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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Greece's economy has recovered modestly from the depths it hit at the peak of its crisis in 2014 and 2015, but with an unemployment rate that is still close to 19 percent, there hardly seems like great cause for celebration. The overall economic picture in Greece still looks horrible even compared with disasters like the Great Depression in the United States.

Employment is still down by almost 20 percent from its pre-crisis peak in 2008, the equivalent of 30 million people losing work in the United States. (Part of the story here is large-scale emigration to other countries.) Per capita income is roughly the same as it was in 2001.

While that sounds pretty terrible, Roger Cohen tells us that Greece is the "good news" story in Europe. The punch line is near the end of the piece:

"The Obama administration won Tsipras over and so dragged him toward the center. Joe Biden, as vice president, told the then-prime minister not to take rash decisions — such as leaving the euro — that would be irreversible. A breakup of the eurozone, with other countries possibly following Greece, was avoided."

Right, so we are supposed to be happy because the euro, a system managed by a bunch of economic know-nothings in expensive suits and strong business ties, has managed to survive. While Greece is the biggest victim of euro-idiocy, the people of Italy, Spain, France, and other countries are also suffering due to needless austerity. 

But at least Roger Cohen is happy.


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Sorry to pick on a NYT editorial with which I mostly agree, but the assertion that plans by Democratic presidential candidates to increase homeownership, "if successful, could ease the demand for rental units," really needs to be called out.

Let's say these plans are successful. Where do the additional units come from that the new homeowners now occupy? Some may come from existing homeowners who decide to sell at the higher prices resulting from these plans and then become renters.

Some of the units may come from the stock of rental units. Contrary to what the piece implies, god did not designate housing units as either ownership or rental units. Apartment buildings frequently switch from being rental to condominiums, if the sale price justifies the expense of the conversion. Furthermore, roughly one-third of all rental units are single-family homes. These can be converted very easily to ownership units if the price justifies it.

Long and short, policies to increase homeownership should be evaluated based on their impact of the affected population. It is not always the path to secure wealth, as people alive during the housing bubble years know. But as a way to reduce the cost of rental housing, it is just foolish.


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(This post orginally appeared on my Patreon page.)

Many of the leading Democratic candidates, especially Sanders and Warren, have been putting forward bold progressive plans in a wide variety of areas. Sanders and Warren have both supported a quick transition to a universal Medicare program, with no premiums, co-pays, or deductibles. Several candidates have supported a Green New Deal, which in some versions would guarantee every worker in the country a decent paying job.

Such policies are really big deals. They would both have a huge impact on people’s lives and also pose serious problems of implementation. The willingness of Democrats to think big in other areas makes their determination to think small on prescription drugs surprising. Replacing government-granted patent monopoly financing of research is both a huge deal and one that can be implemented gradually without threatening massive disruptions in a transition process.

Free Market Drugs Are a Really Big Deal

First, it is necessary to realize that having drugs available at free market prices, without patent monopolies or other forms of exclusivity, would have an enormous impact on the economy and the health care system. On the first point, we will spend more than $460 billion on prescription drugs in 2019. Without patent protection, these drugs would almost certainly sell for less than $80 billion, implying a savings of more than $380 billion.[1] 

To put this $380 billion figure in context, it is more than five times the annual food stamp budget. It is more than twice the size of the Trump tax cut. If we project out the savings over the course of a decade, they would come to more than $5 trillion. That is more than three times the amount that is projected to be needed to cover the cost of full forgiveness for outstanding student loan debt. This is more than $30,000 per household. In short, there is huge money at stake by any measure.

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No folks, it's not a rerun of the Three Stooges, it is Washington Post columnists pretending to say wise things about economic policy. They apparently decided to work overtime to criticize the more progressive Democratic candidates, which is what Jeff Bezos pays them to do. (No, I have no idea if Bezos is especially pernicious among rich people, but if the Washington Post was owned by people who were not rich Steven Pearlstein, Charles Lane, and Fred Hiatt would not be getting paid to spout ignorance on its opinion pages.) I don't have time to deal with all the misinformation in these three columns, but let me just take some highlights from each.

Pearlstein is very unhappy about the Democrats' big plans. For example, he is upset that a Medicare for All program will lead to some inefficient hospitals closing and some people losing jobs. Of course, we will not be getting less health care, so this is just a story of people moving from one hospital to another facility.

That can be traumatic, I would never minimize the seriousness of job loss, but almost 1.8 million people lose their job every month, and this is in an economy with 3.6 percent unemployment. How much does Pearlstein think Medicare for All will add to this?

Similarly, he is angered about the job loss from a Green New Deal. He tells us that the new jobs won't replace the lost jobs in the coal mines. This is true, and we currently have just over 50,000 people working in coal mines. We lost 3.4 million manufacturing jobs due to the explosion of the trade deficit in the last decade, sparking very little concern on the Post's opinion pages, but the risk to 50,000 jobs in coal mining is worth berating the Democratic contenders over.

Of course, the loss of jobs attributable to the trade deficit was associated with an upward redistribution of income. A Green New Deal may lead to more equality.

