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Beat the press por Dean Baker

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 roundup of Beat the Press. Please also consider supporting the blog on Patreon.

No, that’s not what the NYT told us. Its mind-reading reporters instead told readers:

“To date, Mr. Macron has been loath to tax the oil giants’ windfall profits, worrying it would tarnish the country’s investment appeal, and preferring instead that companies make what he termed a ‘contribution.'”

The NYT, of course, does not know if Macron is really “worrying” about damaging France’s appeal to investors. This may be what Macron says, but [pro tip here] politicians are not always truthful about their motives.

There are undoubtedly many people in France who would claim that Macron is beholden to the rich and does not want to tax the oil companies’ windfall profits because he doesn’t want to hurt his friends. The NYT would never consider attributing that motive to Macron as an objective fact, although it may quote a political opponent making this complaint.

In the same vein, the paper should not attribute Macron’s alleged concerns about hurting France’s investment climate as an objective fact. It can simply report his or others’ statements to this effect.

No, that’s not what the NYT told us. Its mind-reading reporters instead told readers:

“To date, Mr. Macron has been loath to tax the oil giants’ windfall profits, worrying it would tarnish the country’s investment appeal, and preferring instead that companies make what he termed a ‘contribution.'”

The NYT, of course, does not know if Macron is really “worrying” about damaging France’s appeal to investors. This may be what Macron says, but [pro tip here] politicians are not always truthful about their motives.

There are undoubtedly many people in France who would claim that Macron is beholden to the rich and does not want to tax the oil companies’ windfall profits because he doesn’t want to hurt his friends. The NYT would never consider attributing that motive to Macron as an objective fact, although it may quote a political opponent making this complaint.

In the same vein, the paper should not attribute Macron’s alleged concerns about hurting France’s investment climate as an objective fact. It can simply report his or others’ statements to this effect.

What the Cluck Are You Doing on October 25th?

Dear Beat the Press Readers,

This is Dawn, Dean’s colleague at the Center for Economic and Policy Research, hijacking Dean’s blog to invite you to a special event on Tuesday, October 25, 2022, at 7 PM ET that we’re calling “Winner Winner Chicken Dinner.”

Dean and the Institute for New Economic Thinking partnered to produce a video series outlining how we can “Uncluck” America. Well, except they didn’t use the term “Uncluck” – we’re sure you can use your imagination to figure out what flagged them as NSFW and prevented us from sharing these videos widely. Yep, they were that smoking hot. And finger-lickin good.

Dean is hosting a live virtual screening of Episode 1: “How to Unf★ck Intellectual Property.” Afterward, he will answer your questions and explain further how, if everyone listened to Dean, there would be a chicken in every pot.

This event is a fundraiser to support Dean’s great work. You can sponsor this event at whatever level you choose (dinner provided by you):

  • The Inflation Special: Can of Chicken Noodle Soup – $10
  • The Happy Hour Deal: Basket of Hot Wings – $25
  • The Family Meal: Large Fried Chicken Bucket- $50
  • The Chicken Dinner: Chicken Cordon Bleu – $100
  • The Fat Cat: Champagne, Caviar, and Duck Confit – $1000

And the good news? All are vegan-friendly!

Click HERE to register

Thanks for your support of Dean’s work over the years. We all know that America has been “clucked” for a long time. It’s time we unrig the economy so that people, and chickens, get a fair deal.

Now, back to your regularly scheduled program…

Dear Beat the Press Readers,

This is Dawn, Dean’s colleague at the Center for Economic and Policy Research, hijacking Dean’s blog to invite you to a special event on Tuesday, October 25, 2022, at 7 PM ET that we’re calling “Winner Winner Chicken Dinner.”

Dean and the Institute for New Economic Thinking partnered to produce a video series outlining how we can “Uncluck” America. Well, except they didn’t use the term “Uncluck” – we’re sure you can use your imagination to figure out what flagged them as NSFW and prevented us from sharing these videos widely. Yep, they were that smoking hot. And finger-lickin good.

Dean is hosting a live virtual screening of Episode 1: “How to Unf★ck Intellectual Property.” Afterward, he will answer your questions and explain further how, if everyone listened to Dean, there would be a chicken in every pot.

This event is a fundraiser to support Dean’s great work. You can sponsor this event at whatever level you choose (dinner provided by you):

  • The Inflation Special: Can of Chicken Noodle Soup – $10
  • The Happy Hour Deal: Basket of Hot Wings – $25
  • The Family Meal: Large Fried Chicken Bucket- $50
  • The Chicken Dinner: Chicken Cordon Bleu – $100
  • The Fat Cat: Champagne, Caviar, and Duck Confit – $1000

And the good news? All are vegan-friendly!

Click HERE to register

Thanks for your support of Dean’s work over the years. We all know that America has been “clucked” for a long time. It’s time we unrig the economy so that people, and chickens, get a fair deal.

Now, back to your regularly scheduled program…

The Paycheck Protection Program (PPP), was inevitably going to face problems. It was designed in a huge rush, as Congress sought to keep businesses and workers whole through an indeterminate period of mandated shutdowns. The idea was that if businesses kept workers on the payroll, the government would pick up most of the tab.

It was obviously not going to be easy to police a new program being put in place in the middle of a pandemic. The verification relied to a substantial extent on self-reporting. The key issue was that in order to get a loan forgiven, 75 percent of the funds had to be used for payroll related expenses, specifically pay and employee benefits.

This was already a lax standard for a program designed to keep workers getting paychecks. It might have been reasonable to require 80 or even 90 percent of the money in a “paycheck protection program” to actually be used to cover paychecks.

Unfortunately, Congress went the other way, instead of tightening the rules, it decided to loosen them. It reduced the portion of the loans that had to go to wages and benefits, in order to be forgiven, to just 60 percent.

This seems like an incredibly foolish decision for anyone concerned about whether the government money would be well-used, as NPR noted in a segment this evening. It turned to experts to find out why the rules were so lax.

A Little History

If NPR wanted a fuller answer to this question, it might have reviewed its own coverage of the PPP at the time. For example, on May 4, 2020, it ran a piece telling listeners about the problems with the PPP.  

Some small businesses say the loans have too many strings

“Business owners lucky enough to get the funding have said the money kept their businesses afloat. However, some owners also said PPP rules are not allowing them to use the money in the ways they see as best.

“Among their biggest complaints: 75% of the forgiven amount on the loans must be spent on payroll. The rest can only be spent on a few categories: rent, mortgage interest or utilities.

“But with many businesses unable to reopen, owners wonder how to spend that much on payroll when they have little or no work for their employees to do.

“’I understand in principle it’s encouraging us to get people back to work,’ said Christian Piatt, the co-owner of Brew Drinkery in Granbury, Texas. ‘But in practice, when you have a retail storefront that is not being allowed by local authorities to operate in the way that we had before, there should be some consideration to make it to account for that.’”

This was not the only time NPR made a pitch for loosening the rules on PPP loans. Later that month it has another piece on troubles with the PPP. At one point it told listeners:

Some businesses fear PPP consequences

“Some business owners like Kern-Desjarlais have decided that the PPP just doesn’t work with their finances. The restrictions surrounding how the money must be spent — for example, that it must be spent in eight weeks, with 75% spent on payroll in order to be forgiven — have frustrated some business owners.”

In short, if NPR wants to do an honest piece on why the PPP rules were so lax and allowed so much room for abuse, it really needs to look at media coverage, including its own, which was effectively a lobbying campaign for loosening standards. It would have been fine to present views of business owners wanting looser rules (surprise, surprise), but the media should have also presented the views of virtually every policy expert who could have explained why loosening rules would have opened the door to abuse.

The voices of these policy experts were largely absent from NPR and other major news outlets when business groups were pushing for relaxing standards. In short, if NPR wants to know why there was so much corruption in the PPP, it should start by looking in the mirror.

The Paycheck Protection Program (PPP), was inevitably going to face problems. It was designed in a huge rush, as Congress sought to keep businesses and workers whole through an indeterminate period of mandated shutdowns. The idea was that if businesses kept workers on the payroll, the government would pick up most of the tab.

It was obviously not going to be easy to police a new program being put in place in the middle of a pandemic. The verification relied to a substantial extent on self-reporting. The key issue was that in order to get a loan forgiven, 75 percent of the funds had to be used for payroll related expenses, specifically pay and employee benefits.

This was already a lax standard for a program designed to keep workers getting paychecks. It might have been reasonable to require 80 or even 90 percent of the money in a “paycheck protection program” to actually be used to cover paychecks.

Unfortunately, Congress went the other way, instead of tightening the rules, it decided to loosen them. It reduced the portion of the loans that had to go to wages and benefits, in order to be forgiven, to just 60 percent.

