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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Glenn Kessler, the Washington Post Fact Checker gave Bernie Sanders two Pinocchios yesterday for saying that the Wall Street banks got a trillion dollar bailout. Kessler raises several points of contention. First, whether the Wall Street banks actually got that much money. Second, whether it can really be called a bailout since the government made a profit on the loans. Third, that the bailout was necessary to keep the financial system running.

Taking these in turn, Kessler points out that the money that went from the TARP to the Wall Street banks, the congressionally approved bailout, was in the low hundreds of billions, far less than $1 trillion. He does note that a much larger amount of loans went from the Federal Reserve Board to the banks. However, the piece points out both that the Fed is nominally independent of the government and that many of these loans were short-term so that rolling them over would count twice. (If a bank got overnight loans for $1 billion for a week, this would count as $7 billion.)

Sanders seems on pretty solid ground here when including the Fed loans. First, the reason the Fed has the power it does is because it is the central bank of the United States. It is true that when it was established in 1913 it was set up as a mixed public–private entity, with the banks having a direct voice in setting policy. However, its ability to print an essentially unlimited amount of money is due to the fact that it is the central bank of the United States. All the other major central banks (e.g. the European Central Bank, the Bank of England, The Bank of Japan) are fully public institutions. The fact that the United States allows private banks to have a voice in setting Fed policy doesn't really change the fact that it is a government institution and therefore loans from the Fed should be seen as coming from the government.

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We know that the secret to being a successful capitalist in today's America is to be able to cry effectively about the need for the government to save you from the market (see the Wall Street bailout from the financial crisis). We got more evidence of this basic truth in a New York Times piece on the status of the Trump administration's trade negotiations with China. 

The piece includes a reference to a report from the Trump administration that claims companies in the United States are losing at least $50 billion a year (0.25 percent of GDP) as a result of China not compensating them for their intellectual property. This is a very impressive figure since China's total imports from the US were just $120 billion last year. (Even more impressive is a claim cited in the piece that our current tariffs on China would "reduce United States gross domestic product by at least $1 trillion within ten years.")

Anyhow, the point of the piece is that the Trump administration is focusing in its negotiations on strengthening protections for US intellectual property claims, and in particular stopping Chinese policies that require technology transfers as a condition of investing in China.

It would have been worth mentioning that this effort by the Trump administration would make outsourcing jobs to China more attractive. (It is more profitable if you can locate operations in China without transferring technology than if you do have to transfer technology.) This is yet one more way in which the government promotes policies to redistribute income upward.

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In the wake of the Great Recession, when many properties were sitting vacant, I began pushing a vacant property tax. The idea is that the tax would make it more costly to hold unoccupied housing. This gives owners more incentive to rent out a unit or to sell it, putting more property on the market and bringing prices down.

The tax has several nice features. First, we already have an assessed value on the books, so it doesn't require a new administrative apparatus to impose a tax of say, 1–2 percent on property sitting vacant. The second is that if we don't get them to rent or sell the place, we can raise money that can be used for things like affordable housing. The third feature is that even if they find ways to cheat, we still have raised the cost of keeping property vacant. 

Vancouver implemented a vacant property tax in 2017 and in 2018 reported a 15 percent decline in the number of properties counted as vacant. Apparently, London and other cities are now considering one as well. This is very nice to see since this sort of tax is likely too simple for many economists and other policy types to understand.

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Austin Goolsbee warned readers in an NYT column that a recession can just sneak up on us with very little warning. Strangely, he picks the 2001 recession as his example.

The 2001 recession seems a bad example since it had a pretty clear cause, the collapse of the 1990s stock bubble. The tech-heavy NASDAQ had declined by more than 40 percent by the start of the recession in March of 2001 from its bubble peak in 2000 and the S&P 500 had fallen by almost 20 percent. Both were also on a clear downward path with the NASDAQ eventually bottoming out at a bit more than one-quarter of its bubble peak and the S&P 500 at a bit more than half.

The bubble was also clearly driving the economy. This was one of the few periods in history when companies were directly financing investment with sales of stock. This made sense at the time since startups with no profits could raise hundreds of millions with initial public offerings. That opportunity disappeared when the bubble burst. As a result, investment plummeted from 14.6 percent of GDP in the fourth quarter of 2000 to 13.2 percent of GDP in the fourth quarter of 2001, eventually bottoming out at 11.9 percent in the first quarter of 2003.

The bubble was also driving consumption, as the wealth effect associated with the run-up in the stock market pushed savings rates to then-record lows. The savings rate had fallen from over 9.0 percent at the start of the 1990s to a low of 4.5 percent of disposable income in the fourth quarter of 2000. It rose in 2001 following the collapse of the bubble, hitting 6.5 percent in the third quarter of 2001 and then settling in at an average of 6.0 percent in 2002.

