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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A NYT article on the prospects for the federal budget deficit under the next president told readers:

"Even without new spending, the federal budget deficit is expected to rise. By 2020, the Congressional Budget Office estimates, the deficit will hit nearly $800 billion, or about 3.7 percent of expected economic output, as increasing entitlement costs for retiring baby boomers take their toll on federal coffers."

Actually, the main reason the deficit is projected to rise is the Congressional Budget Office's (CBO) projection that interest rates will rise. As a result if higher interest rates, the net interest burden is projected to rise by 1.4 percentage points of GDP between 2016 and 2020 (Summary Table 1). This increase is divided into a 0.9 percentage point rise in interest payments and a 0.5 percentage point drop in revenue that the Fed refunds to the Treasury from the interest it receives on the bonds it holds.

The implication is that if the Fed doesn't raise interest rates and sell off its assets then we would not see this rise in the interest burden or the size of the budget deficit. On this point, it is worth noting that CBO has consistently overstated the rise in interest rates since 2010. It appears to have done so again in its 2016 projections.

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Hey folks, I saved you all from a Martian invasion, you really should be thankful. And Robert Samuelson says we were saved from a second Great Depression by the actions of the Federal Reserve Board. Yes, both claims are lies, but Samuelson's lie is more transparent than my lie.

The point here is a simple one, we know how to get out a depression. It's called "spending money." We got out of the last Great Depression by spending lots of money on fighting World War II. But guess what, the economy doesn't care what we spend money on, it responds in the same way. So if we instead had spent 20 percent of GDP on building highways, housing, hospitals, and providing education and child care it also would have led to double-digit economic growth and below 3.0 percent unemployment.

So anyone who claims that we risked a second Great Depression if the Fed and the Treasury Department had not saved the Wall Street banks is saying that the politicians in Washington are too brain dead to figure out how to spend money even when the alternative is double-digit unemployment. Note that tax cuts count in this story too. So the second Great Depression argument is that the Democrats and Republicans could not possibly figure out a mix of tax cuts and spending that would provide a large boost of demand to the economy.

I will confess to not having a great deal of respect for most politicians, but I have seen many of them tie their shoes. I find it more than a bit far-fetched to claim that they would not ever (a second Great Depression implies years of double-digit unemployment, not just a short downturn) figure out that they need to agree to a package of tax cuts and spending to boost the economy.

Anyhow, this proposition is at the core of the second Great Depression claim, so if you don't think that the members of Congress are complete morons, then you can't believe the second Great Depression story. The point is important because in the fall of 2008 we had the option to clean out the Wall Street cesspool in one fell swoop by allowing the market to work its magic. Most, if not all, of the major Wall Street banks would be out of business.

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Max Ehrenfreund had an interesting piece reporting on a new analysis of the first round of wage increases from Seattle's $15 an hour minimum wage law. The higher wage is being phased in between 2015 and 2020. The study found modest average wage gains of 73 cents an hour for low wage workers. The effect was limited in part because the strong economy helped to boost wages, so the minimum wage had less effect than otherwise might have been expected.

But the piece also notes the finding that average work time fell by roughly 15 minutes per week and employment by 1.2 percent. It is important to recognize that this drop in employment does not mean that 1.2 percent low wage workers will have jobs over the course of the year.

These are high turnover jobs. The 1.2 percent drop in employment means that at a point in time, 1.2 percent fewer workers will be employed. What this means for low-wage workers in Seattle is that they can expect to spend more time looking for a new job when they lose or quit their prior job. If they get roughly 7.0 percent more for the hours that they work, but they put in 1–2 percent fewer hours over the course of the year, then they will likely consider themselves better off.

In other words, the finding of some reduction in employment is not necessarily a bad thing. It doesn't mean that 1.2 percent of Seattle low-wage workforce has been condemned to go the whole year without a job.

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The NYT gave an analysis of changing attitudes towards trade agreements that completely misrepresented the key issues at stake. The headline pretty much said it all, "both parties used to back free trade. Now they bash it."

In fact, the current round of deals being negotiated, most importantly the Trans-Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment Pact (TTIP) have little to do with a conventional free trade agenda of lowering tariff barriers and eliminating quotas. With few exceptions, these barriers are already low or have been eliminated altogether.

