Beat the Press is Dean Baker's commentary on economic reporting. Dean Baker is co-director of the Center for Economic and Policy Research (CEPR).

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It would be a much better world if the people involved in economic policy debates understood basic economics. Unfortunately, such knowledge is sorely lacking in Washington.

Robert Samuelson gave us a great example of accounting ignorance in his column where he pushed the idea that the budget should be near balance when the economy is close to full employment. There is of course an important economic point; if we believe what economists thought about prime age (ages 25 to 54) labor force participation rates back before the recession, we are still around 2 million jobs below full employment.

But leaving such trivia aside, there is the accounting issue of having a balanced budget at full employment. Samuelson cites economist Herbert Stein as his authority on this point. It is important to note that Stein made this comment when our trade was much closer to balanced.

This matters because if we have a large trade deficit, it was $540 billion (around 2.9 percent of GDP) in the last quarter, then this is a reduction in domestic demand compared to a situation in which trade was balanced. This $540 billion is creating demand in Europe, Canada, China, and elsewhere , not in the United States.

With this sort of drain on demand, we have to make this up from some other source. We can pray to the god of incentivizing entrepreneurs and hope that we will get a huge investment boom, but adults don’t believe in this nonsense. Investment has moved within a fairly small range as a share of GDP over the last half century. At best, we can hope that good policy will lead to very modest gains in investment as a share of GDP – not enough to make up for a trade deficit of 2.9 percent of GDP.

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Now that the Republican health care plan has been sent to the dust bin of history, it’s worth thinking about how Obamacare can be improved. While the ACA was a huge step forward in extending insurance coverage, many of the complaints against the program are justified. The co-pays and deductibles can mean the plans are of little use to middle-income people with relatively low bills.

This is a great time to put forward ideas for reducing these costs and making other changes in the health care system. Obviously this congress and president are not interested in reforms that help low- and middle-income families, but the rest of us can start pushing these ideas now, with the expectation that the politicians will eventually come around.

There are two obvious directions to go to get costs down for low- and middle-income families. One is to increase taxes on the wealthy. The other is to reduce the cost of health care. The latter is likely the more promising option, especially since we have such a vast amount of waste in our system. The three obvious routes are lower prices for prescription drugs and medical equipment, reducing the pay of doctors, and savings on administrative costs from having Medicare offer an insurance plan in the exchanges.

Taking these in turn, the largest single source of savings would be reducing what we pay for prescription drugs. We will spend over $440 billion this year for drugs that would likely sell for less than $80 billion in a free market without patent monopolies and other forms of protection. If we paid as much as people in other wealthy countries for our drugs, we would save close to $200 billion a year. We spend another $50 billion a year on medical equipment which would likely cost around $15 billion in a free market.

If the government negotiated prices for drugs and medical equipment its savings could easily exceed $100 billion a year (see chapter 5 of Rigged). It could use some of these savings to finance open-source research for new drugs and medical equipment.

We already fund a huge amount of research, so this is not some radical departure from current practice. The government spends more than $32 billion on research conducted by the National Institutes of Health. It also picks up 50 percent of the industry’s research costs on orphan drugs through the Orphan Drug Tax Credit. Orphan drugs are a rapidly growing share of all drug approvals, as the industry increasingly takes advantage of this tax credit.

The big change would not be that the government was funding research, but rather the research results and patents would be in the public domain, rather than be used by Pfizer and other drug companies to get patent monopolies. As a result, the next great breakthrough drug will sell as a generic for a few hundred dollars rather than hundreds of thousands of dollars. And MRI scans would cost little more than X-rays.

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Marketplace radio had a peculiar piece asking what the world would have looked like if NAFTA never had been signed. The piece is odd because it dismisses job concerns associated with NAFTA by telling readers that automation (i.e. productivity growth) has been far more important in costing jobs.

"As in, ATMs replacing bankers, robots displacing welders. Automation is a very old story that goes back 250 years, but it has really picked up in the last couple decades.