Together, the drop in investment and consumption implied a loss in annual demand of more than 2.5 percentage points of GDP, which would be equivalent to $500 billion in today's economy. It should not have been surprising that these totally predictable effects of the bursting of the stock bubble would have led to a recession. (While the 2001 recession is conventionally considered to have been short and mild, it led to the longest period without net job growth since the Great Depression. The Great Recession led to an even longer period without net job growth.)

On the other hand, there may be some case for a recession sneaking up on the economy now. Retail sales fell sharply in December, and a modest increase in January still left sales below November levels. Manufacturing production has been trending downward since September. New orders for capital goods (excluding aircraft) in January were also below their November level and are only 3.1 percent above their year-ago level. Private construction spending has been trending downward since October.

All of these are disturbing signs in an economy with strong employment growth and respectable wage growth. If this adds up to a recession, it would probably be fair to say that it has snuck up on us, since it is difficult to identify any plausible cause. The Fed's interest rate hikes have surely had an impact in slowing the economy, but it is difficult to believe that this impact could be large enough to cause a recession.

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Last week’s job report, in spite of the slow job growth for February, was actually pretty good news. As many of us pointed out, the most likely reason that the Labor Department reported only 20,000 new jobs in February, is that the economy reportedly added 311,000 jobs in January.

There is always a substantial element of error in these numbers. If we envision that there is some underlying rate of job growth of say, 180,000 a month, if we get a number like January’s strong figure, it is reasonable to expect that job growth in subsequent months will be slower. Either the rapid growth in January was due to error in the survey, or alternatively many businesses may have decided that January was a good time to hire. In both cases, it is reasonable to expect slower growth in future months.

If this just sounds like hand waving to cover up a bad story, consider that the non-seasonally adjusted change in employment in February was a plus 827,000 jobs. In other words, if we just looked at the raw data, the economy actually added a ton of jobs in February. Of course, the economy always adds lots of jobs in February. In 2018 it added 1,236,000 and in 2017 it added 1,030,000. This is why we have seasonal adjustments. But the adjustment is never perfect, and it is one of the factors that leads to error in the headline numbers that get so much attention.

So we should not be too troubled by the weak job growth reported for February. However, as I noted in my jobs report, there was a drop in average weekly hours, which could presage lower hiring in future months. Also, several sectors, notably construction (both residential and non-residential) and manufacturing seem to be weakening, so there are some grounds for concern about slowing growth, apart from the 20,000 jobs reported for February.

But I actually wanted to focus on the good news in the report, specifically the edging down of the unemployment rate to 3.8 percent and the modest acceleration in the rate of growth in the average hourly wage to 3.4 percent over the last year. These items are very good news, especially when we consider that they were the result of policy, specifically the Federal Reserve Board’s decision to allow the unemployment rate to fall below the 5.5 percent unemployment rate that most economists had considered a floor.

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There continues to be a large market for pieces saying the big conflict in the US is generational rather than class. The Huffington Post made its latest contribution today.

The piece is more than a bit confused, but its headline explicitly gives the intention "America's Defining Divide Is Not Left vs. Right. It's Old vs. Young." Beyond this basic point, as in worry about age, not class, it is difficult to figure out what the article is talking about.

The subhead tells readers, "voters over retirement age will continue to dominate US politics until at least 2060." This might lead us to believe that the piece is talking older voters generically, as in people over age 65 or age 62, but then much of the discussion focuses on the baby boomers. By 2060, the youngest baby boomer will be age 96 and the oldest will be 114. It doesn't seem plausible that the survivors among this group will be dominating politics. Most of the baby boomers will have died off by 2040 and their influence will be radically diminished by 2030.

But even as a story describing the baby boomers the piece gets many things wrong. It tells readers:

"Four out of five older families own homes, compared to just one in four younger families. Most own stocks and a large plurality are business owners. Nearly 1 in 9 older households are millionaires and, according to a 2015 study, are the only age group in America whose net worth has increased since 1989.

"Politically speaking, this means older households have a profoundly different narrative of the U.S. economy than every other cohort. Gen Xers and millennials, who have seen their incomes stagnate and their living costs explode, are gravitating toward candidates who prioritize issues like student debt and income inequality. Older voters, by contrast, will be more likely to vote for candidates who promise to boost the stock market, lower taxes and push up property values."

While most older people own stock, they do not own very much. In 2016, the average amount of wealth outside of a home for the middle quintile of people between the ages of 55 and 65 $99,200. For the fourth quintile, it was just $25,400. If two-thirds of this wealth was invested in the stock market, it still does not imply a very large stake in the market for most of this cohort.

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This is getting annoying. According to data in the Fed's Financial Accounts for the 4th quarter of 2018, the profit share of national income rose again in 2018. While national income rose 4.7 percent, profits rose 7.8 percent. There are two reasons this is annoying.

The first is that these are before-tax profits. Remember that big corporate income tax the Republicans pushed through Congress in 2017? One of the stories why this was going to be good for all of us, and not just for that small group who own lots of shares of stock, is that a portion of the tax cut would be passed on as a higher before-tax wage share. Well, it's only year one, and these data are subject to large revisions, but it looks like we're going the wrong way here. Since taxes fell sharply, after-tax profits were up 16.2 percent.