Rather these deals are about putting in place a regulatory agenda that is being designed to foster corporate interests. The deals provide a backdoor around the normal legislative process, since many of these measures would not receive the support of democratically elected officials.

The agreements are also protectionist in important ways, making patent and copyright protections stronger and longer. (It doesn't matter if you like these government granted monopolies, they are still protectionist.)

These deals are being largely negotiated in secrecy, with most of the input coming from top corporate executives. Then they are pushed on to the American public as all or nothing propositions, with the proponents arguing not only the economic merits, but rather claiming they are a geo-political necessity.

In the case of the TPP, the Obama administration is now contending that the defeat of the agreement would be devastating to efforts to maintain an alliance of countries to contain China. If this is in fact true, then it is understandable that the public would be outraged over the administration's decision to let corporate interests get all sorts of special favors included in a deal that the administration now says is essential for national security.

It is incredible that the NYT tried to present the current debate as a narrow one over traditional issues of trade and protection. This is obviously not the case and there are no shortage of experts who could have explained this fact to its reporter. A good place to start would be the Nobel Prize-winning economist Paul Krugman, who also happens to be a NYT columnist. Joe Stiglitz, another Nobel Prize-winning economist, could have also explained the nature of these trade agreements to its reporter.

It would be great if the paper tried to do serious reporting on trade rather than just repeating long outdated nonsense about free traders vs. protectionists.

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The elite types have noticed that the masses are not happy about the economic agenda that they have crafted. Since the elites can’t imagine that the problem has anything to with the fact that their agenda is designed to redistribute income from the masses to the elites, they turn to psychological explanations.

In this vein, Greg Mankiw, a Harvard professor and former chief economist to George W. Bush, used his NYT column to discuss voters’ attitudes toward trade agreements like NAFTA and the Trans-Pacific Partnership (TPP). The research he highlights finds that attitudes towards trade don’t seem to depend on a person’s direct economic stake in trade but rather their perception of how trade affects the economy.

It turns out that the latter is highly correlated with education. Those with college degrees generally believe that trade agreements have been good for the economy and support them, while those with less than college degrees generally believe trade has been harmful and therefore oppose them. Mankiw sees this as good news for the long-term, since as more people graduate college a higher percentage will support trade deals.

Remarkably, the analysis Mankiw relies upon never asked about the location of the respondents, or at least this is not reported. That might have mattered, since a factory worker in an area that has lost a large number of jobs to imports, like Pennsylvania, may be expected to have a more negative attitude toward trade than a factory worker in an area where the economy is relatively healthy, like California. This is likely to be the case even if we controlled for more narrow industries.

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Thomas Friedman moves beyond his Flat World to divide the world into "Web People," who he likes, and "Wall People" who he holds in contempt. Donald Trump is naturally the lodestar of the Wall People, but the category goes well beyond the people who want to put up a huge wall on the border with Mexico.

Someone with nothing to do with their lives could perhaps try to find some coherence in Friedman's definitions, but the most obvious definition of Wall People is people who don't share his vision of the world, which he attributes to web people.

"In particular, Web People understand that in times of rapid change, open systems are always more flexible, resilient and propulsive; they offer the chance to feel and respond first to change. So Web People favor more trade expansion, along the lines of the Trans-Pacific Partnership, and more managed immigration that attracts the most energetic and smartest minds, and more vehicles for lifelong learning.

"Web People also understand that while we want to prevent another bout of recklessness on Wall Street, we don’t want to choke off risk-taking, which is the engine of growth and entrepreneurship."

Okay, so let's work through some logic here. If you want to see a freer flow of ideas and technology, by replacing patent and copyright monopolies with more modern ways of promoting innovation and creative work, then you are a Wall Person. After all, Friedman's Web People wouldn't know how to get by in the world without these relics from the feudal guild system.

If this means that life-saving drugs, which would be cheap in a free market, are priced beyond the reach of the people who need them, well get used to Thomas Friedman's world. If it means that we have to turn the whole world into copyright cops to ensure that Disney can collect its royalties on Mickey Mouse, that's a small price to pay to keep the Web People wealthy.

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Okay, it's not like the good old days of 2002–2007, but there are some grounds for concern in certain markets. In particular, the Case-Shiller tiered price indexes are showing extraordinary increases in the bottom tier (lowest third of house sale prices) in several markets.

