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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Donald Trump has made a big show of saying that because he is such a rich guy, he will donate back his presidential salary of $400,000 a year to the government. He regularly tells us which department or agency is the lucky beneficiary of his quarterly compensation.

Unfortunately, he feels no compunction about imposing extraordinary travel and security costs on the government by spending frequent weekends at his Mar-a-Lago resort or other Trump properties. This expense substantially exceeds the $400,000 that the government gets from him donating his salary, as shown in the figure below.

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                                                          Source: Government Accountability Office and author's calculations.

The chart relies on a GAO study that calculated that four Trump visits cost the government $13.6 million in extra expenses, or $3.4 million per weekend. The calculation in the graph assumes that he makes 26 trips a year, one every other week.

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(This piece was first posted on my Patreon page.) The Trumpers were celebrating over the 3.2 percent GDP reported for the first quarter last week. They claimed it proved the success of their tax cuts.

But fans of arithmetic saw things differently. First of all, the jump in GDP was largely a fluke, with a big jump in inventory accumulations and a fall in imports accounting for almost half of the growth. Pulling these out, GDP growth was under 2.0 percent.

This isn’t just cherry picking. It is virtually certain that inventories accumulation will slow next quarter, this usually happens after a month of rapid accumulation. The logic is straightforward, if companies added a lot to their inventory in the first quarter, then they probably want to add less in the second quarter.

It’s a similar story with imports. Our imports typically rise quarter to quarter, unless the economy is in a recession. The shrinkage in the first quarter is likely a fluke, which means unless imports are revised up in subsequent reports (the GDP data will be revised twice before the second quarter data are released), we are likely to see a larger than usual jump in imports in the second quarter.

In that story, both inventories and imports are likely to be a drag on growth. This means that if we have an underlying growth rate of 2.0 percent, a slower rate of inventory accumulation, coupled with more rapid growth in imports, could mean that second quarter GDP will be close to 1.0 percent.

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The New York Times had a piece describing the quality control issues that Boeing seems to be having at its plant in South Carolina. It would have been worth mentioning that Boeing moved operations from Seattle, where it has an experienced unionized workforce, to South Carolina to take advantage of lower-paid non-union labor. This could have something to do with its quality control problems.

Addendum

The NYT did a very good story last month on the South Carolina plant that pointed out the decision to go with a less experienced non-union workforce.

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The Bureau of Labor Statistics reported that productivity increased at a 3.6 percent annual rate and is now up 2.4 percent over the last year. This is a big improvement from its 1.3 percent average growth rate since 2005.

This is very good news, if it proves to be real and is sustained. It would mean that we can have more rapid improvements in living standards and have more resources for things like a Green New Deal and Medicare for All. But folks should probably hold the celebration, for now, it is very possible that this figure is a fluke since productivity data are subject to large revisions and are extremely erratic. (Arguing for the fluke story, self-employment was reported as dropping at more than a 7.0 percent annual rate in the first quarter. That's possible, but not very likely. Fewer self-employed means fewer hours, and therefore higher productivity.) 

Needless to say, the Trumpers were quick to take credit. The Wall Street Journal told readers:

"The recent gains could be a sign that an uptick in investment following tax-law changes passed in 2017 means businesses are spending on the technology and tools necessary to increase output. Some firms have turned to automation—from factory machines to shelf-scanning robots—to ramp up output while growing hours or payrolls more slowly."

The piece then quotes Kevin Hassett, the head of Trump's Council of Economic Advisers:

"The machines people bought last year, they are turning them on this year."

This story doesn't make any sense since there was no tax cut induced investment boom in 2018. Investment in the first quarter of 2019 was 4.8 percent higher than in the first quarter of 2018. That is pretty much average growth and certainly not an investment boom.

There were many previous periods with much more rapid investment growth and no corresponding uptick in productivity. For example, investment grew 8.0 percent from the third quarter of 2013 to the third quarter of 2014. It grew 12.9 percent from the first quarter of 2011 to the first quarter of 2012. In neither case was there any notable uptick in productivity growth.

To see a one percentage point increase in the rate of productivity growth, we would need a jump in investment in the neighborhood of 30 percent. The Hassett story is simply not plausible on its face. The article should have made this fact clear to readers.

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I suppose it's hard for people in Washington to get data from the Washington-based International Monetary Fund, otherwise, they would not tell people things like China is the world's second-largest economy, after the United States. Using purchasing power parity data, which is what most economists would view as the best measure for international comparisons, China's GDP exceeded the U.S. GDP in 2015. It is now more than 25 percent larger.

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Moore said it would take the form of "the biggest sell-off in the stock market in American history." Since stock is overwhelmingly held by the wealthy, if the market plunges, it means that the wealthy will have relatively less wealth.

It is important to remember that the stock market in principle represents the value of future after-tax corporate profits. This means that any measure that should increase after-tax profits, such as the Republicans' corporate tax cut, should lead to a rise in the stock market. By contrast, measures that reduce corporate profits, like reining in abusive insurers or taxing fossil fuel companies for the damage they cause to the environment, will lead a fall in the stock market.

While this would mean that rich people would have less money, it has little to do with the health of the economy.

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I asked that question about Washington Post reporters about a year ago, it turns out I have to ask the same question about New York Times reporters. It turns out it comes up in the exact same context, an effort to blame Trump's trade war for the plight of U.S. farmers.

