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.

Please also consider supporting the blog on Patreon.

Follow on Twitter Like on Facebook Subscribe by E-mail RSS Feed

Glenn Kessler provides a useful clarification of CBO projections for enrollment in the exchanges under the Affordable Care Act, pointing out that the numbers refer to enrollment years. This means that a person who signs up for coverage beginning on April 1 will only count as three quarters of an enrolled person since they will only be covered for three quarters of a year. 

However it is important to note that many more people will be signing up through 2014. While open season, in which anyone would enroll, ended on April 1, people who experience "life events" will be able to enroll at any time. "Life event" refers to anything that qualitatively changes your insurance or financial status. The most frequent life event is leaving a job, which happens to roughly 4 million people a month. Divorces, child birth, and deaths in the family are also life events.

This means that tens of millions of people will become eligible to enroll over the course of the year. Most will not be signing up with the exchanges (they will have other insurance options, such as a new job with insurance), but a substantial fraction will enroll through the exchanges. This will raise total enrollment above the level calculated based on the March enrollment numbers. 

Add a comment

Just asking, since it seems that the paper missed an unexpected $3 billion rise in the trade deficit in February. This is a big deal for the economy.

On annual basis the February numbers would imply an increase in the deficit of $36 billion, or more than 0.2 percent of GDP. Assuming a multiplier of 1.5, this would reduce GDP by more 0.3 percent, implying a loss of over 400,000 jobs.

Fans of national income accounting know that a trade deficit implies a reduction in demand, it is money that is being spent elsewhere, not in the United States. When the deficit rises, it leads to a fall in output and fewer jobs unless it is offset by larger budget deficits or by increased consumption and investment in the private sector. Since we are not likely to see either, the rise in the trade deficit, if sustained in future months, will mean lower output and fewer jobs. 

(FWIW, the Post noticed.)

Add a comment

The NYT reported that Chicago Mayor Rahm Emanuel is negotiating reductions in pension benefits with the city's workers, including some cuts to retirees. It would have been worth mentioning if the city is also engaged in negotiations with its bondholders to arrange a partial default. Pensions are legal obligations of the city, which enjoy a comparable or higher status than the city's bonds. (In its bankruptcy settlement, Detroit's workers will almost certainly see a higher share of their pension obligations met than its bondholders.)

If Chicago is really unable to meet its pension commitments to retirees, who are now being asked to give back the benefits for which they worked, it would also be reasonable to ask investors to also take some loss. After all, this is what is supposed to happen in a market economy when investors use bad judgement and fail to recognize the risks associated with a loan.

Add a comment

David Ignatius' column in the Washington Post touting the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Pact (TTIP) is badly mistaken in connecting these deals with free trade. The agreements have very little to do with free trade, rather they are about imposing a business-friendly regulatory structure that would almost certainly not be approved through the normal democratic process in the countries that are parties to the deal.

The reality is that formal trade barriers between the countries in these pacts are already very low. This means the potential gains from further reducing the barriers are quite limited. While Ignatius wants readers to be impressed that one forecast projects the TPP would add $223 billion to world GDP by 2025, this is less than one quarter of one percent of projected GDP in that year. That makes it roughly equal to how much the economy grows in a month. Furthermore, this projection takes no account of aspects of the TTP that would almost certainly slow growth, such as the increase in drug prices that would result from stronger patent related protections.

Ignatius also tells readers that the forecast shows the deal will "boost U.S. exports by $124 billion. That means jobs, here and abroad." This is not true. Many of the exports that will likely result from this sort of deal take the form of exporting components of products to be assembled outside of the country to take advantage of lower cost labor elsewhere. For example, engines and other car parts that may previously have been assembled in Ohio will instead be exported to Mexico to be assembled there into a car. The car will then be brought back to the United States as an import.

In this case the exports created no new jobs, since all of the products exported were already being produced in the United States. This is why economists always talk about net exports (exports minus imports) when discussing the job impact of trade. Currently the United States imports roughly $500 billion a year (@ 3 percent of GDP) more than it exports. Assuming a multiplier of 1.5, this trade deficit implies a loss of more than 6 million jobs.

In addition to increasing protection for prescription drugs, the deal is also likely to lead to longer copyright protection, more government control over the Internet and could sharply restrict environmental and safety standards in many areas. In addition, these agreements will create a legal structure, investor-state dispute settlement, that over-rides domestic legal systems. There is an arguable case for such extra-judicial entities in countries without well-established judicial systems. It is far more difficult to argue for the need such a system in the European Union, Canada, and the United States, where businesses can generally count on their interests being treated fairly in the courts.   


Add a comment

It is not responsible reporting to report without comment statements from prominent politicians which are almost certainly not true. For example, if President Obama said that Speaker Boehner has blown up the Washington monument, it would be irresponsible to simply report the assertion without noting that the president has no evidence for this assertion and that the Washington Monument is still standing.

In the same vein, it was irresponsible for the NYT to quote without comment Speaker Boehner saying:

"The president can go out there and tout all the people he’s signed up, but how about the young man I talked to last week out in California whose premiums have doubled? His co-pay and deductibles tripled, and his wife’s hours got cut to 29 hours. .. My insurance premiums nearly doubled. My co-pays and deductibles tripled under Obamacare."

The Republicans have produced a number of Obamacare horror stories about people facing soaring premiums or losing good insurance policies that on subsequent investigation turned out not to be true. It is highly impluasible that the Speaker Boehner actually talked to a young man in California who both saw premium double and his deductibles triple. Insurance companies were not in the business of losing money prior to Obamacare. It is unlikely that they were offering policies that were much better and cheaper than the ones now being offered under the program.

The assertion about cutting hours to 29 per week has nothing to do with Obamacare. Presumably Boehner is referring to the employer sanctions which apply to large employers who do not insure employees who work more than 30 hours a week. Since this will not take effect until 2015, if an employer actually cut back a worker's hours this year to 29 per week it was not due to Obamacare. A serious news article would have pointed this out to readers.

The piece later tells readers:

"It [the Ryan budget] cuts Medicaid by $1.5 trillion over 10 years, food stamps by $125 billion, education programs by $145 billion."

Of course these numbers are almost completely meaningless to the vast majority of NYT readers as the paper has itself acknowledged. This is a silly fraternity ritual that budget reporters do that has nothing to with informing readers.

If the point was to inform readers it would have said the Ryan budget would cut Medicaid by roughly a third over the next decade. As noted in BTP's comment on the NYT's April Fool's Day budget piece, 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. The cuts to education would reduce spending by roughly ten percent over the next decade.


Note: linked added, thanks to John Wright.


Add a comment

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."



Add a comment

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.

Add a comment

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.

Add a comment

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. 

Add a comment

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.

Add a comment