"'We economic developers have an old joke,' said Charles Hayes of the Research Triangle Regional Partnership in an interview with Marketplace in 2010. 'The manufacturing facility of the future will employ two people: one will be a man, and one will be a dog. And the man will be there to feed the dog. And the dog will be there to make sure the man doesn’t touch the equipment.'

"Ouch. But it turns out technology replaced workers in the course of reporting this very story."

Actually, the Bureau of Labor Statistics tells us the opposite. Productivity growth did pick up from 1995 to 2005, rising back to its 1947 to 1973 Golden Age pace (a period of low unemployment and rapidly rising wages), but has slowed sharply in the last dozen years.

Book2 9104 image001

Source: Bureau of Labor Statistics.

While more rapid productivity growth would allow for faster wage and overall economic growth, no one has a very clear path for raising the rate of productivity growth. It is strange that Marketplace thinks our problem is a too rapid pace of productivity growth.

The piece is right in saying that the jobs impact of NAFTA was relatively limited. Certainly trade with China displaced many more workers. NAFTA may nonetheless have had a negative impact on the wages of many manufacturing workers. It made the threat to move operations to Mexico far more credible and many employers took advantage of this opportunity to discourage workers from joining unions and to make wage concessions. It's surprising that the piece did not discuss this effect of NAFTA.

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When we have a guy in the White House who imagines that millions of non-citizens are illegally voting and going undetected and that the former president tapped his phones, we know we are in the crazy season. Therefore it is not surprising to see George Will touting some bizarre principle of "universal access" to health insurance in his Washington Post column. There is no price tag associated with Will's "access" so an insurance policy that is completely unaffordable to almost everyone would satisfy Will's moral principle.

This is not a philosophical debate over various hypotheticals in the world. Obamacare was designed so that plans were mandated to cover a large range of conditions. This meant that the vast majority of the population, who don't have expensive health care conditions, were subsidizing the relatively small group of people who do.

However, if we allow insurers to slice and dice plans, so that people who don't suffer from certain conditions and are unlikely to in the future (e.g. women will not get prostate cancer and men won't get pregnant) don't have to pay the costs for those who do, then we can end up with a situation where some plans only have people with expensive health conditions and therefore are very expensive.

We could envision, for example, that plans would exclude pancreatic cancer, which is believed to be largely hereditary. People without a history of pancreatic cancer in their family would face little risk getting insurance that excludes this coverage. On the other hand, those with a history would be able to buy a plan that covered pancreatic cancer, but they would just have to pay an extremely high price since the insurers would know there was a high probability that anyone buying the plan would get pancreatic cancer.

In George Will's world, all is good, since the principle of universal access has been met. Of course, in the world where the rest of us live, almost no one with a family history of pancreatic cancer would actually have health insurance.

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It's great that there are so many jobs for mind readers in the media. This morning Tamara Keith used her talents in this area to tell listeners that members of the Republican "Freedom Caucus" in the House "believe" that reducing the areas of mandated coverage is the key to reducing the cost of insurance.

It's good that we have someone who can tell us what these Freedom Caucus members really believe. Otherwise, many people might think that they were trying to reduce the areas of mandated coverage in order to allow healthy people to avoid subsidizing less healthy people.

Someone in good health can buy a plan with very little coverage, since odds are they will not need coverage for most conditions. These plans would be relatively low cost, since they are paying out little in benefits. On the other hand, plans that did cover more conditions would be extremely expensive and unaffordable to most people. If we didn't have a NPR mind reader to tell us otherwise, we might think that this is the situation that the Freedom Caucus members are trying to bring about.

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Morning Edition had a segment on Republican efforts to repeal Obamacare which reported on the desire of many Republican members of Congress to reduce the number of essential health benefits that must be covered by insurance. While the piece noted that part of the reason for the required benefits is to ensure people are covered in important areas, this is probably the less important reason for imposing requirements.

If people are allowed to pick and choose what conditions get covered, many more healthy people may opt for plans that cover few conditions and cost very little. If this happens, then plans that offer more comprehensive coverage will have a less healthy pool of beneficiaries, and therefore have to charge high fees. This will make insurance unaffordable for the people who most need it.