This seems like an incredibly foolish decision for anyone concerned about whether the government money would be well-used, as NPR noted in a segment this evening. It turned to experts to find out why the rules were so lax.

A Little History

If NPR wanted a fuller answer to this question, it might have reviewed its own coverage of the PPP at the time. For example, on May 4, 2020, it ran a piece telling listeners about the problems with the PPP.  

Some small businesses say the loans have too many strings

“Business owners lucky enough to get the funding have said the money kept their businesses afloat. However, some owners also said PPP rules are not allowing them to use the money in the ways they see as best.

“Among their biggest complaints: 75% of the forgiven amount on the loans must be spent on payroll. The rest can only be spent on a few categories: rent, mortgage interest or utilities.

“But with many businesses unable to reopen, owners wonder how to spend that much on payroll when they have little or no work for their employees to do.

“’I understand in principle it’s encouraging us to get people back to work,’ said Christian Piatt, the co-owner of Brew Drinkery in Granbury, Texas. ‘But in practice, when you have a retail storefront that is not being allowed by local authorities to operate in the way that we had before, there should be some consideration to make it to account for that.’”

This was not the only time NPR made a pitch for loosening the rules on PPP loans. Later that month it has another piece on troubles with the PPP. At one point it told listeners:

Some businesses fear PPP consequences

“Some business owners like Kern-Desjarlais have decided that the PPP just doesn’t work with their finances. The restrictions surrounding how the money must be spent — for example, that it must be spent in eight weeks, with 75% spent on payroll in order to be forgiven — have frustrated some business owners.”

In short, if NPR wants to do an honest piece on why the PPP rules were so lax and allowed so much room for abuse, it really needs to look at media coverage, including its own, which was effectively a lobbying campaign for loosening standards. It would have been fine to present views of business owners wanting looser rules (surprise, surprise), but the media should have also presented the views of virtually every policy expert who could have explained why loosening rules would have opened the door to abuse.

The voices of these policy experts were largely absent from NPR and other major news outlets when business groups were pushing for relaxing standards. In short, if NPR wants to know why there was so much corruption in the PPP, it should start by looking in the mirror.

We have been hearing endless stories about how inflation is wiping out families who are struggling to make ends meet. And now, just when you thought it couldn’t get any worse, the Washington Post tells us that the major retailers are slashing prices to deal with an inventory glut.

“Dell has too many computers. Nike is swimming in summer clothes. And Gap is flooded with basics like T-shirts and shorts.”

“In response, many of the country’s largest retailers are kicking off holiday sales earlier than ever, in hopes of clearing their warehouses enough to accommodate a new round of winter orders, according to company filings and earnings calls.”

Many of us who follow the news might think this would be great news, just what the doctor ordered for households struggling with inflation, but no, that would be wrong.

“And the timing couldn’t be worse, as Americans’ appetite for clothing, furniture, electronics and other goods has cooled off in part due to surging inflation but also because of changing pandemic patterns toward services like restaurants and travel. Monthly household spending on goods has slowed lately.

“With inflation stubbornly near 40-year highs, many are finding that even the deepest discounts aren’t translating into sales. Americans are spending more of their budgets on essentials like gas and groceries, leaving less for nonessential items.”

This sure looks like a bad case of the “which way is up?” problem in economics. After telling us about how people think the economy is awful because of inflation, now the Washington Post gives us the bad news that prices for a wide range of products is plunging.

Oh, and just in case readers get confused, many of these items with falling prices, like clothes, fit into the essential category. Apparently the Post missed it, but gas prices have fallen sharply since their peak this spring and are now much lower in real terms than they were through the first half of the last decade, so high gas prices are not keeping people from buying other things.

After telling us how the rundown of inventories will slow economic growth, towards the end of the piece, the Post finally does mention a positive side to the picture.

“Wide-ranging discounts could help ease some of the pain of inflation. Overall prices have risen 8.3 percent from a year ago, a notch down from the summer’s highs but still far higher than historic norms, according to the Bureau of Labor Statistics.

“There are already signs that prices are easing in some parts of the economy. Appliances, bedroom furniture, jewelry, TVs and smartphones were all cheaper in August than they were in July.

“’Prices will get lower,’ said Liz Ann Sonders, chief investment strategist at Charles Schwab. ‘We’re already seeing it to some degree: disinflation, if not outright deflation, in some areas where companies just have to work down their inventories.’”

After hearing endless stories of “inflation, inflation, inflation,” we might think tumbling prices for a wide range of goods would be a really positive story, but not in the Washington Post. This is just a story of troubled retailers, struggling to manage inventories and seeing shrinking profit margins.

As they say, “bad news for Biden.”

We have been hearing endless stories about how inflation is wiping out families who are struggling to make ends meet. And now, just when you thought it couldn’t get any worse, the Washington Post tells us that the major retailers are slashing prices to deal with an inventory glut.

“Dell has too many computers. Nike is swimming in summer clothes. And Gap is flooded with basics like T-shirts and shorts.”

“In response, many of the country’s largest retailers are kicking off holiday sales earlier than ever, in hopes of clearing their warehouses enough to accommodate a new round of winter orders, according to company filings and earnings calls.”

Many of us who follow the news might think this would be great news, just what the doctor ordered for households struggling with inflation, but no, that would be wrong.

“And the timing couldn’t be worse, as Americans’ appetite for clothing, furniture, electronics and other goods has cooled off in part due to surging inflation but also because of changing pandemic patterns toward services like restaurants and travel. Monthly household spending on goods has slowed lately.

“With inflation stubbornly near 40-year highs, many are finding that even the deepest discounts aren’t translating into sales. Americans are spending more of their budgets on essentials like gas and groceries, leaving less for nonessential items.”

This sure looks like a bad case of the “which way is up?” problem in economics. After telling us about how people think the economy is awful because of inflation, now the Washington Post gives us the bad news that prices for a wide range of products is plunging.

Oh, and just in case readers get confused, many of these items with falling prices, like clothes, fit into the essential category. Apparently the Post missed it, but gas prices have fallen sharply since their peak this spring and are now much lower in real terms than they were through the first half of the last decade, so high gas prices are not keeping people from buying other things.

After telling us how the rundown of inventories will slow economic growth, towards the end of the piece, the Post finally does mention a positive side to the picture.

“Wide-ranging discounts could help ease some of the pain of inflation. Overall prices have risen 8.3 percent from a year ago, a notch down from the summer’s highs but still far higher than historic norms, according to the Bureau of Labor Statistics.

“There are already signs that prices are easing in some parts of the economy. Appliances, bedroom furniture, jewelry, TVs and smartphones were all cheaper in August than they were in July.

“’Prices will get lower,’ said Liz Ann Sonders, chief investment strategist at Charles Schwab. ‘We’re already seeing it to some degree: disinflation, if not outright deflation, in some areas where companies just have to work down their inventories.’”

After hearing endless stories of “inflation, inflation, inflation,” we might think tumbling prices for a wide range of goods would be a really positive story, but not in the Washington Post. This is just a story of troubled retailers, struggling to manage inventories and seeing shrinking profit margins.

As they say, “bad news for Biden.”

The media keep telling us that the economy is a losing issue for Democrats. I know that this is the Republicans’ talking point, but that is not what the data show.

For tens of millions of people, there is a huge amount of good news about the economy over the last year and a half. That doesn’t mean that tens of millions of people are not struggling, they are. And, that is always true in the US economy.

The fact that a country as rich as ours does not have decent welfare state provisions that can ensure people adequate housing, food, and health care is an outrage. But that is a longer-term story, not something that just happened in the last year and a half. When the media suddenly choose to emphasize the struggling population, in ways that they have not done in the past, that is a political decision on their part, not one responding to a new economic reality.

Anyhow, with that issue out of the way, I’m going to emphasize some of the positive aspects of the economy which are getting little attention from media.

People Quitting Crappy Jobs

We have heard a great deal about the bad news from a tight labor market: rapidly rising wages are creating inflationary pressures, which the Fed is combatting with its aggressive path of interest rate hikes. For some reason, the flip side of this picture has gotten much less attention.

The tight labor market has meant that millions of workers have been able to quit jobs that they don’t like. In the last year, there were 51.5 million voluntary quits from jobs. That is 9.3 million more than the number of people who quit their jobs in the year before the pandemic hit. (This number is for total quits, since some people quit more than once, the actual number of people who quit jobs would be somewhat lower.)

The increase was seen most clearly in the lowest paying jobs. The quit rate in the hotel and restaurant sector, meaning the percentage of workers who quit their job each month, has averaged almost 6.0 percent in the last year. That is 25 percent higher than the 4.8 percent average in the year before the pandemic.

