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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The people who completely missed the housing bubble, the collapse of which sank the economy in 2008 and gave us the Great Recession, are again busy telling us about the next recession on the way. The latest item that they want us to be very worried about is an inversion of the yield curve. There has been an inversion of the yield curve before nearly every prior recession and we have never had an inversion of the yield curve without seeing a recession in the next two years.

If you have no idea what an inversion of the yield curve is, that probably means you’re a normal person with better things to do with your time. But for economists, and especially those who monitor financial markets closely, this can be a big deal.

An inverted yield curve refers to the relationship between shorter- and longer-term interest rates. Typically, a longer-term interest rate, say the interest rate you would get on a 30-year bond, is higher than what you would get from lending short-term, like buying a three-month Treasury bill.

The logic is that if you are locking up your money for a longer period of time, you have to be compensated with a higher interest rate. Therefore, it is generally true that as you get to longer durations, say a one-year bond compared to three-month bond, the interest rate rises. This relationship between interest rates and the duration of the loan is what is known as the “yield curve.”

We get an inverted yield curve when this pattern of higher interest rates associated with longer-term lending does not hold, as was at least briefly the case last week. For example, on Wednesday, March 27th, the interest rate on a three-month Treasury bill was 2.43 percent. The interest rate on a ten-year Treasury bond was just 2.38 percent, 0.05 percentage points lower. That meant that we had an inverted yield curve.

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The NYT had an article reporting on how the reduction of immigration had led to a shortage of workers in many industries, highlighting the case of residential construction. While there have been modest increases in real wages in residential construction, the data don't provide evidence of a serious shortage of workers.

Since 2000, the inflation-adjusted average hourly wage for production and nonsupervisory workers in the industry has increased by 14.3 percent, an average of 0.7 percent annually, as shown below.

Real Wages in Residential Construction

res con wages

Source: Bureau of Labor Statistics.

While this is better than in some industries, this pace of wage growth is well below the economy-wide average rate of productivity growth. It is difficult to argue that the industry is hit by a labor shortage if wages are not even keeping pace with productivity growth, although it is not surprising that employers, like the ones quoted in this piece, complain about having to pay high wages.

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The New York Times ran one of its periodic pieces on how bad things are in Japan. The gist of this piece is that China's economic slowdown is hurting Japan, so Japan may have been mistaken to rely on China as a major export market. As the subhead tells readers:

"A slump in exports raises questions about how effective Prime Minister Shinzo Abe’s economic policies would have been without Chinese help."

This is a truly bizarre sort of argument. China has the largest economy in the world on a purchasing power parity basis. It is also very close to Japan geographically. It would be utterly nuts for Japan not to turn to China as a major market for its exports.

Furthermore, most projections show that China's economy is slowing, not going into a recession. But, even if it does fall into a recession, it is unlikely that it will last forever. If China has a growth rate of 5.0 percent annually coming out of the recession (far below its recent pace), it will be by far the fastest growing market in the world in absolute size. Japan's businesses would surely want access to this market.

The piece also paints a dire picture of Japans economy that is at odds with reality. It comments:

"Longstanding problems like deflation, bureaucracy and a shrinking population added friction to the country’s growth.

"As deflation pushed down prices, companies struggled to increase profits. Deflation generally discourages consumers from making major purchases as they wait for lower prices and better deals."

Japan's rate of deflation has only exceeded 1.0 percent in 2009. With a rate of deflation of 1.0 percent, a $20,000 car would sell for $100 less if buyers waited six months. It is unlikely that many consumers will make that decision. In this respect, it is worth noting that computer prices have fallen at double-digit annual rates for most of the last four decades. This has not impaired sales in the computer industry in any obvious way.

The piece also bizarrely asserts:

"Increasing government spending has also proved tricky.

"Japan has the highest level of debt in the industrialized world, so finding money to spend can be difficult."

Actually, Japan borrows long-term at a negative nominal interest rates, meaning that investors pay the Japanese government to borrow money from them. That means finding money to spend is in fact very easy. (Its interest burden is lower as a share of GDP than in the United States.)

More generally, the picture of Japan as an economic basket case turns reality on its head. As I wrote a few months back:

"According to the IMF, Japan's per capita GDP has increased by an average rate of 0.9 percent annually between 1990 and 2018, while this is somewhat less than the 1.5 percent rate in the United States, it is hardly a disaster. In addition, average hours per worker fell 15.8 percent in Japan over this period, compared to a decline of just 2.9 percent in the United States."

The story of Japan's economy being in desperate straits is entirely a media invention, it is not based in reality.

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That is not quite what he said, but it is pretty much in the same spirit as what Buttigieg said about trade and jobs, according to the Washington Post. The post told readers:

"Buttigieg has said six times as many jobs were lost because of automation as trade from 2000 to 2010."

