Beat the Press is Dean Baker's commentary on economic reporting. He is a Senior Economist at the Center for Economic and Policy Research (CEPR). To never miss a post, subscribe to a weekly email roundup of Beat the Press.

Please also consider supporting the blog on Patreon.

Follow on Twitter Like on Facebook Subscribe by E-mail RSS Feed

(This piece first appeared as a post on my Patreon page.)

There is an old saying that the economy is too simple for economists to understand. There is plenty of evidence of this all around. After all, almost no economists could see the $8 trillion housing bubble, the collapse of which gave us the great recession. Back in the stock bubble days of the late 1990s, leading economists in both political parties wanted to put Social Security money in the stock market based on assumptions of returns which were at the least incredibly implausible, if not altogether impossible.

The endless scare stories of robots taking all the jobs, or the threat of automation, fit this model. While this is a recurring theme in major media outlets, it basically makes zero sense.

Replacing human labor with technology is a very old story. It’s called “productivity growth.” We’ve been seeing it pretty much as long as we have had a capitalist economy. In fact, this is what allows for sustained improvements in living standards. If we had not seen massive productivity growth in agriculture, then the bulk of the country would still be working on farms. Otherwise, we would be going hungry.

However, thanks to a massive improvement in technology, less than 2 percent of our workforce is now employed in agriculture. And, we can still export large amounts of food.

Add a comment

Catherine Rampell noted in her column today the sharp slowing in health care cost growth in the last decade. This is an important point, which has received remarkably little attention. The Medicare projections and the budget projections more generally look far better than would otherwise be the case because of lower than projected health care cost growth. (It is hard to understand why the Obama administration did not try to take more credit for the slower cost growth.)

Anyhow, there is an important point to add to this picture. There has been a similar slowing in most other wealthy countries. According to data from the OECD, between 1990 and 2008, per person spending rose at a 6.7 percent annual rate. It slowed to a 4.8 percent rate in the years from 2008 to 2017. In Spain, spending growth declined from 6.9 percent to 2.2 percent. In the Netherlands the decline was from 5.9 percent to 3.4 percent. And in France the decline was from 5.5 percent to 3.2 percent.

While the slower growth in the United States is good news (it's actually associated with better health among the elderly population where the slowing was sharpest), it seems that the driving force goes beyond policy changes in the United States. Some of the slowing in European countries was undoubtedly the result of austerity imposed by deficit-obsessed governments. But it is striking that the slowdown occurs in most wealthy countries at roughly the same time. And, this is in spite of an aging population that requires more health care.

Add a comment

New York Times columnist Farhad Manjoo tells us that he likes to "explore maximalist policy visions" in his columns. He falls well short of this goal in a piece calling for abolishing billionaires, which actually helps legitimate their existence.

The piece repeatedly tells us that their wealth is driven by technology, a point that first appears in the subhead which refers to "tech-driven inequality." The problem with Manjoo's piece is that the inequality is not in fact driven by technology, it is driven by our policy on technology, specifically patent and copyright monopolies. These forms of protection do not stem from the technology, they are policies created by a Congress which is disproportionately controlled by billionaires.

If the importance of these government-granted monopolies is not clear, ask yourself how rich Bill Gates would be if any start-up computer manufacturer could produce millions of computers with Windows and other Microsoft software and not send the company a penny. The same story holds true with most other types of technology. The billionaires get rich from it, not because of the technology but because the government will arrest people who use it without the patent or copyright holder's permission.

This point is central to the debate on the value of billionaires. If we could get the same or better technological progress without making some people ridiculously rich, then we certainly don't need billionaires (I discuss alternatives in chapter 5 of my book Rigged [it's free].) But in any discussion of the merits of billionaires, it is important to understand that they got their wealth because we wrote rules that allowed it. Their immense wealth was not a natural result of the development of technology.

It is unfortunate that this idea is apparently too radical for Manjoo.

Add a comment

It really gets annoying when reporting in our nation's leading newspaper has a make it up as you go along character. A piece on a new infrastructure program to boost Russia's economy begins by telling readers:

"Russia has become a world-class saver. So much gold has piled up in its central bank that Russia surpassed China last year to become the world’s fifth-largest holder of gold.

"The International Monetary Fund often has to badger developing nations to bulk up foreign currency reserves. Russia has $472 billion in reserves, more than the country’s combined public and foreign debt of $453 billion and nearly three times what the IMF recommends."

Okay, so Russia's $472 billion in reserves are "nearly three times what the IMF recommends." Then how about the $3,073 billion in reserves held by China? China's economy is a bit more than eight times as large, but when we add in the more than $1.5 trillion value of China's sovereign wealth funds, its reserves would be almost ten times the size of Russia's.

The reason this matters is some of us have argued that China's currency continues to be undervalued and that this is a matter of government policy. If it cut back its reserve holds to a level that the IMF apparently thinks is appropriate for Russia, it would drive down the value of the dollar against the Chinese yuan, making US goods and services more competitive. If we had a president who was concerned about the US trade deficit with China, they would make raising the value of the Chinese currency the main focus.

Unfortunately, news outlets like The New York Times have insisted that China's currency is no longer undervalued. While it felt the need to tell readers that Russia's reserves are excessive for an economy of its size, it claims the opposite about China's even larger level of reserves relative to the size of its economy. This is not a good way for a news outlet to maintain its credibility.

Add a comment

I have long had fun with the folks who call themselves "free traders." Essentially, these are people who argue it is a high moral principle to eliminate any barrier to trade that might support the income of working class people, but suddenly get really stupid and defensive when we talk about barriers that support the income of professionals and the wealthy. 

This means that a 10 percent tariff on imported steel is an outrage against all that is good and decent in the world. But when it comes to protectionist restrictions that prevent highly qualified foreign doctors from practicing in the United States and bringing the pay of our doctors more in line with other rich countries, they suddenly have no idea what you're talking about. (FWIW, we spend far more money on doctors than steel.)

The same story applies to patent and copyright protection. (Yes, that is "protection" as in protectionism.) These government-granted monopolies are treated as part of the world's natural order. Instead of recognizing them as forms of protectionism, countries that don't have patent and copyright rules as strong as in the U.S. are treated as being violators of free-trade.

In other words, "free trade" is a make it up as you go along rationale for ways to redistribute income upward. This is why I got a big kick out of seeing Charles Lane's column today on the Export–Import Bank.

The Export–Import Bank is a mechanism for the United States to subsidize its exports by providing below-market interest rate loans and loan guarantees for exporters. There actually can be some argument for this sort of support in cases where small- and medium-sized firms are just getting into the export market. (It's still a government subsidy.)

However, that was not the story with the Ex–Im Bank. The overwhelming majority of its loan money (in the neighborhood of 90 percent) went to a tiny number of multi-nationals like Boeing, Caterpillar, and GE. This is not a help-the-upstart story, this was a subsidy-to-politically-connected-corporate-giants story.

Incredibly, the vast majority of the self-proclaimed free traders were big advocates of the Ex–Im Bank. They would go along with the absurd games pushed by the hacks.

For example, they would tell people that some very high percentage of the loans went to small businesses. (Yes, this is in Econ Stupid Tricks 101 — a high percentage of the loans go to small businesses, a tiny percentage of the dollars go to small businesses.) 

And, we got the story that some huge number of US jobs depending on the Ex–Im Bank. In this story, we assume that the US would lose all the exports supported by Ex–Im loans or guarantees, as opposed to some realistic number like 2–3 percent.

Anyhow, with pushing from the free traders, the Export–Import Bank was reauthorized by Congress. I had thought the free traders had won and got their government subsidies.

But as Lane points out, Republicans in Congress refused to approve new members for the bank's board. This meant that the board lacked a quorum. And, without a quorum, the board could not approve loans of more than $10 million. This meant the bank was actually in the business of making loans to small- and medium-sized businesses, rather than subsidizing Boeing and Caterpillar.

It turns out the big companies were still able to export without the subsidy, although I'm sure they made somewhat less money. Anyhow, it's a nice story. It shows how free trade can be better than "free trade."

Add a comment

(This post originally appeared on my Patreon page.)

Back in 2013, Jared Bernstein and I wrote a book called Getting Back to Full Employment: A Better Bargain for Working People (free download). The main point of the book was that low unemployment rates disproportionately benefited those who are most disadvantaged in the labor market. For this reason, we argued for using macroeconomic policy to get the unemployment rate as low as possible, until inflation became a clear problem.

At that time the unemployment rate was still close to 7.0 percent. It was still coming down from its Great Recession peak of 10.0 percent, but there were many economists, including many at the Federal Reserve Board, who argued that it should not be allowed to fall below a range between of 5.0–5.5 percent, because lower rates of unemployment could trigger spiraling inflation.

In fact, this was pretty much the consensus view in the economics profession. At the time, the Congressional Budget Office (CBO) put the non-accelerating inflation rate (NAIRU) of unemployment at 5.5 percent. The NAIRU is essentially the target rate of unemployment for policymakers since they want to prevent the accelerating inflation that would result if the unemployment went much lower. CBO’s numbers are also important in this respect, not only because it is seen as an authoritative source, but also by design it tries to produce estimates that are well within the consensus in the economics profession.

Our argument was directed at these people. We felt the evidence that unemployment rates this high should pose any sort of floor for macroeconomic policy were weak. We also pointed out that economists had been badly mistaken two decades earlier, in the 1990s, when they argued that the unemployment rate could not get below 6.0 percent without triggering spiraling inflation.

Fortunately, the Greenspan Fed ignored that view and allowed the unemployment to fall to 4.0 percent as a year-round average in 2000. This gave us the late 1990s boom, the only period of sustained real wage growth for those at the middle and bottom of the wage ladder since the early 1970s. Given the enormous gains from allowing the unemployment rate to fall further, we felt the Fed should take the small risk of accelerating inflation, and allow the unemployment to continue to decline below the conventional estimates of the NAIRU.

Thankfully, Janet Yellen, who was then Fed chair, agreed with this position. (It helped that our friends with the Fed Up Coalition were also pushing hard in this direction.) She held the Fed’s key federal funds rate at zero until December of 2015, at which point the unemployment rate had fallen to 5.0 percent. Since then, the Fed has had a path of moderate rate hikes (faster than I would have liked), that have not prevented the unemployment rate from falling further.

Add a comment

I was going to really tee off on this NYT article, calling Medicare for All an "ambitious and expensive left-wing" policy, but I think Paul Waldman did a nice job making the point in his Washington Post column.The basic point is that reporters should leave these sorts of adjectives out of their coverage of the debate over reforming the health care system.

Every other wealthy country has some sort of universal health care system, many with government-run insurance that look a lot like Medicare for All. This has not bankrupted any of them. So the idea that we should move to something like this sort of system in the United States should not be treated as an extreme left far out position.

On the other hand, there is an accurate adjective that could be applied to the assertion by billionaire Michael Bloomberg that a universal Medicare system "would bankrupt us for a very long time." That adjective is "wrong."

If the NYT is trying to better inform its readers about health care policy for the 2020 election, rather than telling them Medicare for All is an extreme position, it would point out when its critics make untrue assertions about the policy.

Add a comment

The New York Times had an article on the status of Trump's trade war with China. While the piece pointed out Trump's claim that his trade war is responsible for China's economic problems, it didn't point out that this is almost certainly not true.

In spite of Trump's tariffs, China's exports to the United States were up by more than $30 billion in the first ten months of 2018 compared to 2017. While their exports may have grown even faster without the tariffs, it doesn't make sense that slower than expected growth in exports to the United States could be too big a hit to the Chinese economy.

