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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That's the gist of Anne Applebaum's Washington Post column today. In a discussion of the upcoming election in the United Kingdom, she refers to the political stances of the Labor Party, the Conservative Party, and the Scottish National Party:

"Curiously, the three parties do have one thing in common: They all claim to be fighting for “the people” against an unnamed and ill-defined “elite.” They all offer their followers a new sort of identity: Voters can now define themselves as “Brexiteers,” as class warriors or as Scots, opposing themselves against enemies in (take your pick) journalism/academia/the judiciary/London/abroad/financial markets/England. If you were wondering whether “populism” was nothing more than a political strategy, easily tailored to elect any party of any ideology, you have your answer. Left-wing radicals, right-wing radicals and Scottish radicals all share a style, if not an agenda."

So there you have it. We can't actually have a politics directed against all the money going to the rich because, everyone says they are against the elite. I guess the only thing left to do is cut programs like Social Security and disability and have the Federal Reserve Board raise interest rates to keep people from having jobs. Otherwise, you could be a populist.

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The NYT ran a Reuters article which reported on the German government's response to I.M.F. complaints about its trade surplus. The essence of the response was the German government lacked the competence to reduce its trade surplus, which is currently more than 8.0 percent of GDP ($1.6 trillion in the U.S.). The German trade surplus is of course a deficit for other countries, which are seeing a loss of output and employment as a result.

Because Germany is in the euro, the most important tool for addressing an excessive trade surplus, a rise in the value of the currency, is not available as an option. A higher valued euro would hurt the competitive position of other countries in the euro, like Greece, Portugal, and Spain, that are struggling with slow growth and high unemployment. Of course, a change in the value of the euro does not affect Germany's position at all relative to its main trading partners within the euro.

The mechanism for an adjustment in this case would be for Germany to increase demand and to try to raise its domestic inflation rate. The best way to increase its budget deficit. Unfortunately, instead of running large budget deficits, Germany is running a budget surplus of 0.6 percent of GDP ($115 billion annually in the United States).

If Germany continues to run large trade surplus, then heavily indebted countries like Greece will inevitably need further debt relief. In effect, this means that Germany will have given away its exports in prior years. If Germany were prepared to run more expansionary fiscal policy and allow its inflation rate to rise somewhat then it could have more balanced trade, meaning that it would be getting something in exchange for its exports.

However, Germany's political leaders would apparently prefer to give things away to its trading partners in order to feel virtuous about balanced budgets and low inflation. The price for this "virtue" in much of the rest of the euro zone is slow growth, stagnating wages, and mass unemployment.

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A New York Times article on the newest growth forecasts from the International Monetary Fund (I.M.F.) described the I.M.F. as "the most ardent defender of traditional free-trade policies." This is not accurate. 

The I.M.F. has been fine with ever stronger and longer patent and copyright protections. These government imposed monopolies raise the price of protected items by factors or ten or even a hundred above the free market price, making them equivalent to tariffs of hundreds or thousands of percent. These protections both have negative economic impacts, as would be predicted from any tariff of this size, and also are major factors in the upward redistribution of income that we have seen in most countries in recent decades.

The impact of these monopolies is most dramatic in prescription drugs. In the United States, we will spend more than $440 billion this year on drugs that would likely cost less than $80 billion in a free market. This gap of $360 billion is almost 2.0 percent of GDP. It is roughly five times what we spend on food stamps each year. It is more than 20 percent of the wage income of the bottom half of the workforce.

In addition, the huge gap between the protected price and the free market price leads to the sort of corruption that economists predict from tariff protection. It is standard practice for drug companies to promote their drugs for uses where they may not be appropriate. They also often conceal evidence that their drugs are not as safe or effective as claimed.

The cumulative cost of these protections in other areas is likely comparable. Anyone who supports these government granted monopolies cannot accurately be described as a proponent of free trade.

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Paul Krugman used his column this morning to ask why we don't pay as much attention to the loss of jobs in retail as we do to jobs lost in mining and manufacturing. His answer is that in large part the latter jobs tend to be more white and male than the latter. While this is true, although African Americans have historically been over-represented in manufacturing, there is another simpler explanation: retail jobs tend to not be very good jobs.

