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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A Washington Post piece on the issues surrounding a rate cut this week by the Federal Reserve Board missed many important points. First, and most importantly, it never once mentioned that inflation has been persistently below the Fed's 2.0 percent target. This matters both for the Fed's credibility and more importantly as a protection policy in the next downturn.

On the first point, the Fed has repeatedly stated that its 2.0 percent inflation target is an average, not a ceiling. That means that the inflation rate must occasionally rise above 2.0 percent in order for the average to be 2.0 percent. Inflation in the core personal consumption deflator, the rate targeted by the Fed, has not exceeded 2.0 percent since the Fed Chair Ben Bernanke adopted it as an official target in 2012. If Fed policy is not consistent with achieving the 2.0 percent inflation target, then markets will not believe the Fed is committed to this target.

The other side of this is that we know that there will be another recession at some point. Inflation almost always falls in a recession. If we go into a recession with a 1.5 percent inflation rate (the figure for the last twelve months) then we are likely to see inflation fall very close to zero in a downturn. This matters because the Fed would like to have a large negative real interest rate (the nominal rate minus the inflation rate) in a recession. If inflation is near zero, then even with a zero federal funds rate, the real interest rate is only slightly negative.

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I was eagerly (okay, maybe not the right word) awaiting the data revisions that accompanied the 2nd quarter GDP report that came out yesterday. One of the items that often gets substantially revised is profits. I was surprised that initial reports showed the profit share increasing slightly in 2018 from 2017. That surprised me both because I had expected a tight labor market to allow workers to reclaim some of the share they lost to capital in the weak labor market following the Great Recession and because wage growth appeared to be somewhat outpacing productivity growth.

The revised data show a different picture. They show that the profit share fell by 0.4 percentage points in 2018, which means a total drop of 3.2 percentage points from their 2014 peak. If this pace of decline continues, then by 2022 the profit share will be pretty much back to its normal level.

This is good news for workers and also matters hugely for how we think about the economy. There have been many who argue that the shift from wages to profits, which began early in the last decade (I would argue the total is distorted by phony profits earned by the financial industry in the bubble years), is due to increasing monopoly power. This is the story of huge firms like Google, Apple, and Facebook dominating markets. On the other side, many of us think that the bigger story is weaker worker bargaining power due to declining unionization, weaker labor protections, and high unemployment.

If the first group is right, the key to restoring the labor share is breaking up the monopolies. If the second group is right, then the key is to restore workers' bargaining power, most immediately by maintaining a tight labor market. (Higher unionization rates would be great, as are increasing employment protections, but these are a bigger lift than keeping the Fed from raising interest rates excessively.)

The latest data make it look like the weak labor market gang is correct. Of course, there are still good reasons for breaking up monopolies. Also, data will be revised again next year, so the picture may look different in July of 2020.

Btw, as best I can tell, the revised profit data got zero attention in reporting on the GDP release.

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Last week the Washington Post ran a column by Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, one of the many pro-austerity organizations that received generous funding from the late Peter Peterson. The immediate target of the column was the standoff over the debt ceiling, but the usual complaints about debt and deficits were right up front in the first two paragraphs.

“At the same time, the federal debt as a share of the economy is the highest it has ever been other than just after World War II. ….”

“So our plan is to borrow a jaw-dropping roughly $900 billion in each of those years — much of it from foreign countries — without a strategy or even an acknowledgment of the choices being made because no one wants to be held accountable.”

This passes for wisdom at the Washington Post, but it is actually dangerously wrong-headed thinking that rich people (like the owner of the Washington Post) use their power to endlessly barrage the public with.

The basic story of the twelve years since the collapse of the housing bubble is that the U.S. economy has suffered from a lack of demand. We need actors in the economy to spend more money. The lack of spending over this period has cost us trillions of dollars in lost output.

This should not just be an abstraction. Millions of people who wanted jobs in the decade from 2008 to 2018 did not have them because the Washington Post and its clique of “responsible” budget types joined in calls for austerity. This meant millions of families took a whack to their income, throwing some into poverty, leading many to lose houses, and some to become homeless.

At this point, the evidence from the harm from austerity in the United States (it’s worse in Europe) is overwhelming, but just like the Pravda in the days of the Soviet Union, we never see the Washington Post, or most other major news outlets, acknowledge the horrible cost of unnecessary austerity. We just get more of the same, as though the paper is hoping its readers will simply ignore the damage done by austerity.

