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 NYT had an article reporting on how the Pew Research Center had discovered work done by the Economic Policy Institute for a quarter century (the middle class is hurting). At one point the piece compares the United States with France and Germany:

"The United States, including the middle class, has a higher median income than nearly all of Europe, even if the Continent is catching up. The median household income in the United States was $52,941 after taxes in 2010, compared with $41,047 in Germany and $41,076 in France."

When making such comparisons it is important to note that people in Europe work many few hours than people in the United States. Five or six weeks a year of vacation are standard. In addition, these countries all mandate paid sick days and paid family leave.

According to the OECD, the length of the average work year in the United States in 2015 was 1790 hours. It was 1482 hours in France (17 percent fewer hours) and just 1371 hours (23 percent fewer hours) in Germany. While these comparisons are not perfect (there are measurement issues) it is clear that people in these countries and the rest of Europe are working considerably fewer hours than people in the United States in large part as a conscious choice. This should be noted in any effort to compare them.

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I see Noah Smith is struggling to explain "the mystery of labor's falling share of GDP." At the risk of jeopardizing good paying jobs for people with PhDs in economics, let me suggest that there is no mystery to explain.

Noah's piece features a graph showing the labor share of GDP declining from a range of 64 to 65 percent in the 1960s and early 1970s to just over 60 percent in the most recent data. He then gives us several possible explanations for this drop. Let me give an alternative one, there was no drop or at least not much of one.

Suppose we look at the labor share of net domestic product. This is GDP after removing depreciation. This makes sense since deprecation is not something to be divided by labor and capital. It is the amount of output needed to replace worn out plant and equipment. The story since 1960 is below. (For those wanted to check the numbers, labor compensation comes from NIPA Table 1.10, Line 2; NDP from Table 1.7.5, Line 30.)

Book2 20935 image001Source: Bureau of Economic Analysis.

As we can see, there is no pattern of decline over the last five decades. In fact, the labor share of net domestic product is higher today than it was in the sixties. The labor share did fall sharply in the Great Recession, but this seems easy to attribute to the extraordinary weakness of the labor market. The share is now recovering and my bet is, that if the Fed can be prevented from slamming on the brakes, the labor share will soon return to the levels we saw in most of the period from 1970 to the early 2000s.

Of course, this doesn't mean that there was not an upward redistribution of income, but rather that it was mostly from low- and middle-wage earners to high wage earners. The latter group including doctors and dentists, Wall Street financial-types, CEOs and top executives, and folks in a position to benefit from patent and copyright rents. (This is the topic of Rigged: How the Rules of Globalization and the Modern Economy Were Structured to Make the Rich Richer.)

So we should definitely be worried about the upward redistribution of income, but it is not a story of a shift from wages to profits. But undoubtedly we can keep many eocnomists employed for some time trying to explain something that did not happen.

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It would have been worth including this point in an interesting column by Gretchen Morgenson noting how bank regulators remain close to the industry they regulate. The point is straightforward. If banks can make profits by writing deceptive contracts and finding ways to trick consumers, then they will devote resources to this effort, instead of concentrating on providing better services and reducing costs.

From the standpoint of the economy, devoting resources to ripping off consumers is a complete waste. It simply redistributes money from the rest of society to the banks. For this reason, people who care about economic growth should support measures that prevent predatory practices by the financial industry.

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On the day of the March for Science the NYT ran a column by Chad Terhune, a senior correspondent for Kaiser Health News and California Healthline, telling readers that the economy was dependent on the health care sector to generate employment.

"The country has grown increasingly dependent on the health sector to power the economy, and it will be a tough habit to break. Thirty-five percent of the nation’s job growth has come from health care since the recession hit in late 2007, the single biggest sector for job creation."

Okay, this is the story that we don't have enough work to fully employ people. If we didn't waste huge amounts of labor doing needless tasks in the health care sector, then millions of workers would be out on the street having nothing to do.

That sounds really bad. It's also 180 degrees at odds with the conventional concern of economists, which is scarcity, an inadequate supply of labor. We see this story all the time in various forms. Just yesterday the Washington Post told readers about how the retirement of baby boomers was leading to a shortage of workers in construction and trucking.

More generally, the concern frequently expressed by the Washington Post, that an overly generous disability system is leading too many people to leave the labor force (actually we have the least generous system among rich countries), or concerns about budget deficits generally, are concerns about scarcity. In effect they mean that we don't have enough workers to do what needs to be done. (For the record, the data seem to agree with the scarcity folks for the now, with productivity growth at historic lows for the last decade.)

Anyhow, it is striking that we have seemingly serious people who are 180 degrees at odds on this one. Either the planet as a whole is getting warmer or cooler, it can't possible be both. Experts on climate science appear to be in agreement on this one. Unfortunately, in economic policy, we don't need seem to know which way is up.

Perhaps even worse, no one gives a damn.  

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Germany is running an annual trade surplus of more than 8.0 percent of its GDP (equivalent to $1.6 trillion in the U.S. economy). This huge trade surplus translates into large deficits for the rest of the world. This is the largest single cause of the problems facing Greece, Italy, Spain, and even France. All are seeing their growth and employment seriously constrained as a result of the large German trade surpluses.

