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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That is undoubtedly the question that readers of Robert Samuelson's column on negative interest rates are asking. At one point Samuelson tells readers:

"No less a figure than former Federal Reserve chairman Alan Greenspan has suggested that it’s just a matter of time before negative rates come to the United States."

For folks too young or too old to remember, Alan Greenspan was chair of the Fed as the housing bubble grew to ever-larger dimensions. He insisted everything was just fine, in fact, he even co-authored several papers touting the fact that people were spending based on the housing equity created by the bubble. There is no one who deserves more blame for the Great Recession, the largest economic disaster since the Great Depression, than Alan Greenspan.

But apart from his selection of authority figures, there is a more basic problem with Samuelson's piece: it doesn't make any sense. We sort of get the idea that he doesn't like negative interest rates, but it's not really clear why. The confusion shows itself most clearly in the concluding paragraph:

"The larger issue here is barely discussed — the dependence of U.S. economic growth on constant doses of “stimulus,” whether bloated budget deficits, super-low interest rates or negative rates. Their waning effectiveness raises hard questions of whether the economy can achieve adequate growth on its own."

Okay, for folks keeping score at home, the first question we should be asking when we look at the macroeconomy is whether the issue is too much demand or too little demand. For folks like Robert Samuelson, who constantly whine about budget deficits, the problem should be too much demand.

Their story is that budget deficits are creating too much demand in the economy, forcing the Fed to either raise interest rates, and thereby crowd out investment and slow productivity growth, or alternatively to allow the economy to become overheated and generate inflation. Clearly this story cannot describe the current economy, where inflation remains well below the Fed's 2.0 percent target, even as interest rates remain at historically low levels.

The other story is too little demand, which seems to be the case now. This is sort of what Samuelson is getting at in his last paragraph, but the implication is that if the economy has too little demand then "bloated" budget deficits are not a problem. If budget deficits were smaller we would see less demand and less growth, and more unemployment. Again, we know that Robert Samuelson doesn't like budget deficits (I don't like chocolate ice cream), but that has nothing to do with the issue at hand.

It is also worth having some fun with his comment about the economy achieving adequate growth "on its own." There is no "on its own," which should be obvious to fans of economics everywhere.

Suppose the government didn't grant patent and copyright monopolies, would we see the same amount of investment in research and development and intellectual products? Presumably, we would not. (Pharma and the others may exaggerate the incentive effect here, but it obviously is not zero.) Direct spending is one way the government directs economy activity and boosts spending, but it is not the only way. People writing about economics for major news outlets should know this. 

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In an otherwise useful NYT article on the "gig economy," Neil Irwin tells us:

"The company [Uber] views its role as making a market between people who want a ride and people who want to get somewhere. In other words, it sees itself more like a stock exchange or an auction website. The New York Stock Exchange doesn’t set the price of General Motors stock, nor eBay the price of Beanie Babies."

Actually, Irwin doesn't know how Uber "views" its role. This is a claim the company is making about its role in order to avoid being treated as an employer. That does not mean the company, in fact, views its role this way.

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I have known reporters at Business Insider. I had been under the impression that it tried to be a serious news outlet. Apparently, I was mistaken.

It ran an article this morning attacking the financial transactions taxes being proposed by Senators Bernie Sanders and Kamala Harris in their presidential campaigns, which was based entirely on an analysis by an industry-funded group.

The gist of the piece is that colleges and universities would pay the tax from their endowments, as would pension funds. While anyone who trades would pay the tax, the article ignored the basic logic of the tax even as it presented it to readers. It tells readers:

"'Moreover, because trading volume decreased, the FTT failed to raise the amount of revenue expected in those countries, and in some countries like Italy and Sweden, the FTT only raised 3% to 15% of the annual expected revenue,' MMI [the industry-funded organization] wrote in the report."

Of course there would be a decline in trading, that is a main point of the tax, to discourage excessive trading. The proponents of the tax (which include me) always assume that trading will decline, although by an amount that is consistent with better-designed taxes, like the 320-year-old stock transfer tax in the United Kingdom.

The reduction in trading volume saves colleges, universities, pension funds and others money since they pay for this trading out of their assets. By most estimates of the impact of trading costs on trading volumes, the reduction in trading costs should be roughly equal to the size of the tax.

Since each trade has a winner and loser, investors on average are not profiting from the trading and would not be hurt by trading less. If trading fell too much, there would be a problem that prices are not reflecting fundamental values, but with the taxes being proposed we are just talking about reducing trading volumes to 1990s levels.

This means that the numbers on costs that are highlighted by the industry group and Business Insider are actually the loses being suffered by the financial industry, since the tax payments by colleges, universities, and pension funds would be almost completely offset by their savings on trading costs. 

It is understandable that a group funded by the financial industry would not want to highlight this point, but why would Business Insider not explain it to its readers?

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There's an old joke about a lawyer who is questioning a doctor on an autopsy they had done on someone who was allegedly a murder victim.

