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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Donald Trump is relying on a silly myth in his latest pharmaceutical industry America First crusade. He is claiming that because other countries don't give our drug industry unchecked patent monopolies, we are subsidizing research for them. The numbers disagree.

According to the National Science Foundation, our pharmaceutical industry spent $62.5 billion on research worldwide in 2013, the most recent year for which data are available. If we increase this by 25 percent to account for growth between 2013 and 2017, we get $78.3 billion. Worldwide sales last year were just under $1 trillion.

If just half of these sales were by U.S. companies, it would translate into just under $500 billion in sales. This would mean that the industry's research expenditures were equal to less than 16 percent of its sales. Prices in other wealthy countries are generally in the range of 40 to 60 percent of the U.S. price. Since the cost of manufacturing and delivering the drugs is generally less than 10 percent of the U.S. sales price, and often less than 1 percent, the industry should easily be able to recover its research expenditures if the whole world paid the regulated prices in other countries rather than the U.S. government imposed monopoly prices.

In other words, there is not really a plausible story on how Trump's efforts to force other countries to pay higher prices will lead to lower drug prices in the United States. On the other hand, insofar as Trump suceeds, it will lead to higher industry profits.

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The NYT did some serious editorializing in a headline that told readers:

"[...]to lower drug costs at home, Trump wants higher prices abroad."

Sorry folks, the NYT does not know what Trump wants. In fact, a reasonable first guess might be that Trump wants to increase the profits of the pharmaceutical industry, with whom he is very close. The NYT would be on sounder footing with a headline saying "To increase pharmaceutical industry profits, Trump wants foreigners to pay more for drugs." This headline more closely corresponds to the known facts, but we know the paper doesn't like attributing motives, except of course when it does.

It is worth noting that the headline writer is following the article which told readers in the first paragraph that Trump:

"[...]has an idea that may not be so popular abroad: Bring down costs at home by forcing higher prices in foreign countries that use their national health systems to make drugs more affordable."

Why is it so hard for reporters to just report what politicians say and do and not try to tell us what they are thinking?

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The second paragraph of an article on a new requirement in California — that all new homes have solar power — told readers:

"It will add thousands of dollars to the cost of home when a shortage of affordable housing is one of California’s most pressing issues."

It then added:

"That made the relative ease of its approval — in a unanimous vote by the five-member California Energy Commission before a standing-room crowd, with little debate — all the more remarkable."

The piece then goes on to explain that the energy savings are likely to far exceed the additional costs of the solar installations over the life of a standard mortgage. Given this evidence, it might have been reasonable for the second paragraph to say something like:

"In spite of increasing construction costs, the savings on energy likely mean that the requirement will reduce the cost of home ownership, which is an important issue given the shortage of affordable housing in California."

That might have left readers with a different view of the new regulation.

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The Bureau of Labor Statistics released data from its March Job Openings and Labor Turnover Survey (JOLTS) yesterday. It got some attention because the job openings figure rose substantially, bringing the job opening rate to 4.3 percent, the highest since the survey was first fielded in December of 2000. This is somewhat higher than the 3.7 percent hire rate. Since the hiring rate had previously exceeded the job opening rate, as seen below, this was taken as fresh ammunition by the "hard to get good help" gang. 


The argument they are making is that businesses have jobs open and want to hire, but they just can't find the people with the right skills. The problem with this story is that we see a sharp rise in the ratio of openings to hires everywhere, including industries like retail trade and restaurants, where we generally don't think of as requiring high skills.

In 2007, before the Great Recession, the job opening rate in retail was 2.6 percent. The hiring rate was 4.9 percent, a gap of 2.3 percentage points. In March, the job opening rate was 4.3 percent with a hiring rate of 4.4 percent, a gap of just 0.1 percentage point.

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I generally agree with Paul Krugman's columns, and this is the case with his piece today on Republican efforts to kill Obamacare. However, there is one point where I have to take issue. Krugman tells readers:

"G.O.P. sabotage disproportionately discourages young and healthy people from signing up, which, as one commentator put it, 'drives up the cost for other folks within that market.'"

The problem with Krugman's comment is the "young" part. The exchanges need healthy people, it doesn't matter whether or not they are young. In fact, it is much better for the economics of the exchanges if the healthy people are older, they pay much higher premiums.