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I can't say I know anyone who reads Thomas Friedman, but I suppose such people must exist since the NYT keeps running his column. Anyhow, while the guy probably hasn't had a real insight for at least two decades, his column this week really paves new ground in absurdity.

The piece boldly tells readers in the headline, "the answers to our problems aren't as simple as left or right," this followed with the subhead, "the old binary choices no longer work." 

The piece is then filled with small-bore ideas that completely ignore the debates that actually are taking place on the issues he is addressing. More importantly, he completely ignores the fact that the right has soared into unreality land and shows no interest in returning.

To be specific, the right insists that climate change is not happening because, because, well, just because they don't feel like doing anything about it. Is there someone who could tell Friedman this fact?

The right also has no interest in economic policy other than giving more money to rich people. So great ideas for improving the plight of poor children or the position of women in the workforce or anything else that the rest of us might think of as positive are simply off the agenda.

The fact that the right is quite explicitly uninterested in any positive policy changes is obvious to anyone who reads papers like the New York Times. Fortunately for Thomas Friedman, you don't have to read the New York Times to have a column in it. You can just spew nonsense that is totally divorced from reality and collect your paycheck.

Good work, if you can get it.

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Hey, but why would anyone expect otherwise from the Washington Post. The piece gave the outlines of a budget deal between House Speaker Nancy Pelosi and the White House, which is intended to avoid hitting the debt ceiling.

According to the article:

"Agreeing on new spending levels also avoids onerous budget caps that would otherwise snap into place automatically under an Obama-era deal, and indiscriminately slash $126 billion from domestic and Pentagon budgets."

Is this $126 billion over one year or two years? That is not entirely clear from the piece, but it looks like a two-year figure. So how big a deal would this be? My guess is almost none of the Post's readers has any idea how much money the government is projected to spend in the effect categories (discretionary domestic and defense spending) over the next two fiscal years.

According to the Congressional Budget Office, if spending in these categories increased with inflation, it would come to a bit more than $2.7 trillion over the next two years. This means the cuts would have been a bit more than 4.5 percent of spending.

It would be helpful if the Post's budget articles put numbers in a context that is meaningful to their readers.

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(This post was originally published on my Patreon page.)

One of the central themes in Donald Trump’s presidential campaign was that U.S. workers were being badly hurt by trade. His story was that the country had signed bad trade deals that were put together by “stupid” trade negotiators.

Trump’s story was half right. Workers in the United States were badly hurt by trade, a fact that many in the mainstream are still reluctant to acknowledge in spite of overwhelming evidence.

The basic point is a simple one that has a long pedigree in economics dating back to the famous Stolper-Samuelson trade theorem. The United States has relatively more highly-educated workers (college degree or more) than developing countries and relatively fewer less-educated workers (less than a college degree). This means that when we open trade to China and other developing countries, we would expect to see more highly educated workers benefit and less highly educated workers lose.

We saw this story in action in the last decade in a really big way. From 2000 to 2007 we lost 20 percent of all manufacturing jobs in the United States. (This is before the Great Recession; the job loss was due to the explosion of the trade deficit in these years, not the collapse of the housing bubble.) We lost 40 percent of the jobs held by union members in manufacturing in these years.

It is important to remember that the Stolper-Samuelson prediction on non-college educated workers being losers (roughly two-thirds of the labor force) is a balanced trade story. The picture is of course worse when the U.S. runs a large trade deficit, since most of what we import is manufactured goods, a sector which employs a disproportionate number of non-college educated workers.

The Stolper-Samuelson effect is also amplified by the fact that we don’t have free trade in the items produced by the most highly educated workers. Doctors and other highly paid professionals from foreign countries cannot freely compete with our professionals. We have maintained and even strengthened professional barriers that keep pay for our doctors far above levels in other wealthy countries and even further above their pay in the developing world.

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The New York Times ran a piece warning retirees thinking of moving overseas that Medicare will not cover their medical expenses in other countries. This is true, but the NYT piece never once pointed out that this is conscious policy, not something that just happened.

Readers of the paper may recall that it reports on trade agreements all the time. These trade agreements cover a wide range of issues, including things like enforcing patent and copyright monopolies and rules on Internet commerce and privacy.

If anyone in the United States in a position of power cared, then it would be possible to include transferring Medicare payments to other countries, to allow people to buy into other nations' health care system on the list of topics being negotiated. This doesn't happen because, unlike access to cheap labor for manufactured goods, there is no one in power who wants to make it easier for people in the United States to take advantage of lower cost and more efficient health care systems elsewhere.

While such a policy could potentially save the U.S. government an enormous amount of money on Medicare (costs in other rich countries average less than half as much per person), the health care industry would scream bloody murder if any politician attempted to implement free trade in health care services. "Free trade," as it is conventionally used in U.S. policy debates, just means removing barriers that protect less educated workers from foreign competition.

The New York Times, like other mainstream publications will not even allow free trade to be discussed in its pages in contexts where it might hurt the interests of the wealthy.

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Austin Frakt had a peculiar piece in the NYT Upshot section, which told readers, "there is no single, best policy for drug prices." The piece is peculiar because for some reason Frakt opts not to even consider the policy of direct public funding for research, which would then allow all new drugs to be sold at generic prices.

While there are problems with any system, direct funding, which could be done through various mechanisms, would permanently end the problem of high-priced drugs. With the research costs paid upfront, the price of the drugs would simply cover the manufacturing cost with normal profits. In nearly all cases, this would mean prices would be low, generally less than 10 percent of current prices for patent-protected drugs and in some cases less than 1 percent.

This is also not a far-out idea. It has long been pushed by several prominent economists, most notably Joe Stiglitz. The idea of delinking drug prices from research costs has also been pushed in international forums by China, India, and many other developing countries. In fact, if Trump were pursuing his trade war with China in the interest of working people, instead of the rich, such a shift in funding for drug research could well be an outcome.

In any case, it is bizarre that a piece that purports to be an overview of ways to lower drug prices would not even mention this issue.

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The NYT had a column by Eliza Griswold talking about the prospect of job loss in coal mining areas due to efforts to restrict greenhouse gas emissions. While it is often traumatic for workers to lose jobs, especially long-held jobs, it is important to realize that relatively few jobs are at stake in the coal mining industry.

For example, in Pennsylvania, one of the states mentioned in the piece, the Bureau of Labor Statistics reports that there are now 5,000 coal mining jobs in the state. The state has over 6 million workers, which means that coal mining accounts for roughly 0.08 percent of employment in the state. Kentucky has 5,800 jobs in coal mining, with total employment of 1,950,000. That comes to a bit more than 0.3 percent of total employment. Even in West Virginia, the heart of coal country, there are only 23,000 jobs in coal mining out of a total of 740,000 jobs. This comes to a bit more than 3.0 percent of total employment.

In all three states, there were sharp drops in employment in the industry in the past, which drastically reduced the importance of coal mining employment. It is a bit peculiar that the earlier declines in coal mining employment, which were primarily due to productivity growth (specifically, replacing underground mining with strip mining -- a policy often opposed by environmentalists), received relatively little attention in the media or from politicians. By contrast, the prospect of considerably smaller future declines due to efforts to reduce greenhouse gas emissions is drawing extensive attention.

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(This post first appeared on my Patreon page.)

The June jobs report showed the economy created 224,000 jobs in the month, a sharp increase from the revised level of 72,000 reported for May. With considerable evidence that the economy is slowing, and the ADP report showing the economy created just 102,000 jobs in June, the jobs growth number from the Bureau of Labor Statistics was much higher than most analysts had expected.

It led the markets to reverse their expectations of a July cut in the federal funds rate. With average job growth of 171,000 over the last three months, the thinking was that the Fed did not need to provide any additional boost to growth. A bit deeper look suggests that additional stimulus may still be a good idea.

First, it is important to remember where the labor market is. The June unemployment rate of 3.7 percent certainly looks very good relative to almost any other point in the last fifty years.

However, if we look at employment rates (EPOP) for prime age workers (ages 25 to 54), the labor market does not look so great. The June EPOP was 79.7 percent. That is down from a pre-recession peak of 80.3 percent. It is far below the 2000 peak of 81.9 percent. It’s even down from the 79.9 percent peak for the recovery hit in January and February of this year.

The weak EPOP suggests that the economy has room to expand. There have been repeated efforts throughout this recovery to attribute low EPOPs to workers’ reduced interest in working, primarily among young men. This story does not work well for two reasons.

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