Washington Post Highlights Harm that Climate Change and Over-Valued Dollar Have Done to Midwest Farmers

March 24, 2019

24 Marzo 2019

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.

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.

The Importance of Kicking Up: Changing Market Structures So the Rich Don’t Get All the Money

By CEPRCEPR

March 22, 2019

22 Marzo 2019

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.

The New York Times and Steven Rattner Go Trumpian on Climate

By CEPRCEPR

March 20, 2019

20 Marzo 2019

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.

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.

Trillion Dollar Wall Street Bailouts, Bernie Sanders, and the Washington Post

By CEPRCEPR

March 19, 2019

19 Marzo 2019

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.

Slipping Some Really Big Numbers into the China Trade Debate

By CEPRCEPR

March 18, 2019

18 Marzo 2019

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.

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.

Taxing Nothing: The Idea of a Vacant Property Tax Spreads

By CEPRCEPR

March 16, 2019

16 Marzo 2019

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.

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.

Federal Reserve Board Policy and the 3.8 Percent Unemployment Rate

By CEPRCEPR

March 15, 2019

15 Marzo 2019

Last week’s job report, in spite of the slow job growth for February, was actually pretty good news. As many of us pointed out, the most likely reason that the Labor Department reported only 20,000 new jobs in February, is that the economy reportedly added 311,000 jobs in January. There is always a substantial element of error in these numbers. If we envision that there is some underlying rate of job growth of say, 180,000 a month, if we get a number like January’s strong figure, it is reasonable to expect that job growth in subsequent months will be slower. Either the rapid growth in January was due to error in the survey, or alternatively many businesses may have decided that January was a good time to hire. In both cases, it is reasonable to expect slower growth in future months. If this just sounds like hand waving to cover up a bad story, consider that the non-seasonally adjusted change in employment in February was a plus 827,000 jobs. In other words, if we just looked at the raw data, the economy actually added a ton of jobs in February. Of course, the economy always adds lots of jobs in February. In 2018 it added 1,236,000 and in 2017 it added 1,030,000. This is why we have seasonal adjustments. But the adjustment is never perfect, and it is one of the factors that leads to error in the headline numbers that get so much attention. So we should not be too troubled by the weak job growth reported for February. However, as I noted in my jobs report, there was a drop in average weekly hours, which could presage lower hiring in future months. Also, several sectors, notably construction (both residential and non-residential) and manufacturing seem to be weakening, so there are some grounds for concern about slowing growth, apart from the 20,000 jobs reported for February. But I actually wanted to focus on the good news in the report, specifically the edging down of the unemployment rate to 3.8 percent and the modest acceleration in the rate of growth in the average hourly wage to 3.4 percent over the last year. These items are very good news, especially when we consider that they were the result of policy, specifically the Federal Reserve Board’s decision to allow the unemployment rate to fall below the 5.5 percent unemployment rate that most economists had considered a floor.

Recessions Are Not As Sneaky as Austin Goolsbee Tells You

By CEPRCEPR

March 15, 2019

15 Marzo 2019

Austin Goolsbee warned readers in an NYT column that a recession can just sneak up on us with very little warning. Strangely, he picks the 2001 recession as his example.

The 2001 recession seems a bad example since it had a pretty clear cause, the collapse of the 1990s stock bubble. The tech-heavy NASDAQ had declined by more than 40 percent by the start of the recession in March of 2001 from its bubble peak in 2000 and the S&P 500 had fallen by almost 20 percent. Both were also on a clear downward path with the NASDAQ eventually bottoming out at a bit more than one-quarter of its bubble peak and the S&P 500 at a bit more than half.

The bubble was also clearly driving the economy. This was one of the few periods in history when companies were directly financing investment with sales of stock. This made sense at the time since startups with no profits could raise hundreds of millions with initial public offerings. That opportunity disappeared when the bubble burst. As a result, investment plummeted from 14.6 percent of GDP in the fourth quarter of 2000 to 13.2 percent of GDP in the fourth quarter of 2001, eventually bottoming out at 11.9 percent in the first quarter of 2003.

The bubble was also driving consumption, as the wealth effect associated with the run-up in the stock market pushed savings rates to then-record lows. The savings rate had fallen from over 9.0 percent at the start of the 1990s to a low of 4.5 percent of disposable income in the fourth quarter of 2000. It rose in 2001 following the collapse of the bubble, hitting 6.5 percent in the third quarter of 2001 and then settling in at an average of 6.0 percent in 2002.

