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 highlighting the latest Beat the Press posts.

Please also consider supporting the blog on Patreon.

Follow on Twitter Like on Facebook Subscribe by E-mail RSS Feed

This would be a useful follow up to an NYT article telling readers who stands to make lots of money if these companies command high prices in IPOs, as seems likely to be the case. Some of these companies, like Uber, have never made a profit, and none of them make profits that could come anywhere close to justifying their IPO price.

Furthermore, at least in the case of Uber and Lyft, their business model seems to depend on breaking the law. Specifically, they hope to save money by having their drivers classified as independent contractors, which gets them out of paying for unemployment insurance, Social Security, and other taxes and responsibilities.

If we assume that these companies either don't become profitable or just earn small profits, then at some point their stock prices are likely to come crashing down to earth. (Think of the Internet companies of the late 1990s.) In that case, the people who buy the stock after the IPOs will be big losers. This is likely to include many pension funds, many workers with 401(k)s invested in the stock market, and a few suckers buying individual stocks, who think that these companies will be the next Apple.

Hyping companies like Uber in the business press is a great way to transfer income upward. It would be good if it stopped doing it.

Add a comment

Polls consistently show that the public hugely overestimates the share of the budget that goes to items like SNAP (food stamps), Temporary Assistance to Needy Families (TANF), and foreign aid. People will typically give answers in the range of 20 to 30 percent of the budget for these categories of spending. In reality, the shares are 1.5 percent for SNAP, 0.4 percent for TANF, and 0.4 percent for foreign aid.

I would argue that this matters, since the public’s willingness to support a program depends in part on how much they think we are spending on it. This is for two reasons, the first is simply that people are only willing to pay a limited amount in taxes to help the poor here and abroad. If they already think they are spending a lot for this purpose, they will be reluctant to spend more.

The other reason is that people will reasonably be concerned about the efficiency of the programs. If all our tax dollars are going to help poor people, and yet we still have so many people in poverty, then our anti-poverty programs must not be very efficient. If that is the case, added additional dollars probably will not do much to help the poor. Nor will modest cuts do much to harm them.

All of this seems pretty straightforward and not really debatable, yet when it comes to educating the public on the true size of these programs, interest is very close to zero. That is hard to understand, especially when the route to a better-educated public is pretty easy to see.

The most obvious reason that people grossly overestimate the amount of spending on these programs is that their budgets are always discussed as billions of dollars. No one knows how much billions of dollars are, except that it means lots of money.

Discussing budget numbers in millions, billions, and trillions is incredibly irresponsible reporting. It is the job of the media to be informing their audience. Writing that food stamps cost $70 billion a year, or that TANF costs $20 billion, is not informing readers. It is just putting down numbers, equivalent to a mindless fraternity ritual, that serves no informational purpose.

Add a comment

The NYT had a good piece on efforts to have states classify gig workers, like Uber drivers, as independent contractors. The piece describes how Tusk Holdings, a lobbying firm, has been circumventing state legislatures and trying to get state agencies to make the determination that gig workers are contractors.

When explaining the problem with the independent contractor classification, the piece understated the anti-trust issue involved. It told readers:

"Uber and Lyft also determine pay rates for drivers, something independent contractors typically decide."

It is not just a practice that independent contractors decide their own pay rates, it is the law. If they combined to set pay scales they would likely be violating anti-trust laws which prevent such collusion. If we accept their claim that their drivers are independent contractors, Uber, Lyft, and other gig economy employers are effectively engineering the sort of collusion that is prohibited by anti-trust law. Uber currently is facing lawsuits for exactly this reason.

Add a comment

Fred Hiatt, the editorial page editor of the Washington Post, used his column today to say that people on the left had developed Trumpian ways of viewing the world. For example, he said they value "the simple over the complex," using the example of people pushing the universal Medicare system in Canada as a solution to US health care problems. He warns about choosing "scapegoats over solutions," telling readers, "if your candidate starts telling you that everything would be fine if we just went after billionaires, or big banks, or big tech, or...be nervous." And he also warns of "winner-take-all politics over compromise."

Hiatt, of course, works for Jeff Bezos, the world's richest person, who owns the Washington Post. While it is unlikely that such a billionaire (or even hundred millionaires) exists, imagine one ran a newspaper where people got paid to ridicule centrists like Hiatt. There certainly is much material in Hiatt's column and which appears regularly in The Washington Post.

Starting with Hiatt's last point, if a Democratic candidate is running on a platform where they claimed they would work with Senate majority leader Mitch McConnell, that person is dangerously out of touch with reality. There was a Democratic presidential candidate who tried this, named Barack Obama.

When he proposed his stimulus package he openly said that it was a starting position. He asked for Republican input. He said that he wanted the package to pass the Senate with 80 votes. After much work, and compromise, he got three Republican votes in the Senate, one of whom subsequently switched parties to become a Democrat. He got zero Republican votes in the House.

