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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David Brooks presented readers with an outline of the types of people who will exist in a future economy in which, by his assessment, 15 percent of the people will thrive as a result of being able to work with computers and the 85 percent will struggle. While his list includes synthesizers, humanizers, and motivators, it left out justifiers.

Justifiers are likely to be an important category of worker in high demand in an economy where 15 percent of the population thrive at the expense of the other 85 percent. They are likely to be especially important in a context where the wealth and prosperity of the 15 percent depends on government granted patents and copyright monopolies. Advocates of free markets and equality might advocate more efficient mechanisms for financing creativity and innovation.

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Washington Post columnist Charles Lane argues that President Obama's newly proclaimed focus on inequality is misplaced, saying that it is not likely to be a popular agenda. He concludes by noting some polling results and then commenting:

"Create jobs, slash debt, then worry about equality. Isn’t that the Republican pitch?"

Actually this is not at all the Republican pitch. The Republican pitch is to reduce taxes for rich people and corporations. It also calls for reducing regulations that prevent corporations from taking property from or harming individuals. For example, they are opposed to requiring oil and gas companies to disclose the chemicals they use in fracking so that nearby residents would be able to hold companies accountable if these chemicals contaminated their land and water.

As a vast body of research shows, the best way to create jobs in the current economy is to have the government spend money in areas that create jobs, like teaching, health care, or improving infrastructure. While job creation would strengthen the labor market and reduce inequality by increasing wages for those at the middle and bottom of the distribution, the Republicans are completely opposed to this agenda. They have demanded cuts in spending that slow growth and reduce employment. Also, the Republicans never worry about equality.

 

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According to the Congressional Budget Office, the country is foregoing close to $1 trillion a year in output because the budgets produced by Congress do not provide enough demand to bring the economy to full employment. These losses are disproportionately incurred by minorities, the young, and the poor, since these are the groups most likely to be unemployed or working fewer hours at lower pay because of Congress's failure.

However, the failure of Congress to produce a budget that would spur growth and reduce unemployment never once got mentioned in the Post's lead front page article. The only outside experts to give comments in the piece were Robert Bixby, the executive director of the Peter Peterson financed Concord Coalition and Gene Steuerle, who formerly was vice-president of the Peter Peterson Foundation.

While the article never discusses the impact of the budget on the economy, it repeatedly complains that the tentative budget agreement reached by the congressional negotiators doesn't reduce the debt by as much as the Post would like. Most newspapers would keep such editorializing to the opinion pages.

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In his column today he noted the need to seize Bill Gates property, telling readers:

"Copyrights were once thought to be legally and politically impregnable."

Okay, we know Robert Samuelson would never advocate policies that hurt the rich. He actually said "pension benefits were once thought to be legally and politically impregnable," as he celebrated pension cuts in Rhode Island and Illinois, along with the prospect of further cuts in Detroit and Chicago.

There is no doubt what is going on here, Samuelson tells us in his sentence:

"We are locked in a generational war, which will get worse before it gets better."

Samuelson is saying this in the context of a country that has seen the most massive upward redistribution of income in the history of the world over the last three decades, with the richest one percent of the population getting close to half of the income gains over this period. But Samuelson doesn't want people to pay attention to all the money going upwards, he wants them to focus on the money going to seniors, even when it means seizing their property.

The pensions, whose cuts Samuelson celebrates, are part of workers' pay. They already put in the time expecting that the government would follow through on its part of the deal. From a legal or ethical standpoint it is difficult to see a better argument for taking away workers' pensions than taking away Microsoft's claim to a copyright on Windows. Hey, it would be unfortunate, but if we're really broke, maybe the money going to Microsoft in licensing fees should be going instead to the government. After all, much of the system was developed with public funding anyhow.

The crassness of Samuelson's effort to pit young against old, while concealing the role of the rich, should be apparent to all readers. He gives us the usual story:

"The elderly’s interests are running roughshod over other national concerns. Social Security, Medicare and Medicaid — programs heavily for the retired — dominate the budget, accounting for about 44 percent of spending, and have been largely excluded from deficit-reduction measures."

