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.

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I generally don't get teary-eyed over the passing of a finance guy (or woman), but I make an exception in the case of John Bogle. Bogle was the founder of Vanguard funds, which now has over $5.1 trillion in assets. That would be roughly $16,000 for every person in the country.

Bogle's great innovation was to minimize the cost of managing individual accounts. The key Vanguard asset is an index fund. It does minimal trading, it just tracks the market. Bogle argued, supported by much evidence, that the vast majority of investors are not going to beat the market. This means trading costs are simply a transfer to the folks running the account. Since most of us have people we would rather give money to than our stockbroker, we are better off just having an index fund.

And it does make a huge difference. Many of Vanguard's index funds have costs of less than 0.1 percent annually. By contrast, many actively traded accounts will have fees and service charges in the range of 1–2 percent annually. This adds up over time. If you invested $1,000 that got a 6 percent nominal return, it would grow to $5,580 at Vanguard after 30 years. At a brokerage charging 1.0 percent in annual fees, it would grow to $4,320. At a brokerage charging 2.0 percent annual fees, it would only grow to $3,240. And the gap is all money in the pockets of the financial industry.

While his low-cost index fund was a great innovation in finance, he did not personally get rich from it. He organized Vanguard as a cooperative. The people who invest with the company effectively own it.

I once met John Bogel. We were having lunch before testifying on some financial issue. He was very soft-spoken and I originally didn't catch his full name. After our testimony, when I realized who he was, I told him that I tell everyone I know to give him all their money. That was true.

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By Eileen Appelbaum

In today’s column, Robert Samuelson attributes Sears bankruptcy and possible liquidation — the final chapter in a saga that has already cost 200,000 workers their jobs — to the department store chain’s inability to adapt to competition with big box stores and the Internet. Apparently, he has never heard of Eddie Lampert and his ESL hedge fund, which took over Sears and Kmart in 2006 and ran the company, now known as Sears Holdings as an ATM for himself and his investors. Lampert may not have known anything about retailing, but as Sears’ CEO he had no qualms about monetizing its assets for his own and his wealthy investors’ benefit — including Treasury Secretary Steve Mnuchin who was an investor in his hedge fund and served on the Sears board for 12 years as the retailer spiraled downward.

In its most egregious act of financial engineering, Lampert’s hedge fund set up a real estate company, Seritage Growth Properties, with Lampert as Chairman of Seritage’s board. In 2015, Lampert as CEO of Sears sold 266 Sears and Kmart stores located on prime real estate to Seritage, where he was Chairman of the Board. Seritage shuttered stores and developed the real estate into high-priced new developments — offices for the burgeoning high tech sector in Santa Monica, a luxury shopping center in Aventura, Florida. Sears creditors are in court over this self-dealing by Lampert, claiming he cheated them out of $2.6 billion.

If Samuelson took the time to read his own newspaper, he could have learned about the business model of investment funds — private equity and hedge funds — that take over Main Street companies from Peter Whoriskey’s investigative reporting on the bankruptcy of Marsh, a major mid-West grocery chain. Amazon, Walmart and the Internet certainly pose a challenge, but the inability of companies to respond can be laid squarely at the feet of investment funds that load the companies they own with unsustainable levels of debt and that take resources out of the company by selling off its real estate.

As I show in a comparison of the largest supermarket chain in America, the very successful publicly traded Kroger’s, and the second largest, floundering private equity-owned Albertsons, large, iconic retail companies can respond to competitive challenges when they control their own resources, own their own real estate, and keep their debt levels manageable.

Samuelson attributes the demise of Sears to changes in capitalism and competition without, apparently, having ever heard of hedge funds and private equity funds that take over the management of companies and run them in the interests of investors in their funds, with little regard for the companies’ ability to compete or its workers.

Perhaps The Washington Post should set as a minimum requirement for its columnists that they actually read the newspaper.

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In a Washington Post column, Megan McArdle suggests that we pay people to donate their kidneys as a way on increasing the number of donors and reducing the number of people who must rely on dialysis. Needless to say, to many folks, it is attractive to get market relationships into ever more aspects of our lives. However, if we are interested in getting more kidneys, rather than just getting more money for the health care industry, this is likely a bad way to go.

There was a great study done a few years back with child care centers in Israel. As it was, the vast majority of parents picked up their children on time because they knew that being late meant a teacher had to stay late. The study examined what happened if centers charged a small fee to parents for being late to pick up their kids. It turned out that the fee significantly increased the frequency with which parents picked up their kids late.

The explanation offered is that when there was no fee, parents felt an obligation not to make teachers stay late. When they paid a fee, they felt that they were compensating with the fee, therefore they didn't feel guilty about being late.

Would it be the same story with kidneys? It's hard to say, but people donate now with the idea of providing help to someone in need, often a family member or friend. These donations may well fall off if they know kidneys are readily available for the right price.

