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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The NYT took advantage of April Fools Day to do budget reporting that provided no information to almost all of its readers. An article on the budget introduced by Paul Ryan, the Republican head of the House Budget Committee, told readers how much the budget proposes to cut over the next decade in dollar terms. Since virtually no one has any idea of how much the government will spend over the next decade, this information is meaningless to almost everyone who reads the New York Times.

The NYT piece told readers:

"Mr. Ryan, the House Budget Committee chairman and a possible White House contender in 2016, laid out a budget plan that cuts $5 trillion in spending over the next decade."

Later the piece added:

"In his plan, military spending through 2024 would actually rise by $483 billion over the spending caps established in the 2011 Budget Control Act 'consistent with America’s military goals and strategies,' while nondefense spending at Congress’s annual discretion would be cut by $791 billion below those strict limits."

"As with past budget proposals, Mr. Ryan seeks to eliminate the Affordable Care Act’s Medicaid expansion, a $792 billion retrenchment, then turn the health care program for the poor into block grants to the states — saving an additional $732 billion over the decade. He would turn food stamps into a block grant program and cap spending, starting in 2020, cutting that program by $125 billion in five years."

Of course only a tiny fraction of NYT readers have any idea what these numbers could imply for their pocket book, in terms of potential tax savings, for the total budget, or for the programs affected. 

Had this been written as a real news story, these sections might have read:

"Mr. Ryan, the House Budget Committee chairman and a possible White House contender in 2016, laid out a budget plan that cuts $5 trillion in spending over the next decade. This is 12.3 percent of projected spending or roughly 2.7 percent of projected GDP over this period.

"In his plan, military spending through 2024 would actually rise by $483 billion over the spending caps established in the 2011 Budget Control Act 'consistent with America’s military goals and strategies,' while nondefense spending at Congress’s annual discretion would be cut by $791 billion below those strict limits. The increase in defense spending is equal to 7.4 percent of projected spending, while the cut in nondefense spending is 13.0 percent of spending in this category.

"As with past budget proposals, Mr. Ryan seeks to eliminate the Affordable Care Act’s Medicaid expansion, a $792 billion retrenchment, then turn the health care program for the poor into block grants to the states — saving an additional $732 billion over the decade.This cuts total federal spending on non-Medicare health programs by 26.0 percent over the 10-year budget period. Since the cuts are phased in, the cuts in 2024 amount to 49.6 percent of projected spending on non-Medicare health programs in that year.

"The cuts to the food stamp amount to 16.4 percent of projected spending on the program. Since Ryan's proposed cuts are first applied to years after 2019 they amount to 33.3 percent of projected spending on food stamps in these years, reducing total spending by 0.5 percent in these years."



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Michael Lewis' new book, Flash Boys, is leading to large amounts of discussion both on and off the business pages. The basic story is that a new breed of traders can use sophisticated algorithms and super fast computers to effectively front-run trades. This allows them to make large amounts of money by essentially skimming off the margins. By selling ahead of a big trade, they will push down the price that trader receives for their stock by a fraction of a percent. Similarly, by buying ahead of a big trade, they will also raise the price paid for that trade by a fraction of a percent. Since these trades are essentially a sure bet (they know that a big sell order or a big buy order is coming), the profits can be enormous.

This book is seeming to prompt outrage, although it is not clear exactly why. The basic story of high frequency trading is not new. It has been reported in most major news outlets over the last few years. It would be nice if we could move beyond the outrage to a serious discussion of the policy issues and ideally some simple and reasonable policy to address the issue. (Yes, simple should be front and center. If it's complicated we will be employing people in pointless exercises -- perhaps a good job program, but bad from the standpoint of effective policy.)

The issue here is that people are earning large amounts of money by using sophisticated computers to beat the market. This is effectively a form of insider trading. Pure insider trading, for example trading based on the CEO giving advance knowledge of better than expected profits, is illegal. The reason is that it rewards people for doing nothing productive at the expense of honest investors.

On the other hand, there are people who make large amounts of money by doing good research to get ahead of the market. For example, many analysts may carefully study weather patterns to get an estimate of the size of the wheat crop and then either buy or sell wheat based on what they have learned about the about this year's crop relative to the generally held view. In principle, we can view the rewards for this activity as being warranted since they are effectively providing information to the market with the their trades. If they recognize an abundant wheat crop will lead to lower prices, their sales of wheat will cause the price to fall before it would otherwise, thereby allowing the markets to adjust more quickly. The gains to the economy may not in all cases be equal to the private gains to these traders, but at least they are providing some service.

By contrast, the front-running high speed trader, like the inside trader, is providing no information to the market. They are causing the price of stocks to adjust milliseconds more quickly than would otherwise be the case. It is implausible that this can provide any benefit to the economy. This is simply siphoning off money at the expense of other actors in the market.

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The Washington Post is still having a hard time understanding Obamacare. It repeated the silliness about the exchanges needing young people to sign up. (The issue is health, not age, as we have been trying to explain to elite reporters for years.)