Charles Lane is lecturing us again about the debt and deficits. Let's just deal with this one quickly. Lane says not a word about the trillions of dollars of patent/copyright rents (much of it for prescription drugs) that the government has committed the public to pay with its grant of monopolies. If Lane doesn't understand that these rents are equivalent to future taxes then he is far too ignorant to take seriously on the topic of debt. Alternatively, he is simply a dishonest propagandist.

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For many years we regularly saw news stories, like this Washington Post piece, telling us that the official data on the bilateral U.S. trade deficit was hugely exaggerated. The argument was that we count the full value of a final good imported from China in calculating our trade deficit, even though much of the value added came from other countries.

The classic case is an iPhone exported from China to the U.S. We would count the full value of the iPhone as an import from China even though the vast majority of the value added came from other countries. This Post piece cites a study showing that the trade deficit with China would be reduced by 40 percent if we subtracted the value of all intermediate goods produced in third countries. (An honest assessment would also add in the intermediate goods manufactured in China that come to the U.S. in imports from Japan, the European Union, and elsewhere.)

This argument about an overstatement of the China trade deficit was frequently used to argue that people were wrong to be concerned about the bilateral trade deficit. Remarkably, now that Trump has embarked on his trade war with China, the media are telling us that China's exports to the U.S. actually were a huge deal for its economy.

The NYT ran the strongest piece in this vein, telling readers that the trade war truce "could enshrine a global economic shift." The homepage lead said that it could "unseat China as the world's factory floor."

For fans of logic and arithmetic, we can't both have China's trade deficit with the U.S. being no big deal and also a scenario where reducing the deficit unseats China as the world's factory floor. To see what the actual story might be, a little data is helpful.

The U.S. trade deficit with China peaked at $420 billion in 2018. China's GDP measured in dollar terms is $14.2 trillion this year. (Measured at purchasing power parity it's $27.3 trillion. For this question, it is appropriate to use the exchange rate measure.)

If we use the great wisdom from the Washington Post piece and say that our trade deficit with China is just 60 percent of the official figure, then it came to $252 billion in 2018. If we assume an extreme effect of the trade war and the deficit falls by 50 percent (that's way more than the impact seen to date), China would see a reduction in its trade surplus with the U.S. of $126 billion. That's just under 0.9 percent of its GDP. It's a bit hard to believe a loss of net exports equal to 0.9 percent of China's GDP will fundamentally alter its position in the global economy.

Even if we use the official data the loss would be $210 billion or just under 1.5 percent of GDP. It's still hard to imagine that fundamentally changing China's economy, and this is assuming an impact of the trade war that is absurdly high.

Anyhow, the moral of this story is that our top media outlets are perfectly willing to play with the data to tell a story. They don't care if their story directly contradicts other stories they tell. They just assume that no one will notice.


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Seriously, that's what a piece on the state of China's economy told readers.

"Another headache is China’s demographic problem, namely that it is running out workers thanks to the failure of its now-abandoned one-child policy. With growth slowing, China faces a race to avoid the dreaded “middle-income trap” where the economy of developing countries stagnates once the low-hanging fruit of industrialisation has been picked but before income has been spread widely enough around the population. China is expanding its technology industry as fast as it can to build-up high-value manufacturing but, as the Huawei standoff shows, the policy is bringing conflict with the west."

Fans of logic and arithmetic know that countries don't "run out of workers." In a tight labor market, workers move from lower paying lower productivity jobs to higher paying higher productivity jobs. This means that we are likely to see fewer people working the late-night shift in convenience stores or as valets in restaurants. They will instead work at better-paying jobs. Of course, the people who depend on low-paid workers (the "hard to get good help" crowd) will suffer. (Also, don't forget that we are supposed to be worried about robots taking all the jobs.)

While there are serious human rights issues associated with China's one-child policy (these are hugely exaggerated, the killing of female infants happened throughout the region in countries that did not have a one-child policy), the slowing of China's population growth was a great thing for the environment. In 1975, China' population was roughly 50 percent larger than India's population. Currently, they are almost the same, with India projected to pass China in the next decade.

If China's population had grown at the same pace as India's since 1975 there would be another 650 million people on the planet. This would make the prospect of limiting the damage from greenhouse gas emissions hugely more difficult.


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(This post originally appeared on my Patreon site.)

The Washington Post had two columns last week that told us much more than their authors likely intended. The first was a piece by E.J. Dionne, that told readers about the need to “tame” capitalism, because of the damage caused in recent decades by the untamed version.

The second piece was by Catherine Rampell. From France, she told us of the difficulties of imposing taxes on carbon, even in a country that is ostensibly fully committed to the Paris Agreement and reducing greenhouse gas emissions. Both pieces were fascinating for what they left out of the picture.

While Dionne’s piece is focused on the need to address the growing inequality of the last four decades (its theme is the pseudo-mea culpa of the Wall Street funded group, Third Way), the gist of it is that it was a mistake to let the market run amuck. In other words, the upward redistribution of the last four decades was something that happened, not something that folks like the Third Wayers did.

