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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The Washington Post had a very useful front page piece on the poor quality of dental care received by large segments of the population. It noted the high price of dental care, but never examines why it costs so much in the United States.

A big part of the story is that dentists earn on average $200,000 a year, roughly twice the average of their counterparts in Western Europe and Canada. This is in large part because our dentists benefit from protectionism. We prohibit qualified foreign dentists from practicing in the United States unless they graduate from a U.S. dental school (or in recent years, a Canadian school).

The price of dental equipment is also inflated due to the fact that it enjoys government-granted patent monopolies. In most cases, this equipment would be relatively cheap if it were sold in a free market. (Yes, we need to pay for the research that supports technological innovation, but there are alternative mechanisms. This issue and protection for dentists is discussed in Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer [it's free].)

Anyhow, this is yet another example of how the religiously pro-free trade Washington Post happily turns a blind eye to protectionism when it is the wealthy who benefit.

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This is more of the "which way is up" problem in economics. Right now, we have lots of economists debating how best to reform the tax code. Most of them see increasing the incentive to save (which means not spending money) as an important goal.

Of course, more saving is not a good idea if we think the economy doesn't have enough demand to fully employ the workforce. I put myself in the group of economists who hold this view, but we are the minority these days. Most economists think that the economy is pretty close to full employment. That is why the Fed is raising interest rates. Presumably, this is also why people are worried about budget deficits, at least insofar as their concern about budget deficits has any real world rationale.

Anyhow, in this context the NYT is completely off the mark when it tells readers:

"Homeowners are moving less, creating a drag on the economy, fewer commissions for real estate brokers and a brutally competitive market for first-time home shoppers who cannot find much for sale and are likely to be disappointed by real estate’s spring selling season."

If people are spending less on real estate commissions and other costs associated with buying and selling homes, then they are saving more. Which, according to the economists trying to restructure the tax code, is a good thing. It will leave more resources for investment, leading to more rapid increases in productivity. (Again, I don't buy this. I think investment is being held back by a lack of demand, but that's just my fringe position.) 

The rest of the claim also doesn't make much sense. If more people sold their homes and then turned around and bought new homes, this would increase the number of homes for sale, but it would also increase the number of buyers on the market by roughly the same amount. There is only a net improvement for buyers if some of the sellers opt to rent, but the piece is not talking about people switching from owning to renting.

The data also don't support the claim that people are moving less frequently, as can be seen in one of the charts included with the article. It shows that the most recent rate of sales of existing homes, at 5.7 million annually, is somewhat above the level at the start of the last decade. It is even further above the mid-1990s pre-housing bubble rate. In other words, the rate of sales of existing homes is pretty much back to, or possibly even above, the rate we saw in more normal times — even if it is below the frenzy levels of the bubble years.

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Binyamin Appelbaum had a good piece in the NYT presenting how mainstream economists assess the prospects for boosting growth with the sort of tax cuts proposed by the Trump administration. While the piece accurately conveys the range of views among the mainstream of the profession about the extent to which it is possible to boost GDP growth, it is worth noting that the mainstream of the profession has an absolutely horrible track record in this area. 

The piece tells us that the Federal Reserve Board puts the economy's potential growth rate at just 1.8 percent a year. It then presents views of several economists suggesting that a well-designed tax reform could raise this by 0.3 to 0.5 percentage points.

As recently as 2012, the Congressional Budget Office (CBO) projected that the economy could grow at a 2.5 percent annual rate for the period between 2018 and 2022 (see Summary Table 2). CBO's projections are usually near the center of the economic mainstream, so in the not distant past, many economists believed that the economy could sustain a 2.5 percent annual rate of growth.

It is also worth noting that there is enormous uncertainty about how low the unemployment rate can go without sparking inflation. CBO put the non-accelerating inflation rate of unemployment (NAIRU) in the 5.2–5.4 percent range five years ago. In the most recent month, the unemployment rate was 4.4 percent. There is no evidence in the data of any acceleration in the rate of inflation.

