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).
The usually sensible Brad DeLong is very unhappy with those who oppose the agenda that has passed for globalization over the last three decades. He argues that people are foolish for believing that globalization has had a major impact on employment and the distribution of income in recent years. I'll take the side of Brad's "fools" in this matter.
First, Brad is well aware that the economy has operated well below full employment at least since the collapse of the housing bubble, I would argue this has been the case for almost all of the period since the collapse of the stock bubble in 2001. But he attributes this to a simple failure of the government to run full employment policies, rather than the large trade deficits we saw develop following the East Asian financial crisis in 1997.
While Brad is right, the government could maintain full employment by running much larger budget deficits, as he is well aware, that does not appear to be politically feasible. Even among Democrats, very few are willing to say that we should have larger budget deficits to bring the economy to full employment and some even insist on balanced budgets. There is no need to talk about Republican ideas on stimulus here.
It's also worth noting that the costs of being below full employment are disproportionately borne by disadvantaged groups in the labor market, especially African Americans and Hispanics.
Anyhow, if the political reality is that we will not have full employment fiscal policies, does it take a "fool" to argue that big trade deficits are a real problem? The cost of the shortfall in demand that we have seen over the last decade almost certainly exceeds $10 trillion by now and it is enduring, as we have seen lasting reductions in capacity, as Brad has written about himself. And millions have seen their lives and families disrupted by long periods of unemployment. Should we not worry about this damage from the demand shortfall created by trade deficits because there is in principle an economic fix, even though everyone knows it is not politically feasible?Add a comment
I was listening to a BBC radio news show this morning in which they proclaimed today as the 10th anniversary of the beginning of the financial crisis based on the date in 2007 when the French bank BNP Paribas first blocked withdrawals from hedge funds that specialized in U.S. mortgage debt. The show then said that following this move house prices began dropping.
Really, folks? House prices began falling after this date? That's not what the data show.
At the most aggregate level, the Case-Shiller national index for the U.S. was already down 3.4 percent from its peak in 2006 by August of 2007, but there was enormous dispersion around this figure. House prices in Phoenix had fallen by almost 10.0 percent from their peak the prior year. Prices were down 7 percent in Los Angeles, 11 percent in San Diego, and 10 percent in Washington. And the momentum was clearly downward, with prices in many of these cities falling at the rate of more than 1.0 percent a month.
But wait, it gets better. If we turn to Case Shiller tiered indexes, we find that prices for homes in the bottom third of the San Diego had fallen by more than 13 percent, in San Francisco they were down 12 percent, and in Seattle, they were down 10 percent.
In short, prices had already fallen sharply in many areas and there was every reason to think they would drop further. This is before we got to the official beginning of the financial crisis.
This is not a trivial point. The reversal of ordering matters because the key problem was an over-valued housing market. All of the fraudulent mortgages and exotic financing would not have given us a worldwide financial crisis if they had not been based on a hugely over-valued housing market. The key problem was the bubble. If we don't recognize this fact, then we have learned nothing.Add a comment
Donald Trump has been anxious to take credit for the sharp run-up in stock prices since his election. While it is not clear that anything really lies behind this run-up (remember Wall Street investors are the same folks who thought AOL.com was worth $250 billion back in 2001 and that subprime mortgage backed securities were perfectly safe assets), in principle, stock prices are supposed to represent the present value of future corporate profits. If we assume that the rise in stock prices actually reflect something in the world, and not just Wall Street fantasies, then Trump has given these companies a reason to expect larger future profits.
Profits can rise for two reasons. Either they can be the same share of a larger economic pie or they can be a larger share of the same economic pie. There is no reason to believe that anyone is now expecting faster economic growth than before the election. In fact, the I.M.F. recently cut its growth projection for the U.S. If nothing Trump has done or given any indication of doing is likely to boost the U.S. growth rate then the higher expected profits must mean that investors anticipate that corporations will have a larger share of the economic pie.