In the good old days before the euro, Germany's trade surplus would have led to a run-up in the value of its currency making its goods and services less competitive in the world economy, which would have diminished its surplus. However, now that Germany is in the euro, this mechanism for adjustment does not exist.

In the absence of an exchange rate adjustment, the mechanism for addressing the trade imbalance would be more rapid inflation and growth in Germany. The inflation would adjust relative prices and the growth would pull in more imports from Germany's trading partners. For reasons that seem largely grounded in superstition, Germany refuses to embark on a more rapid growth path (it is running a budget surplus) and continues to maintain a very low inflation rate. (The two are directly linked, since more rapid growth would be the mechanism for increasing the inflation rate.

Instead of giving these basic facts to readers, the NYT ran a Reuters article that reported the dispute as a silly he said/she said. It told readers:

"The Trump administration has criticized Germany for its large trade surpluses with the United States, while Germany has said its companies make quality products that customers want to buy."

The German response is of course meaningless. The fact that it has a trade surplus means that people want to buy its products at their current prices. If there was an adjustment process that made the German products, say 20 percent more expensive, many fewer people would want to buy them.

The piece also bizarrely asserts that the reform of the corporate income tax being considered by Republicans is "protectionist." It is not obviously protectionist in a way the refunding of the value added tax on exports is protectionist, and it is certainly not as obviously protectionist as patent and copyright protection. In effect, what Reuters was telling readers is that it doesn't like the tax proposal and they should not either.

 

Note: Typos corrected from an earlier post. Thanks to Robert Salzberg and MichiganMitch.

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The Washington Post had an interesting piece on how employers in traditionally male-dominated industries, like construction and trucking, are increasingly looking to hire women. While opening up these relatively high-paying sectors to women is certainly good news, the argument in the article really does not make sense.

The piece asserts that employers are having difficulty finding qualified workers, in large part because of the retirement of large numbers of baby boomers. If employers are really having trouble finding workers then we should see rapidly rising wages in these sectors. We don't.

The piece focuses on iron workers, a skilled construction trade. According to the Bureau of Labor Statistics, the average real hourly wage among specialty trade contractors, the category that includes iron workers, has risen by less than 3.0 percent since its peak in 2002.

Average Hourly Earnings: Specialty Trade Contractors

 

construction specialty

Source: Bureau of Labor Statistics.

That is annual rate of increase of roughly 0.2 percent. That is not what we would expect in an occupation facing a labor shortage. (Earnings are expressed in 1982–84 dollars, multiply by roughly 2.5 to get 2017 dollars.) It's great that doors are being opened to women, but there is not evidence of a labor shortage in this sector.

The piece also included an interesting discussion of a looming worker shortage in the trucking industry:

"The American Trucking Associations, meanwhile, declared in a recent report that the industry needs to add almost 1 million new drivers by 2024 to replace retired drivers and keep up with demand."

In recent months there have been endless news stories about how self-driving vehicles were going to lead to mass unemployment in the trucking industry. This seems like more evidence of the which way is up problem in economics; we will either have a massive shortage of workers in the trucking industry or mass unemployment. Whichever, it clearly is a serious problem.

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The New York Times ran a column by Michael Rips that inadvertently called attention to a major tax scam. Rips is unhappy because when artists and other creative workers donate their work to a museum or other charitable institution they can only deduct the value of the materials on their taxes. They cannot deduct the full market value of the work, nor any amount for their labor.

There is a simple reason why they can't deduct the value of their labor from their taxes, they never paid taxes on their labor in the first place. Suppose a doctor or a lawyer could do work for school and then deduct the value of this work without ever paying taxes on it. This would be a very nice subsidy to the doctors or lawyers, but it doesn't make sense as tax policy. Nor does it make sense to allow artists to deduct the market value of their work, if they had not already paid taxes on it.

But Rips does call attention to an important discrepancy in the tax code. Suppose a rich person buys a painting for $5 million and then donates it to a museum twenty years later when it has a market value of $50 million. The rich person is allowed to deduct the full market value of $50 million from their taxes, even though they only paid $5 million for the painting.

There is no obvious rationale for this sort of arrangement and it naturally encourages cheating. (Find me an appraiser who will say that my $40 million painting is worth $50 million and it gets me another $4 million off my taxes.) The more logical path would be to limit the person to deducting the original price of the work (perhaps with an inflation adjustment). The rich person could of course sell the painting, pay the capital gains tax, and then donate the proceeds to the museum, but then the museum doesn't get the painting.

Anyhow, we know it's hard to be rich, but there is no reason to have special tax breaks like the one Rips calls attention to.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Note:

Typos corrected, thanks for Robert Salzberg and Boris Soroker.

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

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

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

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

Year over Year Change in Core CPI, Excluding Housing

CPI core housing

Source: Bureau of Labor Statistics.

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

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

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

Book3 22059 image001

Source: See text.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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