and elsewhere.

Remarkably, the piece never focused on the real explanation for Germany's large trade surplus. It insists on running budget surpluses, even though there continues to be widespread unemployment throughout the euro zone. This policy is far more harmful to the other euro zone countries than the United States.

If Germany ran budget deficits it would directly pull in more imports from its euro zone partners (and the United States), thereby boosting demand and output in France, Italy, Greece and elsewhere. It would also see somewhat more rapid inflation, which would make other countries' goods and services relatively more competitive. Also, a more rapidly growing euro zone economy would likely increase the value of the euro, making U.S. goods and services more competitive compared with those produced in the euro zone.

Germany doesn't boost demand in this way apparently because the country is tied up with nearly century old superstitions about inflation. Just as many people in the United States deny global warming in spite of massive evidence that it is real and humans are causing it, millions of Germans, including those in leadership positions, claim that modest increases in the inflation rate could lead to the sort of hyper-inflation the country experienced under Weimar, following World War I. There is absolutely no evidence to support this view, but it seems to guide German economic policy.

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Housing rent has been outpacing the overall rate of inflation in recent years. This is worth noting both because it is a large portion of the consumption basket and rents do not tend to follow other prices. Rent is primarily a function of the shortage of available units. It does not respond in any immediate way to wage pressures, like other components in the consumption basket. Rental inflation will also not be slowed by higher interest rates. In fact, by reducing construction, higher interest rates may further tighten the supply of housing, leading to higher rental inflation.

If we look at the core personal consumption expenditure deflator excluding rent, it is both well below the Fed's 2.0 percent target and, if anything, is trending lower over the last few years.

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Source: Bureau of Economic Analysis.

This raises the question millions are asking: why is the Fed raising interest rates? We know this keeps people from getting jobs and workers, especially those at the bottom of the wage distribution, from getting pay increases. With no problems with inflation on the horizon, this looks like lots of pain for no obvious gain.

 

Note: An earlier version had the months improperly labeled.

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There is a widely held view among policy types that drug companies would act like total morons if they did research under a government contract as opposed to having the lure of a patent monopoly. Apparently, this is not true, since it seems that the French drug company Sanofi has developed an effective vaccine doing research that was funded by the U.S. Army. So the theory of knowledge holding that otherwise intelligent people become worthless hacks in the process of drug development if the government is the source of funding is apparently not true.

Of course, this is not entirely a clean test of the proposition since Sanofi will still be given exclusive rights to market the vaccine. Apparently, even when the government is paying for the research upfront and taking all the risk (if the vaccine doesn't work, Sanofi has still been paid), drug companies still need monopolies, because hey, how could they survive in a free market?

If people in policy positions and economists were interested in free markets, they would be very upset by this story.

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The NYT ran a piece discussing the efforts by various industry groups to ensure that they are not hurt by measures that reduce prescription drug prices. At one point, it listed some of these measures, noting a bill co-sponsored by Senator Bernie Sanders, which would allow drugs to be imported from Canada.

It is worth noting that this bill, which is co-sponsored by sixteen other senators including Elizabeth Warren, Sherrod Brown, and Kirsten Gillibrand, also includes mechanisms that would reduce the cost of drugs by not granting them patent monopolies that make their price high in the first place. One proposal would create a prize fund, which would allow for the patents on important new drugs to be purchased by the government and placed in the public domain. They could then be sold as generics as soon as they are put on the market.

The other provision would have the government finance some clinical trials of drugs after securing all patent rights. In this case, also the new drugs would be sold as generics. By paying for the trials (which would be conducted by private companies under contract), the government would be able to require that all test results were in the public domain.

This would allow doctors and other researchers to be able to determine if a particular drug was better for men than women, or appeared to cause bad reactions when mixed with other drugs. As it stands now, drug companies only have an incentive to publicly disclose information that they think will help them market their drugs. If the government paid for some number of clinical trials, it could help to set a new standard of disclosure with its practices, in addition to making new drugs available at generic prices.

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Okay, it's Memorial Day weekend and maybe the regular crew is on vacation at the NYT, but come on, you don't print GDP growth numbers without adjusting for inflation. The NYT committed this cardinal sin in a column by Simon Tilford telling readers that the United Kingdom actually has a pretty mediocre economy that is likely to perform even worse post-Brexit.