This is more or less right in the same way that Nebraska will get far more rain over the course of 2019 than the rain that caused the recent flooding. And, the assertion makes about as much sense in the context of the floods as in the context of jobs lost to imports.

Productivity growth (the term that economists use for Buttigieg's "automation") averages roughly 2.0 percent annually. This means that, in a workforce of 150 million people, we lose roughly 3 million jobs a year to productivity growth. Since the workforce averaged roughly 134 million in the last decade, we would have lost roughly 27 million jobs due to productivity growth.

By comparison, we lost 3.4 million manufacturing jobs from 2000 to 2007 (before the crash) as the trade deficit exploded. So, Buttigieg can accurately say that we lost more than six times as many jobs due to productivity growth than due to trade. And, this doesn't change by one iota the fact that the huge run-up in the trade deficit devastated millions of families and whole communities in places like Ohio, Michigan, Pennsylvania, and Indiana.

It is also striking the Buttigieg is worried about automation proceeding too quickly. Pretty much the whole economics profession has the opposite concern, that productivity growth is too slow. Productivity growth has averaged just 1.3 percent annually over the last decade. In fact, the NYT just ran a column telling readers that we should expect that productivity growth will remain slow forever more.

In principle, productivity growth is associated with rising real wages and shorter work hours. It is striking that Buttigieg is apparently concerned about something that is so directly at odds with both the data and standard economics.

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The New York Times had an article about how Facebook is struggling to deal with an anticipated flood of fake news posts that will coincide with elections in India this month. The situation is presented as some sort of unforeseeable event that threatens to overwhelm Facebook in its efforts to weed out such posts.

Contrary to what is implied by the article, if Facebook is not prepared to deal with a large volume of fake posts it is because of the decision that the company has made not to hire adequate staff in order to increase its profits. It is comparable to the decision of a hospital that finds itself unable to deal with its patient load because it has not hired adequate nursing staff.

Preventing the widespread dissemination of fake news items is a doable task, however, it may end up being expensive. If that proves to be the case, then it is Facebook's responsibility to spend the necessary money, even if it is a big hit to their profits.

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This would be a useful follow up to an NYT article telling readers who stands to make lots of money if these companies command high prices in IPOs, as seems likely to be the case. Some of these companies, like Uber, have never made a profit, and none of them make profits that could come anywhere close to justifying their IPO price.

Furthermore, at least in the case of Uber and Lyft, their business model seems to depend on breaking the law. Specifically, they hope to save money by having their drivers classified as independent contractors, which gets them out of paying for unemployment insurance, Social Security, and other taxes and responsibilities.

If we assume that these companies either don't become profitable or just earn small profits, then at some point their stock prices are likely to come crashing down to earth. (Think of the Internet companies of the late 1990s.) In that case, the people who buy the stock after the IPOs will be big losers. This is likely to include many pension funds, many workers with 401(k)s invested in the stock market, and a few suckers buying individual stocks, who think that these companies will be the next Apple.

Hyping companies like Uber in the business press is a great way to transfer income upward. It would be good if it stopped doing it.

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Polls consistently show that the public hugely overestimates the share of the budget that goes to items like SNAP (food stamps), Temporary Assistance to Needy Families (TANF), and foreign aid. People will typically give answers in the range of 20 to 30 percent of the budget for these categories of spending. In reality, the shares are 1.5 percent for SNAP, 0.4 percent for TANF, and 0.4 percent for foreign aid.

I would argue that this matters, since the public’s willingness to support a program depends in part on how much they think we are spending on it. This is for two reasons, the first is simply that people are only willing to pay a limited amount in taxes to help the poor here and abroad. If they already think they are spending a lot for this purpose, they will be reluctant to spend more.

The other reason is that people will reasonably be concerned about the efficiency of the programs. If all our tax dollars are going to help poor people, and yet we still have so many people in poverty, then our anti-poverty programs must not be very efficient. If that is the case, added additional dollars probably will not do much to help the poor. Nor will modest cuts do much to harm them.

All of this seems pretty straightforward and not really debatable, yet when it comes to educating the public on the true size of these programs, interest is very close to zero. That is hard to understand, especially when the route to a better-educated public is pretty easy to see.

The most obvious reason that people grossly overestimate the amount of spending on these programs is that their budgets are always discussed as billions of dollars. No one knows how much billions of dollars are, except that it means lots of money.

Discussing budget numbers in millions, billions, and trillions is incredibly irresponsible reporting. It is the job of the media to be informing their audience. Writing that food stamps cost $70 billion a year, or that TANF costs $20 billion, is not informing readers. It is just putting down numbers, equivalent to a mindless fraternity ritual, that serves no informational purpose.

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The NYT had a good piece on efforts to have states classify gig workers, like Uber drivers, as independent contractors. The piece describes how Tusk Holdings, a lobbying firm, has been circumventing state legislatures and trying to get state agencies to make the determination that gig workers are contractors.