For those keeping score at home, the share of profits paid in taxes fell to 10.2 percent. One of the claims with the tax cut was that they were lowering the tax rate, but eliminating the deductions, so we would collect something close to the new 21 percent nominal tax rate. Well, it seems the Republicans got half of that right.

The other reason this is annoying is that the unemployment rate was below 4.0 percent last year. This is supposed to be inflation territory, where tight labor markets force employers to bid up wages, as that is the only way they can find workers. (Just a few years back, most economists would have told us that we hit inflation territory when the unemployment rate fell below 5.5 percent, or even 6.0 percent.)

Anyhow, if the profit share is still rising, then we obviously have not hit inflation territory. Employers can clearly afford to pay higher wages, without raising prices. Profit shares increased hugely in the weak labor market following the collapse of the housing bubble. I had been expecting (and hoping) that some of this increase would be taken back as the labor market tightens, but apparently, we're still going the other way.

Keep this in mind next time you hear see a story about labor shortages and employers not being able to find workers. That's not true on this planet.

This diatribe comes with one very important qualification. Profit data are highly erratic and subject to large revisions. It is possible that this picture will look different as it is revised later this year, or possibly in subsequent years. But given the data we have now, workers should be getting more — much more.

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I'm serious. In an article on the history of socialism in Milwaukee, the city chosen to host the Democratic national convention in 2020, the Post told readers:

"And, at least on an ideological level, the socialists of that time had a surprising amount in common with today’s Republicans. They supported low taxes and opposed public debt. They believed in a “pay-as-you-go” form of governance ...."

This assertion is so obviously contradicted by the facts, it is amazing that it could appear in the paper. The deficit and debt rose hugely under three of the last four Republican presidents (Reagan, George W. Bush, and Trump). It is more than a bit absurd to claim that a party that consistently supports policies that raises deficits and debt opposes public debt and believe in "pay-as-you-go" governance.

It is difficult to imagine how the Post could make such an absurd claim about Republican policies.

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With the presentation of his 2020 budget, Donald Trump has been getting a ton of grief over the large current and projected future budget deficits. While his budget shows the deficit coming down, this is due to large cuts to programs that middle income and lower income people depend upon, like Social Security, Medicare, and Medicaid. His projections for falling deficits also depend on assuming a faster growth rate than just about anyone thinks is possible. So realistically, we are looking at a story of large deficits for the indefinite future.

While this is supposed to be really bad, people who pay attention to economic data may think otherwise. If we look at the Congressional Budget Office's (CBO) projections for the unemployment rates for 2018, 2019, and 2020, from 2017, before the tax cut was passed, they were respectively, 4.2 percent, 4.4 percent, and 4.7 percent. If we look at CBO's latest projections for these three years, they are 3.9 percent (actual)  3.5 percent and 3.7 percent, respectively. The difference between the latest projections and the pre-tax cut projections imply a gain of more than 2 million in employment in each of these years.

These two million additional people being employed is a big deal not only for these workers and their families but for tens of millions of other workers who have more bargaining power as a result of a tighter labor market. And, we're supposed to think this is a bad thing because of the deficit and debt? Tell the children of the people who are now working because of the larger deficit or whose parents have higher pay how the debt is a burden on them.

Of course, giving a big tax cut to corporations and rich people was just about the worst way imaginable to boost the economy. The promised investment boom is not happening. The boost is coming because rich people are spending a portion of their tax cuts and their increased share buybacks and dividends. But we could have also given the money to middle-income and lower-income people who would have been happy to spend it as well.

Even better, we could have used to money to promote clean energy, retrofitting buildings to make them more energy efficient, and subsidizing mass transit. Our children have much more to fear from a wrecked environment than government debt.

In any case, the debt/deficit whiners should acknowledge the substantial economic gains from stimulating the economy with a larger deficit. It is a really big deal for a large number of people at the middle and bottom of the income distribution.

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In the Soviet Union, for a long time, official publications (which were the only publications) were prohibited from mentioning Leon Trotsky, one of the leaders of the revolution, who subsequently fell out with Stalin and was forced into exile. I'm wondering if The New York Times has the same policy towards mentioning the trade deficit as a cause of economic weakness.

It's hard to reach any other conclusion after seeing David Leonhardt's piece on the recurring tendency of forecasters to be overly optimistic about economic growth. Leonhardt points to the persistent shortfall of demand as the major problem slowing growth. Following Larry Summers, he suggests policies that could boost investment and consumption. 

While these are both good ways of increasing demand, so is a lower trade deficit. This is very basic economics. If the trade deficit were 1.0 percent of GDP rather than a bit more than 3.0 percent of GDP, it would provide the same boost to demand as a $400 billion annual stimulus package.

It's sort of amazing that Leonhardt can leave such a basic and obvious point out of this discussion. Did the NYT's commissars airbrush the trade deficit out of the article?

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