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 roundup of Beat the Press.

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It's not clear how the paper made these determinations, but it does assert them to be true in the second paragraph of an article on the Trump administration's plans to reduce the rights of federal employees:

"The administration describes Trump’s new rules, issued in May, as an effort to streamline a bloated bureaucracy and improve accountability within the federal workforce of 2.1 million."

While it is certainly possible that the Trump administration is motivated by a desire to make government more efficient, given its willingness to grant no-bid contracts to politically connected companies, government efficiency does not seem to be a priority for the Trump administration. A plausible alternative that the Post seems to rule out with this assertion is that Trump is attacking a group of workers that he sees as political enemies.

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I sometimes go under the professional name of "No One" as in "no one saw the financial crisis coming." I apparently need to use this identification again when it comes to a trade war with China.

On Morning Edition today, Jeff Greene interviewed Jonah Goldberg, senior editor at National Review. Mr. Goldberg told Greene how conservatives are free traders so they generally are opposed to Trump's tariffs. He then suggested that a way out for Trump would be to focus on China's intellectual property "theft," since everybody agrees this is a problem.

This is where I come in. I don't particularly consider the fact that China doesn't pay Microsoft, Pfizer, and Boeing what they think they are owed to be a problem for people who are not major stockholders in these companies. As a basic proposition, the more money China sends to these companies, the larger its trade surplus in other areas.

More generally, as a basic proposition, it is more than a bit bizarre that so many economists can somehow believe both that without patent and copyright monopolies and related protections, there would be no incentive for innovation and that technology causes inequality. If we have a problem with inequality due to "technology,"  it is due to the way in which we assign property rights. Shorter and weaker patents and copyrights mean less money to the people on top and more money for everyone else.

That seems pretty simple, but recognizing an $8 trillion housing bubble ($12 trillion relative to today's economy) also seemed pretty simple. There is a reason people say that economists are not very good at economics.

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The second fact appeared in a NYT article reporting on how nursing homes are frequently understaffed; the first did not. As many doctors angrily told me after reading a column I did on the protections that inflate doctors' pay, nursing assistants save lives.

Yes, we pay lots of money for health care in this country, more than twice as much as the average for other wealthy countries. Unfortunately, we don't have better outcomes to justify this spending. A big part of this story is how much we pay our doctors and how little we pay less politically powerful workers in the health care industry. (Yes, inflated drug and medical equipment prices and a cesspool insurance industry are also big parts of the story, all discussed in Rigged [it's free].)

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With Donald Trump's trade war with China heating up I thought I should bring in Mr. Arithmetic to clarify the situation. Trump apparently thinks that he holds all the cards in this one because the US imports much more than it exports to China.

As I pointed out previously, China has other weapons. For example, it can just stop respecting US patents and copyrights altogether, sending items all over the world that don't include any royalty payments or licensing fees. This could reduce the price of patented drugs by 90 percent or more and make all of Microsoft's software free.

But even ignoring the other weapons that China has in a trade war, the idea that the country can't get by without the US market doesn't fit the data. At the most basic level, China exported a bit more than $500 billion in goods and services to the United States last year. This comes to a bit more than 4.0 percent of its GDP, measured on a dollar exchange rate basis.

As many analysts have noted, much of the value of these exports is not actually valued-added in China. For example, the full value of an iPhone produced in China will be counted as an export to the United States even though most of the value comes from software developed in the United States and parts imported from other countries. Perhaps 40 percent or more of the trade deficit reflects value-added from other countries. (On the flip side, many of the imports from other countries include value-added from Chinese products.)

But let's ignore this issue. Suppose Donald Trump's get-tough trade policies reduce our imports from China by 50 percent, a huge reduction. This would come to roughly 2.0 percent of China's GDP. Will this have China screaming "uncle?"