It is also important to remember that we had a very strong labor market in the year before the pandemic, with the lowest unemployment rates in half a century. So workers have felt far more freedom to quit jobs they don’t like in the last year than has been the case for a very long time.

Rising Real Wages at the Bottom

Inflation has taken a toll on workers in the last year and a half, but the impact has been hugely exaggerated. If we look at the real average hourly wage for all workers since the start of the pandemic in February of 2020, it was down by 0.7 percent, as of August. (We don’t have inflation data yet for September.)

This is bad, but hardly unprecedented. For example, real average hourly wages dropped a full 1.0 percent in the year from November 2006 to November 2007, which was before the start of the Great Recession.

The picture looks somewhat better if we look at the data for production and nonsupervisory workers, which excludes most higher end workers. This series also goes back much further, historically. As of September, the real average hourly wage was down by less than 0.1 percent from its February 2020 level. That’s the wrong direction, but not exactly a crisis.

By comparison, this measure fell by 3.8 percent from January of 1980 to January of 1989, a period in which the media were touting “morning in America.”

The story looks better if we look to the lowest paid workers. Real average hour earnings for production and nonsupervisory in the leisure and hospitality industry (hotels and restaurants), rose by 3.9 percent from February 2020 to August. (Arin Dube and David Autor have been doing careful analysis with the Current Population Survey documenting the sharp increase in pay for low end workers during the pandemic recovery.)

To be clear, we should want to see a better picture on wage growth, with workers across the board seeing pay hikes.  But the experience in the last year and a half hardly stands out as being especially bad by any historical measure. Furthermore, we have been through a worldwide pandemic and are now seeing the largest conflict in Europe since World War II. It would be a bit nuts to think we could pass through these events without any disruption to the economy.

The Benefits of Increased Work from Home

There has been a huge surge in the number of people working from home since the start of the pandemic. During the shutdown period in the spring of 2020, this was largely because there was no alternative. However, for the most part, people working from home at present are doing it by choice. In 2021, there were roughly 19 million more people (12.7 percent of the workforce) who reported that they primarily worked from home than in 2019.

This is a huge benefit for these workers. The average amount of time spent commuting in 2019 was 27.6 minutes for a one-way trip, or 55.2 minutes for the round-trip. If we assume an eight-hour work day, time spent commuting added an average of 11.5 percent to the length of the workday. We can think of this as equivalent to an 11.5 percent reduction in the hourly pay rate, compared to a situation where no time is spent commuting.

Commuting to work doesn’t just take time, it is expensive. The average commuting distance to work is more than 15 miles. That means 30 miles for the round-trip. At federal government’s mileage reimbursement rate of 62.5 cents per mile, this comes $18.75 a day or almost $4,900 a year. That is 7.0 percent of the annual pay of a worker earning $70,000 a year.

It’s not just travel expenses that people save by being able to work at home. They can save on paying for business clothes, dry cleaning, and buying a purchased lunch at work. For many families, working from home may also save on childcare, insofar as they are able to care for young children without seriously disrupting their work.

In short, the option to work from home can mean large savings in time and money. Also avoiding traffic jams may mean a major quality of life improvement. It is true that the option to work from home is available primarily to the top half of earners, and especially the top fifth, but this is still a very large number that extends far beyond just the rich.

Also, these higher paid workers have on average not seen their pay keep pace with inflation since the start of the pandemic. Insofar as they are able to save time and money by working from home, many are still likely coming out well ahead of where they were before the pandemic, if they can work from home at least part of the time.  

Mortgage Refinancing

While the Fed’s rate hikes have pretty much put an end to the refinancing boom we saw in 2020 and 2021, this boom has meant much more money in the pockets of tens of millions of homeowners. More than 17 million homeowners refinanced their mortgages in 2020 and 2021 combined. The average amount of money in a refinance mortgage was close to $250,000. If people refinancing saved an average of 1.0 percentage points on their interest rate, this would imply savings of $2,500 a year.

Savings of this magnitude go a long way towards covering the increases in the price of milk and meat. For some reason, there is very little mention of the money saved by refinancing in media discussions of economic well-being during the pandemic recovery.

While homeownership, like the option to work from home, also skews towards the higher end of the income distribution, it goes much further down. Nearly two-thirds of households are homeowners. Furthermore, those most likely in a situation to benefit from refinancing are younger families, as older homeowners have likely paid off most or all of their mortgage. This means that a large share of very middle-income families are likely to be among the group that has benefitted from refinancing a mortgage at a lower interest rate in the last two and a half years.

Telemedicine

There has been a huge surge in telemedicine since the start of the pandemic which will likely continue going forward. According to a recent survey by the Department of Health and Human Services, almost one-in-four adults reported having a remote appointment with a health care professional in the four weeks prior to the survey.

While telemedicine will never completely replace in-person visits, it can provide enormous benefits to patients. It saves the time and expense that are involved in physically visiting a doctor or other health care professional. This is an especially big deal for patients who are in bad health, who are the ones most likely to be having appointments with health care professionals.

Telemedicine also radically increases the access of patients to specialists who may be in other parts of the country. A person with a rare condition, can use telemedicine to have an appointment with a leading expert on the other side of the country, rather than undertaking an expensive and exhausting trip to visit them in person.

It is likely that we will see increased use of remote services in a wide variety of areas going forward, saving large amounts of time and money on in-person visits. Also, the remote provision of many of these services, such as college classes, is likely to improve through time as better technologies are developed and people become more accustomed to using these tools.

The Score on Living Standards

If we try to get a fuller picture of the economic situation it is hard to find the dismal economy that is front and center in economic reporting. As noted, the lowest paid workers have seen pay gains that have exceeded inflation since the start of the pandemic, so the story of increased suffering among this group is not accurate, based on the data we have.

Tens of millions of more middle-income workers have seen their pay slightly lag inflation, but this is not a phenomenon unique to the Biden presidency. There have been many periods in the last half century where the typical worker’s pay has not kept pace with prices, most notably the eight years of the Reagan presidency, which are often described as the “Reagan boom.”

In addition, millions of middle-income workers have been able to save thousands of dollars in annual interest payments by refinancing their mortgages at the low rates available in 2020 and 2021. A large share of the people in the top 40 percent of wage earners have also benefited by the explosion in remote work. These people have been able to save a large amount of time and money on commuting costs.

It is worth pointing out an oddity in our economic accounting. The money that workers save on commuting by working from home does not appear as a reduction in the cost of living in the consumer price index or other measures of inflation. For purposes of accounting, the money people spend on their drive to and from work is treated no differently than the money spent on items that actually provide direct benefit, like food, clothing, or shelter.

If a worker can save $4,000 a year on expenses associated with working in an office, this does not show up as a benefit anywhere in our accounts. Similarly, if a patient can substitute a remote video conference for a three-day cross-country trip to visit a specialist, this does not appear as any sort of gain. Tens of millions of people are experiencing these benefits as a result of changes brought on by the pandemic, but they are not picked up in our usual measures of living standards.

Just to go back to a point made the beginning, there are tens of millions of people who are struggling in today’s economy. Almost 12.0 percent of the population is living below the poverty line, that translates into almost 40 million people. We can add in people living at less than twice the poverty line and get more than 80 million people who are facing serious hardship.

But the point is that this is always true. With the poor quality of its welfare state, and its large number of low-paying jobs, the United States will always have a huge number of people struggling to get by even in the best of times. The decision made by the media to put these struggling people at the center of the economic story during Biden’s presidency is a political decision, not one driven by economic reality.   

The media keep telling us that the economy is a losing issue for Democrats. I know that this is the Republicans’ talking point, but that is not what the data show.

For tens of millions of people, there is a huge amount of good news about the economy over the last year and a half. That doesn’t mean that tens of millions of people are not struggling, they are. And, that is always true in the US economy.

The fact that a country as rich as ours does not have decent welfare state provisions that can ensure people adequate housing, food, and health care is an outrage. But that is a longer-term story, not something that just happened in the last year and a half. When the media suddenly choose to emphasize the struggling population, in ways that they have not done in the past, that is a political decision on their part, not one responding to a new economic reality.

Anyhow, with that issue out of the way, I’m going to emphasize some of the positive aspects of the economy which are getting little attention from media.

People Quitting Crappy Jobs

We have heard a great deal about the bad news from a tight labor market: rapidly rising wages are creating inflationary pressures, which the Fed is combatting with its aggressive path of interest rate hikes. For some reason, the flip side of this picture has gotten much less attention.

The tight labor market has meant that millions of workers have been able to quit jobs that they don’t like. In the last year, there were 51.5 million voluntary quits from jobs. That is 9.3 million more than the number of people who quit their jobs in the year before the pandemic hit. (This number is for total quits, since some people quit more than once, the actual number of people who quit jobs would be somewhat lower.)