When explaining the problem with the independent contractor classification, the piece understated the anti-trust issue involved. It told readers:

"Uber and Lyft also determine pay rates for drivers, something independent contractors typically decide."

It is not just a practice that independent contractors decide their own pay rates, it is the law. If they combined to set pay scales they would likely be violating anti-trust laws which prevent such collusion. If we accept their claim that their drivers are independent contractors, Uber, Lyft, and other gig economy employers are effectively engineering the sort of collusion that is prohibited by anti-trust law. Uber currently is facing lawsuits for exactly this reason.

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Fred Hiatt, the editorial page editor of the Washington Post, used his column today to say that people on the left had developed Trumpian ways of viewing the world. For example, he said they value "the simple over the complex," using the example of people pushing the universal Medicare system in Canada as a solution to US health care problems. He warns about choosing "scapegoats over solutions," telling readers, "if your candidate starts telling you that everything would be fine if we just went after billionaires, or big banks, or big tech, nervous." And he also warns of "winner-take-all politics over compromise."

Hiatt, of course, works for Jeff Bezos, the world's richest person, who owns the Washington Post. While it is unlikely that such a billionaire (or even hundred millionaires) exists, imagine one ran a newspaper where people got paid to ridicule centrists like Hiatt. There certainly is much material in Hiatt's column and which appears regularly in The Washington Post.

Starting with Hiatt's last point, if a Democratic candidate is running on a platform where they claimed they would work with Senate majority leader Mitch McConnell, that person is dangerously out of touch with reality. There was a Democratic presidential candidate who tried this, named Barack Obama.

When he proposed his stimulus package he openly said that it was a starting position. He asked for Republican input. He said that he wanted the package to pass the Senate with 80 votes. After much work, and compromise, he got three Republican votes in the Senate, one of whom subsequently switched parties to become a Democrat. He got zero Republican votes in the House.

Obama tried the same approach with the Affordable Care Act, delaying the vote for many months as he allowed Republicans to debate and amend the bill. This got zero Republican votes in either the House or Senate. (One House Republican cast his vote in favor after the bill already had a majority.)

Perhaps Hiatt is too young to remember this history.

In terms of favoring simple over complex, how about centrists who insist that we need lower deficits or balanced budgets. These folks have literally cost our children tens of trillions of dollars of lost output, meaning the economy will be permanently smaller, because they blocked larger budget deficits that could have sped the recovery from the Great Recession. It's much simpler to say that smaller deficits and debt are good, just like a family budget, than to deal with how the economy actually works.

We could also point out how people like Hiatt never discuss government-granted patent and copyright monopolies as burdens the government imposes on the public. These monopolies are ways in which the government pays for things it wants done (e.g. developing new drugs or developing software) without directly spending money. They are equivalent to privately imposed taxes. This burden comes to around $370 billion a year in the case of prescription drugs and perhaps over $1 trillion annually taken altogether. 

In terms of scapegoating, we can point to the centrists who repeatedly have told workers that the problem for most workers is that they don't have the right skills, not policies like trade or a weak economy. In spite of great efforts, the data just won't support the centrists' efforts to blame workers for the upward redistribution of the last four decades.

Yes, there are plenty of grounds for ridiculing the center as Trumpian, but rich people don't pay for that sort of thing. So, enjoy Fred Hiatt's trashing of the left, that's what Jeff Bezos pays for.


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Just kidding, this is the Washington Post we're talking about. An article about how the Midwest floods are jeopardizing the survival of many family farms never once mentioned climate change. While it is impossible to link any specific weather event to climate change, in the sense that we can't know what the weather would look like had it not been for the rise in greenhouse gases (GHG) worldwide, we do know that climate change will lead to unusual weather patterns like the storms and flooding that hit the Midwest this month.

This would be useful background for those debating policy on global warming. While measures to reduce GHG will have serious costs, the cost of not doing anything will be many more destructive weather events like the Midwest floods. (These events are likely to be far more destructive in the developing world where governments are much less well-prepared to deal with the consequences.)

While the piece did highlight the negative impact that Donald Trump's trade war has had on farmers, it never once mentioned the negative impact of the rise in the dollar over the last two years. There is a world price for corn, soybeans, and other commodities. If the dollar rises by 10 percent against the currencies of our trading partners, this means that our farmers will get 10 percent less in dollar terms for their crops. Since most input costs for farmers are in dollar terms, this is a serious hit to US farmers.

It is bizarre that the WaPo never mentioned this fact in this piece, and in fact, rarely measures the impact of the value of the dollar on US trade more generally. This is the sort of thing that any intro econ student should know. It is also important in current trade debates since currency values was a major issue that Trump promised to raise with China in his campaign, although it seems to have largely disappeared in his trade negotiations with China.

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