There are several paths through which Trump's policies could have this effect. Most obviously, he has called for sharp reductions in the corporate tax rate. If his tax cuts go through, then after-tax corporate profits will be higher even if there is no change in before-tax profits.
A second route for higher corporate profits is by facilitating rip-offs of consumers. The Consumer Financial Protection Bureau (CFPB) was set up in large part to prevent predatory practices by the financial industry. For example, it has sought to make it more difficult for financial firms to slip conditions into contracts that no one would ever agree to if they understood them.
If the CFPB is prevented from protecting consumers then we can assume that financial firms will put more effort into ripping off their customers. This will actually reduce growth since the resources spent writing deceptive contracts could have otherwise been devoted to productive uses.
Another route in which corporate profits can be increased is by letting them destroy the environment at zero cost. For example, the Trump administration reversed an Obama administration executive order that required mining companies to restore hilltops after they did surface mining. By allowing these companies to mine areas without repairing the damage the Trump administration is saving them money. The people in the communities will suffer the consequences in the form of polluted streams and ruined forests, but this is still good news for corporate profits.
Lastly, Trump's regulatory changes might shift money from wages to profits. The most obvious example here is the plan to reverse the Obama administration's rule raising the cap under which salaried workers are automatically entitled to overtime pay. By allowing employers to require salaried workers to put in more than 40 hours a week, often without any additional pay, the Trump administration will be putting downward pressure on wages and boosting corporate profits.
For these reasons, investors might have some real cause for expecting higher corporate profits as a result of the Trump presidency. However, none of these reasons are good news for the 90 percent of the country that does not have substantial stock holdings.Add a comment
Since several people have asked, I thought I would do some recycling. My plan (which I know I have stolen from someone) is to require companies to turn over an amount of stock, in the form of non-voting shares, roughly equal to the targeted tax rate. This means if we're shooting for a 28 percent tax rate, then the shares going to the government are equal to 28 percent of the total. If the target is 20 percent, then the government's shares are equal to 20 percent of the total.
From that point forward the government's shares are treated the same as the other shares of the company. If the company pays a $2 per share dividend, the government gets $2 for each of its shares. If the company buys back 10 percent of its shares at $100 a share, it buys back 10 percent of the government's shares at $100 per share. A company taking over the company at a $120 per share price has to also pay the government $120 per share. The basic story is that there is no way to cheat the government out of its tax revenue unless the corporation's management is also cheating its shareholders.
To be as clear as possible, this is not a government takeover of corporate America. As it stands now, the government makes a claim on corporate profits in the form of income taxes. This just changes the form of this claim on profits.
Some folks may want the government to run the whole economy. I don't. I value having firms compete in the market. This tax proposal doesn't change that story. In fact, it has the nice feature that companies will no longer make decisions with an eye toward reducing their tax liability, since the only way they can do that is by screwing shareholders. Instead, companies will make decisions that maximize their expected profits.
I should also point out that this can be done on a voluntary basis. Wherever the tax rate is set, companies can be given the option of issuing stock in the same amount (e.g. a 25 percent tax rate means 25 percent of shares). This would have the advantage from the company's perspective of ending the need to file tax returns. They just pay the government what they are paying shareholders.
From the government's standpoint it reduces the enforcement costs. The companies that go this route will require minimal enforcement resources. Meanwhile, the companies that don't opt to go this route will be telling the I.R.S. that they think they can reduce their tax liability substantially below the official rate. The I.R.S. can then focus its resources on policing these companies. That might not be as good as requiring all companies to go the stock route, but it would be a big step forward in my view.
Add a comment
I understand people can have reasonable differences of opinion on trade deals like the Trans-Pacific Partnership (TPP), but why is it that the proponents have to insist, with zero evidence, that not doing the deal was an economic disaster? Yes, I know the political argument, which seemed to arise late in the game, that U.S. standing in the world has collapsed because we didn't folllow through on the TPP. But, let's just stick with the economics.