The increase was seen most clearly in the lowest paying jobs. The quit rate in the hotel and restaurant sector, meaning the percentage of workers who quit their job each month, has averaged almost 6.0 percent in the last year. That is 25 percent higher than the 4.8 percent average in the year before the pandemic.

It is also important to remember that we had a very strong labor market in the year before the pandemic, with the lowest unemployment rates in half a century. So workers have felt far more freedom to quit jobs they don’t like in the last year than has been the case for a very long time.

Rising Real Wages at the Bottom

Inflation has taken a toll on workers in the last year and a half, but the impact has been hugely exaggerated. If we look at the real average hourly wage for all workers since the start of the pandemic in February of 2020, it was down by 0.7 percent, as of August. (We don’t have inflation data yet for September.)

This is bad, but hardly unprecedented. For example, real average hourly wages dropped a full 1.0 percent in the year from November 2006 to November 2007, which was before the start of the Great Recession.

The picture looks somewhat better if we look at the data for production and nonsupervisory workers, which excludes most higher end workers. This series also goes back much further, historically. As of September, the real average hourly wage was down by less than 0.1 percent from its February 2020 level. That’s the wrong direction, but not exactly a crisis.

By comparison, this measure fell by 3.8 percent from January of 1980 to January of 1989, a period in which the media were touting “morning in America.”

The story looks better if we look to the lowest paid workers. Real average hour earnings for production and nonsupervisory in the leisure and hospitality industry (hotels and restaurants), rose by 3.9 percent from February 2020 to August. (Arin Dube and David Autor have been doing careful analysis with the Current Population Survey documenting the sharp increase in pay for low end workers during the pandemic recovery.)

To be clear, we should want to see a better picture on wage growth, with workers across the board seeing pay hikes.  But the experience in the last year and a half hardly stands out as being especially bad by any historical measure. Furthermore, we have been through a worldwide pandemic and are now seeing the largest conflict in Europe since World War II. It would be a bit nuts to think we could pass through these events without any disruption to the economy.

The Benefits of Increased Work from Home

There has been a huge surge in the number of people working from home since the start of the pandemic. During the shutdown period in the spring of 2020, this was largely because there was no alternative. However, for the most part, people working from home at present are doing it by choice. In 2021, there were roughly 19 million more people (12.7 percent of the workforce) who reported that they primarily worked from home than in 2019.

This is a huge benefit for these workers. The average amount of time spent commuting in 2019 was 27.6 minutes for a one-way trip, or 55.2 minutes for the round-trip. If we assume an eight-hour work day, time spent commuting added an average of 11.5 percent to the length of the workday. We can think of this as equivalent to an 11.5 percent reduction in the hourly pay rate, compared to a situation where no time is spent commuting.

Commuting to work doesn’t just take time, it is expensive. The average commuting distance to work is more than 15 miles. That means 30 miles for the round-trip. At federal government’s mileage reimbursement rate of 62.5 cents per mile, this comes $18.75 a day or almost $4,900 a year. That is 7.0 percent of the annual pay of a worker earning $70,000 a year.

It’s not just travel expenses that people save by being able to work at home. They can save on paying for business clothes, dry cleaning, and buying a purchased lunch at work. For many families, working from home may also save on childcare, insofar as they are able to care for young children without seriously disrupting their work.

In short, the option to work from home can mean large savings in time and money. Also avoiding traffic jams may mean a major quality of life improvement. It is true that the option to work from home is available primarily to the top half of earners, and especially the top fifth, but this is still a very large number that extends far beyond just the rich.

Also, these higher paid workers have on average not seen their pay keep pace with inflation since the start of the pandemic. Insofar as they are able to save time and money by working from home, many are still likely coming out well ahead of where they were before the pandemic, if they can work from home at least part of the time.  

Mortgage Refinancing

While the Fed’s rate hikes have pretty much put an end to the refinancing boom we saw in 2020 and 2021, this boom has meant much more money in the pockets of tens of millions of homeowners. More than 17 million homeowners refinanced their mortgages in 2020 and 2021 combined. The average amount of money in a refinance mortgage was close to $250,000. If people refinancing saved an average of 1.0 percentage points on their interest rate, this would imply savings of $2,500 a year.

Savings of this magnitude go a long way towards covering the increases in the price of milk and meat. For some reason, there is very little mention of the money saved by refinancing in media discussions of economic well-being during the pandemic recovery.

While homeownership, like the option to work from home, also skews towards the higher end of the income distribution, it goes much further down. Nearly two-thirds of households are homeowners. Furthermore, those most likely in a situation to benefit from refinancing are younger families, as older homeowners have likely paid off most or all of their mortgage. This means that a large share of very middle-income families are likely to be among the group that has benefitted from refinancing a mortgage at a lower interest rate in the last two and a half years.

Telemedicine

There has been a huge surge in telemedicine since the start of the pandemic which will likely continue going forward. According to a recent survey by the Department of Health and Human Services, almost one-in-four adults reported having a remote appointment with a health care professional in the four weeks prior to the survey.

While telemedicine will never completely replace in-person visits, it can provide enormous benefits to patients. It saves the time and expense that are involved in physically visiting a doctor or other health care professional. This is an especially big deal for patients who are in bad health, who are the ones most likely to be having appointments with health care professionals.

Telemedicine also radically increases the access of patients to specialists who may be in other parts of the country. A person with a rare condition, can use telemedicine to have an appointment with a leading expert on the other side of the country, rather than undertaking an expensive and exhausting trip to visit them in person.

It is likely that we will see increased use of remote services in a wide variety of areas going forward, saving large amounts of time and money on in-person visits. Also, the remote provision of many of these services, such as college classes, is likely to improve through time as better technologies are developed and people become more accustomed to using these tools.

The Score on Living Standards

If we try to get a fuller picture of the economic situation it is hard to find the dismal economy that is front and center in economic reporting. As noted, the lowest paid workers have seen pay gains that have exceeded inflation since the start of the pandemic, so the story of increased suffering among this group is not accurate, based on the data we have.

Tens of millions of more middle-income workers have seen their pay slightly lag inflation, but this is not a phenomenon unique to the Biden presidency. There have been many periods in the last half century where the typical worker’s pay has not kept pace with prices, most notably the eight years of the Reagan presidency, which are often described as the “Reagan boom.”

In addition, millions of middle-income workers have been able to save thousands of dollars in annual interest payments by refinancing their mortgages at the low rates available in 2020 and 2021. A large share of the people in the top 40 percent of wage earners have also benefited by the explosion in remote work. These people have been able to save a large amount of time and money on commuting costs.

It is worth pointing out an oddity in our economic accounting. The money that workers save on commuting by working from home does not appear as a reduction in the cost of living in the consumer price index or other measures of inflation. For purposes of accounting, the money people spend on their drive to and from work is treated no differently than the money spent on items that actually provide direct benefit, like food, clothing, or shelter.

If a worker can save $4,000 a year on expenses associated with working in an office, this does not show up as a benefit anywhere in our accounts. Similarly, if a patient can substitute a remote video conference for a three-day cross-country trip to visit a specialist, this does not appear as any sort of gain. Tens of millions of people are experiencing these benefits as a result of changes brought on by the pandemic, but they are not picked up in our usual measures of living standards.

Just to go back to a point made the beginning, there are tens of millions of people who are struggling in today’s economy. Almost 12.0 percent of the population is living below the poverty line, that translates into almost 40 million people. We can add in people living at less than twice the poverty line and get more than 80 million people who are facing serious hardship.

But the point is that this is always true. With the poor quality of its welfare state, and its large number of low-paying jobs, the United States will always have a huge number of people struggling to get by even in the best of times. The decision made by the media to put these struggling people at the center of the economic story during Biden’s presidency is a political decision, not one driven by economic reality.   

Okay, that’s not exactly right, the headline was “U.S. National Debt Tops $31 Trillion for the First Time.” This was a bit weird for two reasons. First, $31 trillion, like $31.1 trillion, is not some nice round number that provides an obvious benchmark.

The other reason the headline was odd was the use of the expression “for the first time.” Our debt has been consistently rising for more than two decades. In fact, except for short period at the end of the last century and start of this century, it has been rising consistently for a half century.

This means that every debt number we hit will be “for the first time.” It’s sort of like the tree in my backyard being taller than it ever was before. That will always be true, not the sort of thing you would typically put in a headline.

In short, the New York Times took a non-event and decided that it was a good occasion to get its readers to worry about the national debt. That’s the sort of thing that would ordinarily go in the opinion section. But let’s look at the substance.

The piece tells us:

“The breach of the threshold, which was revealed in a Treasury Department report, comes at an inopportune moment, as historically low interest rates are being replaced with higher borrowing costs as the Federal Reserve tries to combat rapid inflation. While record levels of government borrowing to fight the pandemic and finance tax cuts were once seen by some policymakers as affordable, those higher rates are making America’s debts more costly over time.”

