Beat the Press is Dean Baker's commentary on economic reporting. He is a Senior Economist at the Center for Economic and Policy Research (CEPR). To never miss a post, subscribe to a weekly email highlighting the latest Beat the Press posts.

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That is what readers of a piece discussing President Obama's shift in emphasis from the word "inequality" to "opportunity" will undoubtedly think. The piece notes that President Obama is using the word "opportunity" more and downplaying talk of inequality. It presents comments from several people saying that "inequality" raises the specter of class war and that it eliminates the possibility of compromise with Republicans.

Incredibly the piece presents the Republicans' official line uncritically, telling readers:

"Republicans generally argue that government should do little; a free market and a growing economy will create opportunity. Their ideas to overhaul education, job-training and safety-net programs often double as budget-cutting initiatives."

Of course Republicans argue that the government should do lots of things to redistribute income upward, they just don't highlight the fact that the government is doing these things. For example, they are strong supporters of government granted patent monopolies that increase drug prices by close to $300 billion a year, an amount that is roughly equal to 1.8 percent of GDP and almost four times the SNAP budget. They support keeping in place the protectionist measures that largely insulate doctors and lawyers and other highly paid professionals from the same sort of international competition faced by autoworkers and textile workers.

Republicans support keeping in place a tax code that is littered with tax breaks, the exploitation of which is the primary basis for the existence of the private equity industry. (See my colleague Eileen Appelbaum's forthcoming book on this topic.) Republicans support a special exemption of the financial industry from the sort of taxes that apply to other industries. This implicitly means higher taxes on other sectors of the economy and allows people to get ridiculously rich in finance. And they support a budget policy that keep millions of people out of work and puts downward pressure on the wages of most workers.

In short, it is absurd to say that the Republicans want the government to do little; they want the government to intervene in huge ways to redistribute income upward. Of course they don't openly say this, they would much rather pretend that all the policies they support that lead to an upward redistribution of income are just the natural workings of the market. In this way, the NYT has done them a great service in uncritically projecting the Republicans' romanticized image to readers as reflecting reality. However this completely distorts the relevant issues at play.

The real question is whether either party is prepared to attack the policies that have shifted such a vast amount of income upward over the last three decades. For practical purposes, if these policies are not changed, the agenda on mobility is just silly happy talk and everyone knows it. If the current policies promoting inequality are left in place there is nothing that Washington can do that can affect in more than a trivial way the life prospects of those in the bottom half and especially the bottom quintile of the income distribution.

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Apparently a lot of media folks have made such a habit of repeating Republican talking points that they can't see what is right in front of their eyes. The Republicans are touting the fact that the Congressional Budget Office (CBO) expects the Affordable Care Act (ACA) to reduce the number of people working.

Guess what? This was one of the motivations for the ACA. It is a feature, not a bug. There are a lot of people who would prefer not to work and would not work if they had some other way to get health care insurance. Imagine a 62 year-old with diabetes and other health conditions. No insurer will touch this person. If they can get insurance at all they are looking at bill that will certainly run well over $10k a year. If this person has a job that provides insurance they will keep it until they qualify for Medicare no matter how much of a struggle it is to go to work each day.

Now with the ACA this person will be able to buy insurance at the same price as anyone else in the age 55-64 age group. If they can get by on their Social Security and prior savings then they may well decide to retire early. They may also qualify for a subsidy in the exchanges. Is this an awful story? You be the judge.

The other likely scenario is the case of a mother with a newly born child. She may want to spend some time at home with her kid, but may have no other way to pay for her health insurance if she leaves her job. The ACA will give her an opportunity to get lower cost insurance (possibly with a subsidy). Again, is a mother taking some off to be with a new born kid a horror story?

Finally, we should be very clear about what CBO said on wages since there really is no ambiguity here. It said:

"According to CBO’s more detailed analysis, the 1 percent reduction in aggregate compensation that will occur as a result of the ACA corresponds to a reduction of about 1.5 percent to 2.0 percent in hours worked. (p 127)"

If hours fall by 1.5 to 2.0 percent, but compensation falls by 1.0 percent, then compensation per hour rises by 0.5-1.0 percent due to the ACA. If this is bad news for workers then someone must have been enjoying the new found freedoms in Colorado or Washington State too much.