A front page article on the political impact of Obamacare told readers:

"Still, Democrats may be disappointed if they expect the newly insured to emerge as a politically powerful constituency, as senior citizens did for Medicare. Robert J. Blendon, a professor of health policy and political analysis at the Harvard School of Public Health, said polls suggest that nine of 10 people who vote in midterm elections are insured. Thus, they are unlikely to benefit from the law."

This is not true. Just as tens of millions of people who file no claims in the course of a year benefit from having insurance, the people who already have insurance benefit from Obamacare. They now are in a situation where if they lose their job or decide to quit they will still be able to get insurance. That was not previously true, especially if a worker or someone in their family has a serious medical condition.

The political benefit of this ability to buy insurance outside of employment will depend on the extent to which people are aware of it. Insofar as major media outlets try to hide what is arguably the most important feature of Obamacare, it will not benefit the Democrats politically. However that is a function of media coverage of the law, not the law itself.

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Many economists have difficulties with simple arithmetic. That is why so many of them failed to recognize the rising and unsustainable ratios of house prices to rent and income. Apparently arithmetic problems still figure large in policy at the European Central Bank (ECB).

The NYT noted a slightly lower than expected inflation measure for February and told readers:

"The ECB, which targets inflation of just below 2 percent, left borrowing costs unchanged at 0.25 percent in March and has argued that deflation risks in the bloc are limited.

"ECB President Mario Draghi suggested after the ECB's March meeting that the bank will either do nothing or take bold action should the outlook deteriorate.

"He has also said the bank has been preparing additional policy steps to guard against possible deflation, and that the longer inflation remained low, the higher was the probability of deflationary risks emerging."

Of course those familiar with economics and arithmetic know that there is no special problem associated with deflation. The problem is a lower than desired inflation rate. This makes the real interest (the nominal interest rate minus the inflation rate) higher than desired and it also means that debt burdens will be more difficult to bear, since the debtors were anticipating a higher rate of inflation. It also means that it will be more difficult for peripheral countries like Spain, Italy, and Greece to restore their competitiveness within the euro zone since they will have to see actual price decline if they are to improve their position relative to countries like Germany with very low inflation rates.

But these issues do not change when the inflation rate crosses zero. The drop from 0.5 percent inflation to 0.5 percent deflation is no worse than the drop from 1.5 percent inflation to 0.5 percent inflation. People who know economics understand this simple point. Apparently the shortage of skilled workers is hitting the ECB. 

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Economics is a great profession for people who are not very good at their work. Messing up all the time does not affect at all your ability to maintain a high-paying job and get people to take your views seriously. 

Hence we have Robert Samuelson warning us that we might have to just accept that we will be faced with continuing slow growth and high unemployment. First off, it is important to sort out two different issues which Samuelson mushes together.

The first one is the extent to which we should expect the unemployment rate to fall as the economy returns to full employment or something like it. The second issue is the rate of productivity growth that the economy can sustain going forward. These are very different issues that are at most tangentially related.

The first one is about a level of output and employment. We saw a plunge in demand when the housing bubble burst. Those of us familiar with intro economics were not surprised by the downturn nor the weak recovery, since there is no source of private sector demand to replace the demand that had been generated by the bubble. We saw more than a trillion dollars of annual demand disappear when the construction driven by the bubble disappeared along with the consumption driven by $8 trillion in housing bubble generated equity that vanished with the crash.

The public sector could replace the demand, but people like Robert Samuelson and his buddies in the Washington elite like low budget deficits more than they care about seeing people have jobs. In short, there is no mystery about the economy not returning back to potential GDP and continuing high unemployment. It is exactly what the textbook economics would predict.

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The NYT, even more than other newspapers, tried to maintain a clear separation between its news and opinion sections. It apparently abandoned this distinction in an article today that could have been a press release from the California farmers' association.

The article tells readers:

"A work force that arrived in the 1990s is aging out of heavy labor, Americans do not want the jobs, and tightened security at the border is discouraging new immigrants from arriving, they say, leaving them to struggle amid the paralysis on immigration policy."

The piece never tells readers how much farmers look to pay their workers, but it does give us the bad news:

"Last year, the diminished supply of workers led average farm wages in the region to increase by roughly $1 an hour."

If these workers were getting the median wage then it would imply a pay increase of 5 percent, which hardly seems especially lavish. if the workers were getting much less than the median, then it says a great deal about the NYT's assertion that "Americans do not want the jobs."

In a market economy, when there is a labor shortage wages are supposed to rise. Apparently the NYT doesn't want wages to rise for farmworkers. Newspapers usually try to restrict such editorializing to the opinion page,

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Abby Huntsman, the daughter of Jon Huntsman, a millionaire and unsuccessful presidential candidate, seems determined to press the idea of cutting Social Security and Medicare, apparently unaware that people from her class have been doing the same for decades.

As I wrote in response to her previous diatribe, there is no way that paying for Social Security will have a major effect on the standard of living of people of Huntsman's age. Even if we resolved the projected shortfalls entirely by raising the payroll tax, as opposed to raising the cap on income subject to the tax, apply revenue from other sources, or any reductions in benefits, the necessary tax increase would be less than 10 percent of projected average wage growth over the next three decades.