For example, the index shows that in Denver prices in the bottom tier have risen by 16.7 percent over the last year and by 49.8 percent over the last three years. The comparable figures for the top tier are 6.4 percent and 21.4 percent. The CPI owner equivalent rent (OER) index has risen by 19.6 percent over the last three years.

In Portland, the one years increase for the bottom tier has been 16.2 percent and the three year 44.4 percent. For the top tier, the increases have been 9.9 percent and 26.3 percent. Rents have risen 16.3 percent over the last three years. In Los Angeles, prices in the bottom teir have risen 8.9 percent in the last year and 37.8 percent over the last three years. That compares to 7.0 percent and 21.1 percent for the top tier. Rents have risen by 9.9 percent over the last three years.

In Chicago, prices in the bottom tier have risen by 40.7 percent over the last three years and in Miami by 55.6 percent. Rents over this period rose in the two cities by 6.9 percent and 10.4 percent, respectively.

These numbers should provide serious grounds for caution. This is not a story of a bubble whose collapse will sink the economy and cause a financial crisis, but there is a real possibility that a lot of moderate-income homebuyers may get badly burned if prices turn around. The real estate pushers never care, since they make their money on the turnover, but it won't be a pretty picture for the families affected.

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That's the question millions are asking after reading his column noting that both the Democratic and Republican platforms call for re-instating Glass-Steagall. (It is important to note that the Democrats refer to the 21st Century Glass-Steagall Act introduced by Senator Elizabeth Warren. This measure would also address some of the problems created by the shadow banking system by changing rules on repayment in bankruptcy. This would put a check on the ability of troubled institutions to have access to credit markets.) Sorkin indicates that he doesn't approve of Glass-Steagall.

At one point he tells readers:

"Whether reinstating the law is good idea or not, the short-term implications are decidedly negative: It would most likely mean a loss of jobs as part of a slowdown in lending from the biggest banks.

"There is a reasonable argument to make that it would also put the United States banking industry at a competitive disadvantage relative to international peers, some of which face fewer restrictions."

It would be interesting to know how Sorkin decided that reinstating Glass-Steagall would reduce lending in the economy or even big bank lending. (It is possible that a reduction in big bank lending would be offset by more lending by smaller banks.) The big banks were supposed to keep a strict separation between their investment bank divisions and their commercial bank operations, so it's not obvious why a separation would reduce lending if they had been following the law.

It is also worth noting, that according to standard trade theory, if our surplus on banking services is reduced by a new Glass-Steagall, our trade deficit in other areas, like manufacturing, would decline. Many people might consider this a desirable outcome. Of course, this assumes that people follow the trade theory that ostensibly underlies NAFTA, the TPP, and other recent trade deals.

It is worth noting that Sorkin is right that Glass-Steagall would not have prevented the economic crisis in 2008. The problem was allowing a massive housing bubble to grow unchecked. When house prices collapsed the mortgages, and other assets that depended on house prices, plunged in value. The repeal of Glass-Steagall did not in any obvious way contribute to the bubble.

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The NYT had an article on the research lab that uncovered Volkswagen's cheating on its emissions. Apparently, the lab was run on a grant of $70,000. That would be less than 0.5 percent of your typical CEO's pay. In fact, it would be less than 10 percent of the pay of the top executives at major foundations that are supposed to care about doing good in the world.

The story is hardly a surprise to anyone who knows the world of research, but still striking.

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Samuelson told readers that we "can't borrow ourselves to prosperity." We can only assume that this is something that his parents told him because it surely has no basis in evidence. If the argument is that excessive borrowing has somehow caused us problems then Samuelson would have some serious work to make that case. The interest rate on 10-year Treasury bonds is 1.6 percent. The inflation rate remains well under the Fed's 2.0 percent target.

It's hard to imagine what on earth Samuelson can be thinking of, these are the pieces of evidence that economists would look to as harm from excessive borrowing. Of course, in the Washington Post they don't give a damn about evidence if the point of the argument is to keep ordinary workers from having jobs and keeping wages down. For this reason, Samuelson will probably be able to get a paycheck for as long as he likes for repeating things that his parents told him.

Samuelson also suffers from a serious lack of historical knowledge. He claims:

"Americans are now said to be “angry” and to demand “change.” This is misleading. In the past two decades, Americans have had more change than they’ve wanted. What they’d really like is to repeal the changes — the economic uncertainties, the physical threats, the geopolitical challenges — and revert to the romanticized world of the late 1990s, when the outlook seemed more tranquil."

