Dean Baker
American Affairs, Spring 2018 / Volume II, Number 1

Dean Baker
Truthout, February 19, 2018

As the saying goes, writing for Washington Post means never having to say you're sorry. Hence, the paper never apologized for saying NAFTA had caused Mexico's GDP to quadruple when the true growth was just 84.2 percent. And Robert Samuelson needs never apologize for silly warnings about run away inflation.

The latest line is that we are supposed to be scared about the 0.5 percent inflation rate shown in the Consumer Price Index (CPI) for January. He begins his piece telling readers:

"Anyone looking for good economic news will be disappointed by the latest inflation report, which showed the consumer price index (CPI) advancing by 0.5 percent in January. By itself, this isn’t especially alarming — prices jump around month to month — but it has troubling implications for the future. To some economists, it suggests the possibility of another financial crisis on the order of the 2008-2009 crash.

"Until recently, inflation seemed to be dead or, at least, in a prolonged state of remission. It was beaten down by cost-saving technologies and a caution against raising wages and prices instilled by the Great Recession. From 2010 to 2015, annual inflation as measured by the CPI averaged about 1.5 percent, often too small to be noticed. In 2016 and 2017, the annual rates inched up to 2.1 percent. On an annualized basis, January’s 0.5 percent would be 6 percent."

Sound scary?

Actually, monthly CPI data are pretty erratic. If we are supposed to be scared by January's 0.5 percent figure, we should also have been bothered by the 0.5 percent figure for last September as well the 0.5 percent rate for January of 2017. We also hit 0.5 percent in February of 2013 and again in September of 2012, which followed a 0.6 percent rise in August. In short, the 0.5 percent CPI inflation rate for January really doesn't provide us much basis for concern about rising inflation.

In an NYT Upshot column, Neil Irwin correctly points out that the Trump administration is very optimistic about GDP growth, it then adds that it shouldn't be. Irwin is certainly right about the optimistic part but should be more cautious in declaring the optimism wrong.

Irwin breaks down the factors that contribute to growth, labor, capital, and multifactor productivity growth. Labor growth is likely to be slow for the simple reason that the baby boom generation is moving into its sixties and seventies. They are now retiring in large numbers. This will seriously dampen the pace of labor force growth. While there is some room for more people to come into the labor market, even getting back to the peak prime-age (ages 25 to 54) employment to population ratios of 2000 would only around 0.3 percentage points to rate of labor force growth. We could have more immigrant workers, but that doesn't seem likely in the current political environment.

There could be an uptick in investment, which is the ostensible rationale for the big corporate tax cut. Irwin rightly is skeptical on this prospect. Historically, investment has not been very responsive to tax rates or the after-tax rate of profit, which in theory should be the key factor. The latter was already at post-World War II highs even before the tax cut, while the investment share of GDP has been mediocre.

The key issue is multifactor productivity. This is the increase in productivity that is the result of better organizing workplaces and introducing new technologies. Multifactor productivity growth has been very weak in recent years. It has averaged just over 0.4 percent a year since 2005. That compares to 1.6 percent annually from 1995 to 2005.

In his January State of the Union address, President Trump called for $1.5 trillion in infrastructure spending over the next decade. If that amount materialized, it could go a long way toward meeting the nation’s infrastructure needs. But the release on F

The Washington Post has long had a hostile attitude toward unions, which it expresses in both its opinion and news sections. (As an example of the latter, this front page article complaining about high pensions for public sector workers in California, highlighted the case of Bruce Malkenhorst Sr., a retired city administrator, who received a pension of more than $500,000 a year. Only after reading down in the piece do readers discover that Mr. Malkenhorst was awaiting trial for misusing public funds. Of course, as an administrator, he was not a typical public employee or a union member.)

The latest expression of hostility is from editorial writer Charles Lane. Lane is upset that public sector employees can be required to pay representation fees to the unions that represent them as a condition of working in a unit that is represented by a union. There is much about the current situation that draws his wrath.

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February 2018, Dean Baker