It then gives the views of two deficit hawks, along with warnings from the Congressional Budget Office (CBO) that, “investors could lose confidence in the government’s ability to repay what it owes.”

So, the big issue is that paying interest on the debt is going to become more costly over time. This is very plausible, but it might have been helpful if we had some context as to how large this cost will be, instead of just trying to scare readers with the really big numbers.

The most obvious starting point is the ratio of interest payments to GDP. This is actually still near historic lows, CBO projects interest to be equal to 1.7 percent of GDP in the current fiscal year. It does project the cost to rise, both because of an increase in the debt to GDP ratio and also due to higher interest rates. However, even with this rise, the ratio of interest payments to GDP only hits its 1990s peak of 3.2 percent of GDP in 2032.

Here’s the picture since 1962.

Source: Congressional Budget Office.

 

It’s also worth noting that the 1990s were actually a very good decade for the economy. We didn’t suffer in any obvious way from the high ratio of interest payments to GDP. This means that if the CBO projections prove accurate and we actually see the ratio of interest to GDP rise to the 1990s levels, it hardly implies some sort of economic disaster.

What About Government-Granted Patent and Copyright Monopolies?

It is bizarre that people complaining about government budget deficits literally never express concern about the government’s granting of patent and copyright monopolies, which can raise the price of protected items by many thousand percent above their free-market level.

As should be obvious, direct spending and patent and copyright monopolies are alternative ways for the government to pay for things. We can either have direct public funding, or we can tell companies to innovate or do creative work, and we will give them a monopoly over what they produce. For some reason, the New York Times is very concerned about the costs of the former, but doesn’t seem to care at all about the latter mechanism the government uses to pay for services.

Since I get tired of writing the same thing all the time, I’m just going to lift what I wrote in a blog post last year.

The more important part of this story is that the conventional calculations of the debt leave out the higher prices that we will pay for items like prescription drugs and computer software because of government-granted patent and copyright monopolies. This is a huge burden, which is many times larger than the debt burden, but policy types and reporters refuse to ever talk about it for some reason.  

This is a simple and logical point. The government can pay for things by writing checks. It typically does this with things like roads, bridges, and teachers’ salaries.  It can also pay for things by giving out patent or copyright monopolies.

When the government gives out these monopolies, it is telling innovators or creative workers to develop a new product or write a new book, and you will be given a monopoly for a period of time. This government-granted monopoly will allow you to charge a price that is far above the free market price.

This point has nothing to do with whether you think patents are a good way to support innovation or copyrights are the best way to support creative work, it is a logical point. If the government will threaten to arrest anyone who produces the Moderna vaccine, Moderna gets to charge a much higher price than if everyone in the world can produce the vaccine.[2]

This brings us back to my question: how can someone who claims to be concerned about the burden of the government debt on our children, ignore the burden, in the form of higher prices, created by government-granted patent and copyright monopolies? If the government were to put a tax on prescription drugs to help cover its debt service, we would all recognize this tax as a burden on households.

Yet somehow, we are supposed to believe that if the government gives out a patent monopoly that allows a drug company to charge a price that is far higher than the free market price, that is not a burden. That makes zero sense.

And this burden is very large. By my calculations, the higher cost due to patent monopolies and related protections comes to more than $400 billion (1.8 percent of GDP) in the case of prescription drugs alone. If we add in the higher costs that we pay for medical equipment, computers, software, and a variety of other items, the burden likely comes to more than $1 trillion a year, or 4.5 percent of GDP.

This is more than four times the burden of the debt, but the folks who complain about the debt burden on our kids never talk about it. This is simply not honest. If we are genuinely concerned about the burdens the government is imposing on our children, then we don’t get to selectively pick which burdens we will talk about.

The Deficit and Patent and Copyright Monopolies

There is a similar story with the deficit and these monopolies. And again, it is a matter of logic, not whether we think they are good mechanisms for supporting innovation and creative work. (I talk about alternatives in chapter 5 of Rigged [it’s free].)

Patent and copyright monopolies are intended to motivate people to innovate and do creative work. This means that they increase spending and GDP. The concern over large deficits is that the government is over-stimulating the economy, that it is demanding so many goods and services that the economy can’t meet both the demand from the private sector and the government.

If this is a concern, why should we not also be concerned about the increased demand created by government-granted patent and copyright monopolies? According to the National Income and Product Accounts (Table 5.6.5, Line 9), the pharmaceutical industry spent $105.7 billion on research in 2020. This has the same impact on demand in the economy as if the government spent another $105.7 billion on research.

How can we be concerned about the inflationary impact of government spending, but not the patent-induced spending by the industry? That makes zero sense.

Is an Honest Budget Debate Possible?

The point here is that we need to have honest discussions about debt and deficit concerns. The current discussions are not remotely honest because they refuse to take full accounting of the mechanisms the government uses to pay for goods and services. Others can debate whether this is due to laziness or deliberate dishonesty, but the media’s reporting on debt and deficits is not serving the public.

[1] The burden would be considerably lower if we adjusted for inflation, but we will leave that one alone for now.

[2] The government doesn’t directly threaten to arrest someone for infringing on a patent or copyright. Typically, the holder of the monopoly would go to court seeking damages and an injunction ordering the person to stop the infringement. If the person ignores the injunction and continues infringing, they could go to jail for ignoring an injunction.  

Okay, that’s not exactly right, the headline was “U.S. National Debt Tops $31 Trillion for the First Time.” This was a bit weird for two reasons. First, $31 trillion, like $31.1 trillion, is not some nice round number that provides an obvious benchmark.

The other reason the headline was odd was the use of the expression “for the first time.” Our debt has been consistently rising for more than two decades. In fact, except for short period at the end of the last century and start of this century, it has been rising consistently for a half century.

This means that every debt number we hit will be “for the first time.” It’s sort of like the tree in my backyard being taller than it ever was before. That will always be true, not the sort of thing you would typically put in a headline.

In short, the New York Times took a non-event and decided that it was a good occasion to get its readers to worry about the national debt. That’s the sort of thing that would ordinarily go in the opinion section. But let’s look at the substance.

The piece tells us:

“The breach of the threshold, which was revealed in a Treasury Department report, comes at an inopportune moment, as historically low interest rates are being replaced with higher borrowing costs as the Federal Reserve tries to combat rapid inflation. While record levels of government borrowing to fight the pandemic and finance tax cuts were once seen by some policymakers as affordable, those higher rates are making America’s debts more costly over time.”

It then gives the views of two deficit hawks, along with warnings from the Congressional Budget Office (CBO) that, “investors could lose confidence in the government’s ability to repay what it owes.”

So, the big issue is that paying interest on the debt is going to become more costly over time. This is very plausible, but it might have been helpful if we had some context as to how large this cost will be, instead of just trying to scare readers with the really big numbers.

The most obvious starting point is the ratio of interest payments to GDP. This is actually still near historic lows, CBO projects interest to be equal to 1.7 percent of GDP in the current fiscal year. It does project the cost to rise, both because of an increase in the debt to GDP ratio and also due to higher interest rates. However, even with this rise, the ratio of interest payments to GDP only hits its 1990s peak of 3.2 percent of GDP in 2032.

Here’s the picture since 1962.

Source: Congressional Budget Office.

 

It’s also worth noting that the 1990s were actually a very good decade for the economy. We didn’t suffer in any obvious way from the high ratio of interest payments to GDP. This means that if the CBO projections prove accurate and we actually see the ratio of interest to GDP rise to the 1990s levels, it hardly implies some sort of economic disaster.

What About Government-Granted Patent and Copyright Monopolies?

It is bizarre that people complaining about government budget deficits literally never express concern about the government’s granting of patent and copyright monopolies, which can raise the price of protected items by many thousand percent above their free-market level.

As should be obvious, direct spending and patent and copyright monopolies are alternative ways for the government to pay for things. We can either have direct public funding, or we can tell companies to innovate or do creative work, and we will give them a monopoly over what they produce. For some reason, the New York Times is very concerned about the costs of the former, but doesn’t seem to care at all about the latter mechanism the government uses to pay for services.

Since I get tired of writing the same thing all the time, I’m just going to lift what I wrote in a blog post last year.

The more important part of this story is that the conventional calculations of the debt leave out the higher prices that we will pay for items like prescription drugs and computer software because of government-granted patent and copyright monopolies. This is a huge burden, which is many times larger than the debt burden, but policy types and reporters refuse to ever talk about it for some reason.  

This is a simple and logical point. The government can pay for things by writing checks. It typically does this with things like roads, bridges, and teachers’ salaries.  It can also pay for things by giving out patent or copyright monopolies.