Yesterday, Politico ran a lengthy piece saying that the U.S. pullout from the TPP undermined the hopes for a revival of rural America. It cited as evidence a report from the United States International Trade Commission that projected the deal would increase agricultural output by 0.5 percent when fully phased in 15 years from now. Seriously folks, a 0.5 percent increase in output is going to save rural America? That's 3 months of normal growth, who are you trying to fool?
The NYT joins the act this morning with a news article that starts out by pointing to the costs from the Trump adminstration's ambiguities on trade policy. While the piece makes many reasonable points, it then turns to the losses from pulling out from the TPP. It tells readers:
"One accomplishment that Mr. Trump has notched on trade has been an agreement with China that opened its market to American beef exports. For the beef industry, however, the benefits of that deal pale in comparison with the cost of abandoning the Trans-Pacific Partnership, which had been spearheaded by President Barack Obama. It would have provided access to the enormous Japanese market.
"Instead, Japanese tariffs on American frozen beef, which would have declined under Mr. Obama’s deal, are on the rise. Last week, they increased to 50 percent from 38 percent, making America’s meat even more vulnerable to competition from countries such as Australia.
"'TPP was fantastic,' said Kent Bacus director of international trade for the National Cattlemen’s Beef Association. 'When you walk away from it without a meaningful alternative, that causes a lot of alarm in the beef industry.'"
While the piece tells us how important the Japanese beef market is, it would have been useful to get some sense of proportion. According to the piece, Japan's entire market is $1.5 billion annually. U.S. beef production is currently $60 billion. This means that if U.S. producers were able to secure half of Japan's market, a very impressive accomplishment for a country halfway across the world, it would raise the demand for U.S. beef by 1.3 percent.
The piece also misleads readers on the nature of global markets. If Australia gets preferred access to Japan's beef market, then some of the beef that Australia used to export to other countries will be diverted to Japan. This will open up new export markets for U.S. beef. It is worth noting that, while the piece includes the exuberant praise of the TPP from Mr. Bacus, it does not quote or cite any critics of the deal.Add a comment
Politico gets into the act telling readers how tragic the demise of the Trans-Pacific Partnership (TPP) is for the rural economy in a special report. Here's the punch line:
"But for the already struggling agricultural sector, the sprawling 12-nation TPP, covering 40 percent of the world’s economy, was a lifeline. It was a chance to erase punishing tariffs that restricted the United States—the onetime 'breadbasket of the world'—from selling its meats, grains and dairy products to massive importers of foodstuffs such as Japan and Vietnam.
"The decision to pull out of the trade deal has become a double hit on places like Eagle Grove. The promised bump of $10 billion in agricultural output over 15 years, based on estimates by the U.S. International Trade Commission, won’t materialize. But Trump’s decision to withdraw from the pact also cleared the way for rival exporters such as Australia, New Zealand and the European Union to negotiate even lower tariffs with importing nations, creating potentially greater competitive advantages over U.S. exports."
Wow, we could have had another $10 billion in agricultural output after 15 years, if only Donald Trump had not pulled the plug. Hmm, $10 billion in additional agricultural output in 2032, is that a big deal?
Well, if we turn to the International Trade Commission (ITC) report cited in the piece, we see that it amounts to 0.5 percent of projected agricultural output in 2032. That's about equal to six months of normal growth of the agricultural economy. This means that, according to the ITC report, with the TPP in effect, the agricultural economy would be producing roughly as much on January 1, 2032 as it would otherwise be producing on July 1, 2032 without the TPP.
Is this a "lifeline" for the agricultural economy?
There is also reason to be wary of the ITC report, since these models have been incredibly bad at predicting the outcome of past trade deals.
