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 NYT erred badly with an article that told readers, "China Once Looked Tough on Trade: Now Its Options Are Dwindling." The article claims that China is running out of ways to retaliate against Trump's tariffs because it imports so much less from the United States than the United States imports from China. In fact, China has many other ways to retaliate.

The most effective would probably be to stop paying attention to patent and copyright claims of US corporations. It can encourage domestic Chinese companies to make millions of copies of Windows-based computers, without paying a penny to Microsoft. It can do the same with iPhones and Apple. In fact, it can encourage Chinese companies to export these unauthorized copies all over the world, destroying Microsoft's and Apple's markets in third countries.

It can do the same with fertilizers and pesticides, making Monsanto and other chemical giants unhappy. And, it can do this with Pfizer and Merck's drugs, flooding the world with low-cost generic drugs. Even a short period of generic availability may do permanent damage to these companies' markets.

There are many other things that China's government can do to harm US corporate interests, such as making it difficult for companies like General Motors to sell in the Chinese market. US companies would be extremely unhappy about being locked out of the biggest market in the world.

In short, the NYT really missed the boat on this one. China has many, many options that it can pursue in its trade war which would have devastating consequences for US corporations.

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I usually have a policy of not using this blog to comment on pieces that cite me or someone else at CEPR, but I will make a brief exception in the case of this Heather Long piece on deficits and debt in the Washington Post. The point I had hoped to make, which is a view shared by left-Keynesians, is that debt or deficits are a problem when they generate too much demand in the economy. In that situation, we either have a problem with inflation or alternatively, the Federal Reserve Board has to jack up interest rates to head off inflation. The latter leads to the classic crowding out story, where we see less public and private investment, as well as a rising trade deficit due to a higher valued dollar.

This is clearly not a problem today, as inflation remains below the Fed's 2.0 percent target by its measure of the core personal consumption expenditure deflator. While it could get to be a problem in the future, inflation had consistently run well below its projected rates. Until we start to see inflationary pressures in the economy, it is hard to see how deficits can be a problem.

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Former New England Journal of Medicine editor Marcia Angell had an op-ed in the NYT explaining how efforts to increase transparency had not ended the corrupting influence of money on medical research. Her piece describes various ways in which the researchers who get money from drug companies bend research to favor their benefactors.

While Dr. Angell suggests some reforms, there is an obvious one that is overlooked: take the money out. Drug companies have incentives to bend research findings because patent monopolies allow them to sell their drugs at prices that are several thousand percent above the free market price.

As every good economist knows, when the government puts in an artificial barrier that raises prices above the free market price it is creating an incentive for corruption. However, they are usually thinking about gaps like those created by Trump's 10 or 25 percent tariffs that are supposed to punish our trading partners.

They usually don't think about the corruption from patent monopolies that allow drug companies to sell drugs for tens of thousands of dollars that would sell for a few hundred dollars as a generic. But the same principle applies, with the incentives for corruption being proportionately larger.

The economist's remedy would be the same in both cases: get rid of the artificial barrier. We could do this by paying for drug research upfront and make all findings fully public and place all patents in the public domain (discussed here and in Rigged Chapter 5). This would allow all new drugs to be sold at generic prices. There would then be no more incentive to make payoffs to doctors to help promote drugs.

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Robert Samuelson gets it wrong yet again. In talking about the economic downturn following the collapse of the housing bubble, Samuelson tells readers:

"Home buyers had paid too much on the (false) assumption that prices would rise indefinitely. As real estate valuations crested in 2006, homeowners had to divert more of their income to repaying their mortgages and home-equity loans. Other consumer spending suffered."

Folks who have access to the data on the Commerce Department's website know that the problem was not that spending fell below normal in the crash, the problem is that spending was way above normal in the bubble years. The Fed somehow failed to notice the consumption boom that accompanied the construction boom, both of which were destined to end when the bubble deflated.

One other point that makes this assertion by Samuelson even more obviously wrong is that the massive wave of defaults that began in 2006 and picked up speed in 2007, 2008, and 2009 freed up hundreds of billions of dollars that would have otherwise gone to mortgage payments.

It is also worth correcting a couple of points on the bank bailouts. First, the Federal Deposit Insurance Corporation, which did not exist at the start of the Great Depression, could have kept the banks operating and ensured that the ATMs were working even if there had not been a bailout.

The second point is that, contrary to what was claimed at the time, the government held all the cards in setting the terms of the bailout. It could have, for example, required that any banks receiving money have a plan to downsize themselves over a five-year horizon so that none of their components were too big to fail. It could have made a condition of receiving bailout money that no bank employee will earn more than $500,000 a year in total compensation.

Since the banks were bankrupt, as Bernanke now argues, the executives would have had no legal option except to agree to these terms. (They have to act in the interest of their shareholders.) The bailout crew wanted to give the money with no conditions.

In terms of the hostility prompted by the bailout, if Timothy Geithner ever reads his autobiography, he will discover that he dismisses demands to help underwater homeowners by saying that many bought bigger homes than they could afford. By contrast, he dismisses critics of the bank bailouts as "old testament types." It is perhaps worth noting in this context that Mr. Geithner now works as a top executive of a private equity company where he almost certainly earns several million dollars a year, and quite possibly more than $10 million.

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This NYT piece is so confused it is difficult to know where to begin. It starts with student debt. Student debt is a serious burden for many recent grads and even more so for people who did not graduate. But how does it lead to a financial crisis? As the piece notes, most of the debt is owed to the government. Also, defaults won't lead to the value of the underlying asset (earnings) spiraling downward.