 

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Robert Samuelson put forward what would ordinarily be a very reasonable proposal on Medicaid and Medicare in his column today. He suggested that the federal government take over the portion of Medicaid that deals with low-income elderly and fold it into the Medicare program, while leaving states with full responsibility for dealing with the part of Medicaid that deals with low-income families below retirement age.

While he is right that this sort of consolidation could likely reduce costs and prevent seniors from falling between the cracks in the two systems, there is a basic problem with turning Medicaid over to the states. There are a number of states controlled by Republicans where there is little or no interest in providing health care for low-income families.

This means that if Medicaid were turned completely over to the states, millions of low-income families would lose access to health care. For this reason, people who want to see low-income families get health care, which is the purpose of Medicaid, want to see the program remain partly under the federal government's control.

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The NYT might have wrongly lead readers to believe that presidents prior to Donald Trump supported free trade in an article noting his refusal to go along with a G-20 statement proclaiming the importance of free trade. This is not true.

Past administrations of both parties have been vigorous supporters of longer and stronger patent and copyright protections. These protections can raise the price of protected items by factors of ten or even a hundred, making them equivalent to tariffs of 1000 and 10,000 percent. These protections lead to the same sorts of economic distortion and corruption that economists would predict from tariffs of this size.

Past administrations have also supported barriers that protect our most highly paid professionals, such as doctors and dentists, from foreign competition. They apparently believed that these professionals lack the skills necessary to compete in the global economy and therefore must be protected from the international competition. The result is that the rest of us pay close to $100 billion more each year for our medical bills ($700 per family).

 

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A front page Washington Post piece profiled Tamara Estes, a supporter of Donald Trump who is anxious to see undocumented aliens deported, along with a neighboring family, the Corrals. The parents in the Corral family entered the country illegally, while the children were born in the United States and are therefore U.S. citizens.

In describing the situation of Ms. Estes, the piece tells readers that she earns $24,000 a year driving a school bus part-time. It then reports that she does not have health care insurance:

"She earns a bit too much to qualify for most government assistance but too little to buy health insurance, with its high monthly premiums and impossible deductibles."

Actually, her income would qualify her for substantial assistance in buying health care insurance. According to the Kaiser Family Foundation's premium calculator, the government would pay a subsidy of $548 a month for a $678 a month silver plan. This would leave her with a monthly payment of $130.

It is possible that Ms. Estes would still decide not to buy the insurance at this price, but it is wrong to say that she does not qualify for government assistance. The subsidy she could get on her insurance is considerably larger than the TANF benefit that a family of three would receive in Texas.

The Post should have provided correct information to readers on this issue. It might also have been useful to question Ms. Estes further on why she opted not to take advantage of the assistance available to her.

 

Addendum

I should have also mentioned that the Bronze plan would cost Ms. Estes $70 a month according to the Kaiser calculator. This also comes free wellness exams and other preventive care.

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Paul Krugman criticized the Trump administration for its budget, which would cut or eliminate many programs that benefit low- and moderate-income people. In his piece, Krugman points out that the public is incredibly ignorant on the budget, with most people having virtually no idea of where most spending goes.

In particular, he referenced an analysis that found people on average believed we spend more than 30 percent of the budget on foreign aid. The actual figure is less than one percent.

This is the sort of item that inevitably leads people to deplore the ignorance of the masses. While ignorance is deplorable, instead of blaming the masses, we might more appropriately look at the elites.

The overwhelming majority of people are never going to look at a budget document. Insofar as they get any information on the budget, it is from reporters who tell them how much we spend in various areas of the budget. (They may get this information indirectly from their friends who read the newspaper or listen to news.)

When they hear about spending, they will invariably hear things like we spend $40 billion a year on foreign aid or $17.3 billion on Temporary Assistance for Needy Families (TANF). Most people will think these figures are large sums, since they dwarf the sums that people see in their daily lives. In fact, the former is less than one percent of the $4.1 trillion that we will spend in 2017, while the latter is just over 0.4 percent of total spending.