It's also worth commenting on the apparent horror with which Politico views the possibility, "rival exporters such as Australia, New Zealand and the European Union to negotiate even lower tariffs with importing nations." In the good old days, economists used to believe that the United States was helped by stronger trading partners. This was one reason the U.S. generally supported the process of economic integration that led to the European Union.
If other countries remove barriers between them, this could make some of their goods better positioned relative to U.S. exports, but it can also lead to more rapid growth in these countries, which will increase demand for U.S. exports. While both effects are likely to be small relative to the size of U.S. production, it is entirely possible that the growth effect will exceed the substitution effect. Long and short, there is no need for reasonable people to be terrified by the prospect of other countries crafting trade deals.Add a comment
According to the Bureau of Labor Statistics, productivity growth, especially in manufacturing, has slowed to a record slow pace. In light of this fact, the Washington Post naturally decided to run a major front page article, jumping to two full inside pages, on automation.
It would be good if we were seeing more rapid productivity growth. It would mean that we could enjoy higher wages and/or shorter hours. The Fed could also stop raising interest rates since it wouldn't have to worry so much about having too many jobs. But that is not the world we are seeing — or at least not the world that we are seeing outside of the pages of the Washington Post.Add a comment
In his NYT column on whether the turmoil of Trump's presidency is slowing economic growth, Neil Gross refers to concerns about "secular stagnation" raised by former Treasury Secretary Larry Summers. Secular stagnation just means insufficient demand in the U.S. economy. While the column sees the major cause as weak investment demand, the more obvious cause of secular stagnation is the U.S. trade deficit.
The trade deficit is running at annual rate of more than $540 billion a year, close to 2.8 percent of GDP. This is money that is creating demand in other countries, not the United States. If the trade deficit were suddenly brought to zero it would have the same effect on demand as an increase in annual investment of $540 billion. That is far larger than any shortfall that could be explained by factors Summers cited.
It is bizarre that the trade deficit never features in discussions of secular stagnation since it is obviously a major drain on demand in the U.S. economy. It also runs contrary to textbook economics which holds that rich countries like the United States should be capital exporters to the developing world, which means that we should be running large trade surpluses, not deficits.
But, as the saying goes, economists are not very good at economics.Add a comment
It is strange how the media often respond to the prospects of tariffs on imports by pointing to foreign-owned factories in the United States, implying that these are somehow at risk if tariffs are imposed. The NYT gives us an example of this reporting today in a front page article.
The piece highlights a number of foreign-owned factories in the United States and includes data on foreign direct investment by country and also employment levels. It also includes the warning:
"But political and business leaders here in Hamilton County, a conservative stronghold where Donald J. Trump won a majority of the votes, worry that the president’s attacks on trading partners and exhortations to 'Buy American' could set off a protectionist spiral of tariffs and import restrictions, hurting consumers and workers."
This seems to be a non-sequitur. Tariffs on imports increase the incentive for foreign companies to invest in the United States. They allow them to produce for the U.S. market and get around any tariffs. The first Japanese auto factories in the United States were a direct response to the "voluntary export restraints" on the major Japanese manufacturers agreed to in the Reagan years. The cars that Toyota and other companies produced in the United States did not count against these limits.
There are good arguments to be made against putting up import tariffs, but the idea that it would somehow hurt foreign direct investment in the United States is not one of them. If new tariffs are put in place, it would more likely increase foreign investment than reduce it.Add a comment
It's standard practice in news stories to refer to France's economy as a basket case. The NYT went this route in an article on President Emmanuel Macron's efforts to rewrite the country's labor laws.
The article refers to Macron's efforts to "revitalize" the French economy and then tells readers:
"The code is regarded by many as the wellspring of the country’s malaise and the chief obstacle to generating jobs, leaving the country with an unemployment rate that hovers persistently around 10 percent."
Of course, many economists regard the German government's insistence on austerity in spite of low interest rates and low inflation as "the wellspring of the country’s malaise," but apparently there was no room to mention this fact. Anyhow, it is worth noting that while France has a considerably higher unemployment rate than the United States a larger portion of its prime-age population (ages 25 to 54) have jobs than in the United States.
