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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It was widely reported that Donald Trump confronted Canada's prime minister Justin Trudeau over his country's trade surplus with the United States. Trump was mocked in these stories since they claimed that Canada actually has a trade deficit with the United States. When confronted with this alleged fact, Trump boasted about just making up numbers in his exchange with Canada's prime minister.

It turns out that Trump is actually correct about Canada's trade surplus with the United States. The Commerce Department data that reporters used to show a trade surplus includes re-exports. These are items that are shipped through the United States, but are not produced in the United States. For example, if a German car company ships 1000 cars through New York, and 100 of these end up in Canada, the 100 cars would be counted as US exports even though they were not produced in the United States.

The United Nations has a database which separates out re-exports. When this is done, Canada's deficit turns into a surplus in the neighborhood of $20–$30 billion. This means that Trump was correct in his charge.

To be clear, this doesn't excuse the president meeting another head of government and not knowing what he is talking about. Nor does it necessarily mean Canada is doing anything wrong because it has a trade surplus with the United States. (We could address this by reducing our oil consumption.) Donald Trump may not care about getting his numbers right but the rest of us should.

Thanks to Lori Wallach of Public Citizen for calling my attention to this point.

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A lot of folks are running around making a big point of the fact that Larry Kudlow, Trump's new head of the National Economic Council, has gotten a lot of things about the economy wrong, and in particular missed the coming of the Great Recession. For example, here's Dana Milbank's column in the Washington Post this morning.

While Kudlow has gotten a lot of things wrong and completely missed the housing bubble and the implications its collapse would have for the economy, he was hardly alone in this category. Just about the whole economics profession was there along with Kudlow, even if they may not have been quite as outspoken in their optimism. 

In January of 2008 the Congressional Budget Office, which consciously tries to place itself in the center of professional opinion, projected 1.7 percent economic growth for 2008 and 2.8 percent for 2009. Even a year later, Christina Romer and my friend Jared Bernstein hugely underestimated the severity of the recession in their report outlining President Obama' stimulus package. 

The commentary of the time is full of great lines from distinguished economists. My favorite was when then Federal Reserve Chair Ben Bernanke said that the problems in financial markets will be restricted to the subprime market. After Bear Stearns went under he also famously commented that he didn't see another Bear Stearns out there. It subsequently turned out that there were nothing but Bear Stearns out there, as virtually the whole banking system faced collapse as trillions of dollars of mortgage debt went bad.

I could go on, but the point is that Kudlow was hardly alone in his mistake here. I spent years being derided by many of the country's leading economists for suggesting that there was a housing bubble and its collapse could sink the economy. So yes Kudlow really blew it, but so did pretty much the whole economics profession. (Fortunately for economists, economics is not a profession where people are evaluated based on their performance.)

To Kudlow's credit, he was at least prepared to allow people like me, who warned of the bubble, appear on his show. That was not the case with Mr. Milbank's paper, The Washington Post, which pretty much excluded anyone warning of the bubble until after it burst. (The Post was busy hyping fears about the budget deficit.)

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Thomas Friedman used his column today to trash Trump for protecting old-line industries like steel and aluminum and argued instead that US trade policy should be, "[...]focused on protecting what we do best — high-value-added manufacturing and intellectual property." In this vein, he argued for rejoining the Trans-Pacific Partnership and very high tariffs on China unless it respects our protectionist policies in these areas. Oh yeah, Friedman also wants to toss a few bones to the less-educated workers who might lose jobs but will pay higher prices for prescription drugs, software, and a wide range of other items with Friedman's agenda.

Just to get our eyes on the ball, if anyone were approaching these issues seriously, they would be asking how much additional innovation we get for how much additional patent and copyright protection. (Anyone seen any analysis on this one?) The question would then be both, is the additional inequality from stronger and longer protections justified by the additional innovation and is there an alternative mechanism (e.g. direct public funding) that could be comparable efficient and yield less inequality. (This is discussed in my [free] book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer, chapter 5.)

For some reason, it seems no one likes to talk about the link between patent and copyright protection and inequality. Remember, Bill Gates would probably still be working for a living without these government-granted monopolies.