The lawyer asked the doctor, "did you check whether the patient was breathing?"

The doctor answers "no."

The lawyer then asks "did you check whether the patient had a pulse?"

The doctor again answers "no."

The lawyer then asks, "so how did you know that the patient was dead," to which the doctor responds, "because his brains were sitting in a jar on my desk."

The lawyer then triumphantly asks, "so he could have still been alive?" To which the doctor responds, "I suppose he could have been practicing law somewhere."

Our doctor may want to amend their answer to allow for the possibility that the patient could be a political pundit for a leading news outlet.

Our pundit class have to decided to make a crusade out of forcing Senators Warren and Sanders into saying that their proposals for universal Medicare will require a tax increase. Both have repeatedly responded by saying that total costs for the vast majority of people will fall, since Medicare for All will lead to a large reduction in costs by all accounts, because it reduces waste in the health care system.

Our pundit class have insisted that this is some sort of dodge. While there may be no hope in addressing arguments to people who have their brains in a jar on a doctor's desk, there is a simple point that everyone else should understand.

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Last week I was asked on Twitter why proposals for replacing patent monopoly financing of prescription drugs with direct public financing have gained so little traction. After all, this would mean that drugs would be cheap; no one would have to struggle with paying tens or hundreds of thousands of dollars for drugs that are needed for their health or to save their life. (This is discussed in chapter 5 of Rigged [it’s free].)

Public funding would also eliminate the incentive to misrepresent the safety and effectiveness of drugs in order to maximize sales at the patent monopoly price. Without patent monopolies, the drug companies would not have had the same incentive to push opioids, as well as many other drugs of questionable safety and effectiveness.

The idea of direct funding of biomedical research also should not seem strange to people. We currently spend close to $45 billion a year on research through the National Institutes of Health and other government agencies. The idea of doubling or tripling this funding to replace the roughly $70 billion of patent supported research now done by the pharmaceutical industry, should not appear outlandish, especially since the potential savings from free-market drugs would be close to $400 billion annually (1.9 percent of GDP).

So why is there so little interest in reforming the prescription drug industry along these lines? I can think of two plausible answers. The first is a self-serving one for the elites who dominate policy debates. They don’t like to have questions raised about the basic underpinnings of the distribution of income.

The second is perhaps a more simple proposition. Intellectuals have a hard time dealing with new ideas and paying for innovation outside of the patent system or creative work outside of the copyright system is a new idea that most intellectual types would rather not wrestle with.

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That's what readers of this article on a Democratic proposal which would both increase Social Security benefits and phase in a 1.2 percentage point increase in Social Security taxes (on both workers and employers) over 25 years. The article tells readers:

"Someone making $50,000 now faces an employee-side Social Security payroll tax of $3,100 a year. Under the bill, that tax bill would rise to $3,125 in 2020, which Mr. Larson pitches as an extra 50 cents a week. The tax would continue rising until 2043, when it would hit $3,700. Employers would face the same tax increase. Economists generally think workers bear the cost of both sides of the tax."

Assuming that workers do pay the employers' side of the tax (generally a reasonable assumption) the full tax increase for this worker would be $1,200 a year. However, Social Security projects that real wages will rise at a rate averaging roughly 1.4 percent over this period. This means that if a typical worker got their share of this wage growth, then the worker earning $50,000 a year would be earning almost 38 percent more in 2043, or $69,000 a year in 2043. This projected pay increase of $19,000 a year is more than fifteen times as large as the tax increase being proposed by the Democrats.

It would have been useful to include this projected rise in wages in the piece. It is also worth noting that most workers have not been getting their share of wage growth, as it has instead gone to CEOs and other top executives, Wall Street types, and highly protected professionals, like doctors. The prospect of losing out on their share of wage growth will have far more impact on workers' living standards than the Social Security tax being proposed by the Democrats.

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In the United States, proposals for a Green New Deal have been getting considerable attention in recent months as activists have pressed both members of Congress and Democratic presidential candidates to support aggressive measures to combat global warming. There clearly is much more that we can and must do in the immediate future to prevent enormous damage to the planet.

However, major initiatives in the United States to combat global warming will almost certainly require some increases in taxes. There is likely some slack in the U.S. economy (perhaps we’ll see more slack as a result of Donald Trump’s misfires in his trade war), but a major push involving hundreds of billions of dollars of additional annual spending (2-3 percent of GDP) will almost certainly necessitate tax increases. This doesn’t mean we shouldn’t move quickly to take steps to save the planet, but these steps will have some cost.

In contrast, most of Europe is in a situation where it could easily make large commitments toward increased spending on clean energy, mass transit, and conservation at essentially no economic cost. In fact, a Green New Deal Agenda in Europe is likely to lead to increased employment and output. The big difference is that Europe is much further from facing constraints on its economy. It has plenty of room to expand output and employment without seeing inflation become a problem. 