The best way to understand the point is to think of the premiums as a tax. Old-timers like myself (ages 55 to 64, the oldest pre-Medicare age cohort) pay premiums or taxes, that are three times as high as young people. While people in this oldest age grouping are on average in worse health and have higher costs than younger people, a very large minority have trivial medical costs, just like most young people.

The exchanges come out much more ahead with a healthy older person than a healthy young person since they pay three times as much in premiums and cost the system no more money. There is an issue that the pricing is skewed somewhat against the young (true actuarial risk should put the premium ratio around 3.5 to 1, rather than 3.0 to 1), but this is of relatively little consequence for the finances of the exchanges. 

It's not a big deal in the scheme of things, but the inclusion of "young" in this story can be misleading. The key to keeping the exchanges working is getting healthy people to sign up, full stop.

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Heather Long's piece in the Washington Post telling readers, "Trump wants a $15 billion spending cut. That's about 1 percent of the cost of his tax bill," badly misled readers. The $1.5 trillion cost of the tax bill is a ten-year figure. The $15 billion in spending cuts are meant to hit in a single year. Presumably, Trump and his Republican allies will look for similar cuts in future years. This means that the cuts are 10 percent of the cost of the tax bill.

Of course, being larger doesn't make them better since the cuts are focused on programs that benefit low- and moderate-income people. But if we're keeping score, it is worth trying to be accurate.

It is also worth noting that neither Long nor any of her deficit hawk sources in this piece say a word about the implicit debt the government is creating for people through granting patent and copyright monopolies. Granting these monopolies is an alternative way to direct spending for the government to finance things like research and creative work.

The money committed as a result of these monopolies in the form of higher market prices is enormous. In the case of prescription drugs alone, it is likely more than $380 billion a year, or almost 2.0 percent of GDP. Adding in the cost of medical equipment, software, and other areas could well push the sum to more than $1 trillion a year, more than six times the cost of the Trump tax cuts.

Anyone who is really concerned about the liabilities that the government is creating for future taxpayers has to include the cost of these government granted monopolies. If they don't factor in patent and copyright rights into their assessment of future burdens, they are either just trying to scare people to push a political agenda or very confused.

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I see my friend Jason Furman is jumping into the debate on efforts by states like New York to develop workarounds for the limit on the state and local tax (SALT) deduction in the Republican tax plan. Jason reminds us that the beneficiaries of the workarounds (like New York's plan to replace a portion of the state income tax with an employer-side payroll tax) are overwhelmingly higher-income taxpayers. This doesn't bother me.

As I've pointed out before, limiting the SALT deduction is not about raising income taxes on high-income people. It is about raising taxes on high-income people in progressive states.

Suppose Congress proposed to raise the income tax rate by 2.0 percentage points on income above $100k and by 4 percentage points on income over $1 million. (These are roughly the numbers we are talking about given income tax rates in New York and California.) This is a perfectly reasonable plan since these are the people who have been the big gainers in the economy over the last four decades.

But suppose this tax increase only applied to people in New York, California, Connecticut, New Jersey, and a few other states with high tax rates, which also tend to vote Democratic in presidential elections. Are we all fine with this? Of course, if we tried to undo this selective tax increase with either legislation or some clever trick, then Jason would point out how regressive this reversal would be.

His calculations would be and are right, but I don't give a damn. Making it more difficult for states to raise the taxes they need to support progressive social spending is bad policy. And it is especially bad policy in a context where we can expect little by way of progressive measures out of Washington any time soon.

This means if we want to see headway on quality affordable child care, free college, expanded health care coverage, it will come from states like New York and California. The Republicans quite explicitly wanted to make it more difficult for states to be able to pursue progressive policies, which is why they limited the SALT deduction. So no, I have no problems trying to reverse this cheap trick.

Since Jason raised the topic of corporate taxes, we do have an easy route to radically reduce the opportunity for tax evasion/avoidance and also the waste associated with tax accounting. Just require corporations to give us a non-voting equity stake equal to the desired tax rate. (If we want to tax corporations at a 25 percent rate, then we require corporations to give us non-voting shares equal to 25 percent of the total outstanding.)

The non-voting shares are treated just like other shares. If the company pays a $2 a share dividend to its voting shares, it also pays $2 for each of the government's shares. If it buys back 10 percent of its shares at $100 a share, it buys back 10 percent of the government's shares at $100 a share.