Probably not. As Mr. Arithmetic points out, China's trade surplus fell by 4.4 percentage points of GDP from 2008 to 2009, yet its economy still grew by more than 9.0 percent that year and by more than 10.0 percent the next year. While all of China's annual data should be viewed with some skepticism, few doubt the basic story. China managed to get through the recession without a major hit to its growth.

Of course, that drop in exports was due to an unexpected economic crisis, this one would be due to a politically motivated trade war. Mr. Arithmetic does not expect China to be giving in any time soon.

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Like the Supreme Court, the Fed has considerable independence from day-to-day politics. It has seven governors who are appointed by the president and approved by the Senate. They can serve 14 year terms, although most do not stay for the full period.

The Open Market Committee that sets interest rate policy also includes the twelve district bank presidents. Five of these twelve bank presidents have a vote at any point in time, although all twelve take part in the discussion. The bank presidents are appointed through a somewhat opaque process that has historically been dominated by the financial industry, although this process was opened up somewhat during Janet Yellen's tenure as Fed chair.

This process insulates the Fed from the whims of the president and other political figures. However, there is nothing inappropriate about the president or any other elected official commenting on Fed policy, as The New York Times implies in this piece.

Given the close ties of the bank presidents, and often the governors, to the financial industry, a Fed that is considered off limits for political debate is likely to be overly responsive to the concerns of the financial industry. This is likely to mean, for example, excessive concern over inflation and inadequate attention to the full employment part of the Fed's mandate. It is understandable that the financial industry would like to keep the public unaware of the importance of the Fed's actions, but the public as a whole does not share this interest.

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The top of the hour lead into Morning Edition (sorry, no link) told listeners that hiring will be down for June because employers can't find workers. Of course, employers who understand basic economics can find workers: they just raise pay to pull them away from competitors.

We aren't seeing any large-scale increases in pay despite near-record profit shares. This suggests that either employers really are not short of workers or that they are too incompetent to understand the basics of the market.

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That's the implication of this CNBC piece that claims that hiring is down because businesses can't find qualified workers. If this is really the problem, then the solution, as everyone learns in intro economics, is to raise wages. For some reason, CEOs apparently can't seem to figure this one out, since wage growth remains very modest in spite of this alleged shortage of qualified workers.

Businesses should be well-positioned to absorb higher wages since their profits have soared over the last two decades. In the years from 1980 to 2000, the beneficiaries of upward redistribution were higher paid workers like CEOs, Wall Street-types, and highly paid professionals like doctors and dentists. Since 2000, there has been a substantial shift from wages to profits, as the after-tax profit share of national income has nearly doubled, as shown below.

Book2 9000 image001

Source: Bureau of Economic Analysis and author's calculations.

The profit shares include one-third of the foreign profits of US corporations based on new research showing that this is really just profit shifting to evade taxes. If after-tax profit shares were back at their 2000 level, it would imply another $600 billion a year in wage income or almost $4,000 per worker in additional wages.

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The paper owned by the man who got incredibly rich by avoiding state and local sales taxes is upset because workers are getting Social Security disability payments that average less than $1,300 a month. Since the US has one of the least generous disability programs of any wealthy country, this might seem like a strange concern. Here's the picture from the OECD.



disability gdp

Source: OECD.

Of course the Post is also a paper that gets hysterical over the prospect that truck drivers will get pay increases. In short, these are folks who practice crude class war. They are okay with some crumbs for the poor, but anything that is good for ordinary workers means giving up money that could be in the pockets of the Bezoses of the world.

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It is common practice for people who completely missed the housing bubble to warn about another impending debt crisis which will sink the economy when it bursts. In this vein, we have a New York Times editorial telling us about the dangerous increase in credit card debt.

The piece tells readers:

"And now rates are now rising at time when household debt reached a record $13.21 trillion in the first quarter. Household debt service payments as a percentage of disposable income hit 5.9 percent in the first quarter, according to the Federal Reserve, a figure not reached since just before the Great Recession. Average credit card debt per borrower is about $5,700 and growing at a rate of 4.7 percent while wages are growing at about 3 percent. That can’t continue forever."