Actually, what is more likely than romanticizing the 1990s is that people think that they should be able to share in the gains of productivity growth rather than living in an economy which is rigged to give all the money to Wall Street types, CEOs, and other elite characters. The normal state of affairs until this rigging was that wages rose roughly in step with productivity. However since 2000, real wages have barely risen for the vast majority of the population. A columnist with a bit more historical knowledge would know that it is highly unusual for wages to stagnate for long periods of time and all income gains to go to those at the top.

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Ross Douthat inadvertently told readers much about why large segments of the public in the U.S., U.K., and Western Europe are rejecting the policies pushed by elites. In his NYT column, he complained about Donald Trump's acceptance speech (which provided much ground for complaint):

"That message was a long attack, not on liberalism per se, but on the bipartisan post-Cold War elite consensus on foreign policy, mass immigration, free trade. It was an attack on George W. Bush’s Iraq war and Hillary Clinton’s Libya incursion both, on Nafta and every trade deal negotiated since, on the perpetual Beltway push for increased immigration, on the entire elite vision of an increasingly borderless globe."

Actually the United States does not push "free trade." A major thrust of all trade agreements of the last quarter century has been longer and stronger patent protections. These are "protections" as in not free trade. They raise the price of the affected goods by factors of ten or a hundred, making them equivalent to tariffs of several hundred or several thousand percent.

While the ostensible purpose of thesse protections is to promote innovation and creative work, there is little evidence that the additional incentive provided is justified by the additional cost. The one thing that we know for certain is that they redistribute income upward, forcing ordinary people to pay more for everything from prescription drugs to movies and computer software. The beneficiaries are the high end employees and shareholders of drug companies, software companies and the entertainment industry.

It is also not true that our elites have a vision of a "borderless globe." In the United States it is illegal to practice medicine unless you complete a residency program in the United States. This means that our elites will have foreign doctors arrested for doing their work. This protectionism raises the pay of U.S. doctors by more than $100,000 a year compared to their counterparts in other wealthy countries. It costs the country around $100 billion a year (@ $700 per family) in higher health care costs.

It is striking that Douthat apparently can not even see these and other protections that redistribute income upward. Perhaps this explains why many people don't like the elites.

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The NYT, like much of the rest of the media, feel the need to argue that our trade policies could not possibly be hurting manufacturing workers. Its latest effort in this direction was a piece arguing that China could not possibly be "stealing" U.S. jobs because it is losing jobs itself to other countries.

The basic story is that China has seen a sharp rise in its wages (29 percent over the last three years, according to the article) so it is no longer the low cost producer for many items. The article points out that wages are now far lower in countries like India, Vietnam, and Bangladesh, and that many firms now operating in China are moving production to these countries. Some companies are even looking to reshore operations to the United States.

While the NYT obviously does not like Donald Trump, this argument is just silly on its face. Suppose the United States had a 20 percent tariff on imported textiles that was angering our trading partners. The NYT would then go to factories in North Carolina and elsewhere that were laying off workers, and then ridicule people who said that the tariffs were reducing textile imports.

That would obviously be absurd, but that is the logic of the NYT piece. The issue at hand is whether China's policy of deliberately keeping down its currency against the dollar has increased its trade surplus with the United States and thereby cost the U.S. manufacturing jobs. The fact that China itself might now be losing jobs, does not in any way disprove the argument that its currency policy did and still does cost the U.S. jobs.

The NYT, like much of the rest of the media, pursues a policy of selective protectionism. It either ignores or supports protectionist measures that tend to benefit higher income people. For some reason, it never discusses the laws that require doctors to complete a residency program in the United States to practice in the United States, as though there were no other way for a person to be a competent doctor. Our protectionist measures for doctors costs the country roughly $100 billion a year in higher health care costs (@ $700 per year per household). There are comparable measures in place for other highly paid professions.

The U.S. also demand stronger and longer copyright patent protection as part of its trade agreements. Protectionism in prescription drugs alone costs the public more than $300 billion a year (@ $2,500 per family). For some reason the NYT doesn't take note of this protectionism either.

