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.

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Brazil has gotten a huge amount of bad press with the fires in the Amazon with the emphasis on the harm its development policies are doing to efforts to limit global warming. While the policies of Brazil's right-wing president, Jair Bolsonaro, are disastrous, there is an important part of the story that is being left out of most discussions.

The reason that we are worried about global warming is that rich countries, most importantly the United States, have been spewing huge amounts of greenhouse gases into the atmosphere for well over a century while destroying the native forests on their lands. They also have paid to have forests in other countries destroyed in order to meet their resource needs.

This is the context in which the destruction of the Amazon is a worldwide problem of enormous proportions. (The Amazon is a treasure which should be preserved even if global warming was not a crisis, but that is a different matter.)

The blame Brazil story is one where a group of rich boys are sitting around in their mansion eating a huge plate of cookies. Meanwhile, they send the housekeeper from room to make the beds and clean up. After the housekeeper finishes, she sees the last cookie on the plate and begins to reach for it. The rich boys then all yell at her for being greedy for wanting to take the last cookie.

The rich countries' lack of concern for the environment made it cheaper for them to develop. Now poorer countries, who are struggling to develop, are being told that they need to respect the environment for the good of the planet.

In fact, they do need to respect the environment, but we (the rich countries) have to pay them to do it. After all, it is a problem we created. That may not be a politically popular position here, but it is a politically serious one on a world basis and the only plausible way to limit global warming.

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The New York Times ran an article last week with a headline saying that the 2020 Democratic presidential contenders faced a major problem: "how to be tougher on trade than Trump." Serious readers might have struggled with the idea of getting “tough on trade.” After all, trade is a tool, like a shovel.  How is it possible to get tough on a shovel?

While this headline may be especially egregious, it is characteristic of trade coverage which takes an almost entirely Trumpian view of the topic. Trump portrays the issue as one of some countries, most obviously China, benefitting at the expense of the United States. The media take a somewhat different tack on this country versus country story, but they nonetheless embrace the nonsense Trumpian logic.

For Trump, at least in his rhetoric, the trade deficit is the central measure of winners and losers. In the case of China, its huge trade surplus with the United States ($420 billion or 2.1 percent of GDP in 2018) makes it Trumpian enemy #1. The trade deficit certainly is a problem for U.S. workers, but this doesn’t mean that China is winning at the expense of the United States, because of “stupid” trade negotiators, as Trump puts it.

The U.S. trade deficit with China was not an accident. Both Republican and Democratic administrations signed trade deals that made it as easy as possible to manufacture goods in China and other countries, and then export them back to the United States.

In many cases, this meant that large U.S. corporations, like General Electric and Boeing, outsourced parts of their operations to China to take advantage of low cost labor there. In other cases, retailers like Walmart set up low cost supply chains so that they could undercut their competitors in the U.S. market.

General Electric, Boeing, Walmart and the rest did not lose from our trade deficit with China. In fact, the trade deficit was the result of their efforts to increase their profits. They have little reason to be unhappy with the trade deals negotiated over the last three decades.

It is a different story for workers in the United States. As a result of the exploding trade deficit, we lost 3.4 million manufacturing jobs between 2000 and 2007, 20 percent of the jobs in the sector. This is before the collapse of the housing bubble led to the Great Recession. We lost 40 percent of all unionized jobs in manufacturing.

It is also important to point out – contrary to what you generally read in the paper – the loss of manufacturing jobs in this seven year period was not part of a longer downward trend. There had been only a modest decline in manufacturing employment over the prior three decades. The claim that we suddenly saw massive job loss in this sector due to automation, which just happened to coincide with the explosion of the trade deficit, is what economists refer to as “nonsense.”

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I know that it is not always easy to write a headline for an article, but this one for a book excerpt should not have been a rush job. The piece, from a new book by Mike Isaac, describes the arrogance and stupidity by Uber and its founder, Travis Kalanick. The gist of the piece (haven't seen the full book) is that Kalanick was an arrogant jerk who didn't know what he was doing, but hero-worshipping brainless investors decided that he was a visionary.

Given the argument in the piece, it is absurd to make the claim in the headline that Uber was somehow "lost." The point is that Uber was never there. Kalanick never had a profitable business model, he just convinced idiots with money to put a lot of it behind his hare-brained project.

Maybe in the future, The New York Times should suggest that headline writers read the piece for which they are writing a headline.

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I know that reality often has little place in our political debates, but is there any way we can the New York Times and other news outlets to stop saying that the U.S. economy is the world's largest? It happens not to be true.

According to the I.M.F., using purchasing power parity measures, which most economists view as the best measure, China passed the United States in 2015 and is now more than 25 percent larger. Maybe reporters and editors get a kick out of saying that the U.S. is the world's largest economy, but since it happens not to be true, it would be good if they stopped saying it.