According to the OECD, the employment-to-population ratio for this age group is 79.6 percent in France, compared to 78.2 percent in the United States. For this age group, the French economy is doing better producing jobs than the U.S. economy, in spite of its malaise.
It does have lower employment rates for younger and older workers, but this is largely the result of deliberate policy. A college education is largely free in France, and as a result, few students work. France also has a more generous social security system than the United States, which discourages older workers from staying in the labor force. It's arguable whether these are good policies but it is these policies, rather than the state of the economy, that explain differences in employment rates between the U.S. and France for these age groups.
The piece also includes this interesting paragraph:
"The Macron changes would help employers set the rules on hiring and firing, ignore the crippling restraints in the code that discourage taking on new workers, and limit unions’ ability to get in the way. Instead, individual agreements would be negotiated at the company or industry level between bosses and workers."
It is interesting that NYT thinks that unions "get in the way" between workers and employers. This is, of course, true just as when we allow defendants to have lawyers, the lawyer "gets in the way" of discussions between police and prosecutors and the accused.Add a comment
Okay, this is getting beyond ridiculous. Productivity growth, especially in manufacturing, is at a record slow (as in not fast) pace. This is not secret information. The data are published every quarter by the Bureau of Labor Statistics. You can even find a nice graph in my previous post. Yet, in spite of the fact that all the evidence shows that workers are not losing jobs due to automation, or at least at a much slower pace than in prior decades, the Washington Post still tells us:
"Yet manufacturing hit a new low in July as a share of all U.S. jobs, said Kolko. While manufacturing has been a focus of the Trump administration, the sector continues to shed jobs, due largely to automation."
Apart from the fact that manufacturing has actually been adding jobs for last eight months, how does the Post get off blaming non-existent job loss on automation? This seems like a knee jerk response.
No, job loss can't be due to a trade deficit. The idea that importing things rather than producing them here, couldn't possibly mean that we hire fewer people to produce things here. The papers can't have people believe this. So we get outright lies. (Sorry, it is a lie — it is reasonable to expect reporters/editors at a major news outlet to be able to look up data that is readily accessible from a government agency. At the least, there is a deliberate decision to remain ignorant at work here.)
Let me also point out another aspect to this issue. Even if automation was the factor costing jobs, it would not be technology that was responsible for any increase in inequality. The ownership of technology is determined by government policy on patent and copyrights. The government can (and has) made these forms of protection longer and stronger. It could make them shorter and weaker.
Without patent and copyright protection, Bill Gates, the richest person in the world, probably would not have much more money than your average successful doctor or lawyer. It is possible to argue that these are good policies and that we have all benefited from making them stronger and longer, but to deny that the resulting upward redistribution was just technology is just flat-out dishonest.
Incredibly, I have never seen any discussion of this simple and obvious point in any major outlet. I haven't seen in the NYT, WaPo, WSJ, heard it on NPR or PBS Newshour. I haven't even seen it mentioned in ostensibly liberal and progressive magazines like the New Republic and the Nation.
It is worth noting that the technology view does have the implication that upward redistribution is something that happened, as opposed to upward redistribution being something that was done through deliberate policy. The implication that the rich getting richer is just the natural state of things is convenient for the winners in this story.Add a comment
The big difference between outsourcing and robots is that the former is happening and the latter isn't. Productivity growth (a.k.a. robots) has been very slow in recent years. It has averaged less than 1.0 percent over the last seven years and has sometimes been negative.
By contrast, many firms are looking to outsource jobs, both domestically and internationally, on an ongoing basis. For this reason, when the NYT told readers in a story on the jobs report and the economy:
"Perhaps even more than outsourcing, the real threat to job growth for Mr. Trump’s blue-collar base comes from automation and other efforts to improve productivity on the factory floor."