The issue here is a very simple one that is completely non-controversial among economists. Other things equal, a dollar that has a higher value in currency markets will mean lower prices for U.S. farmers. The logic on this one is straightforward.

Suppose that milk sells in Europe for 2.5 euros a gallon. If there are 1.2 dollars to a euro, then a U.S. dairy farmer will get $3.00 for a gallon of milk sold in Europe. Now suppose the dollar rises in value so that it a euro is only worth 1.0 dollars. In this case, the U.S. dairy farmer will only get $2.50 for a gallon of milk sold in Europe. In the real world, things will always be a bit more complicated, but that basic logic still holds, a higher valued dollar means lower farm prices measured in dollars.

For this reason, it is mind-boggling that the NYT could tell us "the price of milk has dropped by roughly a third in the last five years," without mentioning that the trade-weighted value of the dollar has risen by more than 20 percent over this period.

There are lots of very good reasons not to like Donald Trump and his trade policy, but the NYT shouldn't be in the business of making stuff up.

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Hawaii Senator Brian Schatz recently introduced a bill proposing a 0.1 percent tax on financial transactions. This means that when people trade a share of stock or a bond, they would pay a tax rate of 0.1 percent ($1 on $1,000), on their trades. According to the Congressional Budget Office, this tax can raise more than $80 billion a year in revenue, somewhat more than the entire annual budget for the food stamp program.

Not surprisingly, the financial industry doesn’t like the idea. It has argued that this tax would be a big hit to retirees and pension funds. While it is understandable that the industry would try to raise such fears to protect its profits, its claims have little basis in reality, as a bit of arithmetic can quickly show.

Suppose that a worker has $100,000 in a retirement fund. If 40 percent of the fund turns over every year, then this worker would be a 0.1 percent tax on the $40,000, if all of the tax is passed on to investors. This is a strong assumption, since it is likely that the industry would have to absorb some of the cost of the tax in lower fees, but even in this extreme case where they can make investors pay the full tax, this worker would be paying $40 a year from their retirement account to the government as a result of the tax.

While no one will be happy to pay an extra $40 a year in taxes, it is worth putting this in some context. The average fees charged by the financial industry to manage a 401(k) account are in the neighborhood of 1.0 percent annually. Many charge as much as 1.5 percent or even 2.0 percent.

But if we use this 1.0 percent figure, this worker with $100,000 in their retirement account is paying the financial industry $1,000 a year from their account. By comparison, the $40 from the financial transactions tax may not seem like a very big deal.


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I'm just asking because that's what the Washington Post told readers in an article on the 2019 Social Security and Medicare Trustees reports. The piece noted that the Medicare program is first projected to face a shortfall in 2026. It would take an increase in the payroll tax of 0.91 percentage points (0.455 percentage points on both employees and employers) to fill the projected gap. The piece tells readers this is "a measure that could hurt business development and growth."

It's not clear why it would have such a negative effect on business development and growth. The conventional view in economics is that the worker pays this tax out of their wages, so essentially it means that after-wages will be 0.91 percent lower with the tax increase. While that will moderately reduce the incentive to work, most studies show this should have little effect on employment.

We have seen much larger tax increases in prior decades, for example the payroll tax rose by 4.8 percentage points from 1959 to 1969, with little obvious negative effect. It is also worth noting that the slower pace of health care cost growth over the last decade has slowed or even reversed the rise in the percentage of compensation going to health insurance. This means that wages have risen more rapidly than if health care costs had continued to grow at their prior pace. In its impact on the labor market this is equivalent to a cut in the payroll tax. The impact of this slower health care growth over the last decade has been considerably larger than the 0.91 tax increase that is projected to be necessary to fund Medicare after 2026.

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(This post originally appeared on my Patreon page.) U.S. trade policy is truly fascinating. Probably more than in any other area of public policy, trade agreements are structured by corporate interests behind closed doors. Then when a deal is produced, the establishment media and economists insist that we have to support the deal behind the important principle of “free trade.” The opponents are treated as knuckle-dragging Neanderthals who just can’t understand how the economy works.

We got another episode in this long-running show last week when the United States International Trade Commission (USITC) came out with its assessment of the United States, Mexico, Canada Agreement (USMCA), also known as the new NAFTA. It came as a surprise to virtually no one that the USITC study showed economic gains from the deal. The study projected that the deal would lead to an increase in GDP of 0.35 percent when its effects are fully felt. However, the real impressive part of the story is how it got this result.

Before getting to the particulars, it’s worth putting some perspective on the character of the report. The USITC was obviously determined to make the USMCA look good. One reason this is clear is the failure to put a date for the year for which their projections are made. The model that the USITC used to project gains, the model from the Global Trade Analysis Project (GTAP), assumes a long period through which the economy gradually adjusts to the changes put in place from a trade deal. The projected impact refers to the end year, which is around 16 years in the future.[1]

Incredibly, the UISTC study projecting the impact of USMCA neglects to mention the end year for its projections, which presumably would be something like 2034. The end year is presumably left out because a gain of 0.35 percentage points of GDP over sixteen years looks rather pathetic. It comes to just over 0.02 percentage points a year, an increment that would be essentially invisible.

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