For my part, I no longer check off the spot on my drivers' license to be an organ donor. While I would be very happy if one of my organs could extend the life of a person in need, I remember how Mickey Mantle was pushed to the front of the line to get a liver transplant. The great baseball player had destroyed his liver with a life of hard drinking. Nonetheless, he was pushed to the front of the line to get a transplant at the age of 64. He died shortly after the transplant.

I have spent my life trying to combat this sort of sleaze. If some doctors want to get rich providing transplants for the rich and famous, I don't intend to help them with my death.


Robert Salzberg assures me that rules on organ transplants have gotten stricter since the Mickey Mantle days and are carefully regulated by the Organ Procurement and Transplantation Network. If anyone wants to weigh in on the status of the process today, I would be interested in hearing their assessment.

As far as my point on Mickey Mantle, my concern was not so much this specific case, as what it showed about the process. We heard about Mickey Mantle's transplant because he was a famous baseball player, but the odds are that he was not the only one to jump to the front of the line based on his fame and wealth.

Robert also suggested as an alternative to cash payments to kidney donors that we might offer free medical care for life. This seems like a reasonable benefit that does not pose the same risk of having a market for kidneys where payments could soar into the stratosphere. It also preserves an idea of it being a gift of sorts, reciprocated with another gift.

Here's another piece on the organ donor system.

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There have been several pieces in recent weeks about the drop in birth rates in recent years. Birth rates declined in the recession and they have not recovered even as the economy has improved.

As these pieces point out, economics plays a big role in the drop in birth rates. Young adults often are having difficulty finding and keeping jobs that provide a decent wage. This was certainly true in the downturn, but it is still often the case even now with the unemployment rate at 50-year lows.

In addition, the United States badly lags other rich countries in providing support to new parents. We are the only wealthy country that does not guarantee workers some amount of paid parental leave or sick days. While many companies offer these benefits, millions of new parents, especially those in lower paying jobs, cannot count on any paid leave. (It is important to note that many states and cities have required paid family leave and/or sick days in the last two decades, making up for the lack of action by the federal government.)

Child care is also a huge problem for young parents. Quality care is often difficult to find and very expensive. This leaves many young parents, especially mothers, struggling to provide care for their children even as they hold down a job.

These are real and important policy concerns. People should be able to have children without undue hardship. We also want to make sure that children have decent life prospects. Having parents that are not overstressed and access to good quality child care are important for getting children on a good path in school and their subsequent careers and lives.

For these reasons, leave policy and child care need to be near the top of the policy agenda. However, the fact that people are having fewer kids is not a good rationale for supporting these policies. A stagnant or even declining population is not a public policy problem.

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The Washington Post had an article about plans by Louisiana to stop paying for Hepatitis C drugs for its Medicaid and prison populations by the dose. Instead, it will take bids from drug companies on how much they would charge for a year of unlimited use of their drugs.

While this will still allow the companies to make large profits on their sales to the state, it has the great benefit that eliminates the enormous gap between the price of the drug and the marginal cost of producing an additional dosage. In the case of Hepatitis C drugs, this gap was enormous. The list price for the drug Solvaldi was $84,000. The cost of producing a high-quality generic version is a few hundred dollars.

For $84,000 it is necessary to think carefully about whether a Hepatitis C patient should get the drug, given the enormous expense involved. At a few hundred dollars, cost really is not an issue. This change in payment structure will allow Louisiana to provide much better care to people in the state suffering from Hepatitis C.

Hopefully this model, which is similar to the prize system that many have advocated, will be adopted for other drugs and in other states. I have argued that paying for the research upfront is a better route since it will allow full openness in research and test results, but the Louisiana system is undoubtedly an enormous step forward from the current system. (This paper discusses the merits of different routes.)


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In an article on Democratic presidential candidates pursuing a populist agenda in their 2020 campaigns, the NYT contrasted this approach with "the pragmatic politics and big-donor appeal of Hillary Clinton, the 2016 nominee." It's interesting that the NYT has decided that efforts to extend health care coverage, access to college, and stop global warming are not pragmatic. Maybe the paper could at some point publish its criteria for grading a policy proposal as pragmatic.


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Mayor de Blasio has proposed an ordinance that would guarantee workers in the city at least two weeks a year of paid vacation. In taking this step, de Blasio is bringing the city in line with every other wealthy country in the world, which have long had paid vacation as a basic right of employment.

It is striking how out of line the United States is with the rest of the world in not providing paid vacation. When I first met my wife, who is from Denmark, she told me about how the unions in the country were having a general strike. They were demanding six weeks of paid vacation a year. They already had five. (The strike was quickly settled with a compromise of five weeks and three days, although they have since raised the number to six weeks.) Denmark is not an outlier, all workers in the European Union can count on at least four weeks a year of vacation and many are near Denmark with five or six weeks.

There are two basic points about paid leave. The first is the obvious one; the goal of the economy is to give people decent lives. This means not only having nice things but also having the time to enjoy life.

