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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The New York Times told readers that Mexico is preparing to "play the corn card" in its negotiations with Donald Trump. The piece warns:

"Now corn has taken on a new role — as a powerful lever for Mexican officials in the run-up to talks over Nafta, the North American Free Trade Agreement.

"The reason: Much of the corn that Mexico consumes comes from the United States, making it America’s top agricultural export to its southern neighbor. And even though President Trump appears to be pulling back from his vows to completely overhaul Nafta, Mexico has taken his threats to heart and has begun flexing its own muscle.

"The Mexican government is exploring buying its corn elsewhere — including Argentina or Brazil — as well as increasing domestic production. In a fit of political pique, a Mexican senator even submitted a bill to eliminate corn purchases from the United States within three years."

It then warns of the potential devastation from this threat:

"The prospect that the United States could lose its largest foreign market for corn and other key products has shaken farming communities throughout the American Midwest, where corn production is a vital part of the economy. The threat is particularly unsettling for many residents of the Corn Belt because much of the region voted overwhelmingly for Mr. Trump in the presidential election.

"'If we lose Mexico as a customer, it will be absolutely devastating to the ag economy,' said Philip Gordon, 68, who grows corn, soybeans and wheat on a farm in Saline, Mich., that has been in his family for 140 years."

Okay, I hate to spoil a good scare story with a dose of reality, but let's think this one through for a moment. According to the piece, instead of buying corn from the United States, Mexico might buy it from Argentina or Brazil. So, we'll lose our Mexican market to these two countries.

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The New York Times had an interesting piece that reported on the ways in which Uber uses techniques learned from behaviorial economics to get drivers to work longer hours than they might want. The article concludes by saying that with changes in the economy, many workers may have no choice but to rely on Uber jobs.

In this context, it is worth mentioning the Federal Reserve Board. The Federal Reserve Board has raised interest rates twice in the last four months because it is concerned that the economy is creating too many jobs. It is expected to raise interest rates three more times this year.

If people consider it bad that workers have few options other than working for Uber, they should be very upset that the Fed is raising interest rates. These interest rates are helping to ensure that millions of workers have limited job opportunities. 

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Most people involved in economic policy debates have derided Donald Trump's claims that he would boost the U.S. growth rate from its recent 2.0 percent annual rate to 4.0 percent or even 3.0 percent. However the Washington Post featured a column today that insists such a pickup is imminent and derides policy types for not being prepared.

The article insists that we are about to see massive job displacement with robots and artificial intelligence radically reducing the need for human labor. If it is not immediately clear that this is a prediction that growth is about to boom, then you must be as ignorant as a Washington Post editorial page writer.

Job displacement means productivity growth. If the piece is correct then we are about to see a massive upsurge in productivity growth. The recent pace has been just 1.0 percent annually. The authors presumably envision productivity growth rising to something like the 3.0 percent annual rate we had in the long Golden Age from 1947 to 1973, a period of low unemployment and rapidly rising real wages.

Economic growth is the sum of productivity growth and labor force growth, so if we get productivity growth of 3.0 percent annually, then we are looking at GDP growth rates in line with Donald Trump's targets. Of course this would mean that the Congressional Budget Office and all the other forecasters are hugely off (hardly impossible, they all missed the collapse of the housing bubble as well as the weakness of the recovery that followed) and that concerns about large budget deficits are incredibly misplaced.

For my part, I am agnostic on these predictions of a massive surge in productivity growth. Our past efforts at predicting productivity growth have been virtually worthless. Economists completely missed the slowdown in 1973, almost completely missed the pickup in 1995, and totally missed the more recent slowdown in 2005.

I think much of the story is endogenous in the sense that a weak labor market forces workers to take low pay and low productivity jobs. In other words, if we pushed the economy with more spending (e.g. larger budget deficits or smaller trade deficits) we would see more productivity growth as workers shifted to better paying, higher productivity jobs, and firms adjusted to a more expensive workforce with labor saving innovations.