It had the picture backward. At least for the immediate future, it does not seem rapid productivity growth will be a major source of job loss.Add a comment
Landon Thomas Jr. had an NYT piece noting the peculiar divergence between the stock market, which has risen sharply since Donald Trump's election and the dollar, which has fallen. The article claims this is peculiar since both tend to move in the same direction, rising in a strong economy and falling in a weak economy.
Actually, this is not really true. There have been many long periods where they have gone in opposite directions. For example, the dollar peaked in the mid-80s and then fell through the rest of the decade. The stock market did crash in the fall of 1987 but then rose through the rest of the decade. The dollar fell against most currencies from 2001 to 2007 even as the market recovered from its crash beginning in the summer of 2002.
A weaker dollar can be good news for U.S. corporate profits since it means that domestically produced goods and services become relatively more competitive internationally. This could be a reason the two would move in opposite directions.
However, there is another story in this case which could plausibly explain the divergence. President Trump and the Republicans have made reducing corporate income taxes a priority. Trump has proposed outlandish treatments of pass-through corporations, which would allow them to pay just 15 percent on their income.
This is a total joke proposition: no serious economist thinks this is a way to treat these companies. It essentially allows every rich person in the country to pay a 15 percent tax rate on the bulk of their income, as opposed to the 25 percent rate currently paid by teachers and fire fighters and other middle-class workers. Almost none of them are so stupid that they can't figure out how to have their income show up in a pass-through corporation and the ones that are too stupid have accountants that can figure out how to tie their own shoes.Add a comment
Eduardo Porter had an interesting piece discussing the prospects for tax reform in the NYT. While the piece correctly highlights some of the absurdities of the U.S. tax system, it may have given readers a wrong impression in some areas.
For example, it notes that income-related taxes are a far higher share of the tax burden in the U.S. than in other wealthy countries. It argues that this is bad because income taxes tend to be more of a drag on growth than taxes on consumption.
While there is clearly some truth to this, it is important to note that income taxes are far more progressive than consumption taxes. In other countries, where consumption taxes are higher, the government provides much more generous benefits to the public, such as national health care, more generous pensions, and free or low-cost college education. While it is possible that the public would support regressive taxes that support programs with broadly based benefits, as they do with Social Security, it is unlikely that they would support an increase in regressive taxes that are not tied to an expansion of benefits.
The piece also exaggerates the harm caused by the current tax system when it refers to the profits that corporations keep abroad to avoid paying taxes. There is little reason to believe that companies would invest more in the United States if they claimed these profits here. Corporations are currently flooded with cash, paying out large dividends and doing massive share buybacks. A lack of capital is not a major factor limiting most corporations investment.Add a comment
The NYT had an article on Amazon's job fairs which were set up to recruit workers for 50,000 new jobs nationwide. At the end of the piece, the article discusses concerns that robots may soon replace the jobs that Amazon is now hiring for in its warehouses:
"Amazon is more aggressively using robots to help make the operations inside its warehouses more efficient. For now, the company said machines are not replacing people. Instead, they mostly move large shelves of merchandise to stations where orders are manually picked.
"Many academic researchers and start-ups are working on robots that have the dexterity to pick orders automatically. Amazon sponsors a competition to encourage engineers to build more advanced warehouse robots.
"When those technologies are perfected, the employment picture inside Amazon’s warehouses could look very different. That day could be a decade or more away, though."
It is important to remember that productivity growth has been at record low levels in the last five years, meaning that we are seeing very few workers displaced by robots. Furthermore, the Federal Reserve Board has been raising interest rates over the last year and a half because it is concerned the economy is creating too many jobs. The concern about budget deficits is also a concern about inadequate productivity growth (too much demand and not enough supply).
In other words, in almost every other economic debate our concern is the opposite of having robots replacing workers. The concern is that we won't have enough goods and services to go around.