Obama tried the same approach with the Affordable Care Act, delaying the vote for many months as he allowed Republicans to debate and amend the bill. This got zero Republican votes in either the House or Senate. (One House Republican cast his vote in favor after the bill already had a majority.)

Perhaps Hiatt is too young to remember this history.

In terms of favoring simple over complex, how about centrists who insist that we need lower deficits or balanced budgets. These folks have literally cost our children tens of trillions of dollars of lost output, meaning the economy will be permanently smaller, because they blocked larger budget deficits that could have sped the recovery from the Great Recession. It's much simpler to say that smaller deficits and debt are good, just like a family budget, than to deal with how the economy actually works.

We could also point out how people like Hiatt never discuss government-granted patent and copyright monopolies as burdens the government imposes on the public. These monopolies are ways in which the government pays for things it wants done (e.g. developing new drugs or developing software) without directly spending money. They are equivalent to privately imposed taxes. This burden comes to around $370 billion a year in the case of prescription drugs and perhaps over $1 trillion annually taken altogether. 

In terms of scapegoating, we can point to the centrists who repeatedly have told workers that the problem for most workers is that they don't have the right skills, not policies like trade or a weak economy. In spite of great efforts, the data just won't support the centrists' efforts to blame workers for the upward redistribution of the last four decades.

Yes, there are plenty of grounds for ridiculing the center as Trumpian, but rich people don't pay for that sort of thing. So, enjoy Fred Hiatt's trashing of the left, that's what Jeff Bezos pays for.

 

Add a comment

Just kidding, this is the Washington Post we're talking about. An article about how the Midwest floods are jeopardizing the survival of many family farms never once mentioned climate change. While it is impossible to link any specific weather event to climate change, in the sense that we can't know what the weather would look like had it not been for the rise in greenhouse gases (GHG) worldwide, we do know that climate change will lead to unusual weather patterns like the storms and flooding that hit the Midwest this month.

This would be useful background for those debating policy on global warming. While measures to reduce GHG will have serious costs, the cost of not doing anything will be many more destructive weather events like the Midwest floods. (These events are likely to be far more destructive in the developing world where governments are much less well-prepared to deal with the consequences.)

While the piece did highlight the negative impact that Donald Trump's trade war has had on farmers, it never once mentioned the negative impact of the rise in the dollar over the last two years. There is a world price for corn, soybeans, and other commodities. If the dollar rises by 10 percent against the currencies of our trading partners, this means that our farmers will get 10 percent less in dollar terms for their crops. Since most input costs for farmers are in dollar terms, this is a serious hit to US farmers.

It is bizarre that the WaPo never mentioned this fact in this piece, and in fact, rarely measures the impact of the value of the dollar on US trade more generally. This is the sort of thing that any intro econ student should know. It is also important in current trade debates since currency values was a major issue that Trump promised to raise with China in his campaign, although it seems to have largely disappeared in his trade negotiations with China.

Add a comment

Most progressives focus their efforts on getting better pay and benefits for those at the bottom and middle. This includes policies like raising the minimum wage, stronger overtime rules, and better Medicaid benefits. This is good and important work, which I have often engaged in myself.

However, it is also important to address the other side of the equation, all the money going to the rich. Many want to do this by having a more progressive tax structure. That would be good and could help to reduce inequality. But for both economic and political reasons, a better approach is to change market structures so the money doesn’t go to the rich in the first place.

There is far too little recognition of the extent to which the market is malleable. The idea that the market just generates inequality is nonsense. The market will generate inequality if we design it to generate inequality, as has been the case over the last four decades. If we design it differently, it will lead to more equal outcomes.

My favorite example is patent and copyright monopolies. This is both because they are economically important, but also because the issues should be easy to understand. These monopolies are quite obviously creations of government. It is not somehow a fact of nature or a given of the market that I can have someone arrested if they make a copy of my book or sell a drug I developed without my permission.[1]

It is amazing to me how many people, including economist people, fail to see that these monopolies are government created and can be weakened or strengthened as we choose. The basic story is straightforward, these monopolies are ways in which the government provides incentives for innovating and creative work. But, if we are worried that the people who innovate and do creative work are getting too much money at the expense of everyone else, then it is a really simple thing to make these incentives less generous.

It is frankly mindboggling that this point seems to never come up in debates on inequality. I have heard any number of liberal economists do handwringing exercises over the concern that the spread of robots, artificial intelligence, and other new technologies will redistribute income from people who work with their hands to the people who “own” these technologies.

Add a comment

We all know that Donald Trump insists that he is too ignorant to recognize the dangers to the planet of human-caused climate change. While the NYT has pretensions of being more interested in science and reality, it printed a column this morning by Steven Rattner that suggests the opposite.

Rattner says that we have to do something about climate change, but quickly dismisses the idea of a Green New Deal as far too expensive. His alternative is a carbon tax that would start at $43 a ton and then rise at the rate of 3 to 5 percent annually. As authority, he cites a letter signed by 3,300 economists supporting the tax. (I was one of these economists. I disagreed with the emphasis on the tax route, but felt it important to have a statement from economists across the political spectrum that emphasized the urgency of doing something on climate change.)