But speculation aside, we should at least be able to have clear thinking on the issue. If we actually face massive job displacement due to technology, then we are looking at a period of rapid growth in which budget deficits are not at all a problem. This is not a debatable proposition, it is true in the same way that 3+2 = 5 is true. It would be great if the people involved in policy debates understood this fact.

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Donald Trump's bluster about imposing large tariffs and forcing companies to make things in America has led to backlash where we have people saying things to the effect that we are in a global economy and we just can't do anything about shifting from foreign produced items to domestically produced items. Paul Krugman's blog post on trade can be seen in this light, although it is not exactly what he said and he surely knows better.

The post points out that imports account for a large percentage of the cost of many of the goods we produce here. This means that if we raise the price of imports, we also make it more expensive to produce goods in the United States.

This is of course true, but that doesn't mean that higher import prices would not lead to a shift towards domestic production. For example, if we take the case of transport equipment he highlights, if all the parts that we imported cost 20 percent more, then over time we would expect car producers in the United States to produce with a larger share of domestically produced parts than would otherwise be the case. This doesn't mean that imported parts go to zero, or even that they necessarily fall, but just that they would be less than would be the case if import prices were 20 percent lower. This is pretty much basic economics — at a higher price we buy less.

While arbitrary tariffs are not a good way to raise the relative price of imports, we do have an obvious tool that is designed for exactly this purpose. We can reduce the value of the dollar against the currencies of our trading partners. This is probably best done through negotiations, which would inevitably involve trade-offs (e.g. less pressure to enforce U.S. patents and copyrights and less concern about access for the U.S. financial industry). Loud threats against our trading partners are likely to prove counter-productive. (We should also remove the protectionist barriers that keep our doctors and dentists from enjoying the full benefits of international competition.)

Anyhow, we can do something about our trade deficits if we had a president who thought seriously about the issue. As it is, the current occupant of the White House seems to not know which way is up when it comes to trade.

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I don't like being in the position of saying Trump is right, but when it comes to trade, otherwise reasonable people often say things that are rather silly, which mean that Trump can be right. Matt O'Brien takes the silly route when he takes issue with the idea that our trade deficit in the last decade could have led to an economy-wide lost of jobs and also says that the story of the trade deficit and jobs is all history anyhow.

Before going to the woodshed, I'll give Matt credit for what he gets right. Matt acknowledges that the opening to China with its entry to the WTO had a devastating impact on millions of workers and their communities. For some reason, many economists and commentators feel a need to deny this fact. I suppose the flat earth society is larger than I imagined.

I will add one point to Matt's discussion of this issue. Matt notes that in principle, the gains to the winners from trade are larger than the losses to the losers. This means that we should be able to compensate the losers and make everyone better off.

Matt correctly points out that the compensation to the losers is invariably a joke. They don't get s**t, and then we call them names when they vote for Trump.

But there is an additional point on this compensation story that is worth throwing in. The claim that the gains exceed the losses and therefore we can have compensation to make everyone better off is only necessarily true if we have a costless compensation process.

In other words, if we can just vacuum up dollars from everyone who won and hand them out to the people who lost, then we can ensure that everyone is better off, but in the real world we don't actually have a costless process. In the real world we get money from the winners from things like income and sales taxes, which come with distortions. This means that for every dollar we collect in revenue, we are losing some amount of economic activity. 

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The inflation hawks are getting restless. They are anxious to seize on any evidence of rising inflation as an opportunity to push the Fed to raise interest rates.

For this reason, many may be excited by the latest data from the Commerce Department showing that the overall PCE deflator is up 2.1 percent over the last year, with the core (excluding food and energy prices) rising by 1.8 percent. As the headline of the AP article carried by the New York Times put it, "consumer spending slows; inflation pushing higher."