The basic story is that jobs in mining and manufacturing tend to offer higher pay and are far more likely to come with health care and pension benefits than retail jobs. A worker who loses a job in these sectors is unlikely to find a comparable job elsewhere. In retail, the odds are that a person who loses a job will be able to find one with similar pay and benefits.

A quick look at average weekly wages can make this point. In mining the average weekly wage is $1,450, in manufacturing it is $1,070, by comparison in retail it is just $555. It is worth mentioning that much of this difference is in hours worked, not the hourly pay. There is nothing wrong with working shorter workweeks (in fact, I think it is a very good idea), but for those who need a 40 hour plus workweek to make ends meet, a 30-hour a week job will not fit the bill.

This difference in job quality is apparent in the difference in separation rates by industry. (This is the percentage of workers who lose or leave their job every month.) It was 2.4 percent for the most recent month in manufacturing. By comparison, it was 4.7 percent in retail, almost twice as high. (It was 5.2 percent in mining and logging. My guess is that this is driven by logging, but I will leave that one for folks who know the industry better.)

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In fact, it wasn't even $800 billion, but the Washington Post has never been very good with numbers. The issue came up in a column by Paul Kane telling Republicans that they don't have to just focus on really big items. The second paragraph refers to the Democrat's big agenda after President Obama took office:

"Everyone knows the big agenda they pursued — an $800 billion economic stimulus, a sweeping health-care law and an overhaul of Wall Street regulations."

The stimulus was actually closer to $700 billion since around $70 billion of the "stimulus" involved extensions of tax breaks that would have been extended in almost any circumstances. This was actually a very small response to the collapse of a housing bubble that cost the economy close to $1,200 billion dollars in annual demand (6–7 percent of GDP).

The Obama administration tried to counteract this huge loss of demand with a stimulus that was roughly 2 percent of GDP for two years and then trailed off to almost nothing. This was way too small, as some of us argued at the time.

The country has paid an enormous price for this inadequate stimulus with the economy now more than 10 percent below the level that had been projected by the Congressional Budget Office for 2017 before the crash. This gap is close to $2 trillion a year or $6,000 for every person in the country. This is known as the "austerity tax," the cost the country pays because folks like Peter Peterson and the Washington Post (in both the opinion and news sections) endlessly yelled about debt and deficits at a time when they clearly were not a problem.

It is also worth noting that the overhaul of Wall Street was not especially ambitious. It left the big banks largely intact and did not involve prosecuting any Wall Street executives for crimes they may have committed during the bubble years, such as knowingly passing on fraudulent mortgages in mortgage backed securities.



Typos corrected, thanks for Robert Salzberg and Boris Soroker.

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I know Donald Trump is lots of fun and everything, but people should be paying at least a little attention to inflation, or the lack thereof. Remember, last time we tuned in the Federal Reserve Board was embarked on a process of tightening through a sequence of interest rates hikes. The concern expressed by proponents of higher rates was that the economy was too strong and that inflation would soon be rising above its 2.0 percent target. (Actually, the target is supposed to be an average, which means at the peak of a recovery the inflation rate should be somewhat higher than 2.0 percent.)

The March data seems to undermine this concern. While monthly data are erratic, it was striking because both the overall and core rate were negative in the month. The core CPI dropped by 0.1 percent in March, its first decline in more than seven years.

Furthermore, even the modest inflation shown by the core index is largely due to rents. While higher rents do affect people's cost of living, the Fed is not going to slow rental inflation by raising interest rates. In fact, by slowing construction, the near-term impact of higher interest rates could be to increase inflation in rents.

Over the last year, a core CPI that excludes rent has risen by just 1.0 percent.

Year over Year Change in Core CPI, Excluding Housing

CPI core housing

Source: Bureau of Labor Statistics.

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The Trump administration announced that would end the Obama administration's practice of revealing the list of people who visit the White House. This list was useful in letting the public know who President Trump was making deals with.

The administration claimed this move was taken as a security measure and also to save the country $70,000 over the next four years. Since the government is projected to spend roughly $16 trillion over the next four years, the savings will be equal to 0.00000004 percent of projected spending. Alternatively, it will save each person in the country 0.007 cents annually over the next four years. 