Since they had the Fed's data on debt burdens in front of them, they should have known the full picture, which is below.


Are you scared?

The piece also includes several other silly comparisons, starting with the comparison of the growth in average household debt to the growth in the average hourly wage. The czar of apples-to-apples insists they use average household income, which in nominal terms is growing at roughly the same rate. The editorial also repeatedly compares wealth to the 2007 bubble peaks. Surprise! We haven't recovered.

The basis of the piece is the bad news that when the Fed raises interest rates it will mean higher interest payments on credit card debt. I am happy to have the NYT as an ally in the battle against unnecessary interest rate hikes, but the burden on credit card debt hardly tops the charts as a reason. Suppose interest rates rise 2.0 percentage points (a huge increase) on $1 trillion in credit card debt. That comes to $20 billion a year or about $150 a year per household. That's not altogether trivial, but not a concern that keeps me awake at night.

It would be a much greater concern if Fed rate hikes kept 2–3 million people from working and lowered the wages on 30 or 40 million low- and moderate-wage workers by reducing their bargaining power. There is some value in keeping your eye on the ball and actually knowing something about the topics on which you write.

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Bloomberg doesn't seem quite as scared as the Washington Post, which worries that if truckers earn $60,000 a year it would sink the economy. But it also seems really disturbed that employers can't get more drivers without paying them more. This one is, in some ways, even more over the top than the Post piece. It wants to blame the government.

The story here is that there are restrictions on hours, which used to be tracked using paper records but now are verified electronically. This makes cheating more difficult.

"Under the old regime, a driver making 40 cents a mile might drive 750 miles in 15 hours, averaging 50 miles an hour and making $300. His paperwork would claim 11 hours at 68 mph. Now, however, his time is electronically tracked and the 11-hour limit is strictly enforced. At 50 mph, he makes only $220."

So, in the good old days, a driver putting in 15 hours a day pulled down $300, or $20 an hour. If we converted this into an hourly wage, with a 50 percent overtime premium after 8 hours, this comes to $16.21 an hour. In this story, the hourly pay actually rises somewhat to $22 an hour because of the evil regulations, but because the worker is putting in 27 percent fewer hours, her daily pay falls.

In any case, it is striking that no one seems to think that higher pay might be a good way to solve this shortage. I guess no one believes in market solutions at Bloomberg.

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You can make a very good living coming up with stories about how the US trade deficit is a good thing. After all, the jobs that are lost are overwhelming the jobs of less-educated workers. In addition, the fact that trade takes away the jobs of millions of less-educated workers puts downward pressure on the pay of people without college degrees more generally.

That means that the folks with college and advanced degrees, who are largely protected from international competition by protectionist measures (e.g. professional licensing requirements that exclude foreign-educated doctors, lawyers, dentists etc.) get to enjoy higher standards of living through two channels. First, they get to buy all those imported goodies (cars, television sets, clothes, etc.) at lower prices. Second, the help in areas like restaurant work, construction, landscaping etc. all get paid less, meaning lower prices for domestically produced goods. What's not to like?

For this reason, it is hardly surprising to see David Frum's piece in the Atlantic touting the wonders of the US trade deficit with China. Aren't we lucky we have folks like Frum and magazines like The Atlantic to straighten out those stupid workers who can't see how wonderful it is that they lose their jobs to import competition? I'm sure Frum and the Atlantic would have published the same lecture if we had free trade in physicians', dentists' and lawyers' services and protection for manufactured goods, so that our trade deficit was due to payments to foreign professionals (working under contract, so the payment goes to their employer).

Anyhow, I have written endlessly on this topic. Given the amount of money to support dreck on the other side I can't respond to all of it, but here are a couple of pieces for folks who may want a bit more background. It is also covered in the first chapter of my [free] book Rigged.

Note: "Frum" was misspelled in an earlier version.