The case for a rise in the inflation rate is a bit weaker if we move out a decimal. The inflation rate in the core PCE deflator over the last year was 1.753 percent. This rounds up to 1.8 percent, but not by much.

Furthermore, this is a rent story. The rent component of the PCE has risen by 3.6 percent over the last year. If we pull this out, inflation in the core PCE would be just 1.3 percent over the last 12 months. That's not a lot to get excited over.

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The main economic story of the last four decades is the massive upward redistribution of income that has taken place. The top one percent's share of national income has more than doubled over this period from roughly ten percent in the late 1970s to over twenty percent today. And, this is primarily a before-tax income story, the rich have used their control over the levers of economic power to ensure that an ever larger share of the country's wealth goes into their pockets. (Yes, this is the topic of my book, Rigged [it's free].)

Anyhow, the rich don't want people paying attention to these policies (hey, they could try to change them), so they endlessly push out nonsense stories to try to divert the public's attention from how they structured the rules to advance their interests. And, since the rich own the newspapers, they can make sure that we hear these stories.

This meant that yesterday the NYT gave us the story of how robots are taking all the jobs and driving down wages. Never mind that productivity growth is at its slowest pace in the last seven decades. Facts and data don't matter in the alternative world where we try to divert folks' attention from things like the Federal Reserve Board (who are not robots, last I checked) raising interest rates to make sure that we don't have too many jobs.

One of the other big alternative facts for the diverters is the generational story. This is the one where we tell folks to ignore all those incredibly rich people with vast amounts of money, the reason most people are not seeing rising living standards is the damn baby boomers who expect to get Social Security and Medicare, just because they paid for it. The Boston Globe gave us this story with a piece by Bruce Cannon Gibney, conveniently titled "how the baby boomers destroyed everything." (Full disclosure: I am one of those baby boomers.)

There is not much confusion about the nature of the argument, only its substance. Gibney complains about:

"...the unusual prevalence of sociopathy in an unusually large generation. How does that disorder manifest? Improvidence is reflected in low levels of savings and high levels of bankruptcy. Deceit shows up as a distaste for facts, a subject on display in everything from Enron’s quarterly reports to daily press briefings. Interpersonal failures and unbridled hostility appeared in unusually high levels of divorce and crime from the 1970s to early 1990s."

Starting with the bankruptcy story, the piece to which Gibney helpfully linked noted a doubling of bankruptcy rates for those over 65 since 1991. It reported:

"Expensive health care costs from a serious illness before a patient received Medicare and the inability to work during and after a serious illness are the prime contributors to financial crises among those 55 and older."

Yes, we have clear evidence of a moral failing here.

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It is striking how the media feel such an extraordinary need to blame robots and productivity growth for the recent job loss in manufacturing rather than trade. We got yet another example of this exercise in a NYT Upshot piece by Claire Cain Miller, with the title "evidence that robots are winning the race for American jobs." The piece highlights a new paper by Daron Acemoglu and Pascual Restrepo which finds that robots have a large negative impact on wages and employment.

While the paper has interesting evidence on the link between the use of robots and employment and wages, some of the claims in the piece do not follow. For example, the article asserts:

"The paper also helps explain a mystery that has been puzzling economists: why, if machines are replacing human workers, productivity hasn’t been increasing. In manufacturing, productivity has been increasing more than elsewhere — and now we see evidence of it in the employment data, too."

Actually, the paper doesn't provide any help whatsoever in solving this mystery. Productivity growth in manufacturing has almost always been more rapid than productivity growth elsewhere. Furthermore, it has been markedly slower even in manufacturing in recent years than in prior decades. According to the Bureau of Labor Statistics, productivity growth in manufacturing has averaged less than 1.2 percent annually over the last decade and less than 0.5 percent over the last five years. By comparison, productivity growth averaged 2.9 percent a year in the half century from 1950 to 2000.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Book2 9104 image001

Source: Bureau of Labor Statistics.

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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


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

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

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

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

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

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



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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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