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In a very interesting column in the Wall Street Journal, Peter Bach and Mark Trusheim argue that biosimilar drugs have been ineffective in providing effective competition for biological drugs. The gist of the argument is that the testing process required for a biosimilar is lengthy and expensive.

Furthermore, this testing requires a large number of patients for clinical trials. This can lead to the perverse situation where testing for a biosimilar could be pulling potential patients from being used in a trial for a potentially important innovative drug.

If we think of patients with specific diseases who are available for clinical trials to be a limited resource, then it poses a serious problem for having biosimilars as an effective mechanism for bringing down the price of biologic drugs through competition. (Standard generics don't need clinical tests, they just have to demonstrate chemical equivalence.) 

Bach and Trusheim argue for price controls as the best alternative. While this is reasonable given the current funding system, it is difficult to believe that the government will somehow be getting it right, in terms of awarding the right price to appropriately compensate companies for their drugs. (Not that they are rewarded correctly now; their payments are already largely politically determined.)

It would make far more sense just to do the funding upfront on long-term contracts, with all results in the public domain. In the case of biologic drugs, where there really cannot be effective competitors for the reasons Bach and Trusheim explain, having a single supplier on contract and guaranteed a normal mark-up over production costs should do the trick.

In this story, biologic drugs would sell for hundreds of dollars, or perhaps low thousands, for a year's dosage, not hundreds of thousands. (For more, see Rigged, chapter 5 [it's free].)

 

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The Bureau of Labor Statistics reported that its benchmark revision to its job numbers shows that the economy created 501,000 fewer jobs between March of 2018 and March of 2019 than previously reported. There are a few points to be made about this number.

First, there is nothing fishy here. Trump has zero to do with the data that comes from the Bureau of Labor Statistics (BLS). The BLS is staffed by committed professionals who would surely raise a big stink if Trump tried to tamper with the data.

I should also point out that it would be exceedingly difficult for someone to change the data if they did not have a very good idea what they were doing, and even then they would almost certainly have to bring dozens of people in on the scheme. If someone did something like just add 100,000 to the monthly job growth number, they would be nailed in a minute. Other numbers would not fit and it would be easy to see that the fake number was out of line.

Anyhow, the revision is based on state unemployment insurance filings, which give a virtual census of payroll employment in the United States. The original data comes from the BLS' monthly Current Employment Situation survey. This is a large survey of businesses, but it is a survey, so that means there will be some error.

The next issue is why the survey would be so far off. (The 501,000 reduction is much larger than a normal revision.) In addition to the survey results, BLS imputes figures for "births" and "deaths" of firms. Births refer to new firms, which could not be included in the sample because they are new. Deaths are the firms that go out of business and aren't so polite as to answer the survey before they shut their doors.

BLS imputes numbers for births and deaths using a model that estimates these data based on growth in output and related factors. It usually is reasonably accurate, but in this case, it clearly was not. (I'll make a small criticism of BLS here: They typically show the error as a percent of total employment, which makes it look small. It came to 0.3 percent last year. But what we really are measuring with the survey is the change in employment, which was just over 2 million, which means the error was 25 percent. That is a big deal.)

In short, what this revision means is that we saw more firms die or fewer new firms formed than the model projected. (Actually, the issue is jobs, not firms, but presumably, these go together.) That may mean nothing or could suggest that either or both, more firms are going out of business or fewer firms are being started than we should expect, given other factors in the economy.

That brings us to my last point, when we have large downward revisions, it usually is associated with a recession. The downward revision in 2009 was over 900,000 and in 2002 it was over 300,000. It is unlikely that we will find that we were actually in a recession between March of 2018 and March of 2019, but add this to the list of worrying data points. It seems that something is not right with the economy.

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The Washington Post had a major front-page article announcing in the headline "Group of top CEOs says maximizing shareholder profits no longer can be the primary goal of corporations." The piece refers to a statement by the Business Roundtable, a group comprising many of the country's largest companies, which argues for an alleged shift in direction.

The problem with the statement and the piece is that that there is little evidence companies have been maximizing shareholder profits in the last two decades. The average real return to shareholders since December of 1997 is 4.8 percent. This compares to a longer-term average of more than 7.0 percent. (I went back to 1997 instead of taking the more natural 20-year average to avoid distortions created by the stock bubble. The twenty-year return has been just 3.6 percent.) These relatively low returns are especially striking since corporations have gotten so much assistance from government tax cuts over this period.

Rather than maximizing shareholder returns, it seems more plausible that CEOs have been maximizing CEO pay, which has risen 940 percent since 1978. Excessive CEO pay, which comes at the expense of the corporation, is far more pernicious than returns to shareholders. While shareholders include middle-class people with 401(k)s and pension funds, every dollar that goes to CEOs goes to someone in the 0.01 percent of the income distribution.