Of course people paid for their Social Security and Medicare benefits. Social Security is a pension and insurance system run through the government. The elderly are entitled to these benefits in the same way that rich bondholders are entitled to millions of dollars of interest payments on their bonds. They paid for them. 

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NPR used the phrase "massive" stimulus in describing the Fed's quantitative easing policy in its top of the hour news segment on Morning Edition. It is arguable whether the stimulus is "massive." There is certainly a plausible argument that the stimulus is too small since unemployment remains high and inflation is running below the Fed's 2.0 percent target. NPR could have saved time and increased accuracy by just referring to the program as "stimulus."

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Ross Douthat raises an interesting issue in his column on Obamacare. Douthat suggests that Obamacare may not succeed elsewhere in the same way as it did in Massachusetts because people don't feel as warmly inclined toward the government in other states.

There are several pieces of Douthat's story that aren't quite right. First, this is private insurance, not government insurance. It's not clear how people think they would be making a strike against the government by not buying private insurance, but we can skip that one.

Douthat also follows the pack in buying the young invincible story. The key to the success of Obamacare is getting healthy people to sign up. It doesn't matter what age they are. In fact, the program gets three times as much money out of every healthy senior as it does from a healthy twenty five-year-old. In fact, the gap is likely to be even larger since young people are more likely to get a subsidy since their income is on average lower. 

But it is at least possible that we will see the adverse selection story that Douthat raises, although the outcome will not be quite what he envisions. Under Obamacare each state is effectively its own pool.

Clearly there are other states where people are likely to act like the people in Massachusetts and sign up for health insurance. But there could also be states, let's call them Texas, where many healthy people may decide that as a matter of principle they will not sign up for Obamacare.

This would give us the classic death spiral. If fewer healthy people sign up for insurance then the cost of the insurance will rise. This will lead more relatively healthy people to opt not to sign up. That would further raise the cost of insurance, leading more people to drop insurance. The end game is that Obamacare in these states could end up as a shell. The costs could be so high that almost no one takes advantage of the exchanges and instead just pays the penalty.

This would create a striking gap between the states where Obamacare worked and the exchanges were running well and Texas, where a large share of the population would not have insurance. We have already seen a split along these lines with the refusal of Texas and other states controlled by Republicans to expand Medicaid with federal funds, as provided for under the ACA. However the collapse of the exchanges would affect a much larger and more politically influential segment of the population. This would directly affect the security of middle class workers.

It's not clear that the people of Texas would be happy with the outcome of their individual decisions if the collapse of the exchanges really was the outcome. Tens of millions of workers in the non-Texas states would enjoy security in their health insurance. If they lost their jobs or had some other adverse set of events they would still be able to buy a reasonably priced insurance plan. That would not be the case in Texas.

That outcome would be unfortunate for the people of Texas, but it might lead to an interesting political dynamic.

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The Washington Post had a major article on how the drug company Genentech has managed to create a substantial market for its drug Lucentis, at a price of $2,000 per injection, even though it manufactures another drug Aventis, which is just as effective and sells for $50 an injection. Both are used to prevent blindness. A number of studies have shown them to be equally effective. The article explains how Genentech has been able to maintain a market for a drug that costs 40 times as much as its equivalent competitor, most importantly by not seeking approval from the Food and Drug Administration for the use of Aventis as a treatment to prevent blindness.

While the article is fascinating, it would have been helpful to include the views of an economist who could have pointed out that this is exactly the sort of corruption that economic theory predicts would result from the granting of patent monopolies by the government. Government granted monopolies would lead to distortions in any case, but they are likely to be especially large with a product like prescription drugs, where there are enormous asymmetries of information. The drug companies know much more about their drugs than patients or even their doctors.

It would be reasonable to discuss more efficient mechanisms for financing prescription drug research, such as direct public funding (we already spend $30 billion a year on biomedical research through the National Institutes of Health). Unfortunately the drug companies so completely dominate the political process news outlets like the Post never even mention alternatives to patent monopolies. However, they do occasionally document some of the predictable corruption, as is the case here.

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No one expects Thomas Friedman to base his columns on evidence, but he strayed even farther than usual today. The piece is a complaint that the United States is not prepared to deal with "a huge technological transformation in the middle of a recession." The data won't support that one. 