This is important background. While it is probably true that the sort of tax reform proposed by Trump (i.e. giving rich people more money and creating more opportunities to game the tax code) will not provide much boost to growth, economists really don't have much basis for confidence in their own projections of the economy's potential. They have repeatedly been wrong by huge amounts in the past, so unless they suddenly learned a great deal of economics, we should view current projections with considerable skepticism.

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I've had people ask me, so I went back to refresh my memory. Yes, it was very bad news as the Watergate scandal unfolded and Nixon was eventually forced to resign. The economy slipped into a recession beginning in November of 1973, with the unemployment rate rising from a low of 4.6 percent in October of 1973 to an eventual peak of 9.0 percent in May of 1975.

Unemployment Rate: 1970 to 1980
Unemploy 70s

Source: Bureau of Labor Statistics.

Having put these numbers on the table, I'm not sure how much of this can be attributed to Watergate and the crisis of the Nixon presidency. The proximate cause was the Arab oil embargo which quadrupled the price of oil at a time when the U.S. was far more dependent on oil than is currently the case. Nixon also removed the wage and controls which were intended to keep inflation under control through the 1972 election. Throw in a wheat deal with the Soviet Union that sent wheat prices soaring and you have a serious inflation problem.

The Fed responded by slamming on the brakes which gave us at the time what was considered to be a pretty awful recession. Would Nixon have done anything to save the economy if he wasn't struggling to save his presidency? It's hard to say to say what he could or would have done, but the story as it played out was not pretty.

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The betting still seems to be that the Fed will raise rates in June, but it doesn't seem like the inflation data could be the reason. The numbers were again quite tame in April, with the overall CPI increasing by 0.2 percent in the month and the core by 0.1 percent. The year over year increase in the overall CPI is 2.2 percent, and 1.9 percent in the core. This puts inflation well below the 2.0 percent average rate (for the PCE deflator) being targeted by the Fed.

However, the weakness of inflation is even more striking if we look at a core CPI that excludes shelter. There is a logic to this, since shelter does not follow the same dynamic as other components in the CPI. Furthermore, the Fed is not going to reduce shelter costs by raising interest rates. In fact, by slowing construction and thereby reducing supply, it could well be raising shelter costs.

Here's the picture.

Core CPI Inflation, Excluding Shelter Costs
core inf no shelter
Source: Bureau of Labor Statistics.

The rate of inflation in this non-shelter core is 0.8 percent over the last year. Perhaps even more importantly, it is falling, not rising. This means that the extremely weak evidence of any acceleration in core inflation was completely due to rising rents. If we pull out housing, the rate of inflation in everything else is declining. 

So why does the Fed feel it has to raise rates?

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In his presidential campaign, Donald Trump made a big point of beating up on China for its "currency manipulation." He said that China was ripping off the United States because of its large trade surplus with the U.S., which had cost us millions of manufacturing jobs.

Trump said the trade deficit was due to the fact that our "stupid" trade negotiators allowed China to get away with depressing the value of the yuan against the dollar. This makes Chinese goods relatively cheaper in world markets, giving them a competitive advantage. Trump promised to put an end to this currency manipulation. 

Last month, Trump met with China's President Xi Jinping. According to his own account, the topic of currency values did not come up. Trump said that he got along very well with President Xi and looked forward to his assistance in dealing with North Korea. He didn't want to spoil the relationship by bringing up currency.

The Washington Post today reported on a trade deal the Trump administration worked out with China. The piece says that the deal will open the door for beef exports to China. It also will remove obstacles that prevented U.S. financial services companies (e.g. Goldman Sachs) from operating in China. This agreement is undoubtedly good news for beef exporters, even if the impact is exaggerated (it might trivially raise the price of U.S. beef) and it surely is good news for the financial industry, but it doesn't do anything for the manufacturing workers who lost their jobs in places like Ohio and Pennsylvania.

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As I like to point out, debates on economic policy suffer badly from the "which way is up problem." At the same time we are constantly hearing concerns about aging baby boomers and large budget deficits (too little supply and too much demand) we also hear stories about robots displacing workers and creating mass unemployment (too much supply and too little demand).