Together, the drop in investment and consumption implied a loss in annual demand of more than 2.5 percentage points of GDP, which would be equivalent to $500 billion in today’s economy. It should not have been surprising that these totally predictable effects of the bursting of the stock bubble would have led to a recession. (While the 2001 recession is conventionally considered to have been short and mild, it led to the longest period without net job growth since the Great Depression. The Great Recession led to an even longer period without net job growth.)

On the other hand, there may be some case for a recession sneaking up on the economy now. Retail sales fell sharply in December, and a modest increase in January still left sales below November levels. Manufacturing production has been trending downward since September. New orders for capital goods (excluding aircraft) in January were also below their November level and are only 3.1 percent above their year-ago level. Private construction spending has been trending downward since October.

All of these are disturbing signs in an economy with strong employment growth and respectable wage growth. If this adds up to a recession, it would probably be fair to say that it has snuck up on us, since it is difficult to identify any plausible cause. The Fed’s interest rate hikes have surely had an impact in slowing the economy, but it is difficult to believe that this impact could be large enough to cause a recession.

Austin Goolsbee warned readers in an NYT column that a recession can just sneak up on us with very little warning. Strangely, he picks the 2001 recession as his example.

The 2001 recession seems a bad example since it had a pretty clear cause, the collapse of the 1990s stock bubble. The tech-heavy NASDAQ had declined by more than 40 percent by the start of the recession in March of 2001 from its bubble peak in 2000 and the S&P 500 had fallen by almost 20 percent. Both were also on a clear downward path with the NASDAQ eventually bottoming out at a bit more than one-quarter of its bubble peak and the S&P 500 at a bit more than half.

The bubble was also clearly driving the economy. This was one of the few periods in history when companies were directly financing investment with sales of stock. This made sense at the time since startups with no profits could raise hundreds of millions with initial public offerings. That opportunity disappeared when the bubble burst. As a result, investment plummeted from 14.6 percent of GDP in the fourth quarter of 2000 to 13.2 percent of GDP in the fourth quarter of 2001, eventually bottoming out at 11.9 percent in the first quarter of 2003.

The bubble was also driving consumption, as the wealth effect associated with the run-up in the stock market pushed savings rates to then-record lows. The savings rate had fallen from over 9.0 percent at the start of the 1990s to a low of 4.5 percent of disposable income in the fourth quarter of 2000. It rose in 2001 following the collapse of the bubble, hitting 6.5 percent in the third quarter of 2001 and then settling in at an average of 6.0 percent in 2002.

Together, the drop in investment and consumption implied a loss in annual demand of more than 2.5 percentage points of GDP, which would be equivalent to $500 billion in today’s economy. It should not have been surprising that these totally predictable effects of the bursting of the stock bubble would have led to a recession. (While the 2001 recession is conventionally considered to have been short and mild, it led to the longest period without net job growth since the Great Depression. The Great Recession led to an even longer period without net job growth.)

On the other hand, there may be some case for a recession sneaking up on the economy now. Retail sales fell sharply in December, and a modest increase in January still left sales below November levels. Manufacturing production has been trending downward since September. New orders for capital goods (excluding aircraft) in January were also below their November level and are only 3.1 percent above their year-ago level. Private construction spending has been trending downward since October.

All of these are disturbing signs in an economy with strong employment growth and respectable wage growth. If this adds up to a recession, it would probably be fair to say that it has snuck up on us, since it is difficult to identify any plausible cause. The Fed’s interest rate hikes have surely had an impact in slowing the economy, but it is difficult to believe that this impact could be large enough to cause a recession.

Washington Post Says Republicans Oppose Debt

By CEPRCEPR

March 13, 2019

13 Marzo 2019

I’m serious. In an article on the history of socialism in Milwaukee, the city chosen to host the Democratic national convention in 2020, the Post told readers:

“And, at least on an ideological level, the socialists of that time had a surprising amount in common with today’s Republicans. They supported low taxes and opposed public debt. They believed in a “pay-as-you-go” form of governance ….”

This assertion is so obviously contradicted by the facts, it is amazing that it could appear in the paper. The deficit and debt rose hugely under three of the last four Republican presidents (Reagan, George W. Bush, and Trump). It is more than a bit absurd to claim that a party that consistently supports policies that raises deficits and debt opposes public debt and believe in “pay-as-you-go” governance.

It is difficult to imagine how the Post could make such an absurd claim about Republican policies.

I’m serious. In an article on the history of socialism in Milwaukee, the city chosen to host the Democratic national convention in 2020, the Post told readers:

“And, at least on an ideological level, the socialists of that time had a surprising amount in common with today’s Republicans. They supported low taxes and opposed public debt. They believed in a “pay-as-you-go” form of governance ….”

This assertion is so obviously contradicted by the facts, it is amazing that it could appear in the paper. The deficit and debt rose hugely under three of the last four Republican presidents (Reagan, George W. Bush, and Trump). It is more than a bit absurd to claim that a party that consistently supports policies that raises deficits and debt opposes public debt and believe in “pay-as-you-go” governance.

It is difficult to imagine how the Post could make such an absurd claim about Republican policies.

Before-Tax Profit Share Rises in 2018

By CEPRCEPR

March 13, 2019

13 Marzo 2019

This is getting annoying. According to data in the Fed’s Financial Accounts for the 4th quarter of 2018, the profit share of national income rose again in 2018. While national income rose 4.7 percent, profits rose 7.8 percent. There are two reasons this is annoying.

The first is that these are before-tax profits. Remember that big corporate income tax the Republicans pushed through Congress in 2017? One of the stories why this was going to be good for all of us, and not just for that small group who own lots of shares of stock, is that a portion of the tax cut would be passed on as a higher before-tax wage share. Well, it’s only year one, and these data are subject to large revisions, but it looks like we’re going the wrong way here. Since taxes fell sharply, after-tax profits were up 16.2 percent.

For those keeping score at home, the share of profits paid in taxes fell to 10.2 percent. One of the claims with the tax cut was that they were lowering the tax rate, but eliminating the deductions, so we would collect something close to the new 21 percent nominal tax rate. Well, it seems the Republicans got half of that right.

The other reason this is annoying is that the unemployment rate was below 4.0 percent last year. This is supposed to be inflation territory, where tight labor markets force employers to bid up wages, as that is the only way they can find workers. (Just a few years back, most economists would have told us that we hit inflation territory when the unemployment rate fell below 5.5 percent, or even 6.0 percent.)

Anyhow, if the profit share is still rising, then we obviously have not hit inflation territory. Employers can clearly afford to pay higher wages, without raising prices. Profit shares increased hugely in the weak labor market following the collapse of the housing bubble. I had been expecting (and hoping) that some of this increase would be taken back as the labor market tightens, but apparently, we’re still going the other way.

Keep this in mind next time you hear see a story about labor shortages and employers not being able to find workers. That’s not true on this planet.

This diatribe comes with one very important qualification. Profit data are highly erratic and subject to large revisions. It is possible that this picture will look different as it is revised later this year, or possibly in subsequent years. But given the data we have now, workers should be getting more — much more.

This is getting annoying. According to data in the Fed’s Financial Accounts for the 4th quarter of 2018, the profit share of national income rose again in 2018. While national income rose 4.7 percent, profits rose 7.8 percent. There are two reasons this is annoying.

The first is that these are before-tax profits. Remember that big corporate income tax the Republicans pushed through Congress in 2017? One of the stories why this was going to be good for all of us, and not just for that small group who own lots of shares of stock, is that a portion of the tax cut would be passed on as a higher before-tax wage share. Well, it’s only year one, and these data are subject to large revisions, but it looks like we’re going the wrong way here. Since taxes fell sharply, after-tax profits were up 16.2 percent.

For those keeping score at home, the share of profits paid in taxes fell to 10.2 percent. One of the claims with the tax cut was that they were lowering the tax rate, but eliminating the deductions, so we would collect something close to the new 21 percent nominal tax rate. Well, it seems the Republicans got half of that right.

The other reason this is annoying is that the unemployment rate was below 4.0 percent last year. This is supposed to be inflation territory, where tight labor markets force employers to bid up wages, as that is the only way they can find workers. (Just a few years back, most economists would have told us that we hit inflation territory when the unemployment rate fell below 5.5 percent, or even 6.0 percent.)

Anyhow, if the profit share is still rising, then we obviously have not hit inflation territory. Employers can clearly afford to pay higher wages, without raising prices. Profit shares increased hugely in the weak labor market following the collapse of the housing bubble. I had been expecting (and hoping) that some of this increase would be taken back as the labor market tightens, but apparently, we’re still going the other way.

Keep this in mind next time you hear see a story about labor shortages and employers not being able to find workers. That’s not true on this planet.

This diatribe comes with one very important qualification. Profit data are highly erratic and subject to large revisions. It is possible that this picture will look different as it is revised later this year, or possibly in subsequent years. But given the data we have now, workers should be getting more — much more.