The usual measure of technological progress is productivity growth. That has been lagging in this upturn, averaging close to 1.0 percent for the last three years.

 

productivity

We know that Thomas Friedman has lots of stories from his cab drivers and other people that he talks to, but most of us might opt to rely on the data from the Bureau of Labor Statistics instead.

Friedman is also a bit behind the times in telling us about the loss of middle skilled jobs. That might have been a story for the 1980s, but the data have not supported Friedman's story for at least a decade.

Friedman also feels the need to lecture liberals, saying they:

"need to think more seriously about how we incentivize and unleash risk-takers to start new companies that create growth, wealth and good jobs. To have more employees, we need more employers."

Of course many people on the left have given lots of thought to exactly this issue. Putting a tax on financial speculation and breaking up the big banks would reduce the amount of resources diverted to unproductive activity in the financial sector. Developing a more efficient alternative to patent monopolies to support pharmaceutical research would free up hundreds of billions of dollars a year. And of course the main agenda item at the moment simply has to be to stimulate the economy to end the $1 trillion needless waste of potential GDP.

The problem is not a lack of thinking on the part of the left. The problem is that Friedman is too lazy to pay attention to what people on the left are saying.

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I'm not kidding. That was in a front page "news" story on the November jobs report. The piece told readers:

"Some economists are forecasting growth as high as 3 percent next year. New data released Friday showing robust hiring in November suggested that the private sector already is gaining momentum.

"The only thing that has to happen is that lawmakers have to do nothing,' said Mark Zandi, chief economist at Moody’s Analytics. 'It’s a pretty low bar.'"

According to the Congressional Budget Office the economy is currently operating at a level of output that is approximately 6 percent below its potential. The rate of growth of potential GDP is in the range of 2.2-2.4 percent annually. This means that if the economy sustains the 3.0 percent growth rate that has the Post so excited, it will close this gap at the rate of 0.6-0.8 percentage points a year. That means it will take between 7.5-10.0 years to close the gap, if the Congress follows Zandi's prescription.

It probably would have been worth including the views of an economist who would have pointed out that this path would imply the loss of between $4.0 trillion and $5.5 trillion in potential output, an amount that is between 100 and 140 times the size of the proposed cuts to SNAP that has been filling public debates. The overwhelming majority of this lost potential output is coming out of the pockets of low and moderate income workers.

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Neil Irwin seems to miss the major issues on too big to fail in his discussion of Treasury Secretary Jack Lew's remarks proclaiming too big to fail (TBTF) to be sort of over. The most obvious issue is simply whether the markets believe TBTF is over.

This is a question of whether they think Jack Lew or his successors will simply wave good bye if J.P. Morgan, Goldman Sachs, or one of the other megabanks goes under. If they don't believe that the government will just let one of these banks sink then they will still be willing to lend money to them at a below market rate since they are counting on the government to back up their loans.

This below market interest rate amounts to a massive subsidy to the top executives and shareholders of these banks. Bloomberg news estimated the size of this subsidy at $83 billion a year, more than the cost of the food stamp program. Insofar as Lew's efforts to create doubts about a government rescue are successful, the size of this subsidy would shrink toward zero. However as long as the markets do not take him seriously (my bet is they don't), the big banks will still be getting a massive subsidy.

This is one of the reasons why President Obama's recent comments on inequality were seriously misplaced. He said the government cannot stand on the sidelines as the distribution of income becomes much more unequal. Of course government is not standing on the sidelines; it is actively working to increase inequality through measures like the TBTF subsidy.

The other point that Irwin gets wrong is implying that the economic crisis in some way hinged on getting the TBTF issue right. The economy's current weakness is attributable to a lack of a source of demand to replace the demand generated by the housing bubble. Investment and consumption are both at normal levels relative to the size of the economy; there is no evidence that the residue of the financial crisis is holding them back. 

The issue going forward will be whether we have people at the Fed and other regulatory agencies who take bubbles seriously. We clearly did not in the past and since no one faced any career consequences as a result of this gargantuan failure, there is not much reason to believe that lessons have been learned. 

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