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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One of the central themes in the Republican drive to repeal Dodd-Frank is the claim that it has made it difficult for businesses to get credit. This assertion is often given the he said/she said treatment, as in this Washington Post piece today. (Actually, it's often just given the he said treatment, where the assertion is accepted as fact, with the question being whether a reduction in business credit is worth making the banking industry safer.)

There is actually evidence that we can look to in order to assess the ability of businesses to get credit in the Dodd-Frank era. On the one hand we can look at the interest rate on high-yield bonds as being the cost of capital to many mid-size firms that are big enough to get access to the bond market, but still far too risky to qualify as investment grade.

Rates in this market, as well as spreads against Treasury bonds, have been extraordinarily low in recent years. In fact, there were so low that Fed chair Janet Yellen warned against a bubble in this market in the summer of 2014. The other major piece of evidence is the self-assessment of businesses of the problems they face in getting credit.

The National Federation of Independent Businesses (NFIB) has been surveying its members on the problems they face in their business. They explicitly ask about credit conditions. In recent years, this has been a very minor problem and in fact last year hit record lows for the survey.

While all surveys have methodological issues, there is no reason to believe that the NFIB would tilt its findings to make credit look like less of a problem than it actually is. Nor is plausible that credit could be a major problem for a substantial portion of U.S. businesses but not for the businesses included in the NFIB survey.

In short, we do have evidence on the question of Dodd-Frank undermining access to business credit and it is unambiguous, it has not posed a major problem. The claim that Dodd-Frank has prevented businesses from expanding and undermined the recovery is one of those alternative facts that is so popular in political debates these days. It should not be taken seriously.

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According to the Wall Street Journal, Donald Trump and the Republicans in Congress are looking to get rid of the Dodd-Frank financial reform bill and to repeal the fiduciary rule which requires financial advisers to give advice that is in the best interest of their clients. Without this rule, many financial advisers would give advice to clients suggesting they invest in products which may not be good for them, but pay the advisers a high commission.

While the fiduciary rule and the consumer protections in Dodd-Frank are often portrayed as being important for consumers, which they are, they also serve an important economic purpose. If we make it more difficult to make profits by designing deceptive profits, then banks and other financial institutions will have to do things like offering better service and lower fees to attract customers. While ripping off customers is simply a form of redistribution (from customers to bankers and shareholders) providing better service and products is economic growth. In other words, people who care about growth rather than redistributing income upward should be in favor of these regulations.

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The discussion of the Trump administration's view of the value of the dollar by Neil Irwin is somewhat confused. Irwin wrongly asserts that Treasury secretarys have always argued for a strong dollar:

"If you asked the Treasury secretary his view of the dollar, the answer would be equally rote: 'A strong dollar is in the interest of the United States.'"

This is not true. There have been many occasions in the past when Treasury secretaries have quite openly worked to bring down the value of the dollar. In the mid-1980s, Reagan's Treasury secretary James Baker met with his counterparts in major trading partners to negotiate a decline in the value of the dollar in the Plaza Accord. The point was quite explicitly to reduce the U.S. trade deficit.

There was a similar story in the early years of the Clinton administration. A main goal of his deficit reduction package was to lower the value of the dollar, thereby reducing the U.S. trade deficit. Lloyd Bentsen, Clinton's first Treasury secretary indicated he was content to see the dollar fall in response to the decline in interest rates in the United States.

The strong-dollar policy began with Robert Rubin becoming Treasury secretary. This led to an explosion in the U.S. trade deficit and the massive imbalances that led to the housing bubble and the Great Recession that followed its collapse. So, a strong dollar hardly has a solid pedigree either in economic theory or reality.

The piece also perversely warns that is a border adjustment tax isn't fully offset by a rise in the value of the dollar:

"...the tax would hit American consumers and retailers hard."

If the Trump administration wants the dollar to fall then it must have the intention of increasing import prices. This generally doesn't "hit American consumers and retailers hard" because the net effect on the price of most items they buy is limited. (Recall the huge rise in prices associated with the 30 percent drop in the dollar from 2002 to 2008? Yeah, no one else does either.)

In other words, higher import prices is a feature, not a bug. It is a necessary aspect of a policy intended to reduce the trade deficit and create more jobs in manufacturing.

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During his presidential campaign Donald Trump frequently talked about how he used campaign contributions as payoffs to advance his business interests. He boasted that if you give politicians money they have to do what you want. In an apparent effort to further advance his business interests, Donald Trump is pushing a plan that would allow him to get taxpayer subsidies for these payoffs.