The reduction of work time has long been a basic demand of workers. Many of the biggest labor actions in the late 19th and early 20th century were for the eight-hour day. There was a sharp reduction in average work hours from the turn of the century until 1940. While other countries have continued to reduce average work hours (in Europe, the average work year is now about 20 percent shorter than in the United States), there has been little change in the United States over the last 80 years.

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It is common to see stories that have China's economy reeling as a result of the Trump tariffs. While it does seem that China's economy is experiencing difficulties, it is hard to tell a story where Trump's tariffs are a major factor.

First, as I pointed out in the past, China's trade surplus has actually risen in 2018 compared to 2017. In the first 10 months of 2018, (Census is not releasing new data because of the shutdown), China's surplus on goods trade was up 11.5 percent from 2017. Perhaps the surplus would have risen even more without the tariffs, but it is a bit hard to believe that China's economy is suffering too much because its surplus with the US only increased by 11.5 percent.

But the other point is that China's exports to the US are just not that large a share of its economy. If we assume that exports for November and December would be roughly comparable to the prior two months, then the total for 2018 would be $550 billion, which comes to 4.2 percent of its $13 trillion economy.

However, as we are endlessly reminded by supporters of recent trade deals, much of the value in these exports is generated elsewhere. For example, we count the full value of an iPhone manufactured in China as an export to the US even though the vast majority of the value-added comes from other countries. (This is offset by the fact that much of the value-added of goods imported from Japan, Germany, and elsewhere is produced in China. If anyone in this dispute actually cared about reducing the trade deficit, getting China to raise the value of its currency would help to reduce both the direct and indirect trade deficit with China. But in any case, this issue is irrelevant in this context.)

Let's assume that 30 percent of the value-added in China's exports comes from other countries. This means that exports to the US are equal to 3.0 percent of its GDP.

Even if we assume a very large impact from Trump tariffs, perhaps he can reduce US imports from China by a third. This would be 1.0 percentage point of GDP. That is hardly trivial, but not the sort of thing that would push China into a recession.

The long and short is that Trump's trade measures can be a nuisance to China and can undoubtedly cause serious problems for the most affected industries, but anyone thinking that they can sink China's economy is seriously deluded.

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Donald Trump has made his tariffs against China and other countries a big part of his agenda as president. He even went so far as to dub himself "Tariff Man" on Twitter.

The media have been quick to assume that Tariff Man is accomplishing his goals, especially with regard to China. It is standard for news articles, like this one, to assert that China's economy is suffering in large part because of Trump's tariffs.

In fact, through the first ten months of 2018 China's trade surplus with the United States on trade in goods has been $344.5 billion. This is up 11.5 percent from its surplus in the same months last year.

The tariffs surely are having some effect, and China's surplus would almost certainly be larger if they were not in place. But it is difficult to believe that China's $13.5 trillion dollar economy (measured at exchange rate values) could be hurt all that all that much by somewhat slower growth in its trade surplus with the United States. (For arithmetic fans, the surplus is equal to 2.5 percent of China's GDP. We are talking about slower growth in this surplus.)

It is worth noting that we will not be getting new trade data until the government shutdown is over since the Census Bureau is one of the government agencies without funding for fiscal year 2019.

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Readers of this NYT piece on Robert Lighthizer, United States trade representative, and his negotiations with China may have missed this point. The piece said that one of Lighthizer’s main goals was to stop China’s practice of requiring that companies like Boeing and GE, who set up operations in China, take Chinese companies as business partners.

This is an effective way of requiring technology transfers since the partners will become familiar with the production techniques of the US companies. This will enable them in future years to be competitors with these companies.

If the US government prohibits contracts that require this sort of technology transfer, it will make it more desirable to outsource some of their production to China. This will be good for the profits of Boeing, GE, and other large companies but bad for US workers. It will also mean that we will be paying more for products in the future than would otherwise be the case, since if Chinese companies would have been able to out-compete US companies, it presumably means that would be charging lower prices or selling a better product.

It is also worth noting that the basic concern expressed by Lighthizer and others assumes that major US corporations are unable to look out for themselves. They are not being forced to enter into contracts with China. This problem arises because they decide to invest in China, even with conditions requiring technology transfer.

We have a great story here where the government, and many analysts, think our largest corporations lack the ability to look out for their best interests. By contrast, when it comes to individual workers who are forced to sign away their right to have class action suits, or individual investors who can be fleeced by the financial industry, the current position of the government is that they can look out for themselves.

The NYT piece also does some inappropriate mind reading when it tells readers:

“Mr. Trump is increasingly eager to reach a deal that will help calm the markets, which he views as a political electrocardiogram of his presidency.”

The reporter/editor does not know that Trump is “increasingly eager” or that he “views” the markets as “a political electrocardiogram of his presidency.”

Good reporting says what politicians do and say. It does not report as fact their alleged opinions.

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