Then we get corporate debt. Yes, this is high, but debt service as a share of corporate profits is low. That is the relevant variable. Yes, this can rise as interest rates rise, but not very rapidly. Many companies took advantage of extraordinarily low interest rates to borrow long-term. Also, even when companies find themselves in trouble meeting their obligations, they can sell off stock or assets. It's rare that investors take a complete bath on corporate debt.

Then we have junk bonds. Yes, investors are probably underpricing risk. Will this lead to a financial crisis? See the previous paragraph.

The piece then goes to emerging market debt. Here also investors likely underpriced risk. Could be bad news for many investors and people living in places like Turkey and Argentina. It's not a financial crisis.

Finally, we get to the growing share of mortgages being issued by non-bank institutions. This should raise concerns about lending behavior and possible abusive practices by less-regulated lenders. Absent a bubble, it is not the basis for a financial crisis.

I talk about these issues briefly in my paper on the 10th anniversary of the collapse of Lehman.

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Well, they couldn't see the housing bubble in 2007, why should they be able to see it today? It's sort of like reporting on the rain in North Carolina without mentioning Hurricane Florence. I guess the stories about the problems in getting qualified workers are accurate.

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According to the Washington Post, Donald Trump thinks he is winning his trade war with China because of the decline in its stock market. Its stock market has declined 23 percent this year. If Trump thinks he is hurting China's economy because of this decline in its stock market he is even more ill-informed than is generally believed.

People often err in thinking that the stock market is a gauge of US economic performance. In principle, it is a measure of the future profits of US corporations. A shift of income from wages to profits, or a cut in corporate taxes (like what the Republicans passed), would be expected to boost the stock market even though this is just a redistribution from the rest of the country to US corporations. In addition, the stock market is highly erratic, as investors can get carried away by irrational exuberance as happened in the 1990s bubble.

The Chinese stock market is even more erratic. For example, it lost almost 50 percent of its value from June of 2015 to February of 2016. This was a period when its economy was growing at almost a 7.0 percent annual rate. While China's growth data should be viewed with some skepticism, there is little doubt that the country maintained healthy growth through this period. 

If Trump is using relative stock market performance as the gauge of his success in the trade war with China, he is even more deluded than usual.

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Yep, Catherine Rampell is touting the heroics of the bailout gang in saving us from a second Great Depression in her Washington Post column. She notes the anger directed against this gang on both the left and right and that people suspect their motives. (For those keeping score, the initial trio was Ben Bernanke, who is getting well over $1 million a year in consulting contracts with financial firms, Timothy Geithner, who is likely getting multiple millions as a top exec at a PE company, and Henry Paulson who pocketed hundreds of millions as CEO of Goldman Sachs in the bubble years.)

Anyhow, Rampell never tells us how letting the markets work their magic on the Wall Street bank would have prevented us from passing a really big stimulus in 2009 (or 2010, or 2011 etc.), but I suppose the aluminum foil hat set takes this as an article of faith. Her one piece of evidence is the comparison with Europe, which we are told was meaner to the banks.

I'm not sure that Europe was necessarily meaner to the banks (after all, Deutsche Bank is still in business), but it clearly did have more contractionary fiscal and monetary policy. The European Central Bank raised rates in 2010 to head off the risk of inflation (seriously) and kept Italy, Spain, and Greece in perpetual crisis until it got new leadership at the end of 2011. The European Commission demanded austerity from the crisis countries and even non-crisis countries like France.

The predicted and actual result of these policies was extremely weak growth. It is not clear how the story would be any different if the Europeans had been nicer to the bankers.

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Actually the Post didn't tell readers this, it instead told them that the tax cut would, "add an additional $3.2 trillion to the federal deficit over a decade," according to a projection from the Tax Policy Center. Since next to no one reading the Post has any idea of how much money $3.2 trillion between 2028 and 2037 is, it might have been useful to put this number in some context. As it is, the paper just told them that the cost of the tax cut would be really big.

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Yes, we must thank The Washington Post for running Robert Samuelson. He can always be counted on to get almost everything wrong. He shows this talent yet again in his column on the financial crisis.

He gives us three lessons, with number 1 being the most important, that we could have another great worldwide Great Depression. Yes, this is true, but not because of some mysterious force descending on the world economy.

If we have another Great Depression it will be because governments and central banks refuse to act aggressively to get us out of the Great Depression. Keynes taught us the secret of getting out of a depression. It's called "spending money."

The problem is that people with political power, and the news outlets they own (e.g. The Washington Post), often don't care about tens of millions of people being out of work and losing their homes. (They do care about saving the banks — see Samuelson's lesson #3.) Therefore, they will rant about budget deficits and government debt, and the burdens we are putting on our kids, even when the most obvious burden we are putting on our kids is keeping their parents from having jobs. Samuelson, of course, is a main promulgator of this line.

We will also hear nonsense about inflation, even as the biggest concern will be an inflation rate that is too low due to the depression. We saw this most clearly with the European Central Bank where outgoing president Jean Claude Trichet patted himself on the back when he retired in 2011. Even though the euro was in crisis at that point (with several countries facing possible defaults) Trichet was proud that he had kept the inflation rate below his 2.0 percent target.

So, Samuelson is correct that we could see another worldwide Great Depression, but not because of anything inherent to the world economy. If we see one, it will be due to an incredibly incompetent and corrupt elite.

By the way, note that no one is acknowledging the role of the housing bubble, and the failure of policy people and economists to see it, in the crisis.

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