Either of these stories could, in principle, be true, but they can't possibly both be true at the same time. It speaks volumes for the confusion perpetuated in public debates that we do simultaneously hear both concerns raises. (I was once on a radio show where the other person was warning about robots taking all the jobs. He then said things will get even worse when the baby boomers retire and we have to pay for Social Security. Just think, we first have no jobs and then have no workers.)

Anyhow, the NYT had a story about a state-of-the-art auto factory in China which relies largely on robots to put together cars. This is interesting because there have been numerous stories about how China is going to meet some terrible fate as a result of its one child policy, which sharply curtailed population growth. Its labor force is projected to shrink over the next two decades.

In fact, there is basically zero reason for China to be worried about its shrinking labor force. China still has tens of millions of people employed in extremely low productivity agricultural work. It also has many older factories with outmoded technologies. These can be readily replaced with new factories, like the one highlighted here, which will have much higher productivity.

In short, there is pretty much nothing to the China labor shortage story. But on the plus side, many economists can be employed talking about it.

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The people who run the economy have really screwed it up over the last four decades from the standpoint of ordinary workers. This is a bipartisan issue, so it's not a blame Reagan, Bush I, Bush II, and Trump story. Clinton and Obama were also willing to support a bloated financial sector and trade policies that redistributed upward by subjecting ordinary workers to low-wage competition while protecting doctors, dentists, and other highly paid professionals. This policy was made worse by the high dollar policy pushed by President Clinton which led to the massive expansion of the trade deficit in the years from 1997 to 2005.

They also supported longer and stronger patent and copyright monopolies, policies that allow for hundreds of billions to be sucked away from the rest of us to pay the small group in a position to benefit from these rents. And both Democratic presidents (especially Clinton) were just fine with monetary policy that keeps millions of people (disproportionately African American and Hispanic) from having jobs and depresses the pay of tens of millions of workers who have jobs.

Anyhow, the key to ensuring that the bulk of the population benefits from future growth depends on reversing these policies. (Yes, this is the topic of my [free] book Rigged.) Naturally many of us would like public policy debates to focus on reversing the structural barriers that prevent most people in sharing the gains from growth.

However the beneficiaries of these gains don't really want public discussions of the policies that gave them all the money, hence we get a NYT column from Thomas Friedman with the title, "Owning your own future."

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We hear endless stories in the media about how the robots are taking all the jobs. There was a new rush of such stories after the release of a study by Daron Acemoglu and Pascual Restrepo, which found that robots were responsible for a substantial share of the job loss in manufacturing in the last decade. (For example, this Bloomberg piece by Mira Rojanasakul and Peter Coy.)

However, there remains a very basic problem in the robot story, it is not showing up in the productivity data. To step back a minute, robots are supposed to replace human labor. This means that for the same number of hours of human work, we should see much higher output of goods and services, since the robots are now adding to total output. This is what productivity growth means.

So if robots are having a large impact on jobs, then we should see productivity growth going through the roof. Instead, it is falling through the floor. It has averaged less than 1.0 percent annually in the last decade. This compares to an average growth rate of 3.0 percent in the decade from 1995 to 2005 and also in the long Golden Age from 1947 to 1973.

Strikingly, productivity growth has been especially bad in manufacturing, the place where we see the greatest use of robots. Here's the picture since 1988, the period for which the Bureau of Labor Statistics (BLS) has a consistent series.

Productivity Growth in Manufacturing: Year over Year Change
Manu prod

Source: Bureau of Labor Statistics.

Over the last four years productivity growth in manufacturing averaged less than 0.2 percent annually. This compares to rates that often exceeded 4.0 percent in prior decades. This slowdown is especially striking since the rate of installation has increased sharply in recent years. According to data cited in the Bloomberg piece, we've added an average of 22,000 robots a year in the last three years. This compares to a peak of around 16,000 in the years before the Great Recession.