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Many economists, including those at the I.M.F., have concluded that the austerity policies imposed on the euro zone by Germany cost millions of jobs and trillions of dollars of output over the last decade. But the NYT dismisses this assessment and tells readers that policies moving away from austerity, "could undo economic boom."

The piece tells readers that reducing restrictions on firing across the eurozone was a major factor in lowering unemployment:

"He also pushed those countries to emulate Germany’s reforms, in particular relaxing restrictions on hiring and firing. Many countries complied, at least to a degree, helping joblessness in the eurozone fall to 8.6 percent in February, down from more than 12 percent in 2013."

This contradicts much research which finds that restriction on firings have no effect on employment and unemployment. The more likely explanation is that the euro zone eventually did recover from the 2008–2009 recession, in part because the European Central Bank did its best to work around the austerity being imposed by Germany through fiscal policy.

The one cited source for the piece's conclusion on labor market dynamics is Holger Schmieding, chief economist of Berenberg, a German bank, although the piece does tell us:

"Surveys of business optimism have slipped in recent months after four years of nearly uninterrupted gains. Such pessimism can become self-fulfilling, discouraging businesses from expanding and hiring."

So, the NYT is unhappy that German workers may have more job security and get back some of their share of economic output. That's fine, but maybe they should confine these views to the opinion pages.

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The Washington Post has long used both its opinion pages and news section to advance its agenda on trade. It is famous for inventing a GDP boom in Mexico to push the case for NAFTA. More  than a decade ago it ran an editorial claiming that Mexico's GDP quadrupled between 1987 and 2007, which it attributed to NAFTA.

The actual number was 84.2 percent, according to the I.M.F. In spite of this gross error, the paper has never run a correction.

Given the Post's history on trade, it was not surprising to see a piece ("The obsolete number that drives Trump's China obsession and how to fix it") telling readers that China's trade surplus with the United States is actually much smaller Donald Trump thinks it is. The gist of the piece is that China's trade surplus with the U.S. is actually considerably smaller than the standard data reported by the Commerce Department. The reason is that much of what China exports includes inputs from other countries, including the United States.

The piece offers up the example of the iPhone, which is assembled in China. In the trade data the full value of the iPhone is counted as a Chinese export and a U.S. import, but most of the value actually comes from inputs produced in other countries. By counting the full value of the finished product as an export from China we are seriously overstating the value of exports from China.

While this point is entirely accurate, there is a flip side to this issue which the piece amazingly ignores. While much of the value-added in products imported from China originates in other countries, much of the value-added in our imports from other countries originates in China. China is a huge exporter not only to the United States, but to Japan, Korea, Europe, and elsewhere.

If we want to do a serious value-added analysis of our trade balance with China we would not only subtract out the foreign value-added in Chinese exports, we would also add in the Chinese value-added in our imports from other countries. It would take some serious work to calculate the total figure (see Rob Scott's analysis), but the deficit would clearly be larger than the one the piece calculates by just pulling out the foreign value-added in Chinese exports.   

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Okay, Brownstein didn't use the word "fake," but that is the position he described in his CNN column. Brownstein argues that the Democrats  predominately live in tech centers like Seattle and the Bay area which export large amounts of high tech products and services. He argues these tech areas won't be helped by Trump's steel tariffs and could be hurt by retaliation from foreign countries.

While it is true that these areas will not be helped by steel tariffs it is dishonest to say that these industries support free trade. The tech sector is hugely dependent on protectionism in the form of patent and copyright protection. These government-granted monopolies raise the price of protected items by factors or ten or even a hundred over the free market price, making them the equivalent of tariffs of several thousand percent or even tens of thousands percent.

There is a rationale for this protectionism, as there is for all protectionism. This is the government's way to provide incentives for innovation and creative work. But there are other, more efficient, mechanisms for financing innovation and creative work that would not put so much money in the pockets of high tech sectors. The people who insist on longer and stronger patent and copyright protections, and use trade deals to lock them in domestically and impose them on other countries are protectionists, not free traders. (This is discussed in my [free] book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer, chapter 5.)

It is also worth noting that most of Brownstein's "free traders" are just fine with the protectionist barriers that insulate doctors and other highly paid professionals from foreign competition. In the case of doctors these barriers have created a situation in which the average pay of our doctors is roughly twice as high as it is in other wealthy countries (see Rigged, chapter 7).