More importantly, excessive CEO pay distorts pay structures in the economy as a whole. If the CEO is earning $15 million, the rest of the top five corporate executives likely earn close to $10 million and even the third tier likely earn well over $1 million. This affects pay structures elsewhere. Presidents at universities and large non-profits now routinely make over $1 million a year and government cabinet secretaries whine about the sacrifice of public service where they make $211,000 a year.

It would be much better if our top CEOs started bringing their pay down to earth than change a focus that they don't in any obvious way now have.

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Paul Krugman already jumped on this New York Times piece, but the paper really deserves a thrashing for it. The story is that Germany's economy had been driving the eurozone economy. It now appears on the edge of recession, having shrunk at a 0.4 percent annual rate in the second quarter. The article then asks whether the rest of the eurozone will now be able to support Germany's economy and restore it to growth.

The problem with this story, as Paul points out, is that Germany has been running massive current account surpluses. This means that rather than being a source of demand for its trading partners, it has been a net drain of demand. The items that Italy, Spain, Greece, and other eurozone countries import from Germany more than outweigh the demand created by their exports to Germany. The other eurozone countries have been effectively supporting demand in Germany rather than the other way around. 

It's also worth pointing out here that Germany directly made life worse for the other eurozone countries by using its power in the European Union to force austerity on them when they should have been running large deficits to boost their economies. That continues to be the case today, which is why there are negative interest rates on the long-term debt of Germany and several other eurozone countries.

There is a small point in the piece's favor, Germany's current account surplus has been falling somewhat in the last four years. It peaked at 8.9 percent of GDP in 2015 and is projected to be 7.1 percent of GDP in 2019. This drop in the trade surplus would be providing a boost to Germany's trading partners, but it is a relatively new development. The rapid increase in Germany's current account surplus in the years from 2009 to 2015 was a serious impediment to recovery in the eurozone.

As a sidebar, it worth mentioning that this piece reports the growth rate of Germany and other countries mentioned in the piece at quarterly rates. While it is standard practice in Europe to report quarterly growth figures at quarterly rates, it is never done in the United States where they are always reported at annual rates. Since the point of a news article is to convey information to readers, it would be helpful if the paper would convert the quarterly growth rates into annual rates.

This is a very simple process. For low growth rates like those discussed in this piece, multiplying by four will usually be adequate for converting a quarterly growth rate into an annual rate. To be more precise, it is only necessary to take the growth rate to the fourth power. Presumably, the NYT has people capable of doing this calculation.

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The stock market enjoys a mythological place not only among mainstream media types, but also among many progressives. For some reason this measure of expected future corporate profits is taken as a measure of economic well-being.

The fact that the media obsesses over the stock market hardly needs to be mentioned. If there is one item about the economy that we can be sure will be repeated every day, it is the movement in the Dow or the S&P 500. And, needless to say, an upward movement is good news and a downward movement is bad news.

But the view that the stock market is telling us something about the well-being of the economy goes far beyond just ill-informed media types. In the lead up to the 2016 election, Justin Wolfers, a University of Michigan economics professor, and a fellow at the Peterson Institute for International Economics, had several New York Times pieces arguing that the wise investors in the stock market recognized that Trump would be bad news for the country. He pointed to sharp declines in the market in response to events making a Trump win more likely.

The Wolfers hypothesis suffered a serious setback in the weeks and months immediately following the election. The S&P 500 was up more than 5 percent in the first month after Trump’s victory. It continued to rise throughout 2017, hitting a peak in January of 2018 that was more than a third higher than its value on the eve of the election.

Wolfers was far from the only one taking stock market movements as a measure of economic well-being under Trump. When the market slumped last fall, there were many Trump critics who seized on this as evidence of Trump’s failings as a manager of the economy.

This view that the stock market is a measure of economic well-being is bizarre, because it is so completely at odds with what the stock market is. The stock market is a measure of the expectations of future profits of companies that are listed in the exchange: full stop.

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It was big news when the interest rate on the 10-year Treasury bond fell below the interest rate on a 2-year note earlier this week. This interest rate inversion has generally signaled a recession in the near future. While I am skeptical of the causality here, the bond markets do have good reason to expect a weaker economy in the immediate future, which will presumably mean future rate cuts by the Fed.

The Washington Post noted the extraordinarily low interest rate environment, beginning by highlighting a Danish bank that has a negative nominal interest rate on mortgages. This means the bank is paying people to take out a mortgage loan.

The piece goes on to discuss a strange world of negative interest rates. It then gives a bizarre quote from Carl Weinberg, an economist at High Frequency Economics:

"This is a credit crunch. And a credit crunch is a known economy-killer."

Actually, this is 180 degrees at odds with a credit crunch. A credit crunch is when credit is either extremely expensive or unavailable altogether. In the current situation, credit is incredibly plentiful. Banks are paying people to take it, as the article points out. It is not clear what point Mr. Weinberg was trying to make, but what he said did not make any sense.

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