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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This is an important point to mention in reference to Bernie Sanders' plan to tax corporations with large gaps between CEO pay and the pay of an average worker. High CEO pay is not based on their contribution to corporate profits or returns to shareholders, rather it is a result of their ability to control the corporate boards who set their pay. 

This means that the most likely response of companies to a tax on excessive pay gaps between the average and the median worker is to find ways to game the system. For example, they can contract out to other companies the lower-paying work that brings down the average or median pay (it is not clear which would be the reference point from this piece). If shareholders (or workers) had more control of corporations, they would have a strong incentive for reducing CEO pay, since it is coming at the expense of corporate profit and/or the pay of the typical worker.

In this context is important to remember that the excessive pay of CEOs is not just a question of the individual CEO's salary, it also leads to a bloated pay structure for top executives across the board. This excessive pay for top executives is typically a substantial share (around 10 percent) of corporate profits.

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The Washington Post seems more than a bit out of touch with reality in this piece on China's celebration of the 70th anniversary of the Communist revolution there. The article tells readers:

"China is now the world’s second-largest economy and could overtake the United States for top spot as soon as next year."

According to the I.M.F., China's economy passed the United States to become the world's largest in 2015 and is now more than 25 percent larger than the U.S. economy.

The piece also gets China's per capita income wrong, putting it at $10,000 a year. The I.M.F puts it at just over $17,000 a year in 2011 dollars, which would translate into more than $19,000 a year in 2019 dollars. While it is still much poorer than the United States on a per capita basis, it is now near the top of the middle income countries.

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For most people, the country’s national debt and annual deficit are not major concerns. However, for a substantial portion of the policy types who make, write, and talk about economic and budget policy, debt and deficits are really big deals. And, the fact that our budget deficit and debt are both large by historic standards, and growing rapidly, is an especially big deal.

The list of people in this category is lengthy. It starts with the Peter J. Peterson Foundation (which displays the debt in big numbers right on its home page) and the many groups funded by them. The most important is the Committee for a Responsible Federal Budget, which is virtually guaranteed prominent placement in stories on the budget by major news outlets.

The Washington Post (both its news and opinion sections) has a high standing in deficit hawk circles. House Speaker Nancy Pelosi and other members of the Democratic leadership have at least one foot in the deficit hawk camp. And, of course, Republicans are big deficit hawks when a Democrat is in the White House.

In order to make these deficit hawks happy, I have a proposal – we’ll call it the “Baker Budget Fix” – that can eliminate debts and deficits forever. It’s fun, simple, and can give us balanced budgets for all eternity.

The basic point is that the government can sell off all sorts of patent and copyright monopolies and collect massive amounts of revenue. Regular readers know that I am not a big fan of patents and copyrights, but since I’ve made little headway in getting these policies questioned in public debate, why not just embrace them? After all, since everyone who matters seems to be just fine with ever longer and stronger patent and copyright protection, let’s use them to raise a ton of money for the government and make the deficit hawks happy.

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Yes folks, the Trump administration is fighting hard to put America first. Its threat to pull the U.S. out of an international postal agreement will save the United States between $300 million and $500 million annually, according to the New York Times. For those folks who aren't used to dealing with hundreds of millions of dollars, this comes to approximately 0.0025 percent of GDP.

According to the article, "Peter Navarro, President Trump’s trade adviser, said the decision was a 'huge victory for millions of American workers and businesses.'"

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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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