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The Washington Post had yet another hysterical piece about how "America's Severe Trucker Shortage" could undermine the economy. While the piece features the usual complaints from employers about how they can't get anyone to work for them no matter how much they pay, the data indicate they aren't trying very hard. Here's the inflation adjusted average hourly pay for production and non-supervisory workers in the trucking industry since 1990.

Real Hourly Wage: Truck Transportation, Production and Non-Supervisory Workers

truck real pay

Source: Bureau of Labor Statistics.

As the figure shows, the real hourly wage for workers in the industry is still more than 10 percent below its 1990 peak. While this would include some workers who are not truckers (for example, the people handling orders), truckers would be the bulk of employees and certainly, if their pay was rising rapidly it would show up in the data.

The piece includes this incredible assertion: "economists say, if competition for truckers pushes up prices so quickly that the country faces uncontrolled inflation, which can easily lead to a recession," although it doesn't actually name any economists who say anything like this. There are a bit less than 1.3 million production and non-supervisory workers in the trucking industry. Suppose their pay went up by an average of $20,000 a year, which would be more than a 40 percent increase. (The Bureau of Labor Statistics puts their average pay currently at just $46,000 a year.) 

This huge pay increase would then add $20 billion to costs in the economy, or roughly 0.1 percent of GDP. (It's a bit less than 10 percent of what we pay our doctors each year.) It would be very interesting to see if the Post could find any economist who would say that this would lead to "uncontrolled inflation."

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Mexico seems all but certain to elect Andrés Manuel López Obrador, a left-wing candidate, as president this weekend. One of the main factors is the contempt with which the Mexican public regards a political and economic elite that have run the country in a way that has produced few benefits for the bulk of the population. It is striking that this uprising is taking place almost a quarter century into the NAFTA era.

We were told endlessly by our elites that NAFTA was doing great things for Mexico. The Washington Post stands out as a particular villain in this story. It repeatedly ran fantasy pieces on how NAFTA was creating a thriving middle class in Mexico.

The Post even went full Trump back in 2007 when it made up the absurd claim that NAFTA had led Mexico's economy to quadruple between 1998 and 2007. The actual figure was 84.2 percent. Unfortunately, the Washington Post has not been the only institution to make up numbers to promote NAFTA. The World Bank got into the act too.

A true assessment of the impact of NAFTA on Mexico would require considerable research, but just at the basic level of GDP growth it has been a disaster. Mexico's per capita GDP has risen at just a 1.2 percent annual rate since 1993. This compares to a 1.5 percent annual rate in the United States. This means that the countries are even further apart economically today than when the agreement took effect in 1994, but don't hold your breath waiting for the NAFTA proponents to acknowledge that it might not have been a good deal.

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For folks who can remember all the way back to last fall, the promise was that a huge boom in investment would lead to more rapid productivity growth. Higher productivity would mean pay would be close to 10 percent higher than in the baseline scenario after a decade.

Well, the data disagree. We got new data on capital goods orders yesterday. Here's the picture.

cap goods

If you see a boom here since the tax cut, you may want to get the prescription on your glasses checked. It's not a terrible story, but we're still below the pre-recession peaks and even the levels reached during the horrible Obama years. Oh well, at least rich people got lots of money out of the deal.

By the way, the drop in capital goods orders in 2015 and 2016 was due to the plunge in world oil prices from $100 a barrel to $40 a barrel. Much of the increase in the last year and a half has been attributable to the partial recovery to $70 a barrel. I am not inclined to give the Trump administration the blame for higher gas prices, but I suppose if they insist, we can yell at them over $3 per gallon gas.

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No one expects great insights from people who write columns for the Washington Post but Dana Milbank hit a serious low today when he referred to the fact that Representative Joseph Crowley took large amounts of money from the financial industry and other special interests as "largely non-ideological." Those of us who don't write columns for the Washington Post realize that campaign contributors are not in the charity business. They expect and generally get something in exchange for their money.