If robots are leading to massive job loss, then we should be seeing some serious gains in productivity. Instead the opposite has occurred. It's awful to let a good story be ruined by evidence, but it just doesn't seem that the use of robots will go far towards explaining the weakness of wage and job growth in the recovery.

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Last week, Representative Peter DeFazio reintroduced his financial transactions tax (FTT) proposal. The bill would impose a tax 0.03 percent on trades of stock, bonds, options, and other derivative instruments. (That's 3 cents on $100 of trades.) This can be thought of as the equivalent of a sales tax imposed on financial transactions, which are now largely untaxed.

According to the Joint Tax Committee, this tax would raise roughly $400 billion over a 10-year budget horizon. This translates into 0.2 percent of GDP. That would cover about 60 percent of the annual food stamp budget.

The tax would also dampen speculative trading on Wall Street. Many trades that involve flipping assets in a matter of minutes or even seconds would become unprofitable with even this small tax. This could make financial markets more stable.

But the really neat aspect of this tax is that it all comes out of the hide of Wall Street, rather than ordinary investors. Considerable research shows that trading volume declines roughly in proportion to the increase in trading costs.

This means that if the DeFazio proposal would raise trading costs by one-third, then trading volume would fall by roughly one-third. Investors will pay one third more on each trade, but they will carry out one-third fewer trades. This means their total cost of trading with the tax will be no larger than it was without the tax. (The Tax Policy Center of the Urban Institute and the Brooking Institution actually assumed that trading volume fall by 25 percent more than the percentage increase in trading costs, meaning that total trading costs would fall as a result of the tax.)

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The NYT had a piece discussing some of the potential economic ramifications of the repeal of the Affordable Care Act (ACA). The article points out that the health care sector has been a major source of job growth in recent decades. If we cut back spending on health care, then presumable employment growth in the sector would slow.

There are few points to be made here. First, job growth in health care is only desirable insofar as it is improving people's health. More people who directly provide care, doctors, nurses, physical therapists, fit this bill. People working in providers' office dealing with insurance forms do not. So if the repeal were to lead to more of the former and less of the latter (unlikely) that would be a positive development.

But beyond providing health care, the sector has been an important source of jobs, as the piece notes. Suppose that the job growth in the sector slows due to less money going to pay for people's health care. The question is then what happens to the money saved?

Most immediately, the money saved will go the country's richest people in the form of tax cuts. The question is then whether they will save or spend it? One of the economy's major economic problems, at least since the collapse of the housing bubble, has been not enough spending. If we give Bill Gates and Jeff Bezos another hundred million a year or so, do we think they will increase their consumption? My guess is no, which means we are reducing demand in the economy.

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The Washington Post has long pushed the view that a dollar (or euro) that is in the pocket of a middle-class person is a dollar that should be in the pockets of the rich. (They are okay with crumbs for the poor.) In keeping with this position, in its lead editorial today the Post complained about the "sclerotic statism" of the French economy. It then called for increasing employment, "through reforms of the labor code, not by protectionism or restriction of immigration."

It is worth bringing a little bit of data to the fact free zone of the Washington Post opinion pages. France actually has consistently had a higher employment rate for its prime-age workers (ages 25 to 54) than the United States.

Book2 16029 image001

Source: OECD.

As can be seen, the employment rate for prime-age workers in France was roughly 2 percentage points higher in 2003. The gap expanded to almost 7 percentage points following the downturn, but it has in more recent years narrowed again to just under 2 percentage points.

France does have much lower employment rates among younger and older workers than the United States, but this is due to policy choices. College is largely free in France and students get stipends from the government. Therefore, many fewer young people work. France also makes it much easier for people to retire in their early sixties than in the United States, with largely free health care and earlier pensions. The merits of these policies can be debated, but they are not evidence of a sclerotic economy.

It is also not clear that the Washington Post's desire to weaken protections for workers (euphemistically described as "reforms of the labor code") will have a significant effect in reducing unemployment or raising employment. Extensive research has shown there is little relationship between worker protections and employment. It is also worth noting that the Post denounced protectionism in this editorial, but it is fine with protectionism in the form of ever longer and stronger copyright and patent protection, which benefit people it likes.