It's fun, easy, and gets us the money we want out of the corporate sector. Now if we could just get some folks in Washington thinking seriously about corporate tax reform. 

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It looks like another case where we have a skills mismatch. In a NYT column criticizing Sean Hannity's housing investments, Bill Sapotio tells us that the housing industry:

"[...]still needs some 200,000 workers, with some of that shortfall no doubt linked to current immigration policy, or the fear of it. The need is so great that the Home Depot Foundation is putting up $50 million to help train and hire skilled workers."

The problem with this story is wages are not rising especially rapidly in construction. According to the Bureau of Labor Statistics, the average hourly pay of production and non-supervisory workers in the sector rose 3.9 percent. That's not bad, but before the recession, they were rising over 4.0 percent annually and sometimes over 5.0 percent.

Average Hourly Wage in Construction: Production and Non-Supervisory Workers

construction pay

Source: Bureau of Labor Statistics.

If there actually is a shortage of construction workers as this piece claims, then we seem to have more evidence of employers who lack the skills necessary to do their job. They apparently don't understand that if you want to hire more workers, you have to offer higher pay.

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Ben Casselman's NYT piece on economist Tim Kane's run for a congressional seat in Ohio called my attention to an economists' poll that I had missed. The poll posed the following question to a group of elite economists:

"An important reason why many workers in Michigan and Ohio have lost jobs in recent years is because US presidential administrations over the past 30 years have not been tough enough in trade negotiations."

Of the whole group, 64 percent either strongly disagreed or disagreed. Only 5 percent agreed. (The rest were uncertain or didn't answer.)

This outcome is striking because standard trade models absolutely predict that some people will be losers from trade. The basic story is that workers in an sector where the U.S. has a comparative disadvantage will end up with lower pay as a result of removing trade barriers.

To make it concrete, suppose the auto industry is protected by a 20 percent tariff barrier and we make the tariff zero. The expected result is that we would have fewer workers employed in the auto industry. The workers who lose jobs in the industry will, in general, get lower pay in their new jobs, as will the workers who remain employed in the industry.

The argument for free trade is that the gains in aggregate will be larger than what these workers lose. In principle, the winners can redistribute to the losers and make everyone better off, but there is no dispute that the workers in the auto industry are made directly worse off by the removal of the tariff taken by itself.

What is striking is that there is considerable research by many economists, most notably a group led by MIT economist David Autor, showing that workers in Michigan and Ohio were badly hurt by the trade opening to China in the last decade. In effect, these economists were asked whether they thought autoworkers were hurt by the elimination of a tariff on imported autos after they had been shown evidence of large-scale job loss and wage declines in the sector.

The vast majority still said "no."  

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Yes, we have yet another column warning about the government debt from George Will, with a brief interlude warning about household debt as well. Yes, the national debt is a really big number, but quickly, here is why we need not be as concerned as George Will wants us to be.

First, on the debt service point, Will wants us to be scared that interest rates will rise, making debt service a very large share of the budget. Well, the Fed controls interest rates and unless inflation starts to rise rapidly (in which case the real value of the debt falls), there is no obvious reason that it should allow interest rates to rise to high levels.

It is also important to note that the Fed itself owns much of the debt. (It has more than $4 trillion in assets.) The interest on the debt owned by the Fed is refunded to the Treasury, meaning there is no net burden from this debt for taxpayers. The amount of this refund was more than $100 billion last year, or 0.5 percent of GDP. The interest burden net of money refunded now stands at about 1.0 percent of GDP, compared to more than 3.0 percent of GDP in the first half of the 1990s.

Suppose we get Will's bad story and the economy goes into recession. Of course, the deficit will rise due to the recession, as tax collections fall and we pay out more money on programs like unemployment insurance and food stamps. Also, we would likely want a fiscal stimulus to boost the economy.

The deficit hawks would like people to believe that no one will lend to us because of our high debt burden. That seems unlikely (Japan's debt-to-GDP ratio is more than twice that of the United States and its long-term interest rates are near zero), but let's assume it is true. What would stop the Fed from directly buying up debt issued by the US government that private investors didn't want?

The folks yelling "inflation" have to go back to the start of this story. The economy is in a recession, how would we get inflation? There is a story that the Fed's actions could cause the dollar to fall against the currencies of our trading partners. Let's imagine the dollar falls by 20 to 30 percent against the currencies of our trading partners as it did in the years from 1986 to 1990.