The media could do a much better job of informing the public about spending (i.e. by doing their job) if they made a point of putting these figures in context. As it is, giving people these really huge numbers without context is essentially telling them nothing. As an alternative, they could make a point of always referring to these numbers as a share of the budget and/or expressing them on a per person basis (e.g. the spending on TANF comes to a bit more than $50 per person per year from every person in the country).

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The politicians who are trying to cut Social Security and Medicare know that these programs are incredibly popular across the political spectrum. For this reason they typically use euphemisms when referring to plans to cut the benefits they provide, like calling for "reform," "modernization," or "slowing the growth."

It is understandable that politicians pushing an unpopular agenda would try to mislead people about their actions, but it's not clear why the NYT is playing the same game, telling readers in an article on the Trump budget:

"But the early reaction from members of his party on Capitol Hill was muted at best, reflecting in part the discomfort among many of the party’s leaders with a budget that makes no progress on tackling the growth of entitlements."

The reference to "no progress on tackling the growth of entitlements" is the NYT's way of saying the budget doesn't cut Social Security and Medicare. This should be an easy one, it's shorter and more informative to just describe the issue directly.

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NPR had an interesting segment on the difficulties that many families have paying for cancer treatments. The piece points out that even middle-income families with good insurance may still face co-payments of tens of thousands of dollars a year.

One item not mentioned in this piece is that the reason the prices of new cancer drugs is high is that the government grants companies patent monopolies. This is done as a way to finance research. In almost all cases these drugs would be available for less than a thousand dollars for a year's treatment if the drugs were sold in a free market.

While it is necessary to pay for research, there are more modern and efficient mechanisms than patent monopolies (see chapter 5 of Rigged).

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On vacation until Thursday, March 16th. Remember, don't believe anything you read in the paper until then.

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It is amazing that there is not an effort to have a mass deportation of economists. After all, almost the whole profession completely missed the housing bubble and the economic crisis that resulted from its collapse. They failed to see the weakness of the recovery and now they can't decide whether we will have too few workers or too few jobs. (This is known as the "which way is up?" problem in economics.)

Claire Cain Miller gave us a "too few jobs" story in her NYT column that asked how we can offset the impact of job killing robots. She discusses various ideas that will create jobs or generate incomes for the people displaced by robots.

It is worth noting that if we think the problem really is too few jobs, in effect, that productivity is soaring, then many other commonly discussed economic problems do not really exist. If we have too few jobs then we have no reason to worry about government budget deficits. The problem of government budget deficits (if there is one) is that excessive spending by the government is creating too much demand in an economy that is unable to supply enough goods and services.

Similarly, in the too few jobs story there is no reason to worry about the demographics of retiring baby boomers. That is a story of too few workers to care for a growing population of retirees. 

There is also no reason to worry about the burden of excessive regulations stifling growth. The too few jobs story is telling us that the robots are leading to mass displacement of workers in spite of whatever burden is created by regulations. The implication is that we would have even if fewer jobs if not for the burden of regulations (assuming that regulations actually do slow growth).

And of course, if the problem is the robots taking all the jobs there is no reason for the Federal Reserve Board to raise interest rates. The point of higher interest rates is slow the rate of job creation so that the labor market doesn't get too tight and cause inflation. If we are worried that robots are getting rid of all the jobs it doesn't make any sense for the Fed to deliberately make the problem worse by slowing the rate of job creation.

It would be nice if economists could either agree than we face a world of soaring productivity so that scarcity is not a problem or (as the data show) we face a world of weak productivity growth, so that we could face some problems of scarcity. Given the high average pay in the profession, it would be reasonable to think there could be some consensus or at least some clear thinking on the implications of each position.

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In the years before the Affordable Care Act (ACA) the uninsured population peaked at just over 50 million people. It fell sharply when the main provisions of the ACA took effect, falling to less than 28 million in recent quarters. However, in its effort to make America great again, the Republicans expect to raise the number of uninsured back above 50 million. Serious analysis of their plan shows that they have a good shot at meeting this goal.

While the Republicans are in principle keeping some of the provisions of the ACA that were responsible for lowering the number of uninsured, this effect will be temporary. In most cases, the situation for most people not covered by their employers will be the same or worse than before the ACA took effect.

For example, the plan leaves in place the expansion of Medicaid through 2020. This should be long enough so that most currently serving Republican governors will not have to deal with the effect of the elimination of this provision. After 2020 people benefiting from the expansion will be allowed to remain on Medicaid, but new people will not be added. Since people tend to shift on and off Medicaid (something rarely understood by reporters who cover the ACA), after two or three years the vast majority of the people who benefited from the expansion will no longer be getting Medicaid. By 2025, the impact of the expansion on the number of the uninsured will be trivial.

The plan also allows insurers to charge people with pre-existing conditions higher rates, if they allow their insurance to lapse. While the provision allowing people to avoid being penalized for pre-existing conditions, if they maintain continuous coverage, may appear to provide protection, in reality this is not likely to be the case. Before the ACA workers were allowed to keep employer based coverage for a substantial period of time after they left their employer under COBRA. The take up rate under this law was always low, primarily because most workers could not afford to keep their coverage once they left their jobs. This is likely to be the case when the Republican plan takes effect as well.

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In an article on the main features of the Republican replacement for Obamacare, the Post told readers:

"At the same time, the shift to take income into account could create a potentially difficult ripple effect for Republicans, who regard a reduction in the federal government’s role in health care as a central reason to abandon the sprawling 2010 health care law (emphasis added)."

This comment is in reference to the decision to phase out the heath care tax credit for couples with incomes over $150,000.

While it is possible that the opposition to this phase out is due to Republicans who somehow see this as excessive federal government involvement in health care, it could also be due to the fact that Republicans just want to give more money to rich people. Fortunately, the Post's mind reading reporters can tell us the true motive.

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Robert Samuelson devoted his column this week to the issue of government regulation. He refers to an estimate from the industry-funded Competitive Enterprise Institute that "the costs of complying with federal rules and regulations totaled nearly $1.9 trillion in 2015, equal to about half the federal budget ($3.7 trillion in 2015)." It is important to understand the nature of this estimate.

Suppose that I have been in the habit of dumping my sewage on my neighbor's lawn. Now imagine the government puts in place a regulation prohibiting me from doing this so that I have to install a sewage system to dispose of my sewage in a more proper manner. The Competitive Enterprise Institute estimate would count the cost of my sewage system as a cost of regulation.

This is of course not a cost to the economy, it is just a situation where they forced me to stop imposing costs on my neighbors. This is how one can get a figure like $1.9 trillion a year as the cost of regulation.

Anyone seriously looking at regulations would want to know their net cost. Many regulations, such as bans on smoking, which have led to huge reductions in incidents of cancer, bans on leaded gas, which led to large reductions in crime in addition to the direct health benefits, and the 1990 Clean Air Act, have had enormous economic benefits. Honest people would be sure to mention this fact in discussing the impact of regulation.

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In recognition of the wrongs done by slavery, but not subsequent legal and actual discrimination, NYT columnist Ross Douthat proposes making a one time payment of $10,000 to every person who trace their ancestry to someone who was enslaved. This payment would be in exchange for ending affirmative action in education, employment, or any other area. The idea seems to be that after the descendants of slaves get their check, we're all good.

For anyone interested on how this measures up in the scheme of things, currently the median income for a white household is $71,300. The median income for an black household is $43,300. Since this is for an adjusted household of three people, Douthat's $10,000 per person payment will put the median black household slightly above the median income for white households, in the year they get it.

In subsequent years, they will get nothing to offset the discrimination they experience in schools, hiring, getting mortgages, and even selling baseball cards on eBay. Apparently, Douthat thinks that his one time payment of $10K (only to those with direct ancestors who were enslaved) would make things right. My guess is that this deal wouldn't look too good to people who are better at arithmetic than Mr. Douthat.