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The Washington Post gave us some good frat boy budget reporting in a front page story on the farm bill this morning. Frat boy budget reporting is when you write a piece that provides no information to the vast majority of readers but lets you go down to the budget reporters' frat house and give each other the budget reporters' secret handshake. In this case, the piece told us that the farm bill will cost $956.4 billion over the next decade, it will reduce spending on SNAP by $8 billion and save $16 billion in total.

Yes, this is really helpful. At least 0.1 percent of Washington Post readers have any clue what these numbers mean for the budget over the next decade. It is possible and easy to express these numbers in ways that would be meaningful.

CEPR's extraordinary Responsible Budget Reporting Calculator would allow any budget reporters to determine in seconds that the total bill is 2.05 percent of projected spending, which immediately would give the vast majority of Post readers a clear idea of the farm bill's importance to the budget. They could also quickly recognize that the cuts to the SNAP bill are 0.017 percent of projected spending and the total savings on the bill are 0.034 percent of projected spending.

It's really not hard to do budget reporting in a way that provides information to its audience. However the Post simply chooses not to.

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Charles Lane is wrong, as usual, in arguing that the Trans-Pacific Partnership (TPP), like its predecessor NAFTA, is good for U.S. workers. However, the piece is useful in providing an opportunity to explain some basic economics.

Most of the piece is dedicated to saying that NAFTA, which to some extent is a model for the TPP, was really good for the country. Lane starts by disputing that NAFTA contributed to the $181 billion trade deficit that the United States ran with Canada and Mexico. He tells readers:

"But $100.7 billion of this deficit is because of oil imports, according to U.S. government trade statistics. NAFTA has nothing to do with this; Canadian and Mexican oil imports always flowed freely."

Nope, that's not how it is supposed to work. The United States is a net importer of oil and derivative products. That does not mean that the United States is supposed to run a trade deficit. According to good old econ 101, a deficit on oil trade is supposed to mean that the dollar falls, which then leads us to increase exports and reduce imports of other items. This adjustment would not take place over night, but we would expect it to take place over a long enough period of time. So pointing to oil imports and saying that we really don't have a trade deficit with these countries really is silly. (This doesn't mean the deficit is due to NAFTA, but it certainly doesn't preclude the possibility.)

Then Lane gives us a head scratcher. He tells us this trade figure doesn't include, "almost $90 billion worth of goods that entered this country from elsewhere and then got re-exported to Mexico or Canada." He then points out that re-exports create jobs in the U.S. in shipping and other areas. Incredibly, Lane then adds in the full $90 billion value of the re-exports, telling readers:

"Eliminating oil and including re-exports produces a U.S.-NAFTA surplus of roughly $7 billion in the goods trade."

Wow, so we get just as many jobs from having one million cars pass through ports in Oakland and Los Angeles on their way to Mexico and Canada as we do from building one million cars and exporting them to Mexico and Canada? Apparently we do on the Post's opinion page. Remember these are the folks, who in NAFTA boosterism, claimed Mexico's economy quadrupled from 1987 to 2007. (The actual increase was 83 percent.)

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The NYT had a piece noting how states across the country are seeing better budget pictures than they had projected. While this is attributed to growth, economic growth in 2013 was pretty much in line with expectations (worse in first half, better in second). The more plausible explanation is that the run-up in the stock market to both more capital gains taxes (a point that is noted) and also for capital gains income in many cases to be reported and taxed as normal income.

For tax purposes, short-term capital gains (assets held less than a year) are treated the same as normal income. Therefore it is likely that many households just report capital gains earnings as normal income. This would explain why the statistical discrepancy turns negative following large run-ups in asset prices such as the stock bubble in the 1990s and the housing bubble in the last decade.