Before getting into the specifics on Europe’s economy, it is important to add a bit of perspective. The European countries have been far better global citizens in this area than the United States. Their per-person emissions are roughly half as much as the United States. Furthermore, many European countries have already taken aggressive measures to promote clean energy and encourage conservation. 

Solar energy accounts for 7.3 percent of Italy’s electric power, 7.9 percent of Germany’s and 4.3 percent for the European Union as a whole. By comparison, the United States gets just 2.3 percent of its electric power from solar energy. There is a similar story with wind energy where the European Union’s installed capacity is more than 70 percent higher than the United States. 

But in the battle to slow global warming, simply doing better than the United States is not good enough. The European Union can and must do more to reduce its greenhouse gas (GHG) emissions.

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"The idea of guaranteed income is gaining traction, from the presidential debate stage to Silicon Valley, where tech titans such as Mark Zuckerberg and Elon Musk have promoted it as a way to fend off a gloomy future in which automation and climate change eliminate millions of jobs."

This came up as a throwaway line in an article about a trial program for a guaranteed basic income. The problem is that the type of job losses being described here are 180 percent opposite from each other.

Job loss from automation is ostensibly from too much productivity -- we don't need workers. (There is zero evidence for this story, but no one ever said that Mark Zuckerberg or Elon Musk had a clue about the economy.) Job loss attributed to addressing climate change is the result of too little productivity. The story (most get this wrong) is that there is plenty of work for people to do, such as retrofitting buildings and installing solar panels, but that with less energy use, the economy is less productive, and therefore these jobs pay less and workers don't want to do them.

This is all very tangential to the article, but a serious paper should get these points right if it is going to print them.   

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It is widely known that for Washington Post columnists writing on economics, ignorance is an asset. Megan McArdle helps make the case in a piece on Chicago’s pensions that tells readers in its headline:

“Chicago kept saying it would pay for pensions later. Well, it’s later.”

The gist of the piece is that Chicago has seriously underfunded public pensions. This is true. Where McArdle combats reality is in implying that this sort of underfunding is typical for public pensions and also that the same logic applies to the federal budget.

McArdle absolves the current mayor, Lori Lightfoot, of blame (she just took office four months ago), as well as her immediate predecessor, Rahm Emanuel, who served two full terms. Instead she tells us:

“Rather, it’s the fault of generations of politicians before them who promised an ever-richer array of benefits to government workers. Particularly, they liked to raise the retirement benefits. …

“Oh, ho, ho, ho. Pay for the pensions? No, we have to stop; some politician might be reading this, and they could really hurt themselves laughing too hard. The whole point of giving workers pension benefits instead of cash was that you didn’t have to pay for them; you could promise the benefits now and gather up the votes that the grateful workers tossed at your feet, all without costing current taxpayers a single dime.”

There are two big problems with McArdle’s story here. First the story of grossly underfunded pensions is not generally true. Most are reasonably well funded because politicians were not hurting themselves laughing, but rather were responsibly setting aside money for the liabilities facing state and local governments. (This briefing paper from Brookings gives a good assessment of the financial state of public pensions.) The real story is that Chicago, along with some other state and local governments with seriously underfunded pensions, are outliers.

But even in the case of Chicago, McArdle did not get the story right. Its shortfall was not the work of “generations of politicians.” Rather it was the result of a specific event – the stock bubble of the late 1990s.

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These days the business press is full of predictions of recessions. This could get people worried, except that the track record of economists in predicting recessions is basically awful. As much fun as a bunch of scary warnings from economists is, it is best to look at the data.

At the most basic level it is important to recognize that some sectors are very cyclical, meaning they grow rapidly in upturns and fall sharply in recessions, and others tend not to fluctuate very much over the course of a business cycle. The cyclical group is led by housing construction, durable goods consumption (cars and big household appliances), non-residential construction, equipment investment, and inventories. These components of demand tend to plunge in a recession.

On the other hand, we have several components of demand that are mostly unresponsive to the business cycle. Spending on consumer services (largely medical spending and rent) varies little over the course of the business cycle. Spending on consumer services fell just 0.3 percent in 2009 and actually rose through all prior post-war recessions.

The story is similar for investment in intellectual products like software and pharmaceutical research. This component of GDP fell by just 0.5 percent in 2009. While this category of spending did fall slightly in the recession following the late 1990s tech boom, the decline from 2000 to 2001 (the sharpest annual falloff) was just 0.8 percent.

This point about the varying cyclicality of different sectors matters for recession predictions, because the highly cyclical components have shrunk sharply as a share of the economy in the last four decades, as the less cyclical components have grown. 

This is seen most clearly with residential construction, the most cyclical component of GDP. Residential construction peaked at 6.7 percent of GDP during the housing boom before the Great Recession, it was just 3.7 percent of GDP in the most recent quarter. It was 5.7 percent of GDP before the 1980-82 recessions and 4.8 percent of GDP before Fed interest rate hikes began slowing construction in advance of the 1990 recession.

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