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.

Please also consider supporting the blog on Patreon.

Follow on Twitter Like on Facebook Subscribe by E-mail RSS Feed

It's great that the Washington Post has so many reporters with mind reading abilities. As a result, we know that Trump is "convinced that his attendance at the G–7 summit is essential."

Good to know that Trump is convinced of this fact. Otherwise, we might just think it would be too politically embarrassing for him not to show up just after a statement from G–7 (minus the US) finance ministers condemned his trade policy.

If news outlets like the Post didn't have reporters with mind reading abilities, the rest of us would just know what politicians say and do. We wouldn't be able to learn what they actually think.

Add a comment

In her Washington Post column Megan McArdle tells readers that we are making great progress in developing cures for cancer, but then she warns these cures can be very expensive:

"But immune-based therapies are unlikely to ever be available for a few cents a dose, especially not the personalized ones. Of the immunotherapies we already have, Opdivo and Yervoy combination drug therapy can cost a quarter of a million dollars; CAR T-cell almost double that."

The part missing from this story is that the reason these cures would be expensive is because of the government-granted patent monopolies that make them expensive. Without these monopolies, these therapies almost certainly would be cheap.

We do have to pay for the research, but at the point people are receiving these therapies the research has already been done. We are trying to recover these costs from people facing a potentially fatal disease. This situation is made even more perverse from an economic perspective since most often there are third-party payers, either insurers or the government. So we will expect these people and/or their families to be spending time lobbying insurers or the government to pay for incredibly expensive treatments, which may or may not be helpful.

What a brilliant system!

The alternative is to pay for the research upfront. The government currently spends more than $30 billion a year on biomedical research through the National Institutes of Health. We could triple this amount to replace the research that is now patent-supported. It can still be done through the private sector, even by the same companies. They would just be working under long-term contracts — think of defense contractors. (See Rigged [it's free], Chapter 5, where this is discussed in more detail.)

In addition to having the benefit of all new therapies available at their free market price, which would almost always be cheap, this system would have the advantage that all the research results would be immediately available to other researchers (a requirement of funding) so that research could progress more quickly. In addition, this system would remove the incentive that patent monopolies give companies to lie about the safety and effectiveness of their drugs.

Add a comment

With the release of the Social Security and Medicare Trustees Report AP tweeted out:

"BREAKING: Government: Medicare will become insolvent in 2026, three years earlier than expected, Social Security to follow in 2034."

What AP meant to say was that the programs would first face a shortfall. The programs would still be able to afford the vast majority of scheduled benefits. In the case of Medicare, the projections show that if nothing were done the program, it would be paying out more than 90 percent of scheduled benefits.

In the case of Social Security, the program would be paying out more than 75 percent of scheduled benefits in the years after 2034, assuming no changes are ever made. In the case of Social Security, since the average inflation-adjusted benefit is projected to be roughly 20 percent higher in 2034 than it is today, the payable benefit would still be roughly the same as what retirees get today.

Of course, it would unacceptable for the program not to pay promised benefits, but it is wrong to imply that people face a prospect of not collecting Social Security 16 years down the road. There is no scenario under current law where that is possible.

Add a comment

The NYT had a piece documenting the drop in inflation-adjusted spending per student nationally and in many of the states that have been seeing strikes and protests by teachers. The analysis is very useful, but a figure at the top of the piece may have given readers a misleading impression.

The figure shows nationwide inflation-adjusted spending per pupil since 1970. It shows a steady rise until the Great Recession, then a fall with the downturn and a partial recovery in the last few years. It notes that we are not yet back to the pre-recession level of spending.

This may lead people to believe that a proper baseline is a constant real level of spending. This is not the case.

Suppose that we have one teacher for every twenty students. If we keep this ratio, and the teacher's inflation-adjusted pay rises in step with overall productivity growth, then spending per student would rise in step with overall productivity growth. In that case, we would expect to see inflation-adjusted spending per student rise in step with the economy's productivity growth, not just inflation.

The full story on spending is somewhat more complicated. Growing productivity can lead to savings in some areas of education, but insofar as a major expense is for teachers, and we don't have rising student to teacher ratios, the baseline should be that inflation-adjusted per pupil spending rises roughly in step with productivity growth, not that it stays flat.

Add a comment

Let's get this straight: Donald Trump did something unbelievably stupid when he tweeted about the jobs report last Friday morning, 69 minutes before it was public. The president gets an advance copy of the report the night before, so he and his staff know what the country will be looking at the next day. They are supposed to keep it strictly secret until after its public release. In fact, the standard practice is that they don't comment on the report until at least an hour after the release.

The reason is obvious. The news in the report often moves financial markets. If the president can share information about the report with his favored audience then Donald Trump's friends will make money at the expense of everyone else's retirement accounts. For this reason, past presidents have been very careful to keep their mouth shut about the report until after it is available to the general public.

To try to divert attention from Trump's unmitigated stupidity last Friday, the Wall Street Journal ran a column by James Freeman, the essence of which is to say "Obama did it too." In fact, the evidence in the piece doesn't show this at all. Either Freeman is completely ignorant of procedures or dishonest.

Here are the four incidents (in reverse order) where Obama supposedly did it too.

Freeman cites a Wall Street Journal editorial from 2010:

"Did President Obama contribute to last Friday’s stock market dive with a head fake to investors? Last Wednesday, in a speech at Pittsburgh’s Carnegie Mellon University, the President said, 'After losing an average of 750,000 jobs a month during the winter of last year, we’ve now added jobs for five of the last six months, and we expect to see strong job growth in Friday’s report.'

"Perhaps assuming that the President might have known something about the Department of Labor’s monthly unemployment report scheduled for two days later, investors immediately bid up US stocks. On Wednesday, the Dow gained almost 226 points."

Well, we can't know what investors might have thought Obama was telling them with this comment, but he didn't have the jobs numbers on the Wednesday before the release. Maybe if a paper like the Wall Street Journal did a better job informing readers about how these reports are put together they would have known this fact. In any case, it would have been impossible for Obama to leak information he didn't have.

Then we get this one:

"Five months later in July of 2009, according to a speech transcript from Congressional Quarterly, Mr. Obama said that 'when we receive our monthly jobs report next week, it’s likely to show that we’re still continuing to lose far too many jobs.'"

Again, Obama would not have the monthly jobs report that was to be released "next week" in his possession. His comment reflected the same public information that was available to anyone who closely follows the economy.

Next, we have the very first release of his presidency.

"As it happens Mr. Obama had been discussing the forthcoming release long before midnight. On February 5, 2009, the Associated Press reported that in remarks to employees at the Department of Energy, Mr. Obama said, 'Tomorrow, we’re expecting another dismal jobs report on top of the 2.6 million jobs that we lost last year. We’ve lost 500,000 jobs each month for the last two months.'"

Since the president doesn't get the report until the late afternoon or evening, unless he was keeping Energy Department employees for a late Thursday night talk, he again was speaking based on publicly available information. (For what it's worth, I remember that time well. Everyone expected another dismal jobs number.)

Add a comment

Charles Calomiris argued in an NYT column this morning that the Volcker rule needs to be fixed. The argument centers on the idea that it has raised the cost of trading and thereby discouraged arbitrage trades.

He cites the specific example of a breakdown in the relationship between currency spot and future prices and interest rate differentials. This means, in principle, that there are sure profit-making opportunities in the market that are going untaken.

While we are supposed to see this as a really bad thing, the question is why? The logic, of course, is that if an arbitrage possibility exists, then prices in the market are not exactly right. But what does it mean if the dollar is in some sense too high or too low by a tenth or two-tenths of a percent for a few hours or even a few days?

Do we think there will be mistaken trades of real goods and services (e.g. cars or wheat) because of the imperfections in the market? Even if there were, what's the big deal if someone happened to pay 0.2 percent too much for a car or the seller got a price that was 0.2 percent less than they had expected?

There has been a tendency among economists to glorify liquidity like it is some sort of holy grail. Certainly, it is valuable for people to know they can sell a stock or bond when they want to. But if they have to wait a few minutes to complete the sale and they may be off by a fraction of a percent in terms of the price they get (in either direction), is this a real concern?

Add a comment

I was going to ignore Robert Samuelson's column this week, but then I realized he said the economy was "roaring," not "snoring." GDP growth for the second quarter was 2.2 percent. That's okay, but given our long-term average is close to 3.0 percent, that hardly fits the definition of "roaring."

We did create a lot of jobs last month, as we have for the last several years, but strong job growth in the face of mediocre GDP growth means that productivity growth is weak. That's not exactly a positive for the economy.

Add a comment

Around a decade ago, I was talking with a staffer of the Senate Commerce Committee about infrastructure. I gave a list of potential projects, including trains. He interrupted me and said that they don't talk about trains there.

I asked if I was hearing him correctly. He explained that trains were a divisive issue among committee members, so there was an informal agreement that they simply wouldn't bring them up. I wonder if there is the same situation with regards to the impact of currency values on trade at the Washington Post.

The Post had a major article reporting on how small farmers are facing serious problems in the economy today. The piece notes that low crop prices are making life very difficult for farmers. The focus is the potential for interest rate increases by the Federal Reserve Board to make their situation even worse. Since farmers are typically borrowers, if the rates they have to pay rises, many will find themselves unable to make ends meet.

It notes how high rates in the past have had a devastating impact on U.S. farms. In particular, the high interest rate policy pursued by the Fed under Paul Volcker puts hundreds of thousands of farmers out of business.

This is all very true, but there is another important dimension that is altogether missing. The value of the dollar has a very direct impact on farm prices.

There is a single world price of widely traded products like wheat and corn. If the dollar rises relative to the value of the currencies of US competitors, then the price of these products will typically fall in dollar terms. Since it doesn't cost Argentina or Russia any more to produce wheat, they will be able to sell their farm products at lower prices, measured in dollars, even as they get the same price measured in their own currency.

A big part of the story of the hardship faced by farmers in the Volcker years was that the high dollar (largely caused by high interest rates) reduced the dollar price of wheat and other major farm products. Here's the overall picture.

fredgraph3

The relationship is not perfect (many other factors affect farm prices, and the overall value of the dollar may not be the same as the value against other commodity producers), but the sharp rise in the dollar from 1980 to 1985 is associated with a large decrease in the real price of wheat. The price of wheat partially recovered in the second half of the decade as the dollar fell sharply from 1985 to 1989. The run-up in the dollar in the late 1990s and early 2000s was also associated with a decline in the price of wheat. More recently, a rise in the dollar since 2015 has been associated with a sharp drop in the real price of wheat.

World demand, the efficiency of other producers, and other factors affect the price of wheat, but it is pretty much definitional that, other things equal, a higher-valued dollar means a lower dollar price of wheat and other farm commodities. It is very strange that this fact is not mentioned in the article. 

 

Add a comment

Okay, that was not the actual Washington Post headline. Instead, the front page article was headlined "Trump thinks he's saving trade. The rest of the world thinks he's blowing it up."

Yet again we have a newspaper telling us the innermost thoughts of a politician, in this case, Donald Trump. And yet again, I will assert that the Post has no idea what Trump actually thinks. Since his family businesses seem to be gaining from concessions at least from China, it is certainly as plausible that he "thinks" a trade war is a way to make himself and his family richer as opposed to a route to establishing greater justice for the United States in the world trading system. (The print edition of this piece had the much more reasonable headline, "Trump's trade moves shake global trade system.")

Add a comment

There has been a repeated refrain in the media that Trump has been on the wrong track with China by worrying about our trade in manufactured goods. The argument is that he instead should be focused on China's alleged taking of our intellectual property.

While most news coverage assumes this concern about China's behavior makes sense, it's worth asking if that is true. Specifically, what is the downside of China taking advantage of technologies developed in the United States without paying what our companies think they should?

The basic story in this analysis is that China gets the jump on the United States in producing a variety of goods and services. In other words, we will be able to get cheaper and/or better quality products than would be the case if we could keep China from "stealing" our intellectual property. (The reason for the quotes is that the boundaries of intellectual property are not well-defined. Unlike property in land and other physical objects, it is inherently non-exclusive. By England's definition of intellectual property, the first steam mills in the United States also depended on theft.)

So if China doesn't properly compensate us for our intellectual property (according to our definitions) then we will be able to get items like solar panels and electric cars much cheaper than would otherwise be the case. With solar panels, we lose some relatively good-paying jobs in manufacturing, but we are likely to get more jobs in the installation of the panels. 

China is well ahead of the United States in the production of affordable electric cars. If they start exporting these cars to the United States should we be upset? There will be some loss of manufacturing jobs in the industry, but it's entirely possible that they would end up building most of their cars here, just as many other foreign producers have.

Obviously, Elon Musk and Tesla would be big losers, but is there any reason we should care? Rising inequality is supposedly a big problem. Getting low-cost, high-tech items from China is both a gain for workers (lower prices raise real wages) and reduces inequality. What's not to like?

Add a comment

Folks may remember that the Republicans sold their tax plan, which centered on a big cut in corporate taxes, with the promise that it will lead to a flood of investment. This would mean higher productivity growth and therefore higher wages. Well, we aren't really seeing much evidence of that increase to date, but that doesn't stop the Trump White House from making the claims anyhow.

While noting that unemployment has continued the long downward path begun during the Obama years (just kidding), the White House Council of Economic Advisers (CEA) takes full credit for the recent lows in the overall and black unemployment rates. It also touts the 9.2 percent growth in business fixed investment in the first quarter as evidence that companies are rushing to invest as a result of the tax cut.

This one doesn't work for two reasons. First, if we were going to see anything like the investment boom promised in the selling of the tax cut we should be seeing growth two or three times this rate. Second, the pace of investment growth in the first quarter is not especially strong. The figure below shows the year over year change in non-residential fixed investment since 2000.

fredgraph2

The 9.1 percent year over year growth in the first quarter of 2018 is respectable but hardly indicates any sort of boom. It is well below the growth we saw between the second quarter of 2010 and the second quarter of 2012, which averaged over 15 percent. And even much of the modest uptick that we have seen in the last year is due to oil and gas drilling. This has more to do with higher world energy prices (and the higher gas price we pay at the pump) than the Republican tax plan.

This is not the only boast in the piece that is not quite right. The CEA also takes credit for a boom in manufacturing employment, and especially employment in durable goods manufacturing.

"This uptick in current and future business investment may help explain the sharp rise in durable-goods employment that began with the President’s election but accelerated in November of last year, just before the Tax Cuts and Jobs Act passed Congress (see figure)."

There has been an uptick in durable goods manufacturing employment in the last year or so, but nothing especially out of the ordinary. Here's the picture if we look at hours worked.

Durable Goods Manufacturing: Index of Aggregate Weekly Hours (percent change, year-over-year)

durable hours

Source: Bureau of Labor Statistics.

Here also we can see a respectable uptick in hours worked, although no better than what we saw between the middle of 2013 and the end of 2014 when a plunge in world oil prices led to a falloff of employment in energy-related industries. And of course, growth is much weaker than in 2011 and most of 2012.

One item that is worth noting that is not mentioned by the CEA is a sharp decline in the index for May of this year. The index of hours worked in durable goods manufacturing fell by 0.6 percent in the month. While the monthly data are erratic, this could be a sign of weakening demand. Employers often cut back hours before they cut back workers. The job growth in manufacturing is the weakest since last September, so perhaps we are seeing a falloff of growth in the sector.

Anyhow, we'll have to see whether the pace of manufacturing job growth slows further, but it is clear we are not seeing anything like the boom promised by the promoters of the Republican tax cut.

Add a comment

In an NYT Upshot piece, Neil Irwin outlined the risks that are posed to the US and world economy if Italy were to leave the euro. While the scenarios he sketches are plausible, there are two more positive scenarios worth considering.

First, it is possible that Italy is able to arrange an orderly withdrawal from the euro. In this scenario, there would presumably be some arrangement where the debt is partially written down, or there is some grace period on payments, which would amount to the same thing. This makes it easier for Italy to get through the transition period and possibly get back on a path to healthy growth.

While this seems unlikely, it is worth noting that German Finance Minister Wolfgang Schäuble proposed such an arrangement to the Greek finance minister in the spring of 2015. It doesn't seem inconceivable that they would adopt a similar view to Italy.

The other possibility is that Germany may give up its religious dogmatism on austerity and commit itself to running more expansionary policies. If Germany's economy were to grow rapidly and to have a somewhat higher rate of inflation, its increased demand for imports could provide a substantial boost to Italy and other eurozone economies.

Of course, both of these prospects seem unlikely, but it is worth noting that there are some good outcomes that could result from a government in Italy that contemplates leaving the euro.

Add a comment

The Washington Post reported on new research indicating that racial resentment is a major factor in the political support for cuts to TANF, food stamps, and other social welfare programs. While this is undoubtedly true, it is likely that widespread ignorance about the amount of money going to these programs is also a major factor.

Polls consistently show that people hugely overestimate the amount of money that the federal government is spending on various welfare programs. People routinely answer that they think these programs take up 30–50 percent of the budget. The actual figure would be in the neighborhood 3–10 percent, depending on how Medicaid is counted. While some of this exaggeration is attributable to racial bias, where people want to believe that their money is going to people of color, many liberals who support these programs also hugely exaggerate their size.

Part of the reason for the exaggeration is that the media routinely report spending in raw numbers that are absolutely meaningless to almost everyone who hears them. When the media report that we are spending $16.5 billion a year on TANF, that sounds like a huge amount of money to most people who hear it.

On the other hand, if the media cared about informing people, rather than stupid fraternity ritual reporting, it could tell people that we spend less than 0.4 percent of the budget on TANF. Unfortunately, reporters almost never put these huge numbers in any context where their audience will understand it, even though everyone acknowledges that no one can make any sense of $16.5 billion without context.

It is not easy to find effective ways to combat racial prejudice. It is easy to put big numbers in context. It is really sad that so many people who complain about racial prejudice are too damn lazy to take the few seconds needed to put big numbers in context.

Add a comment

(Okay, that's not exactly what he said.) If you were worried that the pharmaceutical companies were not taking enough of your money, the Republicans have the answer for you. They pushed through the "Right to Try Act," which will allow people with a terminal illness easier access to drugs that the Federal Drug Administration has not determined to be effective.

While Thiessen sees this as a great thing in his Washington Post column, the obvious problem is that with the incentive provided by government-granted patent monopolies, drug companies will be lying more than ever about the effectiveness of their drugs. As fans of capitalism know, corporations are there to make a profit.

If a drug company can tell a patient dying of cancer that their drug can save them, they can look to charge hundreds of thousands or even millions for the drug. If a person or their family can pick up the tab, or they can get an insurer or the government to pay the bill, they will. (Yes, they can be sued for lying. Good luck with that one.) 

Yeah, so what if it actually is ineffective? Wasn't it worth getting people's hopes up for nothing and draining their life's savings?

Yes, Mr. Thiessen is right. Thank the Republicans.

Add a comment

An NYT article discussing the possibility that Italy will leave the eurozone told readers that this decision would defy economic logic. It noted the various downsides for Italy of leaving the euro and then told readers:

"As demonstrated by the Brexit vote, which numerous analyses showed would not be good for Britain’s health, economic logic does not always prevail."

It's not at all clear that "economic logic" would dictate that Italy is better off in the euro than outside it. Italy's economy has stagnated as a result of having little control over its fiscal, monetary, or exchange rate policy. It has consistently performed far worse than "experts" had projected. For example, in 2010 the IMF had projected that its per capita income would be 3.0 percent higher by 2015 (the last year of the projection) than it was in 2010.

Instead, its per capita income was more than 4.0 percent lower in 2015 than in 2010. This difference of 7 percentage points would be equivalent to $4,200 per person in the United States. Italy has still not recovered to its pre-crisis level of income.

The article also asserts that Italy would have trouble paying its euro-denominated debt if it were to leave the euro. While this is true, it is also likely that creditors would accept a partial write-down of the debt. If they are in a situation where they know that they can not recover the full value of their debt, it makes sense to accept a partial payment, which the country would be able to make.

Of course, the creditors may decide to be vindicated and demand full repayment as punishment to Italy for leaving the euro. As the article said, "economic logic does not always prevail."

Add a comment

Every student who has taken an Econ 101 class knows how a 20 percent tariff leads to corruption. So, why is anyone in the world surprised that the patent monopoly the government gave to Purdue Pharma on OxyContin lead the company to ignore evidence that the drug was being misused?

Hey folks, people respond to incentives. If we give them a patent monopoly that allows them to sell a drug at a price that is several thousand percent above its free market price, then drug companies will try to push the drug as widely as possible. This means ignoring evidence that the drug might be less effective than claimed or even harmful.

Come on, every serious person must understand this fact. Is it really necessary to pretend we are surprised?

Add a comment

It is absolutely bizarre how the media continually feel the need to tell us what politicians think. The Washington Post was on the job today in an article that discussed Donald Trump's threat to impose 25 percent tariffs on imported cars for national security. The article told readers:

"The president holds an expansive view of national security, describing imported products like steel or passenger sedans as worrisome threats to the United States."

Really? How does the Post know that the president even has a view on national security?

This is a person that shows virtually zero evidence of coherent thought on anything. For five years he ran around the country insisting that President Obama was born in Kenya. He claims that global warming is a hoax invented by China to destroy the US economy.

If the Post has any reason to believe that Trump has a coherent view on anything, it should share it with its readers. Otherwise, it should stop fabricating things. Or as Donald Trump would say "Fake News!"

Add a comment

The headline of the Washington Post article should have us all worried, "America has a massive truck driver shortage. Here's why few want an $80,000 job." That sounds pretty dramatic.

The article does begin by telling us about Joyce Brenny, who runs a trucking business in Minnesota, who supposedly pays many of her drivers more than $80,000 a year. (It doesn't indicate if she is the source for this number.) However, folks who read a few paragraphs down discover:

"A few drivers told The Washington Post that they earn $100,000, but many said their annual pay is less than $50,000 (government statistics say median pay for the industry is $42,000)."

In other words, if Ms. Brenny is actually paying her drivers $80,000 a year, she is very much an outlier. The typical driver makes barely half of this amount, which is a likely explanation for any shortage of truckers that might exist. (For a point of reference, the annual pay of a truck driver would be about half of what many CEOs earn in a day and roughly one-tenth of a what a top line politician would get for a one-hour speech to a major bank.)

It also seems that folks who run trucking companies have a hard time understanding how labor markets are supposed to work. Here is the average hourly wage, adjusted for inflation, in the trucking industry:

Trucking Industry: Average Hourly Wage, Adjusted for Inflation

trucker 3

Source: Bureau of Labor Statistics.

According to the Bureau of Labor Statistics, the average hourly pay for truck drivers is actually down from its level of two years ago. While it is up by roughly 5.0 percent from its level a decade ago, it is down by more than 7.0 percent from the peaks hit in the late 1990s.

This seems like yet one more case where we have employers whining about worker shortages because they are unwilling to pay the market wage. And, it seems the Washington Post is aggressively pushing the employers' case even if it means misrepresenting the facts.

Add a comment

Peter Goodman had a very good NYT piece detailing how budget cutbacks are undermining the welfare state in the United Kingdom. However, at one point the piece warns that the UK's experience could be a wider warning for a future where "robots [are] substituting for human labor."

Actually, the UK's problem has been just the opposite. It has had extremely low productivity growth. Since the Great Recession, productivity growth has averaged less than 1.0 percent annually according to the OECD. This weak growth can actually provide some basis for an argument for austerity (not much, if workers had more bargaining power and higher pay, the country might see more rapid productivity growth). If productivity growth had been more rapid, then the government could easily spend more money without any fears of inflation.

Add a comment

For some reason, there seems to be a big market in efforts to confuse the public about the relationship between unemployment and the trade deficit. Robert Samuelson gives us yet another example in his column today.

"By now, it must be obvious that US trade deficits are connected loosely, if at all, with the unemployment rate, which is now 3.9 percent — the lowest since 2000. Meanwhile, the US trade deficit in 2017 was $566 billion.

"The explanation for the apparent paradox is the dollar’s role as the major international currency, used to conduct trade and investment among many (non-US) countries. The extra demand for dollars raises its exchange rate, making U.S. exports costlier and imports cheaper. The result is a structural U.S. trade deficit."

This one makes pretty much zero sense. First of all, pointing to the low unemployment rate coinciding with a large trade deficit as evidence there is no link between unemployment and a trade deficit makes as much sense as pointing to a very underweight person suffering from the late stage cancer as an argument against any link between being seriously overweight and bad health.

This isn not a serious argument. A trade deficit reduces demand in the economy. It means that some of our spending is creating demand in Europe or Mexico, rather than in the United States. Other things equal, that means less demand in the United States and higher unemployment.

We can offset this lost demand with additional demand in the United States. We can have large budget deficits, as we do now. And we can have bubbles as we did in the late 1990s with the stock bubble and in the last decade with the housing bubble. That is why we can have a large trade deficit and low unemployment. It really is not hard.

Add a comment

Roger Lowenstein had a column in the Washington Post criticizing Elon Musk for his new contract as Tesla's CEO that could net him $50 billion. I see the story somewhat differently.

Lowenstein essentially is blaming Musk for being incredibly greedy and notes that most other trailblazing entrepreneurs of the past and present have not needed lavish paychecks to provide them with incentive. While I totally agree with this point, there is a deeper issue that I see here. How is Musk able to get a contract that pays him so much more than necessary to do the job? (Actually, I'm not sure Musk's contract pays him so much, as I will get to later.)

The issue is that if CEOs are routinely paid more than necessary to get someone to the do the job they are doing, they are effectively taking money from shareholders. The question is then, why are shareholders allowing the CEOs to rip them off? Would they be okay if 1000 line workers pulled $10,000 a piece out of the cash register? If not, then they should not be looking the other way when a CEO gets $10 million more each year than is needed to get someone to do their job. (I'm defining "job" here narrowly as producing returns for shareholders.)

This isn't an issue of having sympathy for shareholders. We all know that ownership of share is hugely skewed to the top 10 percent and especially top 1 percent, although tens of millions of middle-income people own stock through 401(k)s and pension plans also are large shareholders. But the more important point is that bloated CEO pay affects pay structures throughout the economy.

Add a comment