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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In a Washington Post analysis, Philip Bump assessed the evidence as to whether the Republican tax cuts passed last year are leading to the promised wage growth. He notes promises from Donald Trump about how the tax cut would lead to more hiring, which would push up wages.

While this is in fact what Trump promised on many occasions, this is likely due to the fact he didn't understand the logic of his own tax cut. His economists justified the promised wage gains not by any immediate hiring effect, but rather by the effect the tax cut would have on investment. The tax cut was supposed to induce a flood of new investment. This would, in turn, lead to more rapid productivity growth. The big wage dividend would come from the workers' share of this increased productivity.

For this reason, the key factor to watch at this point is investment, not month-to-month wage movements. By this measure, the tax cut is striking out badly. There is zero evidence of any uptick in investment, or investment plans, over the pre-tax cut pace.

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The Federal Reserve Board yesterday raised interest rates. According to comments from Chair Jerome Powell and other Fed board members, they believe that the unemployment rate is approaching, if not below, levels where it could trigger inflation. The hike yesterday, along with prior hikes and projected future hikes, was done with the intention of keeping the unemployment rate from getting so low that inflation would start to spiral upward.

This is not the same as "express[ing] confidence that raising borrowing costs now won’t hurt growth," which is the view attributed to Fed officials in the NYT's "Thursday Briefing" section. The point of raising interest rates is to slow growth, so they absolutely believe that higher interest rates will hurt growth. The point is that the Fed wants to slow growth because it is worried that more rapid growth, and the resulting further decline in unemployment, will trigger inflation.

Chair Powell did say that he didn't expect higher borrowing costs to choke off growth, but that is not the same as saying that he doesn't believe it will slow growth.

Thanks to Robert Salzberg for calling this to my attention.

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Neil Irwin had an interesting piece discussing various proposals that would ensure that workers share in productivity gains if we start to see massive job displacement due to robots (not much to date). At one point, he says this list would imply more activist government. This is not true. Most of the proposals (which can be found in my 2016 [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer ) involve different ways in which the government would structure the market, not necessarily more intervention.

For example, weaker and shorter patents and copyrights actually imply less government intervention in the market. Patents and copyrights are of course government granted monopolies that raise the prices of protected items by several thousand percent, sometimes tens of thousands of percent. Reducing this protection is a move towards a freer market.

Monetary policy that targets full employment is no more "activist" than monetary policy that focuses on keeping inflation down, it is simply a question of priorities. The question is whether the government is working towards ensuring that workers can get jobs or whether it is focused on protecting the wealth of the wealthy.

Work sharing is an alternative to unemployment insurance. With standard unemployment insurance, the government is effectively paying workers half their salary to be completely unemployed. By contrast, work sharing involves half of the wages lost from being partially unemployed due to a cutback in hours. While this is arguably better for workers and employers, since it keeps workers attached to the labor force, this arrangement does not in any obvious way imply more activist government.

It is striking that the rules that set in place the current market structure and the resulting upward redistribution are somehow regarded as natural and that efforts to alter them are regarded as "activist." In fact, the upward redistribution of the last four decades was engineered by a series of policy shifts, not any natural process of market evolution.

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Donald Trump's tendency to make things up as he goes along naturally prompts a strong reaction from people who try to approach issues in a serious way. But serious people can sometimes get carried away in this reaction.

Glenn Kessler, the Washington Post's fact checker, got a bit carried away in trying to set readers straight on Trump's bizarre claim we have a $100 billion trade deficit with Canada. (We do have a trade deficit, but it is closer to $20 billion.) In his Fact Check piece, Kessler asserts:

"If overall trade increases between nations, people in each country gain, no matter the size of the trade deficit."

This is not necessarily true. Let me go through two cases, one in which the countries are below full employment and one in which they are at full employment.

Suppose in the first case one country, let's say Denmark, decided to subsidize $100 billion of exported cars to the United States, displacing $100 billion of domestic production. The immediate effect of the increased imports from Denmark is a loss of output and employment in the United States.

In principle, the Danes have another $100 billion to buy goods and services from the United States, but suppose they don't like anything we sell. In the textbook story, they would dump their $100 billion on world currency markets, driving down the value of the dollar. This would make US goods and services relatively cheaper, thereby causing us to export more and import less, possibly fully offsetting the $100 billion in increased imports.