This would be equivalent to imposing tariffs of 20 to 30 percent on imports and granting a subsidy of 20 to 30 percent on all US exports. That would mean a sharp reduction in the size of the trade deficit, providing a huge stimulus to the U.S. economy. Are you scared yet?

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That is what readers of its lead editorial must be wondering. The editorial criticized Trump's trade policies, pointing out that the policies are creating uncertainties for businesses.

It then notes that Trump appears to view uncertainty as being a positive outcome:

"Last month, in fact, the president all but confessed that he sees uncertainty as a weapon against them in talks over revising the North American Free Trade Agreement. 'We can negotiate forever,' he said. 'Because as long as we have this negotiation going, nobody is going to build billion-dollar plants in Mexico.'"

The editorial then responds:

"Oh no? Canada and Mexico can, and do, hedge against Mr. Trump’s unpredictability by pursuing closer economic ties with China and Europe."

It is not clear what sort of economics the Post is using here. In standard trade models, the United States benefits when the economies of our trading partners are stronger. If greater integration between Canada and Mexico and China and Europe allow them to grow more rapidly, they will be better customers for US products. Also, insofar as greater integration leads to increased efficiencies for their producers, it means that we will be able to buy lower-priced imports, benefiting US consumers.

If the Post has an economic model whereby we are supposed to be scared because our trading partners are becoming more integrated, it should share it with its readers. (Maybe it will get a Nobel Prize in economics.) As it is, this just looks like a cheap scare tactic to advance its trade agenda.

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Heather Long has a piece in the Washington Post detailing the demands that Donald Trump is making on China in exchange for not imposing tariffs. As she rightly points out, the list essentially amounts to asking China to remake its economy.

It would have been useful to point out how ridiculous this list of demands is, given the limited ability of the US to hurt China with tariffs. The US currently is importing a bit more than $500 billion a year from China. On an exchange rate basis, this comes to about 3.6 percent of its GDP.

Suppose that Trump tariffs cut this volume of imports in half, which would be a huge reduction. This would be a reduction in Chinese exports equal to 1.8 percent of its GDP. That would undoubtedly be somewhat of a hit to its economy, sort of like the hurricanes that hit the United States last summer.

From 2008 to 2011, China's trade surplus fell by 7.3 percentage points of GDP. That's a decline averaging 2.4 percentage points of GDP for three years. Its economy continued to grow at close to a 10.0 percent annual rate through this period. If we take Trump's big tariff scenario, it will hit China less than one-quarter as hard as the 2008–2011 drop in its trade surplus. I'm sure that President Xi is shaking in his boots.

Apparently, Trump has no clue of how limited the U.S. ability to influence China's economic policy is, or he doesn't care and is just making his tariff threats for show. The one thing we can say with a high degree of certainty is that China is not going to fundamentally change the way it operates its economy because of Trump's threats.

Long makes another point in this piece that is questionable. She claims:

"The belief in Washington for decades was that more trade with China would be a win-win, but Trump has forced both parties to rethink that conclusion. As John Pomfret, a longtime journalist in China, chronicles in his new book 'The Beautiful Country and the Middle Kingdom: America and China, 1776 to the Present,' the old thinking was that more trade would cause the Chinese to become more capitalist and democratic. That's not what happened."

It's not clear that anyone in Washington actually "believed" that they would transform with China with more trade, although this is something that many people said. There were powerful corporations that stood to make lots of money from expanded trade with China. It was useful for them to have people say that this trade would advance democracy in China.

The people who argued that more trade would advance democracy in China were well-paid for their efforts. We have no way of knowing how many actually believed this view.



I forgot to mention that Trump's list of demands against China doesn't include anything about its currency. After running around the country for a year and a half denouncing China as a "world class currency manipulator," Trump doesn't even include it on his dream list of changes he expects from China.

Oh well, no one ever said that Donald Trump was consistent, or had a clue.

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Amazon, which fueled its enormous growth with billions in taxpayer subsidies, is trying to push the line that it is actually good for small businesses. Gene Marks, a consultant who blogs for the Post's business section, noted the company's claim that it actually is good for small businesses.

The basis for the claim is that 1 million small businesses use Amazon's network to sell their goods throughout the world. The company claims it has created 900,000 jobs based on these sales.