It is only measures that would benefit less-educated workers that earn the wrath of the NYT and the rest of the media. Ironically, pushing a policy that would prevent currency management of the type pursued by China is actually a free trade policy. But the NYT apparently cares much more about who benefits from a policy that the logic behind it.

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Catherine Rampell correctly points out that the Donald Trump Republicans want a nanny state, going through various ways in which they want government to intervene in people's lives and the economy to make life better for them. You can add some important items that Rampell left out, like stronger and longer copyright and patent monopolies, to redistribute money from people who work to people who own patents and copyrights. They also seem fine with the protectionist barriers that keep our doctors and other highly paid professionals from having to compete with their lower paid counterparts in the developing world or even Western Europe. But she does get one item badly wrong.

Rampell lists breaking up the big banks as an intervention. Actually the opposite is the case.

The reason to break up the big banks is that if their highly paid CEOs push them into bankruptcy through incompetence, the government will invariably bail out them out. The Treasury and/or Fed will give them money at below market interest rates to ensure they survive. Such bailouts will almost certainly always get political support because folks like Rampell's employers at the Washington Post will furiously denounce anyone who doesn't support saving the big banks. The opponents will be called all sorts of names and face bleak political prospects if they don't come through with the money for Wall Street.

Since market actors know that the big banks will be bailed out by the government if they get in trouble the banks can borrow at a lower cost than smaller competitors in the same financial situation. This amounts to a government subsidy to their top executives and shareholders. The I.M.F. and others have estimated the size of this subsidy as being between $25 billion and $50 billion a year. That is not a free market. 

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There have been many pieces in the media noting that the Republican platform calls for restoring Glass-Steagall and arguing that this is stealing an item from Elizabeth Warren's agenda. While the Republican proposal would presumably restore the separation of investment banks from commercial banks that take government guaranteed deposits, the 21st Century Glass-Steagall Act being pushed by Senator Warren goes well beyond this.

Most importantly, the act would change the priority given to derivatives in bankruptcy. As current law is written, various derivative instruments have priority in bankruptcy proceedings over other liabilities. This allowed non-bank institutions like Lehman to continue to carry through normal business even as their financial situation was deteriorating due to bad mortgage debt. By taking away the priority for derivative contracts, market actors would have serious incentive to evaluate the financial situation of an institution like Lehman. This would likely prevent it from developing the same sort of massive uncovered liabilities that Lehman did in the housing bubble years.

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No, that is not some new concession that the Speaker made to appease Donald Trump, this is his budget wonkiness. According to the analysis of Ryan's budget by the Congressional Budget Office, he would reduce the non-Social Security, non-Medicare portion of the federal budget, shrinking it to 3.5 percent of GDP by 2050 (page 16).

This number is roughly equal to current spending on the military. Ryan has indicated that he does not want to see the military budget cut to any substantial degree. That leaves no money for the Food and Drug Administration, the National Institutes of Health, The Justice Department, infrastructure spending or anything else. Following Ryan's plan, in 35 years we would have nothing left over after paying for the military.

As I have pointed out here in the past, this was not some offhanded gaffe where Ryan might have misspoke. He supervised the CBO analysis. CBO doesn't write-down numbers in a dark corner and then throw them up on their website to embarrass powerful members of Congress. As the document makes clear, they consulted with Ryan in writing the analysis to make sure that they were accurately capturing his program.

For some reason, the media refuse to give Mr. Ryan credit for the position he has openly embraced. The NYT followed this pattern in its editorial implying that Mr. Ryan had compromised his respectable wonkiness in his endorsement of Donald Trump. Ryan has made his career by arguing an extreme position that is far to the right of even most of the Republican party. It is long past time that the media take seriously the position he is advocating.

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An NYT article on insurers' requests for higher premiums in the health care exchanges set up by the Affordable Care Act (ACA) might have misled readers about the reason that insurers face higher costs. The piece noted the request to the federal government for large increases in several states, ranging from 34 to 60 percent. It then quoted Gregory A. Thompson, a spokesman for Blue Cross and Blue Shield plans in five states. 

"...the reason for the big rate requests was simple. 'It’s underlying medical costs,' he said. 'That’s what makes up the insurance premium.'"