When the government gives out these monopolies, it is telling innovators or creative workers to develop a new product or write a new book, and you will be given a monopoly for a period of time. This government-granted monopoly will allow you to charge a price that is far above the free market price.

This point has nothing to do with whether you think patents are a good way to support innovation or copyrights are the best way to support creative work, it is a logical point. If the government will threaten to arrest anyone who produces the Moderna vaccine, Moderna gets to charge a much higher price than if everyone in the world can produce the vaccine.[2]

This brings us back to my question: how can someone who claims to be concerned about the burden of the government debt on our children, ignore the burden, in the form of higher prices, created by government-granted patent and copyright monopolies? If the government were to put a tax on prescription drugs to help cover its debt service, we would all recognize this tax as a burden on households.

Yet somehow, we are supposed to believe that if the government gives out a patent monopoly that allows a drug company to charge a price that is far higher than the free market price, that is not a burden. That makes zero sense.

And this burden is very large. By my calculations, the higher cost due to patent monopolies and related protections comes to more than $400 billion (1.8 percent of GDP) in the case of prescription drugs alone. If we add in the higher costs that we pay for medical equipment, computers, software, and a variety of other items, the burden likely comes to more than $1 trillion a year, or 4.5 percent of GDP.

This is more than four times the burden of the debt, but the folks who complain about the debt burden on our kids never talk about it. This is simply not honest. If we are genuinely concerned about the burdens the government is imposing on our children, then we don’t get to selectively pick which burdens we will talk about.

The Deficit and Patent and Copyright Monopolies

There is a similar story with the deficit and these monopolies. And again, it is a matter of logic, not whether we think they are good mechanisms for supporting innovation and creative work. (I talk about alternatives in chapter 5 of Rigged [it’s free].)

Patent and copyright monopolies are intended to motivate people to innovate and do creative work. This means that they increase spending and GDP. The concern over large deficits is that the government is over-stimulating the economy, that it is demanding so many goods and services that the economy can’t meet both the demand from the private sector and the government.

If this is a concern, why should we not also be concerned about the increased demand created by government-granted patent and copyright monopolies? According to the National Income and Product Accounts (Table 5.6.5, Line 9), the pharmaceutical industry spent $105.7 billion on research in 2020. This has the same impact on demand in the economy as if the government spent another $105.7 billion on research.

How can we be concerned about the inflationary impact of government spending, but not the patent-induced spending by the industry? That makes zero sense.

Is an Honest Budget Debate Possible?

The point here is that we need to have honest discussions about debt and deficit concerns. The current discussions are not remotely honest because they refuse to take full accounting of the mechanisms the government uses to pay for goods and services. Others can debate whether this is due to laziness or deliberate dishonesty, but the media’s reporting on debt and deficits is not serving the public.

[1] The burden would be considerably lower if we adjusted for inflation, but we will leave that one alone for now.

[2] The government doesn’t directly threaten to arrest someone for infringing on a patent or copyright. Typically, the holder of the monopoly would go to court seeking damages and an injunction ordering the person to stop the infringement. If the person ignores the injunction and continues infringing, they could go to jail for ignoring an injunction.  

I gather everyone must know, since the reporting on Britain’s new Prime Minister Liz Truss’s proposed 43 billion pound tax cut never included any context. There was no effort to express the tax cut relative to the size of the economy, the budget, or on a per person basis. In fact, the reporting did not even make it clear that the cost is a one year figure, rather than a ten year number, which is now the standard in the United States.

For those who might not be intimately familiar with the size of the UK economy or budget, the tax cut would be a bit less than 2 percent of the UK’s projected GDP for 2023 and roughly 4 percent of its projected budget. It would be a bit more than 640 pounds per person (around $660 dollars). And, yes it is a one year figure.

But hey, you all knew this already, right?

I gather everyone must know, since the reporting on Britain’s new Prime Minister Liz Truss’s proposed 43 billion pound tax cut never included any context. There was no effort to express the tax cut relative to the size of the economy, the budget, or on a per person basis. In fact, the reporting did not even make it clear that the cost is a one year figure, rather than a ten year number, which is now the standard in the United States.

For those who might not be intimately familiar with the size of the UK economy or budget, the tax cut would be a bit less than 2 percent of the UK’s projected GDP for 2023 and roughly 4 percent of its projected budget. It would be a bit more than 640 pounds per person (around $660 dollars). And, yes it is a one year figure.

But hey, you all knew this already, right?

Jason Furman has been tweeting about how real disposable personal income has been falling behind its trend growth. After the August data came out last week, Jason tweeted that per capita real disposable income was 8.0 percent below its pre-pandemic trend growth pace. Since Jason is generally very careful in his work, and this would be a big falloff, I thought it was worth a closer look.

The first question to ask, is what growth should we have expected? Jason is projecting a pre-pandemic trend. It is generally reasonable to expect the future to be like the past, except when we know there will be some important differences.

In this case, we did know of an important difference even before the pandemic: the retirement of the baby boom generation. The bulk of the baby boomers is now in their sixties and seventies. We are in the peak years of baby boomer retirement, which means the labor force would be expected to grow more slowly than it had in the recent past.

If we want to know where we should have expected to be in terms of disposable income, we need projections that take baby boomer retirements into account. A useful place to start is the Congressional Budget Office (CBO) projections from January of 2020, which were made before anyone knew of the impact of the pandemic.

Table 1 below derives growth in real per capita personal income from the CBO projections. (I used population projections from the 2019 Social Security Trustees Report.) The CBO data is given quarterly rather than monthly, so I used the projections from the first quarter of 2020 (which would correspond closely to levels for February of 2020) and the third quarter of 2022 (which would correspond closely to August of 2022).

Table 1
  2020:Q1 2022:Q3 Growth
Personal Income 19100 21094 10.44%
Inflation (CPI) 260 276 6.37%
Real Personal Income 7354 7636 3.83%
Population 338 344 1.88%
Real per capita income 21,790 22,206 1.91%

The first row shows projected personal income for the first quarter of 2020 and the third quarter of 2022. As can be seen, CBO projected cumulative growth over this period of 10.4 percent. CBO doesn’t directly give real income growth, but it does have projections for the CPI. They projected that cumulative inflation over this period, as measured by the CPI, would be 6.4 percent. This implied real income personal income growth of 3.8 percent.

CBO does not directly project disposable personal income, but the difference between personal income and disposable income is taxes. If the tax rate does not change, then disposable personal income would increase at the same rate as personal income. I’ll come to the issue of taxes shortly.

The next issue is population growth. The Social Security Trustees Report projected a 1.9 percent population growth over this period. (I assumed the population for the period from the start of 2020 to the middle of 2022 was half the growth projected for the five years from 2020 to 2025.) This leaves us with a projection of real per capita personal income growth of 1.9 percent over this period.

Table 2
        Actual Predicted Percent of Predicted
        Feb-20 Aug-22 22-Aug  
Real per capita personal income $52,140 $53,121 $53,136 99.97%
Real per capita disposable income $45,948 $45,292 $46,826 96.72%
Tax Share of personal income   11.88% 14.74%    

Table 2 shows the actual and predicted values of real per capita personal income and real per capita disposable income for February 2020 and August 2022. As can be seen, the actual value for real per capita personal income was almost exactly what we would have expected based on the CBO projections from January 2020. It is just 0.03 percent lower than the projected value.

However, the value for disposable income is 3.3 percent less than what would have been expected based on the CBO numbers. It turns out there is a simple explanation for this difference. People were paying a much larger share of their income in taxes in August of 2022 than in February of 2020.

Since there have been no major increases in personal taxes in the last two and a half years, the most obvious explanation for this increase in taxes is that people are paying capital gains taxes on stocks they sold at a profit. The capital gains themselves do not count as personal income, however, the taxes they pay on these gains are subtracted from disposable income. Insofar as we are seeing disposable income fall behind its projected growth path, it seems an increase in capital gain tax payments is the main factor.

In short, it looks as though income growth has held up surprisingly well through the pandemic, as well as the disruptions created by the war in Ukraine. The economy clearly faces serious problems, but these have not as yet had a major impact on the growth of disposable income.  

Jason Furman has been tweeting about how real disposable personal income has been falling behind its trend growth. After the August data came out last week, Jason tweeted that per capita real disposable income was 8.0 percent below its pre-pandemic trend growth pace. Since Jason is generally very careful in his work, and this would be a big falloff, I thought it was worth a closer look.

The first question to ask, is what growth should we have expected? Jason is projecting a pre-pandemic trend. It is generally reasonable to expect the future to be like the past, except when we know there will be some important differences.