He proposed a plan that would overturn current law, so that tax-exempt churches could get directly involved in political campaigns. (The NYT article is inaccurately headlined, saying that Trump would end "law banning political endorsements by churches." There is no law that blocks churches from making political endorsements. The law only blocks endorsements by organizations with tax-exempt status.)

If Congress follows the path proposed by Trump, he would be able to make tax-deductible donations to a church-like organization, which would then pass them on as payoffs to politicians of Mr. Trump's choosing. This would mean, for example, that he could donate $100 million to the First Church of Trump. Since this donation would be tax deductible, he would get 40 percent, or $40 million, written off of his taxes. The Church of Trump would then make contributions to the candidates of Trump's choosing. He would then call upon these politicians for favors he needs to boost his businesses profits.

It will be interesting to see if the same Congress will be able to vote for both cuts to people's health care and subsidies to Donald Trump's political payoffs.

 

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While intellectual types are writing all sorts of grand treatises on how automation is going to take all the jobs and leave most people unemployed, the folks at the Bureau of Labor Statistics who actually collect the data haven't gotten the message. They released data today on productivity growth (this is the measure of the rate at which automation is reducing the need for labor) for the 4th quarter of 2016. 

The data showed that productivity grew at a 1.3 percent annual rate in the 4th quarter and is now 1.0 percent higher than it was a year ago. This is roughly the same pace that productivity has grown for the last decade. It is an extremely slow rate of productivity growth. Productivity had grown at close to a 3.0 percent rate from 1995 to 2005 and also in the long Golden Age from 1947 to 1973.

In other words, instead of automation moving along at an incredibly rapid rate leading to mass displacement of workers, it is actually advancing very slowly. We can put the threat of automation in the alternative facts category, albeit in the category of alternative facts that appeals to intellectual-types.

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Thomas Edsall has an interesting piece on the turn to right-wing populists in the United States and elsewhere in recent years. While he connects the turn to the right to economic hardship for the working class, he leaves out an important part of the story. The economic hardship for the working class was actually to a large extent the result of policies supported by the Democratic Party in the United States and social democratic parties across Europe.

In the United States, the Democratic Party supported trade, financial, and intellectual property policies that had the effect of redistributing income upward. In the case of trade, deals like NAFTA and the Trans-Pacific Partnership (TPP), were quite explicitly designed to put U.S. manufacturing workers in direct competition with low-paid workers in the developing world. The predicted and actual outcome of these policies is a loss of manufacturing jobs and downward pressure on the wages of non-college educated workers more generally. This policy was aggravated by the decision of the Clinton administration to push a high dollar policy that caused the trade deficit to explode.

At the same time, the self proclaimed "free traders" in the Democratic Party favored policies that protected doctors, dentists, and lawyers from the same sort of international competition. It's not surprising that working class voters would not be pleased with a party that was working to take away their jobs and push down their pay, and derided them as stupid "protectionists" for opposing the policies, even while they personally were benefiting from protectionists policies.

In this vein, longer and stronger patent and copyright protections also have the effect of redistributing upward. Similarly, the regulatory policies directed towards the financial industry, including free too big to fail insurance, also have the effect of redistributing upward.

In Europe, the push for needless austerity, which has generally been embraced by social democratic parties, both directly and indirectly hurt the working class. The direct effect shows up in cuts in areas like health care, education, and pensions. The indirect effect is high unemployment and lower wages.

For these reasons, it is not surprising working class voters would not be happy with the establishment parties they have traditionally supported even if the right-wing populists may not offer a coherent economic alternative. (Yes, this is largely the point of my (free) book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.

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The response to Donald Trump's ban on Muslim immigrants has been reassuring. Millions of people have acted in various ways to express their opposition to this blatant act of bigotry. But as part of this story, we are being told that immigrants everywhere and always benefit all workers.

Far be it from me to criticize this great wisdom, which we can find in this Wonkblog post by Christopher Ingraham. So let's pretend that the people making this assertion have a shred of integrity. How about getting rid of the restrictions that make it extremely difficult for foreign doctors and dentists to practice in the United States?

Currently, foreign doctors are banned from practicing unless they complete a U.S. residency program. Foreign dentists are prohibiting from practicing in the United States unless they graduate a U.S. dental school. (We have allowed graduates of Canadian schools since 2011.) As a result of these protectionist measures our doctors earn on average more than twice as much as doctors in other wealthy countries, netting more than $250,000 a year. Our dentists also get paid twice as much, averaging close to $200,000 a year. This protectionism costs us close to $100 billion a year in higher health care costs.

So we all agree that protectionism is bad and that we want more immigrants, so how about it? Will we tear down the walls barring qualified doctors and dentists, or are all of our open border types not really sincere?

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Four years ago, we calculated the potential savings to the federal and state governments, as well as beneficiaries, from lower drug prices. In the paper, Reducing Waste with an Efficient Medicare Drug Benefit, we compared how much people in the United States paid for drugs with payments in other wealthy countries. We then calculated how much the federal and state governments, as well as beneficiaries, would save on the Medicare prescription drug benefit if we paid the same amount for drugs as people in other countries.

The calculation had low and high savings scenarios. In the low savings scenario, it was assumed people in the United States would pay as much for prescription drugs as in Canada, the highest country in the group. This involved savings of 27.8 percent on drugs, since Canadians pay on average 72.2 percent as much as people in the United States. The high savings scenario was based on drug payments in Denmark, which are on average 34.5 percent as high as in the United States, implying a savings of 65.5 percent.[1]

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The Fed raised interest rates last month because they said the economy was getting close to full employment and they were worried about accelerating inflation. The data do not provide much support for this concern.

Last week the Commerce Department reported that the core personal consumption expenditure deflator rose at just a 1.3 percent annual rate in the fourth quarter. This is well below the 2.0 percent average rate targeted by the Fed.

This morning the Bureau of Labor Statistics reported that the Employment Cost Index, which includes benefits and not just wages, rose at 2.0 percent annual rate in the fourth quarter and has risen just 2.2 percent over the last year.

The latest data suggest that inflation might even slowing rather than rising, indicating that there is no reason whatsoever for the Fed to weaken the labor market and slow job growth with further rate hikes. In other words, the Fed is shooting at phantom inflation.

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The New York Times ran a piece discussing in detail Republican efforts to repeal the financial reform bill passed under President Obama. The piece includes a quote from Representative Jeb Hensarling, the chairman of the House Financial Services Committee:

“Republicans on the Financial Services Committee are eager to work with the president and his administration to unclog the arteries of our financial system so the lifeblood of capital can flow more freely and create jobs.”

It would have been worth noting that the claim businesses are unable to get capital in the current environment has nothing to do with reality. The National Federation of Independent Businesses has been conducting surveys of its members for more than forty years. Their survey finds that access to credit today is less of a problem now than at almost any previous time.

It would have been useful to point this fact out to readers so that they would know that Mr. Hensarling either has no idea what he is talking about or is deliberately lying to advance his agenda for repealing Dodd-Frank.

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That's not exactly what he said but pretty damn close. Since you get thrown out of elite circles if you question the merits of the Trans-Pacific Partnership (TPP), the members are doubling down. They are insisting that terrible things will happen now that the TPP is dead.

David Leonhardt picked up the mantle in his NYT column today telling readers to counteract China, the countries of the region supported the TPP. He says they were:

"...willing to adopt American-style rules on intellectual property, pollution and labor unions, even though those rules created some political tensions in those countries."

Among the rules on intellectual property was the retroactive extension of copyrights, requiring that countries protect works created in the past for at least 75 years. The retroactive extension of copyrights makes virtually no sense. Copyright monopolies are supposed to provide an incentive to produce creative work. While longer copyrights can in principle provide more incentive going forward they can't provide incentive for past behavior.

Retroactive copyright extension has been a practice in the United States in large part to keep Mickey Mouse under copyright protection. The length of copyright has twice been extended retroactively in the United States as a result of Disney's ability to lobby Congress. 

This sort of protectionism is very costly. The Obama administration, at the request of the entertainment industry, the software industry, and pharmaceutical industry, insisted on stronger and longer patent and copyright related protections in the TPP. Unfortunately, the projections of the economic impact of the TPP do not take account of the costs of these protections.

Anyhow, it is worth noting these handouts to politically powerful corporations. If the future of the free world depends on the TPP, as Leonhardt argues here, then maybe it shouldn't have included measures that will hugely raise the cost of everything from prescription drugs to software to Mickey Mouse memorabilia.

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It really is amazing how much effort elite types expend denying that trade has cost us manufacturing jobs. The latest entry is from Robert Samuelson who tells us that it isn't true that manufacturing jobs have been lost to trade. Samuelson's main source on this is Brad DeLong, who is actually a very good economist and surely knows better.

Samuelson tells readers:

"Contrary to popular opinion, trade is not a major cause of job loss. It’s true that U.S. manufacturing has suffered a dramatic long-term employment erosion, sliding from roughly one-third of nonfarm jobs in 1950 to a quarter of jobs in the early 1970s to a little less than 9 percent now, according to economist J. Bradford DeLong of the University of California at Berkeley in an essay posted on Vox. But the main cause is automation."

The cheap trick here is going back to 1950. Yes, we have lost lots of manufacturing jobs to automation and over a 70-year period that does swamp the impact of the jobs lost due to trade, but this is really a dishonest way to present the issue. Manufacturing was declining as a share of total employment even in the 1950s and 1960s, but the pace was modest enough and we were creating enough jobs in other sectors that the job loss still allowed for real wage growth in both manufacturing and the economy as a whole.

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Wow, things just keep getting worse. Automation is taking all the jobs, and the aging of the population means we won't have any workers. Yes, these are completely contradictory concerns, but no one ever said that our policy elite had a clue. (No, I'm not talking about Donald Trump's gang here.)

Anyhow, the Washington Post had a front page story telling us how older people are now working at retirement homes in Japan as a result of the aging of its population. The piece includes this great line:

"That means authorities need to think about ways to keep seniors healthy and active for longer, but also about how to augment the workforce to cope with labor shortages."

You sort of have to love the first part, since folks might have thought authorities would have always been trying to think about ways to keep seniors healthy and active longer. After all, isn't this a main focus of public health policy?

The part about labor shortages is also interesting. When there is a shortage of oil or wheat the price rises. If there were a labor shortage in Japan then we should be seeing rapidly rising wages. We aren't. Wages have been virtually flat in recent years. That would seem to indicate that Japan doesn't have a labor shortage — or alternatively, it has economically ignorant managers who don't realize that the way to attract workers is to offer higher pay.

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The headline warned readers that the Republican's proposal for reforming the corporate income tax is coming for your toys, literally:

"Trump-era tax reform could come for your toys."

Okay, we get it. The Washington Post doesn't like the tax reform and is not content to keep its views to the opinion pages. (This article ran at the top of the Sunday business section.)

The basic story is almost Trumpian in its unreality. The tax reform includes a border adjustment tax on imports. This is similar (not identical) to what countries with value-added taxes do, which is almost every other wealthy country. The conventional wisdom among economists is that currencies adjust so that the net effect on the price of imports, including toys, is minimal.

While this piece notes this argument, it implies that consumers and retailers have great cause for concern over the tax. In this respect, it is worth pointing out that currencies fluctuate by large amounts all the time, in ways that are likely to have far more impact on the price of imported toys than this tax. The figure below shows the inflation-adjusted value of the dollar measured against the currencies of our major trading partners.

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The current corporate income tax is a massive cesspool. There are so many routes for avoidance that it is almost becoming voluntary. This matters not only because we don't get the revenue we should from the tax, but also because it has created a massive tax avoidance industry.

The tax avoidance industry is a big deal. This is an industry that contributes nothing to the economy. It involves people designing clever tricks to allow corporations to avoid paying their share of taxes.

The tax avoidance industry is also an important source of inequality since it is possible to get very rich designing clever ways to avoid taxes. My colleague Eileen Appelbaum  (along with Rose Batt) show how the private equity industry is largely a tax avoidance industry in their recent book Private Equity at Work. Many of the very richest people in the country got their wealth as private equity fund partners.

In his movie, Capitalism: A Love Story, Michael Moore highlighted "dead peasant" insurance policies. This is when a major company like Walmart buys life insurance policies on tens of thousands of front line workers, like checkout clerks. Usually the insuree doesn't even know of the existence of the policy, but if they die, the company collects. 

Moore emphasized the morbid nature of this game, but missed the real story. The point of these policies is to smooth profits, partly to manipulate share prices, but also for tax purposes. The real highlight of this story is that there is someone who likely got very rich by developing dead peasant insurance policies, rather than contributing anything productive to the economy.

I mention this as background to the corporate income tax discussion since to my view a major goal of corporate tax reform is to eliminate the enormous opportunities for gaming that currently exist. These opportunities are making some people very rich and are a complete waste from an economic standpoint.

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A Washington Post article on the future of the Consumer Financial Protection Bureau (CFPB) contrasted the arguments of supporters, that the CFPB has protected consumers from unethical practices from the industry, with arguments by opponents that it has hurt lending. (These arguments are false, small businesses report they have little trouble getting credit.) The discussion left out the economic efficiency story for the CFPB.

The basic story is that if it's possible to make lots of money by using deceptive contracts to ripoff consumers, then many very talented and hard-working people will spend their time developing schemes to ripoff consumers. Instead of doing things that contribute to consumers' well-being (e.g. developing better products), these people will be committing resources to redistributing from others to themselves. If the government makes it more difficult to profit from the ripoff route, then people who want to make lots of money will be forced to turn to productive routes instead.

By this logic, weakening the CFPB, and other measures designed to protect consumers, gives more incentives to businesses to design elaborate ripoff schemes. In addition to being bad for consumers, this is a waste from the standpoint of the economy as a whole and a drag on economic growth.

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By Dean Baker and Sarah Rawlins

Since the presidential election, there has been an ongoing debate about the extent to which support for Donald Trump by white, working-class voters was driven by racism, xenophobia, and misogyny, as opposed to economic hardships and insecurity. An aspect of this debate that is worth considering is that the size of the white working class (defined here as non-college educated) is itself dependent on the socioeconomic progress of this group.

Specifically, as the situation of the white working class improves, more children from white, working-class families will graduate from college. This means that the size of the white working class will shrink by this definition as they become more prosperous.

As we show below, if the percentage of college grads among the young had continued to increase in the years since 1979 at the rate it did in the years from 1959 to 1979, and we assume the same voting patterns among college grads and non-graduates as we saw in November, Hillary Clinton’s margin in the popular vote would have increased by 1.8 million.

Slowing Progress in College Graduation Rates

A big part of the story of the upward redistribution of the last four decades has been a slowing in the rate of growth of college graduates. The share of people age 25 to 29 who were college graduates increased by 12.0 percentage points from 1959 to 1979. Over the next twenty years it increased by just 5.1 percentage points. This slowdown affected both men and women and blacks and whites. Table 1 shows the percentage of college grads among this age group, by race and gender, for 1959, 1979, 1999, and 2015, the most recent year for which data are available.[1]

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A Reuters piece carried by the New York Times told readers:

"If built, TransCanada’s Keystone XL from Alberta to Nebraska would yield about $2.4 billion (C$3.2 billion) a year for Canada, split between government revenues, shareholder profits and re-investment into the still-recovering Canadian oil patch, according to a Conference Board of Canada research note prepared for Reuters on Thursday.

"That’s because the 800,000 barrels-per-day (bdp) line would provide cheaper shipping and a new outlet for the country’s vast but landlocked oil sands reserves, giving them increased access to the stronger U.S. market. Canadian producers could likely command around $2 more per barrel, analysts and investors said."

Okay, let's check this one. If the pipeline is used at its 800,000 barrels-per-day capacity, it will carry 292 million barrels over the course of a year. If it will lead to an additional $2 per barrel for Canadian producers, as the article reports, this implies an increase in revenue of $584 million a year. That is quite a bit less than the $2.4 billion a year touted in the first paragraph.

This looks like another case where someone is wrong on the Internet.

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En español

Donald Trump has indicated that he might slap high tariffs on imports from Mexico as a way to make the country pay for his border wall. While it's not clear this makes sense, since U.S. consumers would bear the bulk of the burden from this tax, it would certainly reduce imports from Mexico. It would also would violate NAFTA and WTO rules, thereby opening the door to a trade war with Mexico and possibly other countries.

Many have seen this as taking us down a road to ever higher tariffs, leading to a plunge in international trade, which would have substantial economic costs for everyone. However, Mexico could take an alternative path that would provide far more effective retaliation against President Trump, while leading to fewer barriers and more growth.

The alternative is simple: Mexico could announce that it would no longer enforce U.S. patents and copyrights on its soil. This would be a yuuge deal, as Trump would say.

To take one prominent example, suppose that Mexico allowed for the free importation of generic drugs from India and elsewhere. The Hepatitis C drug Solvaldi has a list price in the United States of $84,000. A high quality generic is available in India for $200. There are also low cost generic versions available of many other drugs that carry exorbitant prices in the United States, with savings often more than 95 percent.

Suppose that people suffering from Hepatitis C, cancer, and other devastating and life-threatening diseases could get drugs in Mexico for a few hundred dollars rather than tens or even hundreds of thousands of dollars in the United States? That would likely lead to lots of business for Mexico's retail drug industry, although it would be pretty bad news for Pfizer and Merck.

The same would apply to other areas. Medical equipment, like high-end scanning and diagnostic devices, would be very cheap in Mexico if they could be produced without patent protections. This should be great for a medical travel industry in Mexico.

There would be a similar story on copyright protection. People could get the latest version of Windows and other software for free in Mexico with their new computers. This is bad news for Bill Gates and Microsoft, but good news for U.S. consumers interested in visiting Mexico, along with Mexico's retail sector. Mexico could also make a vast amount of recorded music and video material available without copyright protection. That's great news for consumers everywhere but very bad news for Disney, Time-Warner, and other Hollywood giants.

Of course, the erosion of patent and copyright protection will undermine the system of incentives that now support innovation and creative work. This means that we would have to develop more efficient alternatives to these relics of the feudal guild system. Among other places, folks can read about alternatives in my book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer (it's free).

Anyhow, this would be a blueprint for a trade war in which everyone, except a few corporate giants, could be big winners.

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Richard Gonzales, NPR's ombudsman, addressed the question of why NPR does not say that Donald Trump is lying when he says something that is clearly not true. The immediate point of reference was Trump's assertion to an audience at the CIA that the media had invented the feud between Trump and the intelligence agencies, even though Trump had repeatedly made harsh public comments directed at them. 

Gonzales commented:

"On Morning Edition, Kelly [NPR reporter Mary Louise Kelly] explains why. She says she went to the Oxford English Dictionary seeking the definition of 'lie.'

"'A false statement made with intent to deceive,' Kelly says. 'Intent being the key word there. Without the ability to peer into Donald Trump's head, I can't tell you what his intent was. I can tell you what he said and how that squares, or doesn't, with facts.'

"NPR's senior vice president for news, Michael Oreskes, says NPR has decided not to use the word 'lie' and that Kelly got it right by avoiding that word."

While it is a good practice for reporters not to attempt to tell their audiences what is in a politician's head, this is not standard practice at either NPR or other news outlets. It is in fact quite common for reporters to tell us that politicians "believe" or are "concerned" about a particular issue or event.

For example, just yesterday NPR ran a segment on the budget which told us what Republicans "believe:"

"The House GOP's plan, as outlined, would add to the deficit in that it would very likely result in less revenue coming in, but Republicans believe their tax overhaul would generate significant economic growth to make up the difference."

I frequently complain about this sort of mind reading in Beat the Press (e.g here, here, and here). As Ms. Kelly and Mr. Oreskes said, reporters lack the ability to peer in politicians heads to determine what they are really thinking. Unfortunately, they have a tendency to claim that they do in their reporting. 

It is understandable that NPR does not want to claim that it knows the state of Donald Trump's mind. It would be a huge step forward if it would apply this standard in its reporting more generally.

 

Thanks to Keane Bhatt for calling this to my attention.

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In his column today Thomas Friedman was reasonably arguing for stronger supports for workers who are transitioning between jobs. However, the fundamental premise of his piece, that:

"every worker today will most likely have to transition multiple times to multiple jobs as the pace of change accelerates,"

...directly contradicts the economic assumptions used by the Congressional Budget Office (CBO) and other official forecasters.

While Friedman is asserting that pace of change in the economy will accelerate, in its most recent budget projections, which were highlighted in a front page story in the New York Times, CBO assumed that the pace of change in the economy would slow over the next decade. CBO assumed potential productivity growth will average just 1.3 percent annually over the next decade. This is down from an average of 1.7 percent over the period from 1950 to 2016, and a peak of 2.4 percent annual growth from 1950 to 1973 (Table 2-3).

Of course, it is possible that Friedman will be right and we may see a pace of change equal to the 1.6 percent long period average or even the 2.4 percent rate of the 1950s and 1960s. However, if this is true, then CBO has hugely over-estimated the size of the budget deficits we will be seeing in the next decade. Higher productivity growth will mean more economic growth and more tax revenue and therefore low budget deficits. In other words, if Friedman's claims about accelerating productivity growth are taken seriously, we have no reason to be worried about budget deficits.

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