While I'm inclined to agree with the basic argument (with the qualification that there may be a dividend from sinking the financial sector), two of the graphs accompanying the piece likely left readers scratching their heads. The first showed per capita GDP growth since 2000 for Germany, France, Italy, Spain, and the UK. The moral was that the UK was not doing much better than France, which is supposed to have a moribund economy according to popular legend. The second showed a similar story with real wages.

The problem is that neither graph is adjusted for inflation. As a result, we see the shocking story that per capita GDP growth for both France and the UK have increased by more than 35 percent since 2000. Germany's per capita GDP has increased by almost 50 percent.

That would be great news if true, but it's not. Here's the real picture.

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Source: International Monetary Fund.

After adjusting for inflation, UK does a bit better relative to France, but 16 percent per capita GDP growth in 15 years is not much to brag about. (I suspect the picture looks less favorable to the UK if we adjust for changes in hours worked.) The story of Italy is especially striking. On a per capita basis, it is almost 7.0 percent poorer than it was at the turn of the century.

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Andrew Biggs, an economist at the American Enterprise Institute, had a piece in The Hill telling readers that the private 401(k) system is doing just great, while public pension plans and Social Security are in big trouble. The story is we need not worry about most people’s retirement security, we have to worry about the cost of the public retirement system.

There are a few parts of Biggs’ story that don’t quite hold up. Biggs tells us:

“A 2016 Census Bureau study found that — thanks to a 75 percent increase in benefits from private retirement plans — incomes for the median new retiree rose by 58 percent above inflation from 1989 to 2007. Another new study, from economists at the IRS and the Investment Company Institute, finds that the median retiree has an income equal to 103 percent of their income just prior to retirement, far exceeding the 70 percent “replacement rate” that most financial advisors recommend.”

The Census Bureau study actually was just looking at the retirement income of women, not all new retirees. This matters because the median women retiring in 2007 had far more years in the workforce than the median woman hitting retirement age in 1989. Also, women actually did get some increase in their pay over this period, in contrast to the stagnation in pay for men earning near the median. So it matters hugely that this study was only examining women, not all retirees.

It is also important to note that the use of the term “income” is somewhat misleading in this paragraph. It is including as income withdrawals from IRAs and 401(k)s. This is somewhat problematic since this is drawing down past savings, it does not amount to an ongoing flow. The studies cited by Biggs don’t indicate if the pace of drawdown in the years immediately after retirement can be sustained for a retirement that could last 25 years or more. (Biggs is correct to point out that the money taken out of 401(k)s is largely excluded from other data measuring income. While it is wrong to ignore this money, it is not right to treat it as income in the same way that a traditional defined benefit pension is income.)

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Matt O'Brien's Wonkblog piece might have misled readers on Republicans views on the role of government. O'Brien argued that the reason that the Republicans have such a hard time designing a workable health care plan is:

"Republicans are philosophically opposed to redistribution, but health care is all about redistribution."

This is completely untrue. Republicans push policies all the time that redistribute income upward. They are strong supporters of longer and stronger patent and copyright protection that make ordinary people pay more for everything from prescription drugs and medical equipment to software and video games. They routinely support measures that limit competition in the financial industry (for example, trying to ban state-run retirement plans) that will put more money in the pockets of the financial industry. And they support Federal Reserve Board policy that prevents people from getting jobs and pay increases, thereby redistributing income to employers and higher paid workers.

Republicans are just fine with having the government intervene in markets to redistribute income upward, they just don't like policies that are designed to help the poor and middle class at the expense of the rich. It is wrong to imply, as O'Brien does, they have any other principles in these debates than giving as much money as possible to the rich. (Yes, this is the theme of my book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer [it's free].)

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Washington Post columnist Steven Pearlstein urged people to be moderate in their criticisms of the Trump budget. In an obvious reference to plans to eliminate support for the Corporation for Public Broadcasting and the National Endowment for the Arts, he argues:

"I like Masterpiece Theatre and a Beethoven symphony as much as the next upper-middle-class professional, but I can see why some people might wonder why their tax dollars should subsidize my taste for British drama and classical music but not their preference for NASCAR and country western music."