The implication of this scenario is that much of the increase in the tax revenue that states are now seeing is ephemeral. Unless stock and/or house prices continue to rise at an extraordinary pace, the statistical discrepancy will fall back toward zero and the extra tax revenue states are now seeing will disappear.


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Yes, not much of a surprise here. (I had to check the date to be sure I wasn't reading an old column.) Anyhow, let's start with the punch line:

"Economic inequality is usually a consequence of our problems and not a cause. For starters, the poor are not poor because the rich are rich.

"The two conditions are generally unrelated. Mostly, the rich got rich by running profitable small businesses (car dealerships, builders), creating big enterprises (Google, Microsoft), being at the top of lucrative occupations (bankers, lawyers, doctors, actors, athletes), managing major companies or inheriting fortunes. By contrast, the very poor often face circumstances that make their lives desperate."

Really? So the fact that doctors and lawyers secure themselves protection from competition and thereby drive up the cost of medical care and other products (yes, we do pay for corporate lawyers in the price of goods and services) doesn't affect the income of the poor? Not where I learned arithmetic.

How about the fact that the rich use their control over politicians to get them to run high unemployment policies by reducing the deficit and demand in the economy. This costs low and middle income workers both jobs and wages (see Jared Bernstein and my book on the topic.)

Oh yeah, and what about the fact that the Wall Street boys can get themselves too big to fail subsidies from the government ($83 billion a year according to Bloomberg, a bit more than the SNAP budget)? And of course they also get exemptions from the sales taxes that other industries have to pay. Where does this money come from if not the rest of us?

But hey, Robert Samuelson tells us their wealth has nothing to do with other people suffering. Who are you going to listen to, common sense, logic, and arithmetic or Robert Samuelson?

Then we get Samuelson telling us:

"Finally, widening economic inequality is sometimes mistakenly blamed for causing the Great Recession and the weak recovery. The argument, as outlined by two economists at Washington University in St. Louis, goes like this: In the 1980s, income growth for the bottom 95 percent of Americans slowed. People compensated by borrowing more. All the extra debt led to a consumption boom that was unsustainable. The housing bubble and crash followed. Now, weak income growth of the bottom 95 percent 'helps explain the slow recovery.'

Actually, the logic goes like this, as told by those of us who knew enough about the economy to see this crash coming. The economy suffers from weak demand because of so much money being redistributed upward to rich people who spend a smaller share of their income than middle and low income households. This problem was aggravated enormously by the explosion of the trade deficit that followed the run-up in the dollar due to botched East Asian financial crisis in 1997.

In the presence of weak demand the Fed allows interest rates to fall more than would otherwise be the case. In the absence of investment demand, these low interest rates create an environment that is very conducive to bubbles, hence we got the stock bubble in the 1990s and the housing bubble in the last decade. In the absence of another bubble to boost the economy we are continuing to see slow growth and high unemployment.

That one is probably too simple for Robert Samuelson to understand, but for most other people it provides a pretty direct link between inequality and the economic and social disaster of the Great Recession.

So the story is pretty simple. The system has been rigged to redistribute income upward. The rich have used their control of the political process to ensure that it stays that way and their control of news outlets like the Washington Post to try to distort reality.


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The Washington Post has a very good piece about what having health insurance means to poor people in Eastern Kentucky with chronic health care conditions. As a famous vice-president once said, "it's a big f***ing deal."

That's not an excuse to overlook the huge flaws in Obamacare. For many people care will still be unaffordable. And the insurance companies, drug companies, medical supply companies and doctors are still ripping us off. But as this piece shows, it is already having a huge impact on people's lives.

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We've been reading stories in the NYT and elsewhere about how Chicago has pension obligations to its workers that it can't possibly meet. Most of these accounts are exaggerated and seem intended to provoke excessive fears in order to facilitate default on the city's pension obligations. Nonetheless, there is no doubt that the city has seriously underfunded pensions.

