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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That's what Sarah Jeong says in a New York Times column. The piece argues that if Uber drivers got a living wage then Uber would just turn to using driverless cars.

It is an interesting possibility. The argument is that higher pay is a major driver of productivity growth, as it forces companies to use workers more efficiently and to invest in labor saving equipment. Many progressive economists have long made this argument, although it is rejected within the mainstream of the economics profession.

It is possible that we are seeing some evidence of this story in recent productivity data, which show productivity had risen 2.4 percent over the last year. While this is still far below the 3.0 percent growth rate of the long Golden Age from 1947 to 1973 (and again from 1995 to 2005), it is a big improvement over the 1.3 percent rate from 2005 to 2017.

If this increase proves to be real (productivity data are highly erratic) it will primarily be a story of employers being forced to use workers more efficiently in a tight labor market with 3.6 percent unemployment. Investment was not especially strong in 2018, so there was no mass displacement of workers by capital. Anyhow, if we can continue to pursue high employment policies and use higher minimum wages and other measures to sustain wage growth, we may see a more rapid pace of productivity growth going forward, with workers reaping benefits in the form of more rapidly rising wages.

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I'm not kidding. The first sentence of an article on the Trump administration's plans to impose a 17.5 percent tariff on Mexican tomatoes told readers:

"The United States will impose a 17.5 percent tariff on Mexican tomato imports starting Tuesday, and economists say that could lead to shortages and price increases of up to 85 percent as soon as this winter."

The idea that more than 400 percent of a tariff could be passed on to U.S. consumers should strike readers as a bit bizarre. After all, if the full 17.5 percent tariff was passed on to U.S. consumers in higher prices, then Mexican producers are getting just as much money on each pound of tomatoes they sell as before the tariff was in place. This means that they have as much incentive to grow and sell tomatoes in the U.S. market as they did previously.

It is undoubtedly possible to construct a model with unusual supply assumptions that could lead to the sort of soaring prices described in the first sentence of the piece, but these would almost certainly be implausible. The Post piece tells us that the 85 percent price rise came from "analysis by economists at Arizona State University conducted in April."

The Post article neglected to tell readers that the study, which does not appear to be available on the web, was commissioned by the Fresh Produce Association of the Americas.

While it is likely that this tariff will lead to a substantial increase in the price of tomatoes in the United States, and is probably a bad idea for many reasons, the Post should not be in the business in disguising industry propaganda and passing it along uncritically to readers. It seems this is acceptable in discussions of trade policy (unless the issue is protecting items like prescription drugs or doctors), but it is not good journalism.

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The NYT had a piece today on the Initial Public Offering (IPO) of Uber and other recent start-ups. It notes that this generation of tech start-ups has waited much longer than the start-ups of the dot-com era to go public. The piece tells readers that this longer period gives:

"start-ups have had more runway to figure out sustainable business models while avoiding the public eye."

The problem with this assertion is that start-ups like Uber and Lyft don't seem to have developed a sustainable business model. In Uber's case it is losing billions of dollars a year, even as it is likely to face higher costs going forward due to efforts at various governmental levels requiring it to obey labor laws. It seems investors are still prepared to pay billions for these companies, but that seems to have little connection to whether they have a sustainable business model.

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(This post first appeared on my Patreon page.)

I had the opportunity to testify last week before the House Rules committee on Medicare for All. Incredibly, this was apparently the first time the topic had been explicitly addressed in a congressional hearing. In my testimony, I argued that a Medicare for All program would be affordable, but the key factor was reducing the cost of input prices, like prescription drugs, medical equipment, and doctors’ pay. I also briefly laid out what I considered the key features of a transition from the current system. I want to go into this issue in a bit more detail here.

I listed four main steps as being key in the transition:

  1. Fix the current Medicare system;

  2. Allow a Medicare buy-in;

  3. Take measures to reduce input prices;

  4. Lower age of Medicare eligibility to 64.

These four steps should allow for an orderly phase in of a universal Medicare system. They also should quickly provide substantial benefits to most of the population in the form of better quality/lower cost health care.

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A Washington Post article on Uber's IPO told readers that Uber drivers earned $21 an hour and linked to a study that came out of Stanford as the source. The study actually reports that $21 is the gross pay before deducting driving expenses such as gas and depreciation. This is very clear in the study.

It notes (page 42) the difference where it suggests a net measure might be more appropriate for the issue it is assessing (gender differences in earnings):

"Suppose drivers average 25 cents per mile in costs other than insurance – Uber covers drivers’ insurance costs while driving. A typical Uber driver covers about 20 miles in one hour. The driver earns approximately $15.80 net of Uber’s current 25% average share of driver gross earnings."

Arguably 25 cents is too low a figure. The federal government uses 58 cents as it per mileage compensation charge. Since Uber covers insurance for the driver, let's say 40 cents per mile is closer to the mark. That would translate into expenses of $8 an hour, lowering the pay net of expense to $12.80 an hour, almost 40 percent less than the figure in the Post article.