Another comparison that might be useful is that it costs taxpayers more than $3 million in additional security costs every time that President Trump goes to Mar-a-Lago for the weekend. This means that Trump is saving us an amount equal to 2 percent of the cost of one of his weekend trips by keeping the records of his meetings secret.

Book3 22059 image001

Source: See text.

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Washington Post economics reporter Max Ehrenfreund featured a piece highlighting former Donald Trump adviser Steven Moore's views of Trump's recent shifts on economic policy. In particular, Moore took issue with Trump's desire to see the value of the dollar fall. He argued that the dollar rose with strong economies under President Reagan and Clinton, while it was weak under Nixon, Ford, and Carter.

Actually, it is not especially accurate to claim the dollar rose under President Reagan. Using the Federal Reserve Board's broad real index, it was trivially higher in January of 1989 than it was when Reagan took office in January of 1981 (91.3 in 1989 compared to 89.7 in 1981). The comparison goes the other way if we use December of 1988 (89.8) and December of 1989 (90.6), the last full month of Carter and Reagan's terms.

As a practical matter, the run-up in the dollar in the first part of the Reagan administration led to a large trade deficit, causing serious hardship in manufacturing sectors. In response, Reagan's Treasury secretary negotiated an orderly decline in the value of the dollar to bring down the deficit, which it did.

Also, if we are using the value of the dollar as a measure of the strength of the economy under different presidents, we find that it was virtually unchanged through President George H.W. Bush's presidency and Clinton's first term. The former was a period of weak growth, while the latter was a period of strong growth.

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The business media routinely feature stories about employers' difficulty in getting qualified workers. These pieces often leave economists scratching their heads, since the usual way to get better workers is to offer higher pay. And, the workers are almost invariably out there, most likely working for a competitor.

This means that if there were really shortages of workers with specific skills then we should see pay for workers with these skills rising rapidly. Since there is no major segment of the labor market where we see rapidly rising real wages, it is difficult to take the story of a skills shortage seriously.

This naturally brings us to ask questions about United Airlines and CEO pay because it is always interesting to ask what justifies the high pay at the top. Ostensibly, CEOs have compensation packages that run into the tens of millions a year because that is what you have to pay to attract and keep these extraordinarily talented individuals.

United's CEO, Oscar Munoz, is targeted to receive pay of $14 million this year, with a potential $500,000 bonus depending on customer satisfaction surveys. So we should assume that United has to pay this sort of money (roughly the pay of 1000 minimum wage workers) in order to attract a person with Mr. Munoz's skills.

While it would take more work than I am going to do just now to evaluate Mr. Munoz's overall performance for the company's shareholders (I'm ignoring the issue of the sort of corporate citizen United might be to its workers, customers, and the environment), his performance surrounding the forcible removal of Dr. David Dao from a United plane earlier this week hardly seems worth $14 million a year.

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I don't generally comment on pieces that reference me, but Jordan Weissman has given me such a beautiful teachable moment that I can't resist. Weissman wrote about Donald Trump's reversal on his campaign pledge to declare China a currency manipulator. Weissman assures us that Trump was completely wrong in his campaign rhetoric and that China does not in fact try to depress the value of its currency.

"It's pretty hard to argue with that. Far from devaluing its currency, China has actually spent more than $1 trillion of its vaunted foreign reserves over the past couple of years trying to prop up the value of the yuan as investors have funneled money overseas. There are some on the left, like economist Dean Baker, who will argue that Beijing is still effectively suppressing the redback's value by refusing to unwind its dollar reserves more quickly. But if China were really keeping its currency severely underpriced, you'd expect it to still have a big current account surplus, reminiscent of 10 years ago, which it doesn't anymore."

Okay, to start with, I hate the word "manipulation" in this context. China isn't doing anything in the dark of the night that we are trying to catch them at. The country pretty explicitly manages the value of its currency against the dollar, that is why it holds more than $3 trillion in reserves. So let's just use the word "manage," in reference to its currency. It is more neutral and more accurate.