This is an important distinction from a logical, moral, and most importantly, political standpoint. It matters hugely whether most of the country was left behind due to the natural development of the market, as opposed to being left behind because the folks with political power structured the market to redistribute income upward.

People familiar with my writing know that I have long argued that the upward redistribution was by design. Just to take the most obvious example, we are routinely told that manufacturing workers in the United States and other wealthy countries were destined to get whacked for the simple reason that there are hundreds of millions of people in the developing world who are willing to do the same work for a fraction of the pay.

In that story, the downward pressure on the wages of manufacturing workers was an inevitable outcome of globalization. Unless we want to block globalization, we can’t have manufacturing workers in the U.S. and Europe getting $40 and $50 an hour in pay and benefits when workers in China, Vietnam, and elsewhere will do the same work for less than one tenth of this amount.

The loss of these high-paying jobs for workers with less education is just an unfortunate side effect of globalization. The downward pressure on the wages of less-educated workers more generally that results from the loss of manufacturing jobs is also just another bad side-effect. But hey, these people are all better off than the under-employed workers in the developing world, so it would be greedy and wrongheaded to try to stop globalization to protect less-educated workers in rich countries.

The fact that there are hundreds of millions of workers in the developing world who are prepared to work for much lower pay than our manufacturing workers is true, but there are also millions of bright and ambitious people in the developing world who would be happy to train to U.S. standards and work as doctors, dentists, lawyers and other elite professions at a small fraction of the pay of the people who currently hold these jobs.

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Ruchir Sharma again used a New York Times column to complain about plans put forward by Elizabeth Warren and Donald Trump (more the former than the latter) to lower the value of the dollar to make U.S. goods and services more competitive in the world economy. While he raises a number of geopolitical arguments, the gist of his economic argument is that the U.S. is able to run large and persistent trade deficits because the dollar is the leading reserve currency in the world. (Hence the "exorbitant privilege.")

This ability to run large trade deficits could be a good thing, if we had an economy that was generally near full employment. In that case, the deficit on trade allows us to consume and invest more than would otherwise be possible. However, few serious economists would argue that we have been at or near full employment in the last decade.

Many, if not most, mainstream economists have embraced the idea of "secular stagnation." This is a more complicated way of saying insufficient demand. In other words, the U.S. economy has not been at or near full employment for the last decade because it has not had enough demand.

A big part of the "not enough demand" story is the trade deficit. If we had balanced trade instead of a deficit of 3.0 percent of GDP, it would have roughly the same impact on aggregate demand as a $600 billion annual stimulus program, all of it in the form of government spending. In other words, the "exorbitant privilege" has been the privilege of having an economy that has been operating well below full employment, with lots of excess capacity.

But wait, there's more. Because manufacturing goods account for the overwhelming majority of traded items, the large trade deficit translates into a loss of millions of manufacturing jobs. Since manufacturing jobs have historically been a source of relatively high-paying employment for workers without college degrees, the trade deficit has been a big factor in the rise in inequality, especially in the last two decades as the over-valued dollar caused it to explode.

So, "exorbitant privilege" translates into secular stagnation and increased inequality. And Elizabeth Warren wants to jeopardize this with her plans to lower the value of the dollar.

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That would have been a useful piece of information to include in a Washington Post article on couples taking on debt to pay for the costs of their weddings. The piece told readers:

"Demand among Americans, who are already holding record levels of debt, for help financing weddings are giving rise to an industry of personal loans marketed specifically to brides and grooms."

While debt is at record levels, so is income levels and asset levels. It is pretty meaningless to tell readers that debt is at a record level without any context. The most relevant measure is the ratio of debt service, the cost of bearing the debt, relative to household income.

The ratio of debt service, or a broader measure that includes rent, is actually near its lowest point in the last forty years according to data from the Federal Reserve Board. This doesn't quite fit the story of a nation drowning in debt, although there are undoubtedly many households facing serious difficulties paying off their debts.

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That's what the Washington Post told readers in reference to the drug BCG, a treatment for early-stage bladder cancer. According to the Post article, there is now a worldwide shortage of BCG. The reason is that the manufacturer, Merck, is producing at the capacity of its manufacturing facility, but the current price does not justify the expenditures associated with building a new facility. The piece tells us that Merck doesn't want to raise the price because it is worried that it will be seen like Martin Shkreli, who raised the price on single-source generic drugs by more than 5000 percent. (BCG is now off patent and available as a generic.)

While it is possible that Merck really fears that its public relations people are so incredibly inept that they would not be able to make the distinction between price increases to cover manufacturing costs and price increases to gouge consumers, it is also possible that Merck thought it would be good to create a shortage of a drug needed to treat a potentially fatal disease in order to support the case for higher drug prices.

The Post article doesn't give us a basis for assessing this alternative explanation. In fact, it never mentions the alternative explanation. This suggests that if the alternative explanation is, in fact, the true one (i.e. Merck wanted to create a shortage to create more public support for high drug prices), then Merck has been effective in advancing its goals.



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