At the very least, they do not give money to people who they expect to push efforts to seriously harm their profits (which Dodd-Frank did not do) or to have them jailed when they break the law. They apparently felt confident that Crowley could be relied upon in these areas. 

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The NYT had an article featuring employers complaining that they couldn't get low-cost immigrant labor. The piece focuses on the H-2B visa program which allows a limited number of foreign workers to come into the United States temporarily to work at low paying jobs such as restaurant work and housekeeping.

In particular, the article highlights the concerns of the two owners of landscaping businesses in the Denver area, Rhonda Fox, who owns a family business and Phil Steinhauer, who owns a larger business. Both complain that the limited number of foreign workers available under the visa program is hurting their business. They complain that, because of Denver's low unemployment rate and highly educated workforce, they are unable to get workers at the $15 an hour pay rate they offer.

The piece explains:

"Landscape work is harsh. Digging in the dirt and heaving equipment in blistering heat produces aching backs and raw hands. Low-skilled workers can earn a similar wage making a sandwich or working in an air-conditioned warehouse.

"'We put a $5,000 ad in The Denver Post, and we didn’t have one applicant,' Ms. Fox said. Paying a wage high enough to attract local workers would put her out of business, she said, because her customers would balk at the resulting price increases.

"Like Ms. Fox and other landscapers, Mr. Steinhauer signed planting contracts with customers last year based on the assumption that his crews would earn roughly $15 an hour. 'These are unskilled positions,' he said. 'Would you pay $50 to plant a bush in your garden?'"

Actually, some people would pay $50 to plant a bush in their garden, just as some people pay for chauffeurs, cooks, and nannies. The number of people who would hire such personal servants would obviously be much greater if we created a large supply of cheap foreign labor, but that would mean that the workers who currently hold these positions would earn much less money.

The NYT is apparently much more sympathetic to the relatively affluent employers who depend on cheap labor than the workers who would get less pay as a result of the competition. Unfortunately, its concern does not extend to those of us who have to go to doctors and dentists who must pay much higher prices for their services, because the government rigidly restricts the competition for these very highly paid workers.

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Okay, that is sarcastic. Of course the Washington Post wants to talk about the federal debt, but only part of the debt. It continually highlights debts and deficits. But borrowing to finance spending is only one way the government makes future commitments for taxpayers.

The government also obligates taxpayers by issuing patent and copyright monopolies. These monopolies, which allow companies to charge prices that can be ten or even a hundred times the free market price, are effectively privately collected taxes. The government grants these monopolies as an alternative to direct spending.

For example, the government could replace the roughly $70 billion a year that U.S. pharmaceutical companies spend on patent research with direct spending. The Washington Post would, of course, be very upset about the $70 billion increase in the budget deficit ($700 billion over the 10-year budget horizon).

However, this could save us around $380 billion a year in spending on prescription drugs, as prices fell to their free market level. Since the Post never mentions the obligations the government creates for taxpayers by granting patent and copyright monopolies, the savings from this sort of switch would never enter the equation in the Post's budget pontification, only the costs.

It's not very honest reporting, but hey, it's the Washington Post. (And yes, this is all talked about in Rigged.)

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In a period of record low productivity growth Thomas Friedman tells us the robots are taking all the jobs. Hey, no one ever said you had to have a clue to write for the New York Times. Here's the punch line:

"From 1960 to 2000, Quartz reported, U.S. manufacturing employment stayed roughly steady at around 17.5 million jobs. But between 2000 and 2010, thanks largely to digitization and automation, 'manufacturing employment plummeted by more than a third,' which was 'worse than any decade in U.S. manufacturing history.'"

The little secret that Friedman apparently has not heard about is the explosion of the trade deficit, which peaked at almost 6 percent of GDP ($1.2 trillion in today's economy) in 2005 and 2006. This matters, because the reason millions of manufacturing workers lost their jobs in this period was decisions on trade policy by leaders of both political parties, not anything the robots did. That changes the story of the collapse of political parties (the theme of Friedman's piece) a bit.