If robots create a distributional issue, that is because of policies like patent monopolies that give all the money to owners of robots. These policies can be changed, but not if the media has a policy of never talking about them.Add a comment
It's popular among economists and policy types to wisely note that technology is leading the rich to get richer. Many of them consider this unfortunate, but hey, should we be Luddites and try to stop technology?
This is, of course, silly propaganda, but it passed for sophisticated thinking in policy circles. It is not technology, but our policy around it, like patent and copyright protection, that redistributes income upward. We got yet another lesson along these lines in an NYT article reporting that the Trump administration is beginning a major investigation on China's trade practices which will focus on its treatment of U.S. patents, copyrights, and other forms of intellectual property (IP). The implication is that we would impose retaliatory measures because China was hurting Bill Gates, Elon Musk, and other major beneficiaries of these government-granted monopolies in the United States.
The decision to focus on IP is striking since there is little dispute at this point that China's decision to deliberately keep down the value of its currency in the last decade badly hurt U.S. manufacturing. The result was the loss of millions of manufacturing jobs. This ruined the lives of many of these workers and devastated communities in places like Ohio and Pennsylvania. It also put downward pressure on the wages of non-college educated workers throughout the economy.
Furthermore, the trade deficit that resulted from China's currency practices is the main reason that the United States suffers from secular stagnation (a.k.a. inadequate demand). This is the reason growth was slow following the collapse of the housing bubble and even today, almost ten years after the start of the recession, we are still not back to full employment.
Anyhow, the plight of the bulk of the country's workers was apparently not a sufficient reason to get upset over China's trade policy. But not honoring Bill Gates' copyrights? That's serious stuff. And the folks who write and talk about economics will tell us it is just technology.Add a comment
Given the hostility that President Trump and his followers have directed towards the media, several people have suggested a name change for my blog. While I understand and sympathize with the idea of not promoting violence toward the media, I don’t think BTP has contributed to this sort of hostility.
First, there are different meanings of the word “beat,” and I did intend to play off these differences in choosing the name. There is “beat” as in the sense of the Chicago Cubs beat the Cleveland Indians in the World Series. I like to think that in many areas I do a better job of discussing economic issues than most of the media.
For example, I have endlessly harangued reporters about writing large numbers, most importantly budget numbers, without any context. When people hear that the government is spending $20 billion on TANF or $30 billion on foreign aid, they think these are sizable sums. After all, none of us will ever see anything like this amount in our lifetime.
However, as a share of the federal budget these programs are pocket change, with the $20 billion for TANF being roughly 0.5 percent of total spending and $30 billion for foreign aid a bit less than 0.8 percent. Polls consistently show that people hugely over-estimate the share of the budget that goes to foreign aid, TANF, and other anti-poverty programs.
I know that many people want to believe that all their tax dollars go to foreign aid and poor people’s programs because they are racists who hate the people they think of as beneficiaries of these programs. But many of the people who think large shares of the budget go to these programs are not racist, they just hear $20 billion or $30 billion and think that is a lot of money.
It would be a very simple matter if reporters got in the habit of reporting these numbers in some context. Some people might still insist that all of our tax dollars go to TANF even if they constantly heard that it was 0.5 percent of the budget, but my guess is the public would be much better educated.
I consider it one of my BTP victories that I got then NYT Public Editor Margaret Sullivan to agree with me (with assists from Just Foreign Policy and Media Matters). I thought this would lead to a change in practice at the country’s leading newspaper, but unfortunately not. The big numbers still routinely appear without any context.
There have been a number of other areas where I think my commentary beats the major news outlets in economic reporting. I should say that I think economic reporting has improved considerably in the more than two decades that I have been commenting on it. I’d like to think that my calling attention to some seriously bad practices has played a role.Add a comment
Greg Mankiw had a short NYT piece outlining the problems in providing health care. While some of what he said was reasonable, he ended with the tired cliche:
"The best way to navigate the problems of the health care marketplace is hotly debated. The political left wants a stronger government role, and the political right wants regulation to be less heavy-handed."