It also allows us to get away from the idea that China is somehow a villain and that we here in the good old U.S. of A are the victims. There are plenty of large US corporations that hugely benefit from having an under-valued Chinese currency. For example, Walmart has developed a low-cost supply chain that depends largely on goods manufactured in China. It is not anxious for the price of the items it imports to rise by 15–30 percent because of a rise in the value of the yuan against the dollar.

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It is remarkable how the protectionist measures that redistribute income upward remain largely invisible to the folks who write about things like the upward redistribution of income. Thomas Edsall gave us a priceless example of this sort of oversight in a column talking about how non-metropolitan areas are losing out to major cities. 

The gem apperars in a quote from Andrew McAfee, the co-author The Second Machine Age. McAfee is warning about the course of future technology.

"We’ll continue to see the middle class hollowed out and will see growth at the low and high ends. Really good executives, entrepreneurs, investors, and novelists — they will all reap rewards. Yo-Yo Ma won’t be replaced by a robot anytime soon, but financially, I wouldn’t want to be the world’s 100th-best cellist."

Okay, let's get out the scorecards. People have always been prepared to pay lots of money to see top notch musicians. They also have been willing to pay to see very good, but less than the very best musicians, as in the world's 100th-best cellist. What has changed is not the willingness for people to pay for live performances, or at least not in any obvious way, but rather the ability of a small group of performers to completely dominate the market in recorded music.

This is not a function of technology, but rather a result of copyright protection. The government has made copyright protection both longer (extending it from 55 years to 95 years) and stronger. It has extended copyright protection to the web and also made everyone with a website into a copyright cop, with responsibility to make sure that copyright protected material is not distributed through their site. (The law makes a website liable if material is not removed after being notified by the copyright holder, thereby requiring the website owner to side with the copyright holder against its client. By contrast, in Canada, a website owner must notify the person who is alleged to have posted infringing material of the complaint.)

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The Washington Post and other major news outlets are strong supporters of the trade policy pursued by administrations of both political parties. They routinely allow their position on this issue to spill over into their news reporting, touting the policy as "free trade." We got yet another example of this in the Washington Post today.

Of course the policy is very far from free trade. We have largely left in place the protectionist barriers that keep doctors and dentists from other countries from competing with our own doctors. (Doctors have to complete a U.S. residency program before they can practice in the United States and dentists must graduate from a U.S. dental school. The lone exception is for Canadian doctors and dentists, although even here we have left unnecessary barriers in place.)

As a result of this protectionism, average pay for doctors is over $250,000 a year and more than $200,000 a year for dentists, putting the vast majority of both groups in the top 2.0 percent of wage earners. Their pay is roughly twice the average received by their counterparts in other wealthy countries, adding close to $100 billion a year ($700 per family per year) to our medical bill.

While trade negotiators may feel this protectionism is justified, since these professionals lack the skills to compete in the global economy, it is nonetheless protectionism, not free trade.

We also have actively been pushing for longer and stronger patent and copyright protections. While these protections, like all forms of protectionism, serve a purpose, they are 180 degrees at odds with free trade. And, they are very costly. Patent protection in prescription drugs will lead to us pay more than $440 billion this year for drugs that would likely sell for less than $80 billion in a free market. The difference of $360 billion comes to almost $3,000 a year for every family in the country.

It is also worth noting patent protection results in exactly the sort of corruption that would be expected from a huge government imposed tariff. (When patents raise the price of a drug by a factor of 100 or more, as is often the case, it is equivalent to a tariff of 10,000 percent.) The result is that pharmaceutical companies often make payoffs to doctors to promote their drugs or conceal evidence that their drugs are less effective than claimed or even harmful.

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The Federal Reserve Board has more direct control over the economy than any other institution in the country. When it decides to raise interest rates to slow the economy, it can ensure that millions of workers don't get jobs and prevent tens of millions more from getting the bargaining power they need to gain wage increases. For this reason, it is very important who is making the calls on interest rates and who they are listening to.

Robert Rubin, who served as Treasury secretary in the Clinton administration, weighed in today in the NYT to argue for the status quo. There are a few important background points on Rubin that are worth mentioning before getting into the substance.