Friedman's confusion continues in the next paragraph:

"These climate changes are reshaping the ecosystem of work — wiping out huge numbers of middle-skilled jobs — and this is reshaping the ecosystem of learning, making lifelong learning the new baseline for advancement.

"These three climate changes are also reshaping geopolitics. They are like a hurricane that is blowing apart weak nations that were O.K. in the Cold War — when superpowers would shower them with foreign aid and arms, when China could not compete with them for low-skilled work and when climate change, deforestation and population explosions had not wiped out vast amounts of their small-scale agriculture."

The reason that highly skilled workers are benefiting at the expense of less-educated workers is because we have made patent and copyright protection longer and stronger. It is more than a little bizarre that ostensibly educated people have such a hard time understanding this.

We have these protections to provide incentives for people to innovate and do creative work. That is explicit policy. Then we are worried that people who innovate and do creative work are getting too much money at the expense of everyone else. Hmmm, any ideas here?

Remember, without patents and copyrights, Bill Gates would still be working for a living.

One more item, China competes with "low-skilled" work in the United States and not with doctors and dentists because our laws block the latter form of competition. There was nothing natural about this one either. Yes, this is all in my [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.

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It is absolutely bizarre that reporters so often feel the need to tell us what really "concerns" politicians, or what they "believe," or in other ways make assertions about their innermost thoughts. The reality is that these reporters almost certainly do not know the person's innermost thoughts, and in the unlikely event they do, they are probably too close to that person to be reporting on them.

While exercises in mind reading are especially inappropriate with regards to politicians, since their job pretty much demands that they claim positions that they do not hold, they also amount to bad reporting in other contexts. A couple of days ago the NYT ran a piece pointing out the seeming discrepancy between the celebration of the family in public statements while at the same time having the most family unfriendly policies of any rich country.

At one point the piece told readers:

"To the right, it seems government too often burdens families, who need lower taxes and less regulation."

We know people on the right often say this, but is it really the case that it seems to these people that their taxes are too high and they face too much regulation. Imagine a male worker in a non-union auto factory earning $20 an hour. Suppose this person is married to someone working part-time in a retail store. We'll give them an income near the median at $52,000 a year.

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NPR's Morning Edition had a segment interviewing economics reporter Jim Zarroli on Harley Davidson's announcement that it would shift some production to Europe to get around tariffs imposed by the European Union in response to Trump's tariffs. At one point, Zarroli comments that Trump imposed the tariffs in response to what he "sees" as unfair trade practices.

Actually, no one has any idea what Trump "sees," meaning what he actually thinks. We do know what he says. It's best to just report what Trump or other political figures say or do and not make assertions about their actual motives.

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The Washington Post repeated a standard theme in reporting on Trump's trade war with China, that our main concern is not the trade deficit but rather China's alleged theft of our intellectual property. I have written about this issue before, but there is an important aspect that seems to have gone largely unmentioned, China is likely to have more at risk in this story than the United States.

Using the purchasing power parity measure (clearly the appropriate one for this issue), China's economy is already 20 percent larger than the US economy. In a decade, it will be twice the size of the US economy. Given these facts, it is almost certain that China will be spending far more on research and creative work than the United States. This means that it will have far more to lose than the United States if there is no internationally agreed upon mechanism for sharing the cost.

This doesn't mean stronger and longer copyright protection as our policymakers would insist. That is a great way to redistribute income upward, which has been a major goal of economic policy over the last four decades, but not a very efficient way to support innovation and creative work in the 21st century.

We can and should be looking to more modern mechanisms than these relics from the feudal guild system. (I have some ideas in chapter 5 of my [free] book Rigged.)  However, the point is that China actually has more interest in a workable mechanism for sharing costs than the United States does. Anyone looking to benefit the US economy as a whole would be noting this point and the enormous leverage it gives us. On the other hand, if the goal is simpler to make Microsoft, Pfizer, and Disney richer, and then wring our hands over inequality, the current focus of policy makes sense.

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