But suppose the evil Danish central bank used these dollars to buy up US government bonds, as many countries have done over the last two decades. This would keep the dollar from falling. The purchase of US bonds would have some effect in lowering US interest rates, but this would be just like the Fed's quantitative easing policy. The lower interest rates would boost demand, but not nearly enough to offset the $100 billion increase in our trade deficit.

So, in this below full employment story we end up with a situation where trade has increased by $100 billion, but the US is left with lower employment and output. It sure looks like it has been hurt by more trade.

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No, this one is not at all a joke. Harvard Professor and former AIG director (yes, the one the government bailed out in 2008) Martin Feldstein wants the Fed to stop worrying about unemployment and just focus on inflation. His Wall Street Journal column argues for ending the Fed's dual mandate and instead just having an inflation target.

Before getting to the substance, it is worth a short digression on Feldstein's track record. Feldstein was sitting on AIG's board of directors as the insurer issued hundreds of billions of dollars worth of credit default swaps on mortgage-backed securities at the peak of the housing bubble. Mr. Feldstein apparently saw no problem with this. While the company had to be saved from bankruptcy by a massive government bailout, Feldstein was pocketing well over $100,000 a year for his oversight work as a director.

While Feldstein missed the bubble that sank the economy, he did manage to finger a bubble that didn't exist. Four years ago he wrote a column with former Citigroup honcho (yes, the one the government bailed out in 2008) Robert Rubin, his Democratic counterpart as a purveyor of wisdom from the financial sector. The column urged the Fed to raise interest rates in order to deflate the bubble they saw building in financial markets. (Here is my comment at the time.) Had the Fed taken their advice, the unemployment rate would almost certainly be several percentage points higher today and tens of millions of workers would not have seen the modest real wage gains they've experienced in the last four years.

The fact that someone with a track record as consistently bad as Martin Feldstein can get a column in the country's leading financial paper (he also argued in the 1993 that Clinton's tax increase wouldn't raise any revenue) shows what a great country we have. But let's get to the substance.

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Not deliberately of course, but he once again used his column to demand that Congress take steps to cut Social Security and Medicare. He denounced the politicians who don't share his agenda of making the lives of seniors harder as "cowards." Okay, nothing unusual here.

But let's take a step back into reality. The economy is hugely poorer today than it would have been if in the wake of the Great Recession we had effective stimulus. (Of course, we would be even better off if the folks running in the economy in the last decade knew some economics. Then they could have taken steps to counter the growth of the housing bubble, so we never would have had the Great Recession.)

The weak stimulus meant that unemployment was higher for a longer period of time than necessary. Many people lost skills and some ended up permanently unemployed. We also saw much less investment than we would have otherwise. As a result, the economy is more than 10 percent smaller today than had been projected back in 2008, before the depth of the crisis became apparent. 

This loss in output comes to more than $6,000 per person annually. People who have taken Econ 101 know that it doesn't make a difference to a person's take-home pay if you tax their income by 10 percent or whether we cut their before-tax income by 10 percent. Robert Samuelson and his deficit hawk friends cut workers' before-tax income by 10 percent with their push for austerity, which helped to put a check on effective stimulus. Now, they are deriding politicians as cowards for not wanting to go along with the other half of this agenda, cutting back the Social Security and Medicare benefits that these workers are counting on in their retirement.

It is also worth noting the warped logic in Samuelson and other deficit hawks arguments. Their measure of inter-generational equity is exclusively taxes. So if we hand down a wrecked environment, decrepit infrastructure, and shut down our schools, Samuelson would still have us scoring well on inter-generational equity as long as we haven't raised taxes.

Samuelson and his Washington Post gang also are denialists in refusing to acknowledge that taxes are not the only way the government pays for things. The government grants patent and copyright monopolies, which effectively allow their holders to apply taxes on a wide range of items like prescription drugs, medical equipment, and software. In the case of prescription drugs alone, the gap between the patent prices we pay and the free market price comes close $400 billion a year (2 percent of GDP).

Presumably, Samuelson and the other deficit hawks don't like to talk about patent and copyright monopolies because the beneficiaries are their friends. But people who actually care about economics and society's well-being can't be so selective in deciding to ignore such enormously important implicit taxes.