Protectionism for doctors costs us roughly $100 billion a year in higher health care costs. This is ten times as much as the amount of money at stake with the steel tariffs. All the people who apparently are fine with the barriers that prevent foreign doctors from competing with U.S. doctors are protectionists, not free traders.

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Apparently, America's small business owners are too dumb to realize how great the tax cuts were. The Trump administration told us that the corporate tax cuts would lead to a massive boom in investment which would increase the capital stock by one third above the baseline projection. But for some reason, the nation's businesses haven't gotten the message.

The National Federation of Independent Businesses released its February survey of its members this morning. The survey showed (page 29) that 29 percent of businesses expect to make a capital expenditure in the next 3 to 6 months, the same percentage as in January. This is somewhat higher than the 26 percent reported for February of 2017, but below the 32 percent reported for August of last year. It's also the same as the 29 percent reading reported back in August of 2014 when a Kenyan socialist was in the White House.

In other words, there is no evidence here of any uptick in investment whatsoever and certainly not of the explosive increase promised by the Trump administration. Maybe if Trump did some more tweeting on the issue it would help.

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It seems Germany is suffering from a skills gap also, at least according to Reuters. It told readers:

"Labour shortages in Germany are threatening the whole economy as companies struggle to fill around 1.6 million job vacancies, the DIHK Chambers of Industry and Commerce said on Tuesday."

According to the OECD, labor compensation rose by just 2.6 percent last year, down from a 2.9 percent rate in 2016. When an item is in short supply, we expect the price to rise. If there is a housing shortage, buyers or renters bid up the price of housing. If employers can't get workers, then the normal route is to offer higher pay, which will attract workers from competitors.

Apparently, German employers don't understand basic economics. Their ignorance is apparently jeopardizing the whole economy, according to the DIHK Chambers of Industry and Commerce.

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Most data indicate relatively little acceleration in wage growth overall, but as I have noted the Current Population Survey shows more rapid wage growth at middle and especially the bottom end of the wage distribution over the last three years. The "Workforce Vitality Index" produced by ADP, shows a similar picture.

Its most recent survey shows hourly wage growth of more than 6.0 percent for workers earning less than $20,000 a year and 5.6 percent for workers earning $20,000 to $50,000 a year. This compares to increases of 5.4 percent and 5.0 percent in the 3rd quarter of 2014, the first period in the sample. By comparison, wages increased 3.4 percent on the most recent quarter for workers earning more than $75,000 a year, virtually the same as the 3.3 percent increase in the 3rd quarter of 2014. (These are figures for job holders — found on page 5.)

This supports the view that the tightening of the labor market has disproportionately benefited those at the bottom end of the wage distribution. It also should be a warning of bad effects if the Fed moves too aggressively in raising interest rates and causes the unemployment rate to rise.

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As Robert Samuelson tells us in his weekly column in the Washington Post, there is a big market for people saying that things are great. Samuelson cites a number of authors and statistics telling readers that things are getting better.

He then speculates about why we have so much pessimism. He suggests that the media is at fault for using the word "crisis" too frequently and tells us:

"But some of today’s pessimism is simply a political fad. It 'became fashionable, starting in academia and expanding to the public square, brought there by politicians [and] social media,' Easterbrook [economist Gregg Easterbrook] writes. 'Today the conventional wisdom is that any informed person should feel the world is falling apart.'"

Of course, the other plausible explanation is that most of the workforce in the United States has seen stagnating wages over the last four decades even as those at the top have become incredibly rich. And, the incredibly rich don't like to highlight this fact, so there is a big market for people saying that everything is great.

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The NYT had an article profiling Christopher Liddell, who is currently the Trump administration's director of strategic initiatives and is apparently a top candidate to replace Gary Cohn as head of the National Economic Council. In recounting his career, the piece notes that Liddell had been the chief financial officer at Microsoft.

The piece later presents a comment on trade from Liddell:

“I think the days of unbridled free trade and unbridled free markets are over.”

“I worked in the private sector all my life, so I’m a believer in free markets, but not unbridled free markets [...]And we’ve had 30 years since the mid-’80s, both in New Zealand and here in the U.S. and globally, of basically free markets being driving the whole thinking, the whole rhetoric around governing. I think those days are over, personally. I think we’re going to go through a circular trend of a much more restrained free market.”