This is why it is striking that when the NYT ran a piece on former Mayor Richard M. Daley going to the hospital, it failed to mention Daley's record on the city's pensions, telling readers:

"Mr. Daley, Chicago’s longest-serving mayor with 22 years in office, is credited with giving the city a face lift with new green spaces, a revived theater district and the transformation of Navy Pier into a colorful playground."

Daley is the person most responsible for the underfunding of Chicago's pensions, making him one of the most irresponsible elected leaders in recent history. It would be understandable that the NYT may not want to highlight negative aspects of Mr. Daley's tenure at a moment when he is apparently dealing with serious health issues, but there is no excuse for this sort of whitewashing of his record. Tens of thousands of people who worked for the city for decades may not see the pensions they earned as a result of Daley's recklessness.

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The NYT had an article discussing the extent to which political unrest in Thailand might have an impact on its economy. At one point it notes a flight of foreign capital from Thailand and other developing countries which it attributes to the Fed's taper and the "prospect of higher interest rates" in the United States.

The problem with this story is that long-term interest rates have actually been falling in the United States. If investors are fleeing Thailand and other countries because they expect long-term interest rates in the U.S. to rise, then these same investors should be dumping long-term bonds in advance of the interest rate hikes (which would lead to capital losses) thereby causing the rise in interest rates they expect. Instead interest rates on 10-year Treasury bonds have fallen from just over 3.0 percent in late December to under 2.7 percent as of Friday morning.

This suggests an alternative explanation for the flight from developing countries. Most likely it is a simple story of contagion, where investors feel the need to do whatever they see other investors doing. In prior years it was fashionable to unthinkingly put money into developing countries. Now that fashions have shifted the cool thing to do is to pull money out of developing countries. Since investors rarely get in trouble for making the same stupid mistake as everyone else, there is a big incentive to follow fashions in investing.

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There has been a bizarre cult of deflation phobia over the last decade in which we are supposed to be terrified that very low positive rates of inflation can decline further and turn into low rates of deflation, which then create really big problems. The NYT tells us this cult is still dominating economic thinking. In an article on the latest data on inflation and unemployment in the euro zone, it noted that European Central Bank President Mario Draghi unexpectedly lowered interest rates in November:

"amid concern that Europe might be headed toward a Japan-style deflationary quagmire."

In reality Europe is already in a Japan-style deflationary quagmire. It suffers from an inflation rate that is too low. A higher inflation rate would translate into lower real interest rates, giving firms more incentive to invest. It would also reduce debt burdens for homeowners as the real value of their mortgage debt fell. It would also allow the peripheral countries like Greece, Spain, and Italy to regain competitiveness, if they held wage and price increases below the rates in Germany and other core countries. 

For these reasons the near zero inflation rate is making Europe's problems more difficult, delaying the adjustment process that could allow it to return to a healthy growth path. If the inflation rate were to fall further, say from a positive 0.7 percent to a negative 0.3 percent, this would make matters worse, but only in the same way that a drop in the inflation rate from a positive 1.7 percent to 0.7 percent also makes the situation worse. The issue is a one percentage point decline in the inflation rate, there is no importance to crossing zero.

This should be obvious to people familiar with the construction of price indices. The indexes are based on the collection of millions of different price changes. When the index is near zero, many prices are already falling. Going from a low positive to a low negative rate means that the percentage of falling prices in the index has risen somewhat. How could this possibly have catastrophic consequences for the economy? (In this context it is worth noting that computers and cell phones have had rapidly falling prices for decades. Has everyone noticed the disasters befalling these industries?)

Also, the prices recorded for each item depend on quality adjustments imputed by the statistical agencies. Often the price of a product like a refrigerator or a car might show an increase, but due to imputed quality adjustments it will be recorded as a price decline. Is it plausible that the economy would face some horror story if the pace of quality improvement in these products increases slightly?

The notion that something bad happens if inflation crosses the zero line and becomes deflation is silly on its face. (There is a bad story where the rate of deflation continually accelerates, but even Japan never saw this.) It is often said that economists are not very good at economics. The concerns over a deflation horror story provides a good example of this proposition.

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