First. Robert Rubin was a main architect of the high dollar policy that led to the explosion of the trade deficit in the last decade. This led to the loss of millions of manufacturing jobs and decimating communities across the Midwest. Second, Rubin was a major advocate of financial deregulation during his years in the Clinton administration. Finally, Rubin was a direct beneficiary of deregulation, since he left the administration to take a top job at Citigroup. He made over $100 million in this position before he resigned in the financial crisis when bad loans had essentially put Citigroup into bankruptcy. (It was saved by government bailouts.)

Rubin touts the current apolitical nature of the Fed.  He warns about:

"Efforts to denigrate the integrity of the Fed’s work, and to inject groundless opinion, politics and ideology, must be rejected by the board — and that means governors and other members of the Federal Open Market Committee must be willing to withstand aggressive attacks."

It is important to recognize that the Fed is currently dominated by people with close ties to the financial industry. The Fed Open Market Committee (FOMC) which determines interest rate policy has 19 members. While 7 are governors appointed by the president and approved by Congress (only 4 of the governor seats are currently filled), 12 are presidents of the district banks. These bank presidents are appointed through a process dominated by the banks in the district. (Only 5 of the 12 presidents have a vote at any one time, but all 12 participate in discussions.)

It seems bizarre to describe this process as apolitical or imply there is great integrity here. Rubin's claim is particularly ironic in light of the fact that one of the bank presidents was just forced to resign after admitting to leaking confidential information on interest rate policy to a financial analyst.

There is good reason for the public to be unhappy about the Fed's excessive concern over inflation over the last four decades and inadequate attention to unemployment. This arguably reflects the interests of the financial industry, which often stands to lose from higher inflation and have little interest in the level of employment. It is understandable that someone who has made his fortune in the financial industry would want to protect the status quo with the Fed, but there is little reason for the rest of us to take him seriously.

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It is unfortunate that Donald Trump seems closer to the mark on China and trade than many economists and people who write on economic issues for major news outlets. Today, Eduardo Porter gets things partly right in his column telling readers "Trump isn't wrong on China currency manipulation just late." The thrust of the piece is that China did in fact deliberately prop up the dollar against its currency, thereby causing the U.S. trade deficit to explode. However, he argues this is all history now and that China's currency is properly valued.

Let's start with the first part of the story. It's hardly a secret that China bought trillions of dollars of foreign exchange in the last decade. The predicted and actual effect of this action was to raise the value of the dollar against the yuan. The result is that the price of U.S. exports were inflated for people living in China and the price of imports from China were held down.

Porter then asks why the Bush administration didn't do anything when this trade deficit was exploding in the years 2002–2007. We get the answer from Eswar Prasad, a former I.M.F. official who headed their oversight of China:

"'There were other dimensions of China’s economic policies that were seen as more important to U.S. economic and business interests,' Eswar Prasad, who headed the China desk at the International Monetary Fund and is now a professor at Cornell, told me. These included 'greater market access, better intellectual property rights protection, easier access to investment opportunities, etc.'"

Okay, step back and absorb this one. Mr. Prasad is saying that millions of manufacturing workers in the Midwest lost their jobs and saw their communities decimated because the Bush administration wanted to press China to enforce Pfizer's patents on drugs, Microsoft's copyrights on Windows, and to secure better access to China's financial markets for Goldman Sachs.

This is not a new story, in fact I say it all the time. But it's nice to have the story confirmed by the person who occupied the I.M.F.'s China desk at the time.

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The Washington Post editorial page is of course famous for absurdly claiming that Mexico's GDP had quadrupled between 1987 and 2007 in an editorial defending NAFTA. (According to the I.M.F, Mexico's GDP increased by 83 percent over this period.) Incredibly, the paper still has not corrected this egregious error in its online version.

This is why it is difficult to share the concern of Fred Hiatt, the editorial page editor, that we will see increasingly dishonest public debates. Hiatt and his team at the editorial page have no qualms at all about making up nonsense when pushing their positions. While I'm a big fan of facts and data in public debate, the Post's editorial page editor is about the last person in the world who should be complaining about dishonest arguments.

Just to pick a trivial point in this piece, Hiatt wants us to be concerned about automation displacing workers. As fans of data know, automation is actually advancing at a record slow pace, with productivity growth averaging just 1.0 percent over the last decade. (This compares to 3.0 percent in the 1947 to 1973 Golden Age and the pick-up from 1995 to 2005.) 