The most obvious reason that France's employment rates have not returned to pre-recession levels is the austerity demanded by Germany, which it is able to impose on France through its control of the euro. There is little reason to believe that if France were able to spend another 1–2 percent of its GDP on infrastructure, training, and other forms of public investment, its economy and employment would not expand.

The Post is of course a big fan of austerity. Rather than acknowledging that a lack of demand is the main factor keeping workers from being employed, it would rather blame the workers for lacking the right skills.

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The Washington Post featured a short explainer on trade deficits by Martin Feldstein, a Harvard Professor and head of the Council of Economic Advisers under President Reagan, and George Schultz, a former Secretary of Labor, Treasury, and State.

The piece told readers that we have trade deficits because the United States as a country consumes more than it produces. It added that the only way to reduce the trade deficit is by increasing domestic savings, for example by reducing the federal budget deficit.

As every economist knows, we can also increase savings by increasing output, unless the economy is already producing at its potential level of output. This means that if we reduced the trade deficit, for example, by lowering the value of the dollar, which makes U.S.-produced goods and services more competitive internationally, we can increase output and thereby also increase savings. (Savings rise in step with income.)

While the identity between savings and trade deficit referenced by Feldstein and Schultz always holds, unless the economy is producing at its potential level of output, we can increase output and employment by reducing the trade deficit.

Simple, isn’t it? Now why would these distinguished economists try to mislead people?

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Susan Dynarksi had a very good piece in the NYT Upshot section on several measures from the Trump administration which will allow the financial industry to collect larger fees from student loans. However, the piece errs in describing the changes as being "deregulation." Rather these changes are ways in which the government is deliberately choosing not to enforce contracts in ways that increase corporate profits at the expense of student borrowers.

Suppose that the government announced that it was going to stop making efforts to verify income among people applying for food stamps. In fact, suppose it decided to no longer even verify the number of children an applicant was claiming. Would anyone consider this move "deregulation?"

This is comparable to what the government is doing in reference to the firms involved in the student loan repayment process. The purpose of the loans is make it easier for kids from low- and middle-income families to attend college. The government is supposed to design contracts that fill this purpose at the lowest cost to both the government and the students.

The measures being taken by the Trump administration are not likely to lower costs for the government and are almost certainly going to raise them for students. In effect, it is making the contracts more advantageous to the financial industry by subjecting students to higher fees.

Calling this "deregulation" might lead readers to believe there is some principle at stake here. There isn't. As with most of the actions of the Trump administration, the only principle is giving more money to the rich and powerful.

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Actually, the article told people that he wanted to spend 50 billion euros. Is that big for the French economy? Would it matter if it were over one year or ten years?

Apparently, the NYT doesn't think so, since the article never tells people how long a period is covered by the proposal. For those who might care about such trivia, the proposal is for a five-year period, putting it at roughly 10 billion euros a year. Since France's GDP is projected to average roughly 2.5 trillion euros annually over this period, the proposal would cost approximately 0.4 percent of GDP.

Is this really that hard?

Is there some reason that a reporter covering the French presidential elections can't tell us the number of years involved in a spending program? It does make a difference.

How about some information, like the share of GDP, that would put the measure in a context that would be meaningful to NYT readers. I know the paper has a well-educated readership, but I am willing to bet that fewer than one in ten could tell you France's GDP within a 25 percent margin of error.

None of this should be controversial. When she was the NYT's Public Editor, Margaret Sullivan wrote a very nice column on exactly this point. She got then Washington editor David Leonhardt to strongly agree with her.

What's the problem here? The newspaper is supposed to be providing its readers with information. Providing a large number without any context is not providing information.

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Theresa Brown is far too generous to the U.S. health care system in her NYT column. She tells readers:

"Health care in the United States is more expensive because, unlike the systems in other countries, ours rests on the idea that profits and quality health care go hand in hand."

It is far too generous to say that any idea is behind the structure of the U.S. health care system. When the drug companies push for longer and stronger patent protection or doctors are trying to restrict competition, they aren't pursuing ideas, they are trying to increase their incomes. No one should pretend there is some general principle at stake here.

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In the era of Donald Trump, the New York Times apparently felt it was important to get a climate denier among its columnists. For this reason, they hired Bret Stephens away from the Wall Street Journal. Apparently, they could not find a climate denier who also understood arithmetic, since Mr. Stephens clearly falls short in this category.

Stephens uses his most recent column to tout mistakes made by those pushing for reductions in greenhouse gas emissions. He rightly seizes on biofuels, which are in fact a net loser from a global warming perspective.

While he is right that the effort to promote biofuels was a major mistake, it's not clear what the importance of this is. There were major mistakes in the development of every major technology in history. It would be hard to imagine that the effort to develop clean or cleaner energy sources would not take some wrong turns.

Anyhow, Stephens goes badly astray when he tries to tell readers that we have seen nothing but wrong turns. He tells us:

"There’s also been some acknowledgment that Germany’s Energiewende — the uber-ambitious “energy turn” embarked upon by Angela Merkel in 2010 — has been less than a model for others. The country is producing record levels of energy from wind and solar power, but emissions are almost exactly what they were in 2009. Meanwhile, German households pay nearly the highest electricity bills in Europe, all for what amounts to an illusion of ecological virtue."

I managed to track down Mr. Arithmetic (he's been on a long vacation) to ask about this one. Mr. Arithmetic points out that Germany's economy has grown by more than 16 percent since 2009. This means if Stephens is right, that its emissions are lower today than they were in 2009, then Germany has managed a remarkable 16 percent reduction in emissions per unit of GDP in just eight years.

Contrary to what Stephens implies in his column, this would be an incredible success story, especially since Germany's emissions per unit of GDP were already relatively low. (It is harder to achieve a larger percentage reduction from a low level than a high level.) If Stephens is right about Germany, then it should be easy for the United States to achieve and beat the emissions reductions set in the Paris agreement.

It is also worth noting that everyone understood that the first-movers were going to pay a higher price than followers. In other words, Germans understood that by taking the lead in reducing emissions it would pay a higher cost for reductions than laggards. They would be the cutting edge in developing and putting in place new technology, meaning that they would be stuck with paying the bill for some losers. The laggards would only pay for the winners.

This was a very socially minded position, where the whole world stood to gain from the fact that Germany was taking the lead in reducing greenhouse gas emissions. This wasn't a case of stupidity, as Stephens seems to think. It was a case of caring about the future of humanity and being willing to make some sacrifice to protect it.

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The Washington Post has a major article on a speech by GE's chief executive Jeffrey Immelt in which he condemned lackluster efforts to fund the Export-Import Bank as "pathetic." The piece neglected to mention that GE is almost always one of the largest recipients of below market interest rate loans or guarantees from the Export-Import Bank.

The headline also reported Immelt's condemnation of "protectionism." It would have been worth pointing out that much of what GE sells in the United States is produced overseas, which means that GE's profits would likely be hurt by some protectionist measures or even efforts to reduce the value of the dollar closer to its market rate.

It is also worth noting that it appears that Mr. Immelt is just fine with patent and copyright protection. These forms of protection are enormously costly, often raising the price of the protected items by several thousand percent above the free market price. For this reason, it is wrong to say that Immelt is opposed to protectionism, he appears to just be opposed to types of protectionism that reduce this company's profit.

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Charles Lane, who made his reputation by misrepresenting studies on Social Security Disability in the Washington Post, has apparently just discovered that states that vote Democratic also have higher state income taxes. While most folks knew this, Lane acts like Donald Trump passing around maps of the Electoral College vote to reporters; he thinks he has discovered something new.

He gleefully suggests that the Republican propose a tax reform that will end the deductibility of state income taxes and use the savings ($74 billion a year or 0.4 percent of GDP) for an enhanced Earned Income Tax Credit and a modest boost in infrastructure spending. Lane argues that this would pose a devastating problem for Democrats.