This is not at all true. The right tends to want stronger and longer patent and related protections for prescription drugs and medical equipment. These government-granted monopolies can raise prices by several thousand percent above the free market price. As any economist would expect, these monopolies create enormous problems of enforcement and lead to a wide variety of rent-seeking behavior, such as drug companies lying about the safety and effectiveness of their drugs in order to sell more of them.
While longer and stronger patent protection does redistribute income upward, it can hardly be described as "less heavy-handed" in a world where the government pays for research upfront and then allows drugs and medical devices to be sold in a free market. (Discussion of alternatives are here and here.)Add a comment
Since several people have asked me why I bothered to write about Amazon's stock price possibly being overvalued, let me get out the sledge hammer and hit people over the head with the issue.
Let's imagine that this week the god of Wall Street comes down and announces that Amazon's proper valuation is half of its current level. (This is a hypothetical, not my target price for the stock.) Since the god of Wall Street is never wrong, we would expect that Amazon's stock price would quickly plunge, eliminating $240 billion in market value.
Has this information destroyed any wealth? Well, the folks who owned Amazon stock have $240 billion less than they did previously, so they clearly have less wealth. But the god of Wall Street knows the true value of Amazon stock, so there really was not any basis for this $240 billion in wealth. In effect, they would have this wealth and be able to spend based on it, as long as other investors did not realize that Amazon's stock was hugely over-valued.
In this sense, it can be seen as very similar to counterfeit money. Suppose Amazon stock was priced in line with the god of Wall Street's assessment, but Amazon shareholders collectively held $240 billion in counterfeit money that everyone accepted as though it was real. If the government suddenly discovered a way to detect these counterfeits so no one would ever be able to spend this money again, it would be the same story as the Amazon stock losing half its price.
The moral of the story is that there is no reason for those of us who don't hold large amounts of Amazon stock to be happy about it being overpriced if this is the case. It is the same story as people having large amounts of counterfeit money. It's good for them, but when they price the rest of us out of the housing market and their spending causes the Fed to raise interest rates and slow growth, it's not good for everyone else.Add a comment
In their NYT piece on the possibilities for people switching jobs mid-career, Clair Cain Miller and Quoctrung Bui link to a piece by M.I.T. economist David Autor to support the assertion that extensive research shows middle skills jobs are disappearing. Actually, more careful research showed the opposite. In the last decade, both middle- and high-skills jobs (using Autor's definition) were declining as a share of total employment. Only the least skilled jobs had an increasing share.
It is also worth noting that there is little evidence for the "skills shortage" discussed in this piece. While businesses like to complain about not being able to get qualified workers, the ordinary response to a shortage is a rise in price. In other words, if businesses really were seeing a skills shortage, we would expect to see rapidly rising wages for significant groups of workers. We don't, which suggests that businesses are just whining because they think it will help them get something from the government — not because they actually can't get qualified workers.Add a comment
The NYT had a piece touting the recent run up in Amazon's stock which briefly made Jeff Bezos the world's richest person. It then turns to Hendrik Bessembinder, a finance professor at Arizona State University, who describes the company as "one of the greatest wealth creators since 1926."
This designation as a "wealth creator" is based on its market capitalization of almost $500 billion. While this is a huge amount of money, it is not clear that Amazon's current or likely future profits justify this price. Ultimately, stockholders value a company based on the profits it makes for shareholders and its current profits nowhere near justify its $500 billion market capitalization.
There have been other companies in the recent past that had stock prices that bore no relationship to their profits. AOL and Priceline are two that stand out, both with market capitalizations of well over $100 billion at the peak of the stock bubble in 2000. In both cases, the shareholders in these companies would have seen a huge amount of wealth destroyed if they bought them near their peak price.
The question is whether Amazon will be able to join the elite group of wealth destroyers if its stock price falls to a level more in line with its profits.Add a comment