Insofar as insurers are seeing sharp increases in costs it is not due to rising health care costs in general. These have been rising relatively slowly. The Commerce Department reports that spending on health care services in nominal terms rose just 5.0 percent over the last year, only slightly faster than the growth in nominal GDP. (Prescription drugs spending rose at a somewhat more rapid 7.0 percent rate in the last year.)

The only plausible explanation for faster cost growth in the exchanges is that the people signing up for the exchanges are less healthy than the population as a whole. This has always been a problem with health care insurance. If only less healthy people sign up, it makes the insurance very expensive. This was the reason that the ACA requires people to buy insurance. (Bizarrely, this became know as the problem of "young invincibles," implying that we needed young healthy people to sign up for the exchanges. Actually it is much more important to have older healthy people sign up for the exchanges, since they pay higher premiums and also have almost no costs.)

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See, it's all very simple. If a father pays his kid $10 to mow his lawn, no one expects the kid to pay Social Security taxes on the money. It's the exact same thing when people work 40 hours a week for an employer, why would we expect them to pay Social Security taxes on their wages?

That is the nature of the argument Steven B. Klinsky, the founder and chief executive officer of the private equity firm New Mountain Capital, gave in a NYT column in defense of the carried interest deduction. This deduction allows hedge fund and private equity fund mangers to pay taxes at the capital gains tax rate (20 percent) instead of the 39.6 percent tax rate they would pay on normal income.

Klinsky argues that this carried interest loophole really is no loophole at all:

"Let’s say a father and a son go into business together to buy the local lawn mowing company for $1,000. The father puts up the money and the son does all the work of having the idea, managing the partnership and so on. They agree to split the partnership’s future profit 80 percent for the father (as the passive, money limited partner) and 20 percent for the son (as the active, hands-on general partner). If years later, the partnership is sold for a profit, there would be long-term capital gain on that profit. The father would own 80 percent of the profit and pay 80 percent of the capital gains taxes. The son would own 20 percent of the profit and pay 20 percent of the capital gains taxes."

See, when folks like Mitt Romney and Peter Peterson get hundreds of millions of dollars a year from their earnings as private equity fund managers it's just the same as kid who goes into business with his father. There's no reason these people should be taxed like ordinary workers.

As a practical matter, the relevant examples here are realtors, car salespeople, and other workers who get paid on a commission. In all these cases, workers' pay depends on the profit to the owner of the business or the customer. In all of these cases, workers are taxed on their commissions in exactly the same way that other workers are taxed on salaries. This is really not a tough call. There is no reason for the I.R.S. to give workers a tax break just because they are paid on commission.

Apparently, Klinsky thinks that the rules that apply to ordinary workers shouldn't apply to the very rich people who run private equity and hedge funds. At least, that is the only thing that we can reasonably infer from his argument.

Of course, the son in his case should, in principle, have to pay normal taxes on the earnings from his labor just as the kid mowing his dad's lawn should in principle pay Social Security tax on his $10. However, because trivial sums are involved and the enforcement issue would be extremely difficult, we don't worry about these cases. When some of the richest people in the country can get away with paying a lower tax rate than a school teacher or firefighter, it is something worth worrying about.

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The Fed rate hike gang got excited yesterday about the release of the June Consumer Price Index data. As the NYT reported, a 0.2 percent June rise in the core CPI took the year over year rate to 2.3 percent. That is slightly above the 2.0 percent target set by the Fed, although the Fed uses the core personal consumption expenditure index, which shows a 1.6 percent advance over the last year.

However even the CPI figure can be a bit deceiving. The shelter component (essentially rent and owners' equivalent rent) accounts for over 40 percent of the core index. This component is the factor responsible for the modest increase in the core CPI in recent months. Excluding the shelter component the core CPI actually fell modestly from 1.6 percent to 1.4 percent over the prior twelve months.

Change in the Core CPI, Excluding Shelter Over Prior Twelve Months

CPI housingSource: Bureau of Labor Statistics.

It is reasonable to exclude shelter when assessing patterns in inflation since its price follows a qualitatively different dynamic than most goods and services. Rent reflects supply and demand conditions in the housing market. The factor driving rent increases is an inadequate supply of housing.

While higher interest rates will in general be expected to dampen inflation by weakening the labor market and putting downward pressure on wages, this would not be the case with rents. Higher interest rates will slow construction and in this way make the shortage of housing worse. For this reason inflation caused by rising house costs would not be a good rationale for raising interest rates.