In this case, we did know of an important difference even before the pandemic: the retirement of the baby boom generation. The bulk of the baby boomers is now in their sixties and seventies. We are in the peak years of baby boomer retirement, which means the labor force would be expected to grow more slowly than it had in the recent past.

If we want to know where we should have expected to be in terms of disposable income, we need projections that take baby boomer retirements into account. A useful place to start is the Congressional Budget Office (CBO) projections from January of 2020, which were made before anyone knew of the impact of the pandemic.

Table 1 below derives growth in real per capita personal income from the CBO projections. (I used population projections from the 2019 Social Security Trustees Report.) The CBO data is given quarterly rather than monthly, so I used the projections from the first quarter of 2020 (which would correspond closely to levels for February of 2020) and the third quarter of 2022 (which would correspond closely to August of 2022).

Table 1
  2020:Q1 2022:Q3 Growth
Personal Income 19100 21094 10.44%
Inflation (CPI) 260 276 6.37%
Real Personal Income 7354 7636 3.83%
Population 338 344 1.88%
Real per capita income 21,790 22,206 1.91%

The first row shows projected personal income for the first quarter of 2020 and the third quarter of 2022. As can be seen, CBO projected cumulative growth over this period of 10.4 percent. CBO doesn’t directly give real income growth, but it does have projections for the CPI. They projected that cumulative inflation over this period, as measured by the CPI, would be 6.4 percent. This implied real income personal income growth of 3.8 percent.

CBO does not directly project disposable personal income, but the difference between personal income and disposable income is taxes. If the tax rate does not change, then disposable personal income would increase at the same rate as personal income. I’ll come to the issue of taxes shortly.

The next issue is population growth. The Social Security Trustees Report projected a 1.9 percent population growth over this period. (I assumed the population for the period from the start of 2020 to the middle of 2022 was half the growth projected for the five years from 2020 to 2025.) This leaves us with a projection of real per capita personal income growth of 1.9 percent over this period.

Table 2
        Actual Predicted Percent of Predicted
        Feb-20 Aug-22 22-Aug  
Real per capita personal income $52,140 $53,121 $53,136 99.97%
Real per capita disposable income $45,948 $45,292 $46,826 96.72%
Tax Share of personal income   11.88% 14.74%    

Table 2 shows the actual and predicted values of real per capita personal income and real per capita disposable income for February 2020 and August 2022. As can be seen, the actual value for real per capita personal income was almost exactly what we would have expected based on the CBO projections from January 2020. It is just 0.03 percent lower than the projected value.

However, the value for disposable income is 3.3 percent less than what would have been expected based on the CBO numbers. It turns out there is a simple explanation for this difference. People were paying a much larger share of their income in taxes in August of 2022 than in February of 2020.

Since there have been no major increases in personal taxes in the last two and a half years, the most obvious explanation for this increase in taxes is that people are paying capital gains taxes on stocks they sold at a profit. The capital gains themselves do not count as personal income, however, the taxes they pay on these gains are subtracted from disposable income. Insofar as we are seeing disposable income fall behind its projected growth path, it seems an increase in capital gain tax payments is the main factor.

In short, it looks as though income growth has held up surprisingly well through the pandemic, as well as the disruptions created by the war in Ukraine. The economy clearly faces serious problems, but these have not as yet had a major impact on the growth of disposable income.  

It is a complete article of faith in intellectual circles that the market is responsible for the rise in inequality that we have seen in the United States and elsewhere over the last half-century. Intellectual types literally cannot even consider the alternative that inequality was the result of government policies, not the natural workings of the market.

The standard line is that technology and globalization were responsible for the increasing gap in income between people with college, especially advanced, degrees and non-college-educated workers. This belief that market forces drove inequality and not policy is apparently central to the identity of its beneficiaries, who determine what appears in major news outlets.

In this way, the belief in the market causes of inequality can be similar to the belief among Trumpers that the 2020 election was stolen from Trump. They simply do not even want to see the issue debated.

Spencer Bokat-Lindell: The Latest Perp

My current prompt to make my standard complaint is a column by New York Times columnist Spencer Bokat-Lindell which raises the question, “Is liberal democracy dying?” While the causes of growing inequality are not directly the piece’s topic, the issue comes up at several points.

For example, in discussing the rise of authoritarian sentiments among the masses, he tells readers:

“How does class come into the picture? Some scholars have theorized a link between democratic backsliding and the Great Recession, if not global free-market capitalism itself.”

Later the piece continues with a similar theme:

“Yet there are also those who believe technocratic fixes are unequal to the problem [of rising support for authoritarianism]. In a 2016 essay, the Indian writer Pankaj Mishra presented the declining health of democracy around the world as a crisis for the ideology of modern market-based liberalism itself: A ‘religion of technology and G.D.P. and the crude 19th-century calculus of self-interest,’ it can neither account for nor provide an answer to the anger of those who feel left behind by the disruptions and inequalities wrought by globalized capitalism.”

To be clear, I am not picking on Bokat-Lindell because he is the exception. I am picking on him because he is repeating a dogma that goes almost entirely unquestioned in major media outlets, including the New York Times.

Let’s Say Policy, not the Market, Drove Inequality

I will briefly restate my case for how policy drove inequality (this can be found in Rigged [it’s free]), but first, let’s think about the rise of right-wing populism, assuming it is true. This means that we had government policies that prevented more than half of the workforce from seeing any substantial gains from productivity growth over the last half-century. This is a period in which productivity more than doubled.

While the bottom 60 percent of the workforce saw little gains from productivity growth, the top ten percent were doing great. Those in the 90-95th percentile of the wage distribution saw gains at least in step with productivity growth. Workers in the 95th to 99th percentile had wage gains that far outstripped productivity growth, and those in the top 1 percent were getting wage gains that were close to double the rate of productivity growth.

Now, suppose that that massive upward redistribution was all by design. The government put in place policies designed to take money from the bottom 60 percent of the population and give it to those at the top.

Furthermore, suppose that the mechanisms that caused this upward redistribution were prohibited from being discussed. We instead had people like Bokat-Lindell, and thousands of others, filling news stories, columns, and other ruminations on inequality in major media outlets as simply an unfortunate outcome of natural market processes. The idea that government policies actually caused inequality would virtually never be discussed or even contemplated.

In this scenario, would it be surprising that tens of millions of people would be angry at the government for acting to make them worse off? Is it surprising that they might distrust mainstream news outlets like the New York Times or National Public Radio, which endlessly tell them they are losers, but they feel very badly about that fact?

To my mind, in this scenario, it is not the least bit surprising that tens of millions would turn to a despicable demagogue like Donald Trump, or his foreign equivalents, who tell them it is not their fault. Their explanations might be nonsensical racism and/or nationalism, but he is at least pointing his finger somewhat in the right direction. (Trump’s rich backers of course benefitted hugely from the upward redistribution of the last half century.)

The right-wing populists are blaming the people who have benefitted from upward redistribution along with the targeted minority groups. Howard Jarvis, the originator of California’s anti-tax initiative Proposition 13, laid out the case perfectly. He said that “in the battle of us against them, I’m for us.” Jarvis made it very clear, “them” in this story were welfare cheats (read minorities) and pointy-headed bureaucrats (read professionals). “Us” was good old white guys. This is the theme that Trump and other right-wing populists harp on endlessly.

Against this red meat, mainstream liberals want to have policies that modestly increase the size of the welfare state, subject of course to budget limits. And, we also have to worry about inflation. If that gets too high, well the Fed will just have to raise interest rates and throw millions of working-class people out of work and push down the pay of those able to keep their jobs.

Pretty amazing that the working class isn’t signing up to get Democrats elected, huh?

The Story on Policy and Inequality

I know I give this all the time, but for the folks who have never read my other stuff, and don’t intend to, let me give the super-brief version. Let’s start with intellectual property. This is the clearest case and probably the most important in terms of upward redistribution.

Imagine a world where there are no government-granted patent or copyright monopolies or related protections. This means that anyone who wants to can manufacture any drug they want, without getting the permission of the patent holder. (This has nothing to with safety requirements, which could be left in place.)

Everyone would be able to make copies of software they liked, and even resell them. They could make and sell copies of books, recorded music, movies, and video games and never have to worry about compensating a copyright holder.

Now, I know many people are screaming that in this world no one would ever innovate, develop new drugs, perform music, or make movies. Stop screaming for a moment and think about the issue at hand. We could have a market economy without government-granted patent and copyright monopolies.

These monopolies are government policies to promote innovation and creative work. We can and should argue about whether these government-granted monopolies are the best mechanisms for promoting innovation, but the fact that patents and copyrights are government policy, and are not inherent features of the market is not a debatable point.

This means that the extent to which people are able to benefit from these monopolies is determined by the government, not the market. Bill Gates is one of the richest people in the world because the government will arrest people who make copies of Microsoft’s software without his permission. It was not the market that made Bill Gates insanely rich, it was a government policy.