If Hiatt is predicting an imminent pick-up, as do some techno-optimists, then he was being dishonest in citing projections from the Congressional Budget Office showing larger budget deficits. If productivity picks up, so will growth and tax revenue, making the budget picture much brighter than what CBO is projecting.

It is also striking to see Hiatt warning about automation, the day after the Post editorial page complained that too many people have stopped working because of an overly generous disability program. That piece told readers:

" a time of declining workforce participation, especially among so-called prime-age males (those between 25 and 54 years old), the nation’s long-term economic potential depends on making sure work pays for all those willing to work. And from that point of view, the Social Security disability program needs reform."

Okay, so yesterday we had too few workers and today we have too many because of automation. These arguments are complete opposites. The one unifying theme is that the Post is worried that we are being too generous to the poor and middle class.

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The Republicans have been working hard to find a way to repeal the Affordable Care Act (ACA) that doesn't leave most of their members of Congress unemployed. The basic problem is that their campaign against the ACA for the last seven years was a complete lie. They claimed that people were paying too much money for policies that were inadequate, leading people to believe that they had a way to provide better coverage for less money. They don't.

Unfortunately, NPR might have led listeners to believe otherwise in an interview with Mike Johnson, a Republican representative from Louisiana. Johnson explained that they would get premiums down by allowing insurers to exclude people with health conditions from their pool. This is more or less the situation we had before the ACA.

Most people are healthy and have few medical bills. Insurers are very happy to insure these people, since they essentially are just sending the companies money. The problem has always been the the roughly 10 percent of the population with substantial medical bills. Insurers don't want to insure these people, since their health care costs serious money. Of course, these are the people who most need insurance.

Johnson acknowledged that these people will face higher premiums under his plan, but then said that they had set aside $15 billion in their bill for subsidies for these people. Was this information helpful to you?

It didn't do much for me, since he didn't even tell us the time frame for this $15 billion. Budget numbers are often expressed over ten year periods reflecting the Congressional Budget Office's 10-year planning horizon. Was this a ten year number or a one year number? My guess is the former, but I really don't know. Hey, so we're off by a factor of ten, what's the big deal?

But it gets worse. What's the need here? Anyone know how far $15 billion will go over either a one year or ten year horizon?

To fill in the perspective a serious reporter would have given, the average annual health care costs for the 10 percent most costly patients is more than $50,000 a year. We're talking about 32 million people, so that comes to more than $1.5 trillion a year.

Many of these people are on Medicare, and some are covered by employer provided insurance, so many will not end up in these high risk pools and need subsidies. But, let's say that one third of them do end up in these pools. That means the cost would be $500 billion a year for these folks' health care. Mr. Johnson is proposing a subsidy of between $1.5 billion and $15 billion to help these people cover their insurance.

Got the picture now?

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At a time of unprecedented inequality, the Washington Post is quick to seize on the country's real problems: a Social Security disability program that is too generous. The editorial was good enough not to get bogged down in phony arguments. It tells readers explicitly that rampant fraud is not a problem:

"Nor is the program’s growth the result of rampant fraud, as sometimes alleged; structural factors such as population aging explain much recent growth. Nevertheless, at a time of declining workforce participation, especially among so-called prime-age males (those between 25 and 54 years old), the nation’s long-term economic potential depends on making sure work pays for all those willing to work. And from that point of view, the Social Security disability program needs reform."

So the problem is that the program is too generous for people who might still be able to work in spite of a disability.

Just to get some orientation, the benefit that the Post considers to be too generous averages $1,170 a month. This was roughly six minutes of pay for our current Secretary of State, in his former job as the head of Exxon-Mobil.

The concern about the low employment rates (EPOP) in the United States is reasonable, but it bears no obvious relationship to the Social Security disability insurance program. The EPOP for prime-age workers (ages 25–54) has fallen by almost four percentage points since 2000, with no increase in the generosity of the disability program. In fact, if we combine the number of workers receiving disability and workers compensation, there has been little change in the share of the working-age population receiving benefits over this period.

In fact, the United States ranks near the bottom of OECD countries in the generosity of its benefits, yet it also ranks near the bottom in the employment rate for prime-age workers. In its most recent data, the OECD put the EPOP for prime-age workers in the United States at 78.2 percent. This compares 83.3 percent for the Netherlands, 84.2 percent for Germany, and 86.0 percent for Sweden, all countries that spend considerably more money on disability benefits than the United States.

The most obvious way to increase employment for prime-age workers is to deal with the demand side of the story. For example, it might be a good idea if the Fed stopped trying to slow the economy by raising interest rates. It would also be good if the pay of ordinary workers were increased by measures that reduce the pay of those at the top. Free trade in prescription drugs and free trade for doctors are near the top of my list. (Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer gives more of the story. [It's free].) We can also follow the path of other countries and have more work supports, like access to low cost quality child care.

But in Donald Trump's America, the priority is to take away as much as possible from those at the middle and bottom so the rich can have more. And the Washington Post is determined to do its part.


Addendum: Where are the Robots?

I forgot to ask this important question. Just last week the Post ran a column that had us terrified that the robots were going to take all the jobs. Now they want us to worry that we don't have enough workers because they are all living on their $1170 a month disability benefit. In economics this is known as the "which way is up problem?" Ostensibly intelligent people don't have the slightest clue what they are talking about when it comes to the economy.


Correction: An earlier version put the monthly benefit at one hour of pay for Secretary of State Rex Tillerson. That would imply annual pay in the range of $2 million a year. In fact, his pay came to more than $20 million a year.

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Justin Wolfers had a piece in the NYT today warning that we face a situation in which the Fed may often find itself facing the zero lower bound, where it is unable to stimulate the economy further by lowering the short-term federal funds rate that is directly under its control. Wolfers notes that this can mean that growth ends up being slower and unemployment higher than would otherwise be the case. He argues that it should be possible to counteract this weakness with more aggressive use of countercyclical fiscal policy, which means increasing government spending during downturns.

While Wolfers' argument for the merits of countercyclical fiscal policy is reasonable, it is worth stepping back and asking about the origins of secular stagnation. The basic story is that we are looking at an economy in which investment spending is weak, partly due to low labor force growth, and consumption spending is also weak, in part due to the upward redistribution of income. (Rich people spend a smaller share of the their income than the middle class and poor.)

However, an important part of the demand story is net exports. Back in the old days, economists used to argue that rich countries should run trade surpluses. The idea is that capital is relatively abundant in rich countries, while it is relatively scarce in developing countries. This meant that capital would get a higher return in developing countries than in rich countries, so that we should expect rich nations to be net lenders of capital to developing countries. This lending would facilitate their growth.

The implication of being net lenders is that rich countries would run trade surpluses with developing countries. This would allow them to feed and house their populations, even as they built up their infrastructure and capital stock.

As it turns out, the world economy has not followed this course. While the rich countries as a whole (not the United States) were big net lenders in the 1990s, after the East Asian financial crisis in 1997, the flows switched course. Developing countries became big net lenders, as they began to run large trade surpluses especially with the United States. (The harsh terms of the I.M.F. bailout, engineered by Larry Summers, Robert Rubin, and Alan Greenspan, deserves the blame here.) 

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There was probably too much made out of the slowing in payroll employment growth in the March jobs numbers reported yesterday. This was likely driven in large part by the unusually good weather in January and February that brought a lot of spring hiring forward. However, there were a couple of items that did not get the attention they deserve.

First, there is some limited evidence that wage growth is slowing. Typically, the year-over-year change in the average hourly wage is reported. While the growth in this measure slowed slightly last month, a problem with the year-over-year rate is that it reflects wage growth over the last year, not just recent months. I prefer taking the annualized rate of growth for the average of the last three months compared with the average of the prior three months. This measure can be sensitive to erratic month-to-month changes, but at least it focuses on a more recent period, rather than telling us about the wage growth from nine or ten months ago.

Here's the picture using this series since the start of 2013.

Book2 14286 image001

Source: Bureau of Labor Statistics.

As the figure shows, there was some very modest increase in the rate of wage growth in early 2016, with a peak of 3.1 percent in May of 2016. Since then, the general direction has been downward, with the rate over the last three months being less than 2.5 percent. This matters hugely for the Fed's interest rate policy, since a main issue for those looking to raise rates is that inflation could start rising above target levels. That seems unlikely if the rate of wage growth is stable or slowing.

In this respect it is also worth noting that the Employment Cost Index (ECI), a broader measure of compensation that includes non-wage benefits like health care, shows zero evidence of acceleration over this period. Over the last twelve months the ECI has risen 2.2 percent. That is the same rate of increase as we saw in this index three years earlier.

In short, you really can't find any evidence of accelerating wage growth in the data. The evidence of deceleration is too weak to say anything conclusive, but if anything, wage growth is going in the wrong direction to make the case for the inflation hawks.

The other item that deserved more attention in the jobs report was the rise in the employment rate (EPOP) of prime-age workers. This rose by 0.2 percentage points to 78.5 percent. This number is 0.5 percentage points above its year-ago level, although still 1.8 percentage points below the pre-recession peak and almost 4.0 percentage points below the 2000 peak. This suggests that the EPOP could still rise much further before we can say that we have reached full employment.

There was also an interesting gender split to the rise in the EPOP. While the EPOP for prime-age women is up a full percentage point from its year, the EPOP for prime-age men is unchanged. This could begin to look like the widely hyped problem with men story, if the trend continues.

However, there are two important caveats. First, the monthly data are erratic. If we take three month averages, the year over year increase in EPOPs for men would be 0.2 percentage points and for women it would be 0.8 percentage points. This is still a substantial difference, but at least the rate for men is moving in the right direction.

The other issue is that, at least from the summary data, it does not appear to be an issue with less-educated men. Over the last year, the EPOP for people with college degrees is actually down by 0.3 percentage points in the first three months of 2017 compared to 2016. By contrast, the EPOP for people with just a high school degree is up by 0.3 percentage points. It is possible that a further analysis would show large gender differences, but it seems unlikely that the weakness in EPOPs could be concentrated among less educated men, given these numbers. This seems especially unlikely given that the retirement of baby boomers would be primarily affecting the EPOPs of people with just a high school degree.

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It will be great when the NYT and other news outlets stop feeling the need to misrepresent the promoters of the standard trade agenda as "free traders" as they did in a news article discussing Donald Trump's latest actions on trade. In fact, these people are selective protectionists. 

While they are happy to reduce barriers that might protect manufacturing workers from competition with low-paid workers in the developing world, they are fine with the protectionist barriers that maintain the high pay of doctors, dentists, and other highly paid professionals. (For example, a foreign doctor cannot practice in the United States unless they complete a U.S. residency program.)

They also support longer and stronger patent and copyright protections. These protections are equivalent to tariffs of thousands of percent on the protected items, most importantly prescription drugs.

The predicted and actual effect of this policy of selective protectionism is to redistribute income upward. Calling it "free trade" gives it a justification it does not deserve.

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There have been several news accounts in recent days of plans for the Federal Reserve Board to reduce the amount of assets on its balance sheets. It currently holds close to $4 trillion in assets as a result of the quantitative easing policies pursued to boost the economy in the years following the collapse of the housing bubble. It is now making plans to reduce these holdings.

One implication of this reduction in holdings would be a lower amount of money refunded to the Treasury each year. The Fed keeps some of the interest from these holdings to pay operating expenses and pay a dividend to its members, but the overwhelming majority is refunded back to the Treasury.

Last year, the Fed refunded $113 billion or 0.6 percent of GDP to the Treasury (Table 4-1). According to the projections from the Congressional Budget Office, this figure is projected to fall sharply to 0.2 percent of GDP in the next couple of years as the Fed reduces its holdings. Over the course of a decade, the difference in the amount rebated to the Treasury between a scenario where the Fed continues to hold $4 trillion in assets and one in which most of the assets are sold to the public would be on the order of $900 billion. 

Deficit hawks routinely get very excited over sums that are less than one tenth of this size. For this reason it seems worth mentioning the budgetary implications of the Fed's decision to offload its asset holdings. (For those keeping score, having the Fed keep the assets is equivalent to financing the debt in part by printing money, a position advocated by several prominent economists, including Ben Bernanke.)

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