Of course, we have not had free markets, as the government has actively structured markets in a variety of ways. In particular, Microsoft, the company at which Mr. Liddell served as Chief Financial Officer, benefited enormously from government-granted patent and copyright monopolies. These forms of protection are equivalent to tariffs of many thousand percent, raising the price of protected items by a factors of ten or even a hundred or more.

It is ironic that someone who had benefited so much from government intervention would somehow claim that this is a free market.

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The selective free traders (people who support protectionism that benefits high-income people, but oppose it when it can help ordinary workers) are pulling out all the stops in going after Trump's steel tariffs. Today, the NYT takes the show to rural America where it tells us how much agriculture can be hurt by a trade war.

We meet various farmers worried about the threat of a trade war and get a few random facts thrown in:

"Three out of every five rows of soybeans planted in the United States find their way out of the country; half of those, valued at $14 billion in 2016, go to China alone."

"Two weeks after the administration imposed a tariff on solar panels, China opened an anti-dumping investigation into American exports of sorghum, a grain used in livestock feed. The United States was virtually China’s sole foreign source of sorghum last year, with $1 billion in sales."

There are a few points worth making here. First, if our trading partners do impose barriers to US exports of agricultural goods, then we would see the price of these products fall somewhat in the domestic market. That is bad news for these farmers, but good news for the rest of us who will have lower priced food. The NYT apparently only thinks of consumers when it comes to tariffs raising prices.

The second point is that while the loss of a large market can have a substantial impact on the price of a relatively small volume crop like sorghum since it is a relatively small volume crop the number of farmers affected will be relatively few. Furthermore, most will be able to switch to crops that offer a better return.

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Well, it is the era of Donald Trump in Washington, but this turning reality on its head pre-dated Trump. Anyhow, the Washington Post was in its full trade deal promotion mode when it announced the signing of the Trans-Pacific Partnership (TPP) by the other eleven countries who had been negotiating the pact with the United States.

The headline of the piece tells readers, "as Trump imposes tariffs, allies sign on to free-trade pact — without US" The first sentence proclaims:

"As the Trump administration took another step away from free trade on Thursday, 11 nations bordering the Pacific Ocean made an equally loud statement in favor of free trade."

The piece reads largely like an editorial in favor of the TPP. It includes no comments from critics of the pact and ignores the fact that the TPP did little to actually reduce trade barriers since most of these were already low. The United States already had trade pacts with six of the other eleven countries in the pact.

The TPP was mostly about locking in a business-friendly structure of regulation, including special tribunals (investor–state dispute settlement tribunals) which would only be open to foreign investors. These tribunals would effectively override US or state and local laws, imposing penalties for actions that the tribunal ruled to be in violation of the TPP.

A major thrust of the deal was also longer and stronger patent and copyright protections, with higher prices for prescription drugs being a major goal. This is of course 180 degrees at odds with free trade, but apparently, the paper likes the beneficiaries of these protections, so it simply turns reality on its head to promote them.

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That's the question NYT readers are asking after reading the lead sentence of an article on the signing of an agreement by the other eleven countries that had been part of the Trans-Pacific Partnership (TPP). The sentence tells readers:

"A trade pact originally conceived by the United States to counter China’s growing economic might in Asia now has a new target: President Trump’s embrace of protectionism."

If the point of the trade pact was to counter China's influence then it may not have been wise to turn over the structuring of the deal to corporate interests who dominated the working groups that crafted the individual chapters of the TPP. As a result of turning the crafting of the deal to industry groups, provisions such as longer and stronger patent and copyright protections will raise the prices of drugs and other items for the countries in the TPP.

It is not clear how making it more difficult for countries to pay for health care would be expected to counter China's growing economic might. The provisions on e-commerce could make it more difficult for countries to regulate Facebook and other social media companies so that they would have a harder time preventing the sort of fake postings that have been an important factor in U.S. politics. It is also not clear how such rules would help counter China's growing economic might.

The piece also includes projections from the Peterson Institute, a strong proponent of the TPP, that might mislead readers. It tells readers:

"Once it goes into effect, the agreement should generate an additional $147 billion in global income, according to an analysis by the Peterson Institute for International Economics. Its backers say it also will bolster protections for intellectual property and include language that could prod members to improve labor conditions."

This projection for growth, which is more than twice the projection issued by the United States International Trade Commission, will be equal to roughly 0.08 percent of GDP in 2032, the point where these gains are expected to be realized. This is roughly equal to one week of growth.

The projection from the Peterson Institute also does not take account of any losses from the longer and stronger patent and copyright-related protections in the pact. These protections, which can raise the price of drugs and other protected items by more than a hundred-fold, are equivalent to tariffs of many thousand percent. It is entirely possible that the distortions from these protections more than offset any gains from reducing already low trade barriers. 

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Ruchir Sharma had an NYT column warning about the risks of a trade war from the tariffs Trump is imposing on steel and aluminum imports. At one point the piece tells readers about rising protectionism across the world and says that as a result, "trade has yet to recover to its pre-crisis level."

The measure of trade the article gives is merchandise trade as a percent of world GDP. This measure is misleading since a major factor reducing this ratio is a fall in oil and other commodity prices. Before the crisis oil prices rose sharply, peaking at $150 a barrel in 2008. Other commodity prices also were very high in the years just before the recession.

The reduction in prices for commodities is a major factor in reducing the ratio of trade to GDP. In the case of oil, with more than 40 million barrels trade daily, a drop of $50 a barrel in the price would reduce the volume of world trade by more than $750 billion a year, or roughly one percent of world GDP. There is a similar story with other commodities.

It is also worth noting that weaker and shorter patent and copyright protections would also lead to a lower ratio of trade to GDP. If drugs are traded across borders at generic prices rather than patent-protected prices, this ratio will fall even though the volume of trade can be rising.

Royalties and licensing fees are not picked up in this measure since it is explicitly merchandise trade, which would exclude payments for services. This is another factor that would tend to depress the ratio. As the world economy shifts from goods production to services, it is pretty much inevitable that the ratio of merchandise trade to GDP drops over time.

This doesn't mean that Sharma is necessarily wrong about a rise in trade barriers over the last decade (certainly patent and copyright protections are getting stronger), only that the measure he uses to back up this assertion is not very useful.

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Yes, I am on vacation, but I had to take a break from my vacation to call attention to the amazing act of mind reading in a Washington Post article on the Trump administration's effort to nix federal funding for a new transit tunnel between New York City and New Jersey. While the piece notes the possibility that Trump's opposition to the project may be an act of political vengeance directed at Senate Minority Leader Charles E. Schumer, it tells readers:

"But Trump and his aides have come to take a different view of the project, seeing it as a potential boondoggle that should be funded by New York and New Jersey taxpayers."

Wow, isn't it fantastic that we have Washington Post reporters who can tell us how Trump and his aides actually "see" the project? After all, it might otherwise be hard to believe that anyone who wants to spend $25 billion on a wall along the Mexican border could see anything as a boondoggle.

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I'm on vacation until Thursday, March 8. Remember, don't believe anything you read in the newspaper until then.

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Neil Irwin wrote the piece I have been waiting for pretty much forever. He points out that economists estimates of the "non-accelerating inflation rate of unemployment (NAIRU)" have been repeatedly shown to be hugely wrong. In the 1990s, the accepted wisdom was that this number was close to 6.0 percent, with estimates falling on both sides of this number. Yet, the unemployment rate fell to 4.0 percent as a year-round average in 2000 without any noticeable uptick in the inflation rate.

More recently, most economists had put the NAIRU between 5.0 and 5.5 percent. With the unemployment rate now at 4.1 percent, we still see little evidence of any inflationary pressures in the economy and the inflation rate remains below the Fed's 2.0 percent target. The unemployment rates in Japan and Germany are also both well below estimates of their NAIRUs from just a few years ago.

In short, economists have this hugely important number wrong. It is hugely important because the Fed and other central banks use it as a metric to tell them when they should start raising interest rates to slow the economy.

As the piece points out, in the 1990s, prominent economists (including Janet Yellen) pushed for the Fed to raise interest rates to keep the unemployment rate from falling much below 6.0 percent. It was only because Fed Chair Alan Greenspan was not an orthodox economist that the Fed didn't raise rates and we saw the low unemployment of the late 1990s. This was the only period of sustained broad-based real wage growth since the early 1970s.

The failure of the economics profession to get this one right would be like sports analysts picking the Cleveland Browns as Superbowl winners at the start of 2017 season or music critics in the mid-70s pronouncing Bruce Springsteen as a no-talent bum who will never go anywhere.

Great to see the piece by Irwin. He was much more polite than I would have been.

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The Commerce Department released data on capital goods orders for January yesterday. As I noted, this is a hugely important early measure of the success of the Trump tax cuts. The ostensible rationale for the big cut in the corporate tax rate that was at the center of the tax cut is that it will lead to a flood of new investment.

Since the outlines of the tax cut had been known since September, businesses had plenty of time to plan how they would respond to lower tax rates. If lower rates really produce a flood of investment we should at least begin to see some sign in new orders once the tax cut was certain to pass.

The January report showed orders actually fell modestly for the second consecutive month. The drop occurs both including and excluding volatile aircraft orders. While this is far from conclusive, it is hard to reconcile with the view that lower taxes would lead to a flood of new investment.

Remarkably, these new data have gotten almost no attention from the media. Both the NYT and the Washington Post ran an AP story that just noted the drop in passing. Doesn't anyone care if the tax cut works?

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News must travel slowly to corporate headquarters these days. How else can we explain the fact that corporate America isn't rushing out to invest in response to the big tax cut Congress voted them last year?

According to data released by the Commerce Department, orders for non-defense capital goods fell by 1.5 percent in January after dropping 0.4 percent in December. We get the same story even if we pull out volatile orders for aircraft: a drop of 0.2 percent in January after a fall of 0.6 percent in December.

While these declines would not be a big story in normal times (the economic impact is very limited), they are huge in the context of the tax cuts. The main rationale for the cut in corporate tax rates was that it was supposed to lead to a surge in investment.

While investment takes time to put in place, these data are showing us orders. Orders can be made over the Internet or an old-fashioned landline telephone. They don't take a lot of time.

And keep in mind, while the bill just passed in late December, the basic outlines had been known since early September. Fast-moving companies will begin to make plans from the day the bill seemed likely to pass, they aren't going to wait until Donald Trump puts his pen to it and then start asking what they should do.

The businesses in Pyeongchang didn't just start making plans for the Olympics the week the games opened, the hotels and restaurants began their expansion plans as soon as they knew Korea had landed the Olympics. We should expect the same story with corporate investment.

If the tax cuts matter for investment, then companies like GE, Microsoft, and Amazon were making plans as soon as it became clear that the Republican majority in Congress was serious about passing a tax bill. The fact that we are seeing zero evidence of an uptick in investment suggests that tax cuts don't have much impact on investment. 

Rather than being about promoting economic growth that would lead to productivity gains and higher wages for ordinary workers, the tax cuts were actually just another way to redistribute more money upward. As Speaker Ryan always says: #RichPeopleNeedTaxCuts.

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For those following such things, the strike by West Virginia school teachers, with an average annual pay of $45,700, is rather impressive. Yes, they want decent pay for themselves, but this is also about the quality of education for students in West Virginia.

We know that rich people think that teachers should be willing to educate children for nothing, but that is not the way the world works, at least in an economy where the government has not acted to ensure that unemployment is very high. Good teachers will look to the better-paying jobs in other states, or leave the profession altogether.

Even someone very committed to teaching would like to be able to have a decent home, be able to pay for their own kids upbringing, and also have some money for retirement. If the pay in West Virginia is not enough to allow for this, they won't stay. This will leave the state with high turnover and teachers who don't care much about educating children.

It is also worth noting that this strike is taking place at the same time the Supreme Court is hearing the Janus case, which is a right-wing effort to deny public employees' freedom of contract. (If Janus wins, they will not be able to have contracts that require everyone who is represented by a union share in the cost of representation.) This is yet another effort to tilt the playing field so that workers have less power, and presumably, will have to accept lower pay and benefits.

For those who like to make such comparisons, the average West Virginia teacher makes less than 20 percent of the average doctor, less than 10 percent of what many highly paid specialists earn, and probably around 1 percent of the salary of the hedge fund and private equity crew that get paid to lose money for university endowments. There's nothing like a system where people are rewarded on merit. 

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