While a carbon tax should be an important part of a solution to global warming, the claims advanced by Rattner are literally absurd. His column included a graph that shows emissions falling by 20 percent in 2021 when the tax is first introduced. They continue to fall rapidly so that by 2035 in the 3 percent increase scenario emissions are down by 31 percent from the baseline and in the 5.0 percent scenario they are down by more than 37 percent.

The reason this is absurd is that the levels of tax proposed by Rattner are very modest and would have only a limited effect on emissions. According to Rattner, the $43 a ton tax would add 38.2 cents to the price of a gallon gas. By 2035, in the 3.0 percent tax rise scenario, this would be up to about 58 cents. In the 5 percent increase, it would be up to 76 cents.

The idea that this sort of modest rise in fossil fuel prices would have anything close to this large an effect on energy consumption is absurd on its face. Currently, gas prices in the U.S. are around $2.80 a gallon. They had been over $4.00 a gallon earlier in the decade. That higher price was not associated with massively lower consumption. Rattner's tax doesn't even get us back to this level by 2035.

His projections of emissions reductions are complete inventions that make Trump's projections of tax cut-induced growth look conservative. It is outrageous that the NYT would print such a flagrantly inaccurate piece on such an important issue. A serious newspaper would immediately remove the column from its website and replace it with an apology/correction.

Add a comment

Glenn Kessler, the Washington Post Fact Checker gave Bernie Sanders two Pinocchios yesterday for saying that the Wall Street banks got a trillion dollar bailout. Kessler raises several points of contention. First, whether the Wall Street banks actually got that much money. Second, whether it can really be called a bailout since the government made a profit on the loans. Third, that the bailout was necessary to keep the financial system running.

Taking these in turn, Kessler points out that the money that went from the TARP to the Wall Street banks, the congressionally approved bailout, was in the low hundreds of billions, far less than $1 trillion. He does note that a much larger amount of loans went from the Federal Reserve Board to the banks. However, the piece points out both that the Fed is nominally independent of the government and that many of these loans were short-term so that rolling them over would count twice. (If a bank got overnight loans for $1 billion for a week, this would count as $7 billion.)

Sanders seems on pretty solid ground here when including the Fed loans. First, the reason the Fed has the power it does is because it is the central bank of the United States. It is true that when it was established in 1913 it was set up as a mixed public–private entity, with the banks having a direct voice in setting policy. However, its ability to print an essentially unlimited amount of money is due to the fact that it is the central bank of the United States. All the other major central banks (e.g. the European Central Bank, the Bank of England, The Bank of Japan) are fully public institutions. The fact that the United States allows private banks to have a voice in setting Fed policy doesn't really change the fact that it is a government institution and therefore loans from the Fed should be seen as coming from the government.

Add a comment

We know that the secret to being a successful capitalist in today's America is to be able to cry effectively about the need for the government to save you from the market (see the Wall Street bailout from the financial crisis). We got more evidence of this basic truth in a New York Times piece on the status of the Trump administration's trade negotiations with China. 

The piece includes a reference to a report from the Trump administration that claims companies in the United States are losing at least $50 billion a year (0.25 percent of GDP) as a result of China not compensating them for their intellectual property. This is a very impressive figure since China's total imports from the US were just $120 billion last year. (Even more impressive is a claim cited in the piece that our current tariffs on China would "reduce United States gross domestic product by at least $1 trillion within ten years.")

Anyhow, the point of the piece is that the Trump administration is focusing in its negotiations on strengthening protections for US intellectual property claims, and in particular stopping Chinese policies that require technology transfers as a condition of investing in China.

It would have been worth mentioning that this effort by the Trump administration would make outsourcing jobs to China more attractive. (It is more profitable if you can locate operations in China without transferring technology than if you do have to transfer technology.) This is yet one more way in which the government promotes policies to redistribute income upward.

Add a comment

In the wake of the Great Recession, when many properties were sitting vacant, I began pushing a vacant property tax. The idea is that the tax would make it more costly to hold unoccupied housing. This gives owners more incentive to rent out a unit or to sell it, putting more property on the market and bringing prices down.

The tax has several nice features. First, we already have an assessed value on the books, so it doesn't require a new administrative apparatus to impose a tax of say, 1–2 percent on property sitting vacant. The second is that if we don't get them to rent or sell the place, we can raise money that can be used for things like affordable housing. The third feature is that even if they find ways to cheat, we still have raised the cost of keeping property vacant. 

Vancouver implemented a vacant property tax in 2017 and in 2018 reported a 15 percent decline in the number of properties counted as vacant. Apparently, London and other cities are now considering one as well. This is very nice to see since this sort of tax is likely too simple for many economists and other policy types to understand.

Add a comment