The far greater risk to the living standards to the people of Huntsman's generation is the risk that we will continue to see the upward redistribution of income over the next three decades that we have seen over the last three decades. As a result of this upward redistribution of income, people like Ms. Huntsman's father have benefited enormously, while most workers have seen little or none of the gains from economic growth. If this pattern continues then most people in Ms. Huntsman's cohort will not fare well financially even if we eliminated their Social Security taxes altogether.

Huntsman points out that the burden from Medicare is far worse. This is due to the fact that health care costs per person in the United States are more than twice as high as the average for other wealthy countries, with nothing to show for it in terms of outcomes. This is why serious people focus on trying to bring our costs more in line with costs elsewhere in the world. This would likely come at the expense of doctors (who comprise one sixth of the richest one percent), drug companies, insurers, and other powerful interest groups who benefits from the waste in the health care system. (One simple method to reducing waste is to open up the sector to more trade.) The issue here is whether we look to reduce the quality of care received by seniors or whether we look to reduce the waste in the system that further enriches the rich.

Finally, anyone concerned about the plight of young people should be asking about global warming. Current trends in greenhouse gas emissions imply a world that will be suffering massive damage from global warming in two or three decades. Hundreds of millions of people will be facing risks to their livelihood and survival due to extreme weather, floods, and droughts. This will lead to large-scale social unrest in much of the world. That is likely to matter much more to most people of Abby Huntsman's generation than the possibility that their Social Security tax rate may increase by one or two percentage points.

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Uwe Reinhardt picked up on an earlier blogpost in which he asked how much should we be willing to pay for an extra year of life. I had objected to his framing since the high cost in the matter he raised was associated with the patent protected price for the drug in question, not actual resources from society.

The point is that the (possibly considerable) resources involved in developing the drug had already been used. The marginal resources in the form or producing additional units of the drug and administering the treatment would be fairly small. That would make the issues in this particular case trivial. It would not require much deliberation to say that it is worth $1,000 or $2,000 to extend a person's life by a year.

In this post Reinhardt acknowledges the point, and concedes that there could be better ways than patent monopolies to finance research into prescription drugs but adds:

"The alternatives to pricing new medical technology proposed by Mr. Baker and others whom he cites face huge political hurdles not likely to be overcome soon, if ever."

He certainly is right about the huge political obstacles, but given how much is at stake it certainly seems worth trying to press the discussion. After all, the idea of having large numbers of people needlessly denied medical care that could extend their life is a pretty big deal.

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The raise-interest-rates crew has lately been getting excited over a slight rise in the quit rate, the percentage of workers who voluntarily leave their jobs. The claim is that the labor market is now getting so tight that workers are able to get wage gains, which will be passed along in higher prices, which will soon mean accelerating inflation.

It's a bit hard to see much of a case here. While the quit rate is above the troughs seen in 2009-2010 it is still lower than at any point in the 2001 recession and aftermath. Wages by most measures are pretty much rising at the same pace as they have been over the last three years, and inflation seems to be slowing rather than rising. But hey, if you want to slow the economy and throw people out of work, you can always find something.

Anyhow, there are two sides to any quit decision. On the one hand, there is an unhappy worker. On the other hand there is an employer who has made this worker unhappy. This is worth thinking about.

The business press has been full of stories of employers complaining that they can't find qualified workers. I and others have ridiculed these claims, since the obvious way to get qualified workers is to offer higher wages. This does not seem to be happening on any large scale, suggesting that employers really are not having trouble finding workers.

But perhaps there is more to our ridicule than we imagined. Maybe employers really don't understand that if they offered higher wages they would get more workers applying for jobs. After all, no one gives you a test in basic economics to become a boss. If that is the case, we would expect the failure to raise wages would lead to more unhappy workers and more quits. This would be true even if the labor market is weak.

So maybe the answer to the riddle of a higher than expected quit rate is a change in behavior among employers rather than a change in the labor force. It's at least as good as the other theories out there.


Note: Hyphens added, thanks Fred.

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Floyd Norris has an interesting discussion of the Conference Board's consumer confidence index in his "Off the Charts" column. The main takeaway is that the current conditions index has been on a consistent upward path since the trough of the recession while six-month expectations index has gyrated erratically with little clear trend.

It is worth adding a bit more to this analysis. The current conditions index does actually tend to track current consumption reasonably closely. On the other hand, the six-month expectations index doesn't really tell us much about what consumers are doing. Even purchases of big-ticket items like cars and houses have little correlation with the expectations index.

As  a practical matter, the expectations index tends to follow news reporting of economy. This makes sense since not many people are sitting around with their economic models making predictions about inflation, unemployment, and growth over the next six months. Rather than being a meaningful measure of consumer confidence, this expectations index is telling us whether the media is highlighting positive or negative news about the economy. That might be worth knowing, but it is has little to do with consumer behavior. 


Note: Typo corrected.

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