The same story applies to the idea that technology has benefitted more educated workers at the expense of those without college degrees. There would be much less money to be shared by all those software designers, computer engineers, and biotech inventors in a world without patent and copyright monopolies.

The fact that these people have done very well in the last half-century was due to the decision to not only have these government-granted monopolies, but also policy choices that made them longer and stronger. Just to take the case of prescription drugs, Congress approved the Bayh-Dole Act in 1980, which made it much easier for drug companies to get control of government-funded research.

In the last four decades, spending on prescription drugs exploded from 0.4 percent of GDP to 2.2 percent of GDP. The difference comes to $450 billion a year, more than ten times the money at stake in the Inflation Reduction Act.  

To be clear, we had other changes to policy beyond Bayh-Dole. Also, there were undoubtedly many important drugs that were incentivized by this and other policy changes that strengthened intellectual property in drugs. But, we are paying a huge amount more for drugs as a result of policy changes, not the natural workings of the market.

There is a similar story with medical equipment, computers, software, and a wide range of other items. To be clear, I don’t dispute that we should provide incentives for innovation and creative work (my preferred route with prescription drugs is more direct public funding, as we do with NIH), but the structure and size of these incentives are a matter of public policy. It is not a market outcome as the New York Times tells us.

There are other areas where policy has quite obviously shaped distribution. We could have structured globalization differently. Instead of focusing on removing barriers to trade in manufactured goods, so that our manufacturing workers had to compete with low-cost labor in the developing world, we could have focused on promoting free trade in professional services.

In this scenario, our trade teams would be working 24-7 to develop mechanisms that would allow smart ambitious kids in India, Mexico, and elsewhere to train to U.S. standards and then practice medicine in the United States, just like a native-born doctor. How much would doctors here earn, if a half million foreign-educated doctors were working here? My guess is that the sum would be substantially less than the $300,000 plus a year that the average doctor makes now. We could tell the same story for other highly-paid professionals.

The fact that globalization, as we pursued it, was designed to lower the pay of less-educated workers and not the most highly educated and highly paid, was a policy choice. It was not a natural outcome of the market.

When the Elite Lie About Taking Money from the Bottom Half, is it a Surprise the Masses are Mad?

I could go on with other economic policies that allowed for the massive upward redistribution of the last half century, those who are interested can look at Rigged, but the basic point should be clear. The upward redistribution of the last half century was the result of policies designed by the sort of people who write for and edit publications like the New York Times. They refuse to acknowledge this fact.

Let me just preempt a silly comment I have heard when raising this point. I AM ABSOLUTELY CERTAIN THAT ALMOST NO WORKING-CLASS PEOPLE VOTE BASED ON PATENT POLICY. (All caps to make it more difficult to ignore.)

The argument is that working-class voters see themselves as being screwed in the economy of the last half century and are convinced that it was something that was done to them by the elites. They are entirely right in this view, even if they (like our public intellectuals) have little understanding of the processes. And, you can’t make this claim in polite circles. And, for that reason, they are very angry.

It is a complete article of faith in intellectual circles that the market is responsible for the rise in inequality that we have seen in the United States and elsewhere over the last half-century. Intellectual types literally cannot even consider the alternative that inequality was the result of government policies, not the natural workings of the market.

The standard line is that technology and globalization were responsible for the increasing gap in income between people with college, especially advanced, degrees and non-college-educated workers. This belief that market forces drove inequality and not policy is apparently central to the identity of its beneficiaries, who determine what appears in major news outlets.

In this way, the belief in the market causes of inequality can be similar to the belief among Trumpers that the 2020 election was stolen from Trump. They simply do not even want to see the issue debated.

Spencer Bokat-Lindell: The Latest Perp

My current prompt to make my standard complaint is a column by New York Times columnist Spencer Bokat-Lindell which raises the question, “Is liberal democracy dying?” While the causes of growing inequality are not directly the piece’s topic, the issue comes up at several points.

For example, in discussing the rise of authoritarian sentiments among the masses, he tells readers:

“How does class come into the picture? Some scholars have theorized a link between democratic backsliding and the Great Recession, if not global free-market capitalism itself.”

Later the piece continues with a similar theme:

“Yet there are also those who believe technocratic fixes are unequal to the problem [of rising support for authoritarianism]. In a 2016 essay, the Indian writer Pankaj Mishra presented the declining health of democracy around the world as a crisis for the ideology of modern market-based liberalism itself: A ‘religion of technology and G.D.P. and the crude 19th-century calculus of self-interest,’ it can neither account for nor provide an answer to the anger of those who feel left behind by the disruptions and inequalities wrought by globalized capitalism.”

To be clear, I am not picking on Bokat-Lindell because he is the exception. I am picking on him because he is repeating a dogma that goes almost entirely unquestioned in major media outlets, including the New York Times.

Let’s Say Policy, not the Market, Drove Inequality

I will briefly restate my case for how policy drove inequality (this can be found in Rigged [it’s free]), but first, let’s think about the rise of right-wing populism, assuming it is true. This means that we had government policies that prevented more than half of the workforce from seeing any substantial gains from productivity growth over the last half-century. This is a period in which productivity more than doubled.

While the bottom 60 percent of the workforce saw little gains from productivity growth, the top ten percent were doing great. Those in the 90-95th percentile of the wage distribution saw gains at least in step with productivity growth. Workers in the 95th to 99th percentile had wage gains that far outstripped productivity growth, and those in the top 1 percent were getting wage gains that were close to double the rate of productivity growth.

Now, suppose that that massive upward redistribution was all by design. The government put in place policies designed to take money from the bottom 60 percent of the population and give it to those at the top.

Furthermore, suppose that the mechanisms that caused this upward redistribution were prohibited from being discussed. We instead had people like Bokat-Lindell, and thousands of others, filling news stories, columns, and other ruminations on inequality in major media outlets as simply an unfortunate outcome of natural market processes. The idea that government policies actually caused inequality would virtually never be discussed or even contemplated.

In this scenario, would it be surprising that tens of millions of people would be angry at the government for acting to make them worse off? Is it surprising that they might distrust mainstream news outlets like the New York Times or National Public Radio, which endlessly tell them they are losers, but they feel very badly about that fact?

To my mind, in this scenario, it is not the least bit surprising that tens of millions would turn to a despicable demagogue like Donald Trump, or his foreign equivalents, who tell them it is not their fault. Their explanations might be nonsensical racism and/or nationalism, but he is at least pointing his finger somewhat in the right direction. (Trump’s rich backers of course benefitted hugely from the upward redistribution of the last half century.)

The right-wing populists are blaming the people who have benefitted from upward redistribution along with the targeted minority groups. Howard Jarvis, the originator of California’s anti-tax initiative Proposition 13, laid out the case perfectly. He said that “in the battle of us against them, I’m for us.” Jarvis made it very clear, “them” in this story were welfare cheats (read minorities) and pointy-headed bureaucrats (read professionals). “Us” was good old white guys. This is the theme that Trump and other right-wing populists harp on endlessly.

Against this red meat, mainstream liberals want to have policies that modestly increase the size of the welfare state, subject of course to budget limits. And, we also have to worry about inflation. If that gets too high, well the Fed will just have to raise interest rates and throw millions of working-class people out of work and push down the pay of those able to keep their jobs.

Pretty amazing that the working class isn’t signing up to get Democrats elected, huh?

The Story on Policy and Inequality

I know I give this all the time, but for the folks who have never read my other stuff, and don’t intend to, let me give the super-brief version. Let’s start with intellectual property. This is the clearest case and probably the most important in terms of upward redistribution.

Imagine a world where there are no government-granted patent or copyright monopolies or related protections. This means that anyone who wants to can manufacture any drug they want, without getting the permission of the patent holder. (This has nothing to with safety requirements, which could be left in place.)

Everyone would be able to make copies of software they liked, and even resell them. They could make and sell copies of books, recorded music, movies, and video games and never have to worry about compensating a copyright holder.

Now, I know many people are screaming that in this world no one would ever innovate, develop new drugs, perform music, or make movies. Stop screaming for a moment and think about the issue at hand. We could have a market economy without government-granted patent and copyright monopolies.

These monopolies are government policies to promote innovation and creative work. We can and should argue about whether these government-granted monopolies are the best mechanisms for promoting innovation, but the fact that patents and copyrights are government policy, and are not inherent features of the market is not a debatable point.

This means that the extent to which people are able to benefit from these monopolies is determined by the government, not the market. Bill Gates is one of the richest people in the world because the government will arrest people who make copies of Microsoft’s software without his permission. It was not the market that made Bill Gates insanely rich, it was a government policy.

The same story applