Beat the Press is Dean Baker's commentary on economic reporting. He is a Senior Economist at the Center for Economic and Policy Research (CEPR). To never miss a post, subscribe to a weekly email roundup of Beat the Press.

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The NYT had an article on the battle between oil producers and refiners over removing restrictions on the export of crude oil that included some misleading comments. At one point it presented the claims from a producer that a domestic glut of crude oil is lowering prices and could lead to a shutdown of less productive fields.

"'Nobody wants the collapse of the oil industry,' Mr. Sheffield [the oil producer] said in an interview. 'You would be importing crude oil from the Middle East all over again.'"

As a practical matter, the issue of imports is the exact opposite of what Mr. Sheffield claimed. If we needed oil domestically, the shutdown wells could resume production again. If we are worried about the security of our oil sources, it would make more sense to leave the oil in the ground so that we can get to it if we are cut off from imports at some future point. 

The piece later holds out the prospect of driving down the world price of oil to the domestic U.S. price as a benefit to U.S. consumers.

"The producers argue that if they could freely export, they would increase world oil supplies, forcing down the international Brent benchmark crude price, which in turn would reduce the price of gasoline at the pump. 'The American consumer is held captive by the restrained market,' said Jack Ekstrom, a vice president at the Whiting Petroleum Corporation, a major producer in the North Dakota Bakken shale field. 'When you have additional supplies coming on to market, the price naturally comes down.'"

This doesn't make any sense. The price in the United States for gas will be first and foremost dependent on the price in the United States for oil. Consumers in the United States will not be especially benefited by having the price of oil fall elsewhere.

The real issue here is simply who will profit from the difference between world prices and U.S. domestic prices. If producers can't export but refiners can, then the refiners will be the beneficiaries of the price gap. If the producers are allowed to export then they will be the primary beneficiaries. Either way, the more oil is exported, the higher the price will be for the domestic consumers.

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The NYT has a fascinating piece about threats that Tennessee Republicans are making against Volkswagen if they recognize a union formed by its workers. Apparently, these politicians believe they are better able to run a car company than the Volkswagen's managers. This is an interesting view coming from people who usually claim to be supporters of a free market and to believe that the government should not interfere in the running of a business.

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Eduardo Porter tells readers about confusion among central bankers about how to deal with international capital flows and asset bubbles like the housing bubble in the United States. While there has been considerable confusion among central bankers, this appears to be more linked to their lack of qualifications than the intrinsic complexity of the subject matter.

For example, Porter notes how Greenspan was confused by the inflow of foreign capital that kept long-term interest rates low even as he was raising short-term interest rates.

"It was a wave of money that — to the confusion of Alan Greenspan, the Fed chairman at the time — the Fed seemed powerless to manage."

This was Greenspan's famous "conundrum." Of course it was not a conundrum to those who closely followed the economy at the time. It was easy to see that China and Japan's central banks were buying up long-term U.S. bonds, directly lowering long-term interest rates, while Greenspan was trying to affect long-term rates indirectly by raising short-term rates. (This was in effect a form of quantitative easing, but by foreign central banks.) Needless to say, directly acting in the market had more of an impact than indirectly acting.

The low interest rates that fuel asset bubbles should be good for the economy. The priority of the central bank should be to use its regulatory powers to prevent credit from flowing to markets that are experiencing dangerous bubbles.

It can also explicitly warn that it will take measures to bring down asset prices if they continue to grow further out of line with fundamentals. This would in effect be a form of forward guidance. While economists routinely deride the idea that such warnings could impact the behavior of investors, many of these same economists believe that central bank statements about future interest rates can have a large effect.

It is difficult to see the logic whereby central bank statements in one area will affect investors' behavior while it will have no effect in another area. It is also very difficult to see the downside from issuing such warnings. Comparing the Congressional Budget Office's projections of GDP from 2008 with actual GDP and its current projections, the collapse of the housing bubble will have cost the country more than $24 trillion in lost output through 2024 ($80,000 per person). Given the enormous potential gains from measures to stem the growth of such dangerous bubbles, it is hard to see any remotely offsetting downside risk.



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Most NYT readers probably would have missed this fact, since the blog post highlighted the growing gap between the pay of recent college grads and those with less than a college degree. While Pew did find a large increase in the gap, almost all of this was due to a fall in the year-round pay of less-educated workers.

In the 27 years from 1986 to 2013, Pew found that the median wage for full-time workers between the ages of 25-32 with college degrees increased from $44,770 in 1986 to $45,500 in 2013, a rise of 1.6 percent. This comes to an increase of 0.06 percent a year. By comparison, productivity rose 72.5 percent over this period, an average of 2.0 percent per year over this period.

It is also worth noting that the unemployment rate for college educated workers of all ages was 3.7 percent in 2013. This is higher than for any year prior to the recession since this series was started in 1992. 

While those without college degrees have been big losers, the Pew study shows that young people with college degrees have not been big winners in the economy over the last quarter century.

 

Note: 1986 wage corrected, thanks Michiganmitch.

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That may not have been obvious to some of the readers of a NYT article that discussed the impact of the state rejecting an expansion of the Medicaid program under the ACA. The article told readers that this rejection would create a hole of $85 million in the state's budget. Just in case some readers haven't checked in on spending levels in Arkansas recently, the 2.2 percent number might have been useful information to include in the article.

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Many people who have retirement funds in the stock market are able to retire this year as a result of the big run-up in the stock market last year. According to Washington Post columnist Marc Thiessen this means that these people will see a big cut in their pay. After all, retired people won't be collecting paychecks.

I'm not making this up, that is the argument in Marc Thiessen's latest column, cleverly titled, "Obamacare's $70 billion pay cut." Thiessen's basis for claiming that the Affordable Care Act will lead to a $70 billion cut in pay is the Congressional Budget Office's assessment that it will lead to a reduction in aggregate compensation of 1.0 percent between 2017-2024.

He tells readers;

"How much does that come to? Since wages and salaries were about $6.85 trillion in 2012 and are expected to exceed $7 trillion in 2013 and 2014, a 1 percent reduction in compensation is going to cost American workers at least $70 billion a year in lost wages."

"It gets worse. Most of that $70 billion in lost wages will come from the paychecks of working-class Americans — those who can afford it least. That’s because Obamacare is a tax on work that will affect lower- and middle-income workers who depend on government subsidies for health coverage."

Sounds really bad, right?

Well first let's go back to the CBO report cited by Thiessen.

"According to CBO’s more detailed analysis, the 1 percent reduction in aggregate compensation that will occur as a result of the ACA corresponds to a reduction of about 1.5 percent to 2.0 percent in hours worked. (p 127)"

We checked with Mr. Arithmetic and he pointed out that if hours fall by 1.5 to 2.0 percent, but compensation only falls by 1.0 percent, then compensation per hour rises by 0.5-1.0 percent due to the ACA. In other words, CBO is telling us that for each hour worked, people will be seeing higher, not lower wages. That is the opposite of a pay cut.

However because people may now be able to afford health insurance either without working or by working fewer hours than they had previously, many people will choose to work less. That is worth repeating since it seems many folks are confused. Because people may be able to afford health insurance either without working or perhaps by working less than they had previously, many people will choose to work less.

Yes, just like people will opt to retire because they have more money in their retirement accounts, some people will opt to work less because Obamacare has made it easier to afford health care insurance. This is a voluntary decision that CBO is calculating people will make.

Now Mr. Thiessen is apparently convinced that the decision to work less will be the wrong decision for these people:

"most of that $70 billion in lost wages will come from the paychecks of working-class Americans — those who can afford it least"

but apparently the working-class Americans making the decision believe otherwise. Obviously the answer here is for Mr. Thiessen to go around to all the people who quit their jobs or cut back their hours because of Obamacare and explain to them why they have made a bad choice. Maybe he will change some minds and get people to work harder, but on its face, it seems likely that these working class people would be better positioned to judge how much they need to work than Mr. Thiessen. 

 

 

 

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In recent months we have heard comments from the chief economist at the I.M.F., the chair of the Federal Reserve Board, and the Congressional Budget Office, all saying that austerity is hurting growth and costing the country jobs. By the Congressional Budget Office's estimates we are still operating at a level of output that is more than $1 trillion below potential GDP. Comparing its most recent projections with its 2008 pre-crash projections, we stand to lose a cumulative total of more than $24 trillion in output ($80,000 per person) through the end of its budget horizon in 2024 as a result of the collapse of the housing bubble. 

In short, millions are needlessly suffering from unemployment or underemployment, and the country continues to waste a vast amount of goods and services that it could produce to meet important needs. One would think this situation would garner attention from National Public Radio and other major news outlets. But no, NPR is upset that we are not concerned about the national debt.

It told us this last week in a segment where it included no voices to make the obvious point that spending is good right now, and it did so again today when it complained that Congress lacks the will to reduce the debt.

Obviously the debt is an obsession of some reporters/producers at NPR. It would be reasonable to give them occasional opinion pieces to express their concerns. These pieces are not news.

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It's great that the Washington Post lets Robert Samuelson run the same columns again and again. Otherwise he might have to work for his paycheck.

Today's column is a rerun of the senior bashing piece. The premise is that we can never raise taxes and that we are too stupid and/or corrupt to get our health care costs in line with the rest of the world. And, if these two claims prove to be true, then voila, spending on seniors will crowd out other spending in the budget. 

It's not clear why anyone would think we will never be able to raise taxes ever again. Reagan signed into law a large increase in Social Security taxes. Clinton raised income taxes, as did Obama. We also have polling results showing that the public would support increases in the payroll tax to sustain benefits.

As a practical matter, if we restored normal wage growth, so that wages rose in step with productivity, it's difficult to see why it would be so difficult to take 10-20 percent of wage growth in some years to meet the cost of an aging population. If Samuelson knows some reason why this is impossible he is not sharing it with readers.

We also pay more than twice as much per person for our health care as people in other wealthy countries. We have nothing to show for this extra spending in terms of outcome. It is difficult to see why we will never be able to get our costs in line. Do protectionists so dominate U.S. politics that we will never be able to open up our health care system to international competition, if we are unable to fix it?

In short Samuelson is telling us that we have to beat up our seniors because we can never raise taxes and never fix our health care system. Furthermore, Samuelson complains that those of us who don't want to join him in beating up seniors are engaged in a "charade":

"Both liberals and conservatives are complicit in this charade, but liberals are more so because their unwillingness to discuss Social Security and Medicare benefits candidly is the crux of the budget stalemate."

Of course liberals and conservatives are discussing Social Security and Medicare. They just aren't saying the things that Robert Samuelson likes so he just insists they are saying nothing.

Actually, if someone wants to assess Samuelson's credibility, he gives a line that tells readers everything they need to know:

"The military is being weakened. As a share of national income, defense spending is projected to fall by 40 percent from 2010 to 2024."

Yes, well we were fighting two wars in 2010. The projections for 2024 assume that we will not be fighting any wars. That is a big deal if you were trying to make an honest comparison of military spending in 2010 and 2024, but this is a Robert Samuelson column.

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Yes, this was one of the points of Obamacare, at least for some of us. Many people find themselves stuck in jobs they hate because they need health care insurance and can't see any other way to get it. The Washington Post tells us that some workers are recognizing their new freedom as a result of being able to buy affordable insurance on the individual market.

This is great news in my book, but I see from the article that my friend Douglas Holtz-Eakin is unhappy.

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If you want to see an economist get really angry, suggest imposing a 20 percent temporary tariff on imported steel, as President Bush did in 2002. He can quickly produce the charts showing how this will lead to an inefficient outcome.

If you want to see an economist get really confused, ask him how the story is different with a drug patent that allows a company to charge a price that is several thousand percent above the free market price. Of course you can use the exact same chart to show the inefficiencies, except with the drug patent the scale would be two orders of magnitude larger.

But economists don't get concerned for some reason about drugs selling for above market prices, even though the gap between the patent-protected prices and the free market prices is now running into the hundreds of billions annually. They will inevitably mumble about how we need patents to provide incentives to develop new drugs, as though they could not conceive of any other mechanism.

This is why this little piece on the potential use of vitamin C as a cancer treatment is so interesting. It refers to some promising results from scientists at the University of Kansas then tells readers:

"One potential hurdle is that pharmaceutical companies are unlikely to fund trials of intravenous vitamin C because there is no ability to patent natural products."

The conclusion is then that the government will have to finance large-scale clinical trials to determine the effectiveness of vitamin C as a cancer treatment.

The specifics of the vitamin C case are fascinating in themselves, but what is more striking is what this says about our division of research responsibilities between the public and private sector. The assumption of patent supporters is that somehow Pfizer, Merck, and the rest are hugely more efficient when they do patent supported research than when research is done through other funding mechanisms. (The issue here is patent support, not public versus private, since the government could pay Pfizer and Merck to do research.) 

So patent supporters believe that we can have efficient public funding through the National Institutes of Health (NIH) for basic research. (NIH gets $30 billion a year, which everyone seems to agree is money very well spent.) And they recognize that occasionally it will be necessary to do research on non-patentable products because these may provide effective treatments or cures. But somehow it is efficient for the government to grant patent monopolies that both lock up the product and also many important research findings for decades. 

It would be interesting to see a theory of how science develops that would support the efficient patent argument. On its face, it is hard to see anything there besides drug money.

 

Thanks to Jon Schwartz for calling this one to my attention.

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