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Donald Trump's business empire appears to be an infinite cesspool of corruption, with his unethical practices continuing into his presidency. Given such a target rich environment for real news stories, it is difficult to see why the NYT would devote space and resources to pursuing a major non-story. The paper apparently thinks that it is some sort of scandal that Trump accepted energy efficiency tax credits for some of his buildings, since he opposes the tax credits and is committed to eliminating them.

Sorry, that makes zero sense. People take advantage all the time of provisions in the tax code they think are wrong. Why shouldn't they?

Warren Buffett has famously complained that it is ridiculous that he can pay a lower tax rate than his secretary, based on the fact that most of his income is taxed at the 20 percent capital gains rate rather than the 25 percent marginal tax rate on ordinary income that his secretary is presumably paying. In spite of making this complaint, Mr. Buffett still opts to take advantage of the lower rate on capital gains.

Like many other economists, I think the mortgage interest deduction in its current form is terrible policy. Nonetheless, we all (or the homeowners among us) use the mortgage interest deduction on our taxes. 

It's difficult to see any hypocrisy in following the rules as written, even if one thinks the rules should be changed. This is just a lazy piece on the NYT's part, it should be spending its time reporting real scandals. There is no shortage in this category in the Trump administration.

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The Washington Post must think that U.S. trade policy is really awful. Why else would they continually lie to their readers and claim that the cause of the sharp job loss in manufacturing in recent years was automation?

For fans of data rather than myths, the basic story is that manufacturing has been declining as a share of total employment since 1970. However there was relatively little change in the number of jobs until the trade deficit exploded in the last decade. Here's the graph.

Manufacturing Employment

manu emplSource: Bureau of Labor Statistics.

And, there was no great uptick in productivity coinciding with the plunge in employment at the start of the last decade. It would be nice if the Washington Post could discuss trade honestly. This sort of reporting gives fuel to the Donald Trumps of the world.

In this context, it is probably worth once again mentioning that the Washington Post still refuses to correct its pro-NAFTA editorial in which it made the absurd claim that Mexico's GDP quadrupled from 1987 to 2007. The actual figure was 83 percent, according to the International Monetary Fund.

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Tony Blair, the former Prime Minister of the United Kingdom, who is best known for lying his country into participating in the Iraq War, lectured NYT readers on the evils of populism. Once again he gets many key points wrong.

He criticizes the left for abandoning centrist politicians:

"One element has aligned with the right in revolt against globalization, but with business taking the place of migrants as the chief evil. They agree with the right-wing populists about elites, though for the left the elites are the wealthy, while for the right they’re the liberals."

Blair then tells us:

"The center needs to develop a new policy agenda that shows people they will get support to help them through the change that’s happening around them. At the heart of this has to be an alliance between those driving the technological revolution, in Silicon Valley and elsewhere, and those responsible for public policy in government. At present, there is a chasm of understanding between the two. There will inevitably continue to be a negative impact on jobs from artificial intelligence and big data, but the opportunities to change lives for the better through technology are enormous.

"Any new agenda has to focus on these opportunities for radical change in the way that government and services like health care serve people. This must include how we educate, skill and equip our work forces for the future; how we reform tax and welfare systems to encourage more fair distribution of wealth; and how we replenish our nations’ infrastructures and invest in the communities most harmed by trade and technology."

Blair obviously is unfamilair with the basic facts about the economy. For example, even workers with college degree have seen almost no growth in real wages in this century. And with a large dispersion of earnings among male college grads, the bottom quartile of grads don't really see any premium at all.

But more importantly, Blair is wrong when he treats globalization and technology as natural forces. The decision to put our manufacturing workers in direct competition with low paid workers in the developing world, while leaving doctors, dentists and other highly paid professionals largely protected, is a policy choice. It's predicted and actual effect is to put downward pressure on the wages of most of the workforce, while benefitting the small elite in the protected occupations.

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