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The United States International Trade Commission's (USITC) analysis of Trump's new NAFTA projected modest gains, entirely due to a reduction of uncertainty associated with its rules on digital commerce. (It makes it harder to regulate Facebook and Google.) The gains the USITC attributed to reduced uncertainty from this fairly limited segment of the economy were extraordinary, but they raise the obvious question about the cost of uncertainty in other areas.

For example, Donald Trump is now tweeting threats to substantially expand his trade war with China, raising a wide range of tariffs from 10 percent to 25 percent. If tariffs against any country can be raised or lowered by presidential whim, then it has to create a substantial amount of economic uncertainty. It would be interesting to see how the USITC would assess the impact of this uncertainty on the economy. It would almost certainly have to be an order magnitude larger than any reductions in uncertainty in the digital economy associated with the new NAFTA.

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Last week Krugman devoted a column to dismissing the Democrats septuagenarians (Joe Biden and Bernie Sanders) as not being prepared to deal with the presidency in today's political environment. Part of his indictment of Sanders was an unwillingness to compromise, most notably on health care reform.

As Krugman put it:

"For Sanders, then, it seems to be single-payer or bust. And what that would mean, with very high likelihood, is … bust."

To back up this position, Krugman notes Sanders' unwillingness to support a bill that would improve the Affordable Care Act.

Actually, it is wrong to claim that Sanders has seen single-payer as an all or nothing proposition. He voted for the Affordable Care Act (ACA) in 2010, when his vote was essential for the bill's passage.

Sanders was also a supporter of Bill Clinton's health care reform bill that never even made it to the floor in Congress. He has often told a story of apologizing to Clinton for his conduct on the bill.

According to Sanders, Clinton said, "what do you mean Bernie, you were with me all the way."

To which Sanders replied, "That's exactly it. I should have been burning you in effigy on the steps of the capital."  [These are my memory, not necessarily verbatim.]

Sanders' point was that he should have insisted on a more drastic reform, which would have made Clinton's plans seem moderate in comparison. In this context, it is entirely reasonable for Sanders to push for a more extensive reform, like universal Medicare, even if he is prepared to sign on to a more moderate package involving reforms to the ACA if the time comes for that.

Given Sanders history on health care, it is wrong to say that he has adopted an all or nothing approach. He has repeatedly demonstrated a willingness to compromise to extend and improve coverage.

 

Addendum

Krugman also questioned whether Sanders could work across party lines. He has made common cause with Republicans on occasion in the past, with important results. A noteworthy example was in 2010, when he became the lead Senate proponent of a proposal originally advanced by Ron Paul in the House, to audit the Fed. The result of this effort was an amendment to the Dodd-Frank financial reform act which required the Fed to disclose the beneficiaries and the terms of the more than $10 trillion in emergency loans it made during the financial crisis. The amendment was approved by the Senate on a vote of 96-0.

 

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That's what the Washington Post tells us. It notes the sharp slowdown in China's population growth and then tells readers:

"China’s population is forecast to peak at 1.45 billion as early as 2027, then slump for several decades. By 2050, about one-third of the population will be over the age of 65, and the number of working-age people is forecast to fall precipitously. Who will power the economy? Who will look after the elderly? Who will pay the taxes to fund their pensions?"

One might think that with a population of more than 1 billion people it would not be that hard to find someone to pay taxes. More importantly, China has been seeing rapid increases in productivity and living standards, which means that even if workers have to pay higher taxes, they will still enjoy higher living standards.

To see this point, suppose real wages rise by 4.0 percent annually (much slower than they have been) for the next three decades. By 2050, real wages will be more than 220 percent higher than they are today. Suppose payroll taxes are increased by 20 percentage points to cover the cost of a larger relative population of retirees. In that case, real wages will still be almost 160 percent higher than they are today. What exactly is the problem?

It is also worth noting that as China gets wealthier and technology improves, people now considered elderly are likely to be in much better health and more productive than they are today. This means they will need less care (fewer robots?) and may still be making substantial contributions to society.

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That might be helpful to that small group of Washington Post readers who don't know how large $2 trillion is over the course of a decade. It is also a bit more than 3.3 percent of projected federal spending over this period and 28 percent of projected military spending. But I'm sure everyone knew that.

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Donald Trump has made a big show of saying that because he is such a rich guy, he will donate back his presidential salary of $400,000 a year to the government. He regularly tells us which department or agency is the lucky beneficiary of his quarterly compensation.

Unfortunately, he feels no compunction about imposing extraordinary travel and security costs on the government by spending frequent weekends at his Mar-a-Lago resort or other Trump properties. This expense substantially exceeds the $400,000 that the government gets from him donating his salary, as shown in the figure below.

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                                                          Source: Government Accountability Office and author's calculations.

The chart relies on a GAO study that calculated that four Trump visits cost the government $13.6 million in extra expenses, or $3.4 million per weekend. The calculation in the graph assumes that he makes 26 trips a year, one every other week.

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