Actually, the Trump budget will not touch the major source of taxpayer subsidies for the sort of culture enjoyed primarily by higher income people. Last year the federal government gave $445 million to the Corporation for Public Broadcasting (0.013 percent of total spending). It gave $150 million to the National Endowment for the Arts (0.004 percent of total spending).

By contrast, if a billionaire opts to give $1 billion to a local museum or orchestra, they will be able to write off roughly $400 million of this contribution from their taxes. The amount that taxpayers shell out through subsidizing these donations dwarfs the amount that they pay through direct federal support. The difference is that there is some public voice in where the money goes when the federal government appropriates it. The allocation of the tax subsidy is completely determined by the billionaires.

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The "young invincibles" is a myth that got created in the debate over health care reform in 2009 and 2010. Lots of media-types and more than a few policy wonks who should have known better proclaimed the success of Obamacare depended on whether healthy young people signed up for insurance. The argument was that the premium paid by these healthy young people, since they have relatively low health care expenses, would be subsidizing the cost of caring for less healthy older people. If they didn't sign up for insurance there would not be enough money to sustain the system.

The problem with this story is that it really has nothing to do with the people being young. What matters is that they are healthy. And, there are plenty of healthy older people as well. In fact, since older healthy people (ages 55 to 64) pay premiums that are three times as large as those paid by the young, it actually matters much more whether the healthy old sign up for insurance than the healthy young. (The Kaiser Family Foundation did a nice analysis of this issue a few years back showing that even extreme skewing of enrollment by age made relatively little difference to the finances of the system.)

A version of the young invincibles reappeared in a Post article today on the Congressional Budget Office's (CBO) analysis of the new Republican health care proposal. The piece discusses a provision of the bill which would allow insurers to charge different rates for people depending on their health condition if they had allowed their coverage to lapse for more than two months:

"Using information about a patient's history — a practice known as medical underwriting — is intended as punishment in the GOP bill. For some, though, medical underwriting could be an advantage. Younger, healthier people could pay cheaper premiums if their insurers know that they are in good shape overall than if they are simply paying the same rate that everyone else pays."

Including "younger" in this paragraph makes no sense. Insurers are already allowed to charge different rates based on age and, in fact, the allowable gap will expand from the current three-to-one under the Affordable Care Act to five-to-one under the Republican plan. This larger ratio means that healthy older people will actually stand far more to gain by having their insurance based on their health history than healthy younger people.

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The Washington Post printed a Reuters article that included a major mistake in economics. The piece is about the plotting of conservative politicians and business leaders trying to plan for the likelihood that their ally, President Michel Temer, will be indicted and removed from office for corruption. It told readers:

"Amid the political turmoil that comes just a year after his predecessor was impeached and removed from office, preserving Temer’s agenda of austerity reforms and pulling Brazil’s economy out of recession is more important than saving the leader himself, sources in three parties that are his main allies said."

Actually, this statement is contradictory. The austerity is one of the main causes of the recession. If they want to pull the economy out of recession then they should be reversing the austerity. Hopefully, Mr. Temer's allies understand this and it is just the Reuters' reporter who is confused.

The next sentence added:

"Those measures range from reducing a gaping budget deficit through opening doors to foreign investors to weakening labor laws and tightening pensions."

Readers may have been confused by the phrase "tightening pensions." The normal English translation would have been "cutting pensions." It is understandable that politicians who are trying to pursue policies that are unpopular may use euphemisms to conceal their agenda. It is not clear why Reuters or the Post would.

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Neil Irwin examined recent patterns in wage growth in an NYT Upshot piece. Irwin noted the extraordinarily low 0.6 percent pace of productivity growth in recent years (where are the robots?) and argued that wage growth has actually been relatively fast. He then examines why productivity growth might be so slow.

One explanation he left out is that low wages make it possible to hire workers at low productivity jobs. If an employer only has to pay a worker the $7.25 federal minimum wage, then it can be profitable to hire the worker at jobs that increase revenue for the employer by just over $7.25 an hour. This can mean hiring someone to work the midnight shift at a convenience store or to work as a greeter at Walmart.

If the employer had to instead pay a worker $10 or $12 an hour, then many very low productivity jobs would no longer exist. This would raise the average level of productivity in the economy by eliminating the least productive jobs.

In this way, it is possible that the weakness of the labor market has been a factor in reducing productivity growth as workers have had no choice but to take low paying, low productivity jobs. If this is true, as the labor market tightens and wages start to grow more rapidly, we should see productivity increase more rapidly.

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As we know, the goal of the Trump administration is to redistribute as much income as quickly as possible to his family, friends, and people like his family and friends. This is why the centerpiece of his health care reform is more than $600 billion in tax cuts over the next decade that will go overwhelmingly to the richest one percent of the population.

But there is a flip side to these cuts. If the government is spending less money on health care, then the corporations and wealthy individuals who get their income from the health care sector will be seeing less money. Fortunately, the American Health Care Act of 2017 is designed to minimize this problem.

While it will reduce the percentage of insured among the under 65 population by 9.1 percentage points, according to the analysis from the Congressional Budget Office (CBO), it will only reduce the percentage of the under 65 who are privately insured by 5.9 percent.[1]

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Source: CBO 2017 and CBO 2012.

This means that if we assume the reduction in payments to private insurers are proportionate to the reduction in enrollment, insurers will see a loss of roughly $24 billion in net revenue (premiums minus payments to providers) in 2026 even though total government spending on the AHCA and Medicaid will be down by $156 billion in that year. This means that, even though insurance companies will get somewhat less money as a result of the AHCA, the Republicans have shielded them from the worst effects of the spending reduction.



[1] These numbers are taken from Table 4, the total insured population is derived from CBO (2012), Table 3, with the assumption that the percentages of publicly and privately insured would stay the same from the last year in that analysis (2022) until 2026.

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Ever since the Trump administration released its budget on Tuesday, economists (including me) have been ridiculing its assumption that we will see an average annual growth rate of 3.0 percent over the next decade. The Congressional Budget Office (CBO) projects an average growth rate of just under 1.9 percent for this period. This projection assumes slow labor force growth, as the baby boom cohort retires, and a continuation of the weak productivity growth we have seen over the last decade.

The Trump administration's 3.0 percent growth number presumably assumes that productivity growth will rebound to something like the 3.0 percent growth rate we saw in the long Golden Age from 1947 to 1973 and again from 1995 to 2005. It seems that Mark Zuckerberg agrees with the Trump administration's assessment since, according to the Washington Post, he warned of massive job loss due to technology in the years ahead and the need to have something like a universal basic income to ensure that people have enough money to survive.

If we continue to see the rates of productivity growth experienced in recent years and projected going forward by CBO, we will be seeing a labor shortage, not a shortage of jobs. So Mr. Zuckerberg, along with the Trump administration, has a very different view of the future than most of the economics profession (which doesn't mean they are wrong).

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That's the question the board of directors of Charter should be asking, but I suspect they never do. The company scored first in the NYT's annual compilation of CEO pay packages, coming in almost $30 million ahead of CBS, which is number 2. Of course, if the CEOs earned less than the other top people in the corporate hierarchy would likely get smaller paychecks as well. And, it might be harder for the presidents of universities, foundations, and non-profits to explain the need for seven figure salaries for their work. 

It seems unlikely that directors ever push in a big way for lower pay for CEOs because they have almost no incentive to do so. More than 99 percent of the directors put up for re-election are approved by shareholders. This is because it is very difficult to organize among shareholders to unseat a director. (Think of the difficulty of unseating an incumbent member of Congress and multiply by about 100.)

As a result, there is no reason to raise unpleasant questions at board meetings. Even though they are supposed to serve shareholders, which means not paying one penny more than necessary to CEOs and top management for their performance (just as CEOs try to pay workers as little as possible), their incentive is to get along with top management. The result is the upward spiral in CEO pay that we have seen in the last four decades.

A big part of the problem is that asset managers (think Vanguard and Blackrock) routinely support management slates as they vote trillions (literally) of dollars worth of stock held by people in their 401(k)s and IRAs. These asset managers care more about staying on good terms with top management than making sure they aren't overpaid. This creates a structure where ridiculously rich CEOs, who are usually big celebrants of the market, are effectively shielded themselves from market discipline. Isn't that the way markets are supposed to work?

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