The piece also touted the Federal Reserve Board's report of a 0.4 percent increase in manufacturing output for June. It is worth noting that this follows a reported decline of 0.3 percent in May. The Fed's manufacturing index is still 0.2 percent below its February level so it is hard to make a case for robust growth in this sector. 

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Sure, everyone knows that $1.3 billion is roughly 9.0 percent of the state's $13.8 billion 2015 budget. That's why the NYT never bothered to put this figure in any context for its readers in an article on how the state is dealing with a sharp falloff in oil revenue.

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Paul Krugman actually did not make any predictions on the stock market, so those looking to get investment advice from everyone’s favorite Nobel Prize winning economist will be disappointed. But he did make some interesting comments on the market’s new high. Some of these are on the mark, but some could use some further elaboration.

I’ll start with what is right. First, Krugman points out that the market is horrible as a predictor of the future of the economy. The market was also at a record high in the fall of 2007. This was more than a full year after the housing bubble’s peak. At the time, house prices were falling at a rate of more than 1 percent a month, eliminating more than $200 billion of homeowner’s equity every month. Somehow the wizards of Wall Street did not realize this would cause problems for the economy. The idea that the Wall Street gang has some unique insight into the economy is more than a bit far-fetched.

The second point where Krugman is right on the money (yes, pun intended) is that the market is supposed to be giving us the value of future profits, not an assessment of the economy. This is the story if we think of the stock market acting in textbook form where all investors have perfect foresight. The news that the economy will boom over the next decade, but the profit share will plummet as workers get huge pay increases, would be expected to give us a plunging stock market. Conversely, weak growth coupled with a rising profit share should mean a rising market. Even in principle the stock market is not telling us about the future of the economy, it is telling us about the future of corporate profits.

Okay, now for a few points where Krugman’s comments could use a bit deeper analysis. Krugman notes the rise in profit shares in recent years and argues that this is a large part of the story of the market’s record high, along with extremely low interest rates. Actually, the profit story is a bit different than Krugman suggests.

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Bloomberg is really pushing the frontiers in journalism. In order to give readers a balanced account of a proposal by Representative Peter DeFazio to impose a 0.03 percent tax on financial transactions (that's 3 cents on every hundred dollars) it went to the spokesperson for the Investment Company Institute, the chief investment officer from Vanguard, and an academic with extensive ties to the financial industry. It also presented an assertion on the savings from electronic trading from Markit Ltd. Based on this diverse range of sources, Bloomberg ran a headline:

"Democrats assail Wall Street with plan that may hit mom and pop."

If Bloomberg was interested in views other than those from the financial industry, it might have found some people who supported the tax to provide comments for the article. Or, it might have tried some basic arithmetic itself.

Most research finds that trading is price elastic, meaning that the percentage change in trading in response to a tax is larger than the percentage increase in trading costs that result from the tax. The non-partisan Tax Policy Center assumed an elasticity of -1.25 in its analysis of financial transactions taxes.

This means that it the tax proposed by DeFazio would raise the cost of trading by 20 percent, then trading volume would decline by 1.25 times as much, or 25 percent. Investors would pay 20 percent more on each trade, but would be trading 25 percent less. This means that their trading costs would actually fall as a result of the tax. (With trading at 75 percent of the previous level, but the per trade cost at 120 percent of the previous level, the total cost of trading would be 90 percent of the prior level.)

The only way "mom and pop" get hurt in this story is if they make money on average on their trades. That is a hard story to tell. If mom and pop are lucky and sell their stock when it is high then some other mom and pop are unlucky and buy the stock when it is over-valued. As a general rule, trading will end up being a wash. (If we stopped trading altogether that would be a problem, but the taxes on the table would just raise costs to where they were 10 or 20 years ago.)

Of course there is someone that gets hurt by less trading -- the folks who were making money on the trades -- that's right the financial industry. So, Bloomberg's sources could expect to take a huge hit if Congress were to pass a tax like the one proposed by Mr. DeFazio. Based on the elasticity figure used by the Tax Policy Center and the revenue estimate from the Joint Tax Committee, DeFazio's proposed tax would cost the financial industry more than $50 billion a year. Since it may not sound very compelling to hear a multi-millionaire complain about the prospect of a pay cut, it sounds much better to make up a story about mom and pop investors.

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