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 highlighting the latest Beat the Press posts.

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Neil Irwin had a good piece discussing the slower job growth reported for February, along with more rapid wage growth. He argued that as a result of recent evidence of slowing growth (not so much from this jobs report) the Fed may be inclined to leave interest rates where they are, or possibly even lower them. However, the pick up in wage growth may lead the Fed to worry about inflation and therefore raise interest rates.

While Irwin notes the pick up is modest, so it's not obvious it will lead to higher inflation (also given the large shift from wages to profits in the Great Recession, higher wages could come out of the profit share rather than being passed on in higher prices), there is another important factor in the equation. Productivity growth, which directly reduces the cost of an hour of labor, increased to 1.8 percent last year. This is 0.5 percentage points above its trend rate since 2005. (It is still well below the 3.0 percent pace from 1995 to 2005 and from 1947 to 1973.)

Productivity data are notoriously erratic, so it is entirely possible that the 2018 pickup will turn out to be an aberration, but if faster growth is sustained, it would mean that the economy could support a more rapid pace of wage growth. There are some complicating index issues, but as a first approximation, if productivity growth is 1.8 percent, workers can have 3.8 percent nominal wage growth, and we could still keep at the Fed's 2.0 percent inflation target.

As some of us have argued, it is reasonable to expect that productivity growth will accelerate as the labor market tightens. The basic logic is that when labor gets scarce, employers have an incentive to try to use less of it. That means productivity growth.

There are three channels through which this can work. The first is a simple composition one. When labor becomes more expensive, the least productive jobs go unfilled. My favorite example is the midnight shift at a convenience store. The productivity of this worker has to be very low. (How many people come in to buy grocery items at 2:00 in the morning?) In a tight labor market, the convenience store closes at midnight and opens in the morning. By eliminating the least productive jobs, average productivity rises.

The second channel is that employers may be able to reorganize the workplace to do more with fewer workers. Even though our textbooks tell us that employers always have the optimal mix of labor and capital inputs and workplace organization, there are actually places where workers are not employed in the most efficient manner. The bosses may not care when workers are plentiful, but when the bad boss sees all his workers leaving for better jobs, he may think about trying to improve his workplace.

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The latest round of layoffs at Buzzfeed, the Huffington Post, and other major news outlets has raised new questions about the future of the traditional model of advertising-supported journalism. While a small number of news outlets, like The New York Times, continue to thrive, few others seem to be profitable in the current environment.

This raises the prospect of a future in which there will be ever fewer reporters to keep the public informed and to scrutinize the actions of public officials and regulatory agencies. While we all recognize the inevitability of abuse and corruption with a regime that bans a free press, we will get the same outcome in a world where the market is structured in a way to make the operation of independent media difficult or impossible.

We can look to structure the market in a way that overcomes this problem. Specifically, we can have a modest individual tax credit ($100 to $200 per person) that can be used to finance journalism and other creative work.

The basic problem faced by news outlets, and other producers of creative work, is that the Internet has made it possible to transfer written material, as well as recorded music and video material, at near zero cost. This means that the condition loved by economists, with the price being equal to the marginal cost, implies that this material would be available for free. If users pay what it costs to deliver a news article, song, or movie over the web, they would pay nothing, leaving no money to support the workers who produced the material.  

This problem is not altogether new. The point of a copyright monopoly was to allow the creator of a creative work to charge a price that was well above the marginal cost of transferring material. However, the Internet makes this problem far more serious with the cost of transferring material falling to zero and copyright enforcement becoming ever more difficult. In this context, it makes sense to look to alternative mechanisms.

A tax credit for supporting creative work should not be seen as an altogether new concept. This can be viewed as a variation on the tax deduction for charitable contributions. Under this system, the government effectively subsidizes any charitable organization a taxpayer chooses to support.

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It is always fun, even if tiresome, to mock Donald Trump for getting things wrong. This is why the jump in the merchandise trade deficit last year to $891.2 billion was especially newsworthy.

Trump had made the trade deficit one of the central issues in his campaign and promised to reduce it to bring back good-paying jobs in manufacturing. He was going to use his skills as a negotiator to get better deals from our trading partners. For this reason, the fact that the deficit is going up, not down, is somewhat amusing. In this case, unlike the last decade, the rise in the trade deficit is associated with a modest increase in manufacturing employment rather than a crash, so the implications of the rise are not nearly as serious. 

Nonetheless, it is worth getting the story straight. It is somewhat misleading to refer to the 2018 trade deficit as "record-breaking" as in this Washington Post headline. While the $891.2 billion deficit is considerably larger in nominal terms than the previous record of $838.3 billion, set in 2006, it is considerably smaller measured relative to the size of the economy.

The 2018 deficit is equal to 4.3 percent of GDP. The 2006 deficit was equal to 6.1 percent of GDP. If we are making historical comparisons, this is the more relevant figure, not the dollar amount.

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David Brooks likes to present himself as a voice of reason in the midst of crazy ideologues of the left and the right. He gave us an example of his voice of reason routine today in a piece telling us that Medicare for All is an impossibility.

While the piece raises some reasonable points (the transition will be difficult) the highlight is a condemnation of the Canadian health care system, which is often held up as a model by supporters of Medicare for All.

"Finally, patient expectations would have to transition. Today, getting a doctor’s appointment is annoying but not onerous. In Canada, the median wait time between seeing a general practitioner and a specialist is 8.7 weeks; between a G.P. referral and an orthopedic surgeon, it’s nine months. That would take some adjusting."

While it is true that Canada has longer wait times than the United States for seeing a specialist, this is one area in which its health care system does especially poorly. In other areas, it does better than the United States. Also, other systems, which all cost far less per person than in the United States, do better in this and other categories, as shown in a recent analysis by the Commonwealth Fund.

If Brooks wants to make the point that transitioning to a universal Medicare-type system will be difficult, he's on solid ground. But to imply that we can't do better requires ignoring a vast amount on evidence from other wealthy countries, all of whom do better in providing universal coverage at a lower per capita price than we pay for our far from universal coverage.

This is very far from a voice of reason in the health care debate.

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(This post originally appeared on my Patreon page.)

Bill Niskanen was the rarest of all creatures, an honest libertarian. He actually believed in libertarian ideas, rather than just using them as an excuse for policies to redistribute income upward.

He headed the Cato Institute for more than two decades, from 1985 until 2008. While CATO generally took conservative views, it also followed Niskanen’s principled libertarianism. This meant the institute was anti-imperialist. Niskanen argued that we needed a defense budget to protect the United States, not to police the world. Cato regularly called for sharper declines in military spending than almost all the liberal think tanks in DC.

He also was a strong opponent of the Iraq War. I remember in the months leading up to the war, bumping into him at various events. Bill would point to the various Republican foreign policy experts (not those in the Bush administration) who had publicly warned of the dangers of the war.

He would ask me “where are the Democrats?” While I could point to then fringe figures, like Bernie Sanders, the fact was that most of the Democratic leadership had fallen in line in support of the war. (Nancy Pelosi was a notable exception.) Bill’s opposition to the war angered many prominent Republicans, including Cato donors.

Anyhow, when I was on a panel with him, it was usually to discuss economic issues. I always appreciated his honesty. I remember, back in the 1990s, debating replacing the progressive income tax with a flat tax, which was a popular idea among Republicans at the time. Most of the flat tax proponents would come up with absurd stories about everyone would pay less, and we would end up with just as much revenue.

Once with Bill, I got to go first, and said something to the effect of “a flat tax is about having the middle class pay more so that the rich can pay less.” Bill responded by saying that this is essentially right, but went on to explain how this would be a good thing, because it would lead to a more efficient tax system, and therefore more growth, and make everyone better off. Bill believed this, so he didn’t have to lie.

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I had a longer piece on this Vox article, but our site ate it, so I will be very brief. This Vox piece on the financial transactions tax introduced by Hawaii Senator Brian Schatz gets the story badly wrong.

The CBO revenue estimate does assume a substantial reduction in trading volume. It does not assume that trading volume remains unchanged, as the piece seems to imply.

Of course, the reduction in volume could be larger than CBO assumes, but this would not be a bad thing. In principle, we want the financial markets to operate using as few resources as possible, this means that they are more efficient. If we can operate the markets with half as many trades (like we did in the 1990s) and the markets just as effectively allocate capital, then the markets are more efficient, just as the trucking sector would be more efficient if we could deliver the same amounts of goods with half as many trucks and truckers.

From the standpoint of the individual investor the tax will mean a higher cost per trade, but they will do fewer trades, leaving their trading costs pretty much the same even with the tax. For example, if the tax raises cost by 30 percent, then they (or their fund manager) will reduce trading volume by roughly 30 percent.

In this way, the financial sector eats pretty much the whole cost of the tax. This is why it is so popular among economists.

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That would have been worth mentioning in a New York Times piece on how the limits are hitting upper middle class and rich taxpayers in liberal states like New York and California. The tax law pushed through by Trump and the Republican Congress in 2017 was quite explicitly designed to make it more difficult for liberal states to raise revenue for purposes like providing health care and quality education.

It did this by limiting the amount of state and local tax that people could deduct from their federal taxes. While previously these taxes were fully deductible from federal taxes, which meant that the federal government was effectively picking up the tab on between 25 percent and 40 percent of state and local taxes, after the change the taxpayer has to pick up 100 percent, once the limit is reached.

However, New York's governor, Andrew Cuomo, put in place a partial workaround on this limit. He pushed a bill through the state's legislature that partially replaces the state's income tax with a voluntary payroll tax on employers of 5.0 percent. A payroll tax paid by employers is not subject to income taxes. (Economists usually assume that payroll taxes come out of wages.)

The law reduces a worker's state income tax dollar for dollar for money paid in the payroll tax on their behalf. This move effectively preserves the deductibility of the state income tax, at least for people who get most of their income in wages.

Contrary to what is implied in the NYT piece, Cuomo's workaround has not been ruled illegal. It is being phased in, so only 1.0 percent of income tax could be shielded in this way in 2018, but that rises to 3.0 percent this year, and 5.0 percent in 2020.

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The New York Times had a piece explaining what austerity (i.e. cuts in social services) has meant for the United Kingdom. While it is a useful account, at one point the piece tells readers:

"The austerity measures were imposed to eliminate budget deficits that ballooned to unsustainable levels in the aftermath of the financial crisis."

This seems to imply that the cuts were somehow economically necessary. This is not true. At the time, the UK had high rates of unemployment and large amounts of underutilized resources. There was no reason that it could not have continued to run deficits that were high because the economy was weak.

If the government had continued to run large deficits as the economy strengthened and approached full employment levels of output, it would have created inflationary pressures. This presumably would have resulted in the Bank of England pushing up interest rates to slow the economy, with negative hits to investment, housing, and the trade deficit.

However, at the time the budget cuts were put in place, there was no reason for the government to reduce its deficit. To say that it could not run deficits of that size forever is true in the same way that someone driving west in New Jersey can't keep going that way because they will eventually fall into the Pacific ocean. But that is not the reason most people in New Jersey stop driving west.

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Neil Irwin had an interesting Upshot piece pointing out that concerns about budget deficits have receded dramatically in recent years. This is, of course, true, as politicians of both parties have largely given up their concerns about the deficit. Many prominent economists have also moved away from previous positions that held that budget deficits were a major problem.

While the government can clearly run much larger budget deficits, without negative economic consequences, than many economists had previously viewed possible, for some reason the role of the trade deficit in this story is never mentioned. This is really front and center.

As every intro economics student learns, the components of GDP are consumption, investment, government spending, and net exports. If net exports are a large negative, in other words, we are running a large trade deficit, it means that GDP would be much lower, other things equal. If none of the other components rises, then we would have a large gap in demand.

It is this gap in demand that creates the room for larger budget deficits, without triggering inflation. If we envision a world where trade was balanced, instead of the United States running a $630 billion annual trade deficit (3.1 percent of GDP), we would almost certainly be seeing rapidly rising inflation with current budget deficits, unless the Fed offset the impact with high interest rates.

It is remarkable that the role of the trade deficit is almost always left out of this discussion. It is very basic economics.

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An article on United States trade policy with China dismissed the idea that the United States should push China to raise the value of its currency. It told readers:

"Mr. Trump’s advisers have also pressed China to refrain from further devaluing its currency to lift its economy as American tariffs bite. A drop in the value of the Chinese currency in the past year has already neutralized much of the economic effect of the 10 percent tariffs that Mr. Trump placed on roughly $200 billion of Chinese exports to the United States, said Eswar Prasad, a professor of international trade at Cornell University.

"Yet requiring China to manage its currency and keep it above a certain level would be a striking shift from the policy of past administrations, which have tried to encourage China to let the value of its currency rise and fall with market forces.

"'It’s a very odd way to approach this,' Mr. Prasad said, 'to tell China, after having told them for all these years, 'Let your currency be determined by market forces,' to say, 'Let your currency be determined by market forces only if it is appreciating.''"

This section implies that China is doing nothing now to hold down the value of its currency. However, China holds a huge amount of international reserves, with the sum coming to more than $4 trillion, counting its sovereign wealth fund. Earlier this month, the New York Times ran a piece noting Russia's extraordinary level of reserves, noting it had more than three times the reserves recommended by the IMF, relative to the size of its economy.

China's reserves are even larger relative to the size of its economy than Russia's, so unless the NYT has gone full Trump, China must have more than three times the reserve recommended by the IMF for a country its size.

This matters, because China's holdings of excess foreign reserves keeps down the value of its currency relative to the dollar and other currencies. This is similar to the story of the Federal Reserve Board's holding of assets. While the Fed long ago ended its quantitative easing program, which involved buying assets, it continues to hold more than $3 trillion in assets, which most economists agree is a factor keeping down long-term interest rates. In the same vein, even though China is no longer buying up large amounts of dollars and other foreign exchange, its holdings of foreign currencies continue to keep down the value of the Chinese yuan.

All of this should be pretty straightforward, but for some reason, the NYT seems determined to obscure issues here.

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