Note: Typos corrected from an earlier version, thanks Robert Salzberg.

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The NYT had a good piece highlighting new research by Gabriel Zucman, Thomas Torslov, and Ludvig Wier indicating that multinationals may be shifting as much as 40 percent of their profits to tax havens. This is a pretty serious problem if we actually expect companies to pay their taxes.

As I have pointed in the past, there is actually a very simple mechanism that would pretty much block this sort of tax avoidance. If companies were required to give the government non-voting shares in an amount equal to the targeted tax rate, then it would be virtually impossible for them to escape their income tax liability without also defrauding their shareholders. But I realize this is probably too simple to be taken seriously.

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OMG! It's the Mother of All Credit Bubbles!. That's not my line, Steven Pearlstein is beating the drums in the Washington Post telling us we should be very afraid because a number of corporations are taking on too much debt.

His basic story is that corporate America is getting heavily leveraged, with many companies likely finding themselves in a situation where they can't repay their loans. I wouldn't dispute the basic story, but there are few points worth noting.

First, companies have an incentive to borrow a lot because interest rates remain at historically low levels even though as Pearlstein tells us that the Republican tax cut is "crowding out other borrowing and putting upward pressure on interest rates." The interest rate on 10-year Treasury bonds is under 3.0 percent. By contrast, it was in a range between 4.0 to 5.0 percent in the late 1990s when the government was running budget surpluses.

Much of his complaint is that many companies are borrowing while buying back shares. I'm not especially a fan of share buybacks, but I don't quite understand the evil attached to them. Would we be cool if these companies paid out the same money in dividends? There are issues of timing, where insiders can manipulate stock prices with the timing of buybacks, but they actually can do this with announcements of special dividends also. Anyhow, to me the issue is companies are not investing their profits, I don't really see how it matters whether they pay out money to shareholders through buybacks or dividends.

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It's well-known that intellectuals have a hard time dealing with new ideas. And, for better or worse, the NYT's editorial writers are intellectuals.

This made it painful to read its editorial criticizing the Food and Drug Administration's (FDA) efforts to hasten the approval of new drugs. The piece makes many important points about the problems with an accelerated drug approval process. This increases the risk that drugs will be approved that are of little benefit and possibly even harmful.

While it notes the inevitable tradeoff between the desire to quickly make new drugs available to patients who can be helped and ensuring their safety and effectiveness, it misses the fundamental problem with having the testing done by a company with a financial interest in pushing drugs whether or not they are safe and effective.

This is an especially serious problem given the enormous asymmetry in the information available to the drug company doing the testing and both the FDA and the larger community of researchers. The decision to conceal or misrepresent test results has proven enormously harmful to the public in recent decades, most notably in reference to evidence that the new generation of opioid drugs are addictive.

The obvious solution to this problem would have the government take responsibility for funding clinical testing. The government could still contract out the testing process, but if it took possession of all rights to the drugs, so that they would be available as generics when they were approved, there would be no one with an interest in misrepresenting the research results. (This would not preclude drug companies for paying for their own tests on drugs to which they maintained patent monopolies, but these drugs would be subject to much greater scrutiny for approval. They would also face the risk of competing with drugs that are every bit as effective selling at generic prices.)

While publicly funded drug testing would seem an obvious way to deal with a serious health issue, it would require the sort of new thinking that intellectuals find very difficult.

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Many pundit types were thrown for a loop by the Labor Department's release of its Contingent Worker Survey yesterday. The survey, the first one since 2005, showed no increase in the percentage of workers employed as independent contractors, such as those who work for Uber and Lyft.

While that didn't surprise those of us who follow the data closely, the release did seem to catch some of the proselytizers of the gig economy by surprise. It turns out that replacing taxi drivers (many of whom are contract workers) by contract workers for Uber and Lyft, has not transformed the labor market.

As has been pointed by out by Larry Mishel and others, most of the people doing gig economy work do it as a sidebar, in addition to their main jobs. But it is worth noting that even here the data points to a decline in the percentage of workers employed in multiple jobs over the last quarter century.

multiple jobs

So even insofar as workers are turning to Uber or TaskRabbit to supplement their income, it seems to a large extent it is substituting for other side work they used to do. It seems the gig economy means much more to pundits than to workers.

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