As Marks points out, Amazon's claims are not necessarily accurate since it has also put many businesses out of business. To get an accurate assessment of its impact, it would be necessary to ask how many of the items sold by Amazon's small business clients would have otherwise been purchased from small business brick and mortar stores if they were not sold through Amazon. (Actually, if the question is just Amazon, most of these items likely would have been sold through some other Internet vehicle if Amazon did not exist.)

The real issue is why any Internet retailer should enjoy an effective taxpayer subsidy by not having to collect the same sales taxes as its brick and mortar competitors. Amazon now collects sales tax in every state in which it sells, although not county or local sales taxes. (Apparently, Amazon's staff is not smart enough to work a spreadsheet with more than 50 rows.) The fact that it did not collect taxes in most states through most of its existence was an enormous subsidy to the company.

Even now, Amazon is not collecting sales taxes for its small business affiliates. We can think of this as a situation in which Amazon is splitting the taxpayer subsidy with its affiliates. At this point, Amazon should be able to survive in the market without special subsidies from taxpayers. Given the amount of money involved, we can think of Jeff Bezos as collecting food stamps on super-steroids.

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Many folks in the media seem to think it is part of their job to promote trade agreements like the Trans-Pacific Partnership (TPP), not only in opinion pages, but in the news section too. The NYT gave us yet another example of this effort in a piece on a hotly contested congressional race in Washington.

At one point the piece tells readers that the TPP: "...would have reinforced the nation’s embrace of free trade." This is not true.

The TPP had relatively little to do with free trade in the sense of reducing tariffs and other traditional trade barriers. The United States already had trade agreements with six of the other eleven countries in the pact and trade barriers were already low with most of the other countries.

The main focus of the agreement was locking in commercial rules on items like Internet commerce. These rules would make it more difficult for countries to restrict privacy abuses like those recently committed by Facebook.

The TPP also would have imposed longer and stronger patent and copyright protections. These protections are forms of protectionism, as in the opposite of free trade.

They are also incredibly costly forms of protectionism, often raising the price of protected items (like prescription drugs) by factors of ten or even a hundred. This makes them equivalent to tariffs of 1000 percent or 10,000 percent. The cost in the case of prescription drugs alone is in the neighborhood of $380 billion a year, roughly 2.0 percent of GDP. The NYT may like longer and stronger patent and copyright protection, but it is dishonest to call them free trade.

The piece also reported, without comment, a grossly inaccurate number on the benefits of the tax cut claimed by Dino Rossi, the likely Republican nominee for the seat. Rossi is quoted as saying the typical household will get $3,357 from the tax cut. According to the Tax Policy Center, a family in the middle of the income distribution can expect to get $930 from the tax cut, less than one-third of Mr. Rossi's figure.

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I know we are supposed to view the AI and robot folks as great gurus of the future, but at the moment they look like people who have great difficulty with simple arithmetic. We just got new numbers on productivity today and they were not very good, and they were especially not very good in manufacturing, the sector where we are supposed to have the greatest fear of job-killing robots. And, it's not just the last quarter I'm talking about.

Productivity growth in manufacturing has averaged well under 1.0 percent annually for the last decade. In the Golden Age from 1947 to 1973, it averaged well over 3.0 percent. Here's the picture for the last three decades from the good folks at the Bureau of Labor Statistics.

Manufacturing Productivity

man prod

Source: Bureau of Labor Statistics.

Of course, we could see a sharp uptick in the future, which I think would be a great thing. It would allow for rapid wage growth like we had back in the Golden Age.

Anyhow, if folks want to worry about the robots taking all the jobs, don't let me bother you with data. While you're at it, you may want to keep on the lookout for invading Martians.

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The NYT described the problems that fast-food restaurants are having in getting and keeping workers as a result of lower unemployment. It describes several ways in which restaurants have been able to maintain sales with fewer workers. It also suggests that many restaurants are likely to go out of business since they will not be profitable if they have to pay the wages necessary to keep workers.

This is how productivity increases in a market economy. Some restaurants will be able to find ways to make a profit even while paying higher wages. Other restaurants, which are less productive, will end up going out of business. The workers that had been employed at these restaurants will mostly end up at businesses that make better use of their labor.