The point is that the current deduction means that the federal government effectively subsidizes 40 cents of every dollar that high-income people in blue states pay in state income taxes. This makes it easier for them to raise taxes to pay for things like high-quality Medicaid, pre-kindergarten, and child care. But Lane wants them to have to choose between an expanded EITC and modest boost in infrastructure and maintaining their spending in these areas. He thinks this is especially clever since it will look like they are protecting a tax break for the rich.

This is very cute, but let's see if we get cuter. How about two other reforms that would whack the blue states while making most of the population better off? Suppose we tried to nail the high rollers in the financial sector with a modest financial transactions tax? Representative Peter DeFazio proposed just such a measure yesterday. This would radically downsize the industry, by eliminating a vast amount of wasteful trading.

This would be a huge hit to the financial industry, primarily located in New York and other blue states. It would also raise more than $40 billion a year (other versions would raise more). Virtually all of this money comes out of the hide of the financial industry itself, since the cost of the tax would be fully offset by a reduction in trading volume, leaving trading costs for most investors unchanged.

For another route, how about publicly financed research for prescription drugs? This would allow new drugs for treating cancer, AIDS, and other diseases to be sold in a free market for a few hundred dollars rather than tens or even hundreds of thousands of dollars charged when drug companies have patent monopolies. While the folks during the research could still count on good salaries, the huge dividends earned by patent holders and pharma execs, who are overwhelming blue staters, would disappear. The benefits in lower drug prices could reach $400 billion a year, or more than 2.0 percent of GDP.

What do you say Mr. Lane? Here are some ways to really whack blue states while helping the low- and middle-income people that Democrats are supposed to care about. Are you in?

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Yes, the NYT once again printed a really big number without any context to make it meaningful for readers. It told us in a headline of an article on efforts to craft a compromise between conservative and moderate members on a new health care bill, that the latest proposal adds $8 billion to cover the cost of providing care to less healthy people.

Is $8 billion a lot of money?

Well, one thing not answered in the article is the time period over which this $8 billion would be spent. Is this a one year number? Is it a ten year total? The article doesn't give an answer to this basic question.

To get some idea of the need, the average cost of treating the 10 percent least healthy people is more than $50,000 a year per person. This means that on an annual basis the cost of treating the 30 million least healthy people in the country would be over $1.5 trillion. Many of these people are getting Medicare, Medicaid, or employer provided insurance, but if one-third of them showed up in the high risk pools, then their costs would be over $500 billion a year.

In this case, if the $8 billion is a one-year figure, it will cover 1.6 percent of the cost of treating this population. On the other hand, if it is a ten-year figure it will cover 0.16 percent of the cost of treating the less healthy people who show up in high risk pools. Either way, it is a tiny fraction of the cost, but it would still be nice to know which one it us.

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I took part in the March for Science a couple of weeks ago. (Okay, economics is not really a science, but I get angry when my government tries to stifle scientists reporting their evidence on global warming.) Anyhow, the rally was filled with speeches about scientific ideals: open, disinterested, reproducible research. Unfortunately, real world science often doesn't live up to this agenda.

It looks like we are going to get a lesson later this month on how politics interferes with science at the annual meeting of the World Health Assembly (WHA), the decision-making body of the World Health Organization (WHO). The Indian government has proposed a motion, which would have the WHO prepare a report on the research into the efficiency of patents as a financing mechanism for prescription drugs and vaccines compared with alternative financing mechanisms. The latter would include government sponsored prize funds and directly funded research.

The reason why this is an important and interesting question is that the current method of financing research by granting patent monopolies leads to situations where drugs often cost several hundred times their free market price. For example, the Hepatitis C drug Sovaldi has a list price in the United States of $84,000. A high-quality generic version is available in India for $300.

The result of these monopolies is that people struggle to cover the cost of drugs which would be cheap if sold in a free market. Even in cases where governments or insurers are supposed to cover drugs, many balk when the price runs into the tens of thousands or even hundreds of thousands of dollars, as is the case with many new cancer drugs. While the monopoly prices are a serious burden even in rich countries, they are altogether unaffordable in the developing world.

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