It is also worth noting that China's exports to the United States are actually not that large a share of its economy. If we just take the reported value of China's exports to the United States, it comes to less than 3.9 percent of its GDP.

This overstates the actual share of Chinese value-added in these exports, since we record the full price of a product as an export, even though much of the value-added comes from other countries. For example, we would record the full value-added of an iPhone assembled in China as an export from China, even though the vast majority of the value added in the product comes from the United States and other countries.

This is offset in part by Chinese value-added in items from third countries. For example, cars we import from Germany and electronic items we buy from Japan or Korea are likely to include a substantial amount of parts produced in China. But these items will not be affected by Trump's tariffs on China.

If we conservatively reduce the value-added of the items we import from China by 25 percent to account for foreign inputs, this means the value-added in Chinese exports to the United States accounts for less than 3.0 percent of its GDP. This means that even if Trump's tariffs reduced its exports by one third (a huge reduction), it would only imply a loss of less than 1.0 percentage point of GDP. By contrast, following the collapse of the housing bubble, residential construction in the United States dropped by almost four percentage points of GDP.

In short, the idea that Trump's tariffs are a major factor in China's economic problems is absurd on its face, just like his claim that he had the largest inaugural crowd in history or that millions of illegal votes were cast in California. Just as the NYT would not report these claims without pointing out they are not true, it should not report Trump's claim that his tariffs are doing great harm to China's economy without noting that it is false.

Add a comment

David Leonhardt used his column to give us a story about how the millennials are the big losers and the oldsters are the big winners in today's economy. The piece shows trends in the growth of income and wealth which show the over 65 group doing very well and everyone else not. This is not a quite a simple granny-basher column, Leonhardt does come around at the end and tells readers:

"But the country’s biggest economic problems aren’t about hordes of greedy old people profiting off the young. They’re about an economy that showers much of its bounty on the already affluent, at the expense of most Americans — and of our future. The young pay the biggest price for these inequities."

Nonetheless, there are a couple of points that are misleading and need some qualification.

First, when it comes to the median income of people over age 65, it is important to note that this is much more likely to reflect the income of a household with at least one worker than would have been the case a quarter century earlier. The percentage of people between the ages of 65 to 69 who are working rose from 21.0 percent in 1994 to 31.9 percent in 2018. For people between the ages of 70 to 74 it rose from 11.3 percent to 18.9 percent.

 Employment to Population Ratio 70–74 Years

LNU02324941 1209526 1548700252833

Source: Bureau of Labor Statistics.

This increase in employment among older workers is not all negative. In many cases, it is due to the fact that older people are more likely to be in good health and to be working at jobs they enjoy. But in many cases, these are people who are working because they have no other way to make ends meet. In these cases, it is not an apples-to-apples comparison to say that the income of an older worker in 2018 is higher than a non-working retiree 25 years earlier.

Add a comment

Economists have been concerned about the sharp slowdown in productivity growth since 2005 and wondering whether it will persist indefinitely. Productivity (a.k.a. "automation") grew at an annual rate of almost 3.0 percent from 1995 to 2005, roughly the same pace as during the long Golden Age from 1947 to 1973. For reasons that are not clear, growth then slowed sharply to a 1.3 percent annual rate in the years since 2005.


Productivity: Non-farm Business Sector


Source: Bureau of Labor Statistics.

Projections from the Congressional Budget Office, Social Security Administration, and elsewhere assume that the rate of productivity growth will remain slow for the indefinite future.

But there is good news. In a New York Times column, Kevin Roose tells us about the secret he learned from talking to rich people at Davos. They apparently all have great plans for increasing productivity at their businesses but are keeping them a secret.

If the word from Roose's rich friends turns out to be accurate, then we can expect to see more rapid wage growth. We also don't have to worry at all about budget deficits. The more rapid productivity growth will mean more rapid economic growth and higher tax revenues. Also, with more rapid productivity growth, there will be less reason to fear that large budget deficits will push the economy too far and lead to inflation.

Add a comment