The growth of fast-food restaurants described in this piece is a drag on the economy's productivity. When a larger number of workers are employed in very low productivity jobs, it reduces average productivity in the economy. If higher wages ends up reversing this process, it will mean more rapid productivity growth.

This is essentially the story of the transition of the United States from being a primarily agricultural economy to an urban one. Manufacturing and other industries in urban areas offered higher pay than was available in rural areas. This forced farms to either become more efficient or go out of business. This is mostly a positive story of rising living standards, although there always will be some people hurt in the process (e.g. farmers or restaurant owners going out of business.)

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The NYT had an interesting piece on how many cities are bringing in foreign teachers, under J-1 visas, because US citizens are not willing to work for the pay being offered. This is yet another example of how political power shapes the market and thereby determines the pay in different occupations.

If it were simply an economic question, there would be far more money to be saved by bringing in foreign doctors than foreign teachers. The average pay for doctors in the United States is over $260,000 a year. This is more than twice the average for other wealthy countries. The gap between doctors' pay in the United States and pay in developing countries like the Philippines (the focus of this piece) would be even larger.

If economists actually supported free trade and maximizing efficiency they would be spending a huge amount of time working out arrangements that would allow for foreign doctors to meet US standards and then practice medicine in the United States under the same terms as doctors who were trained here. Unfortunately, the economics profession is more committed to redistributing income upward than to free market principles. (Yes, I am promoting my [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.)

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This is an important point to remember in coverage of the Federal Reserve Board's plans on interest rates. Former Fed Chair Janet Yellen repeatedly reminded the public that the 2.0 percent target is intended to be an average.

The inflation rate, as measured by the consumer price expenditure deflator, has been under 2.0 percent for most of the last six years. This means the Fed should be prepared to allow the rate to rise modestly above 2.0 percent given its target. We will have a recession at some point in the future, which will lower the inflation rate. This means the Fed should be looking to have the inflation rise to perhaps 2.5 percent, or even slightly higher if 2.0 percent is the actual target.

It is also worth noting that inflation has not been following the normal pattern in past recoveries. The inflation we are seeing is hugely concentrated in housing. Pulling out rent, the core inflation rate is rising at roughly a 1.0 percent annual rate. In the past, rental inflation has not differed much from the rate of inflation in other goods and services.

Rents are driven by a shortage of housing, not wage-cost pressures. Also, higher interest rates are likely discouraging construction, making the housing shortage worse, so it's not clear that higher interest rates are a good mechanism to combat the inflation we are now seeing.

CPI Minus Food, Energy, and Shelter: Percent Change Last 12 Months

CPI shelter

Source: Bureau of Labor Statistics.

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I can't say I've been following all the details here, but it's hard to see why a public university should have secret agreements with funders. If the Kochs don't want the terms of their funding exposed to the public, then the conditions probably are not proper. Universities should not be in the business of selling legitimating arguments for political positions.

The same story applies to private universities that want to be taken seriously. In fact, it would be a good rule to have as a condition of receiving their taxpayer subsidy (tax-exempt status). Let Corrupt University take as much money as it wants from the Koch gang, but the rest of us should not have to subsidize their sleaze.

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Just curious, since Marketplace radio told listeners about the shortage of workers in the residential construction industry for jobs that pay $17.61 an hour. Would we be hearing that there is a shortage of doctors (or lawyers or economists) if few were willing to work at $17.61 an hour?

I know these professions require much more training (although construction workers seem to do much better at their jobs than economists), but if the wage on offer for jobs in these professions was ridiculously low, most likely reporters would be calling attention to the low pay rather than the lack of willing workers.

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Not really. The Guardian has an article that begins by telling readers how Amazon produces a copy of a designer laptop stand and sells it for half the price as the designer stand. While the article correctly refers to the Amazon product a "knockoff," in other contexts, such as when discussing Chinese copies of US products, these copies are often referred to as "counterfeits."

This is not just a question of semantics. With a counterfeit, the buyer is being deceived. They pay a higher price because they actually believe that it is produced by the company in question. In the case of a knockoff, or unauthorized copy, the buyer knows that they are not getting the product produced the designer company, but are paying a considerably lower price.

In the case of the knockoff, the customer is benefiting, as is the seller. There could be an issue where the designer's property rights are being violated, but both of the parties to the exchange are benefiting. By contrast, in the case of a counterfeit item, the buyer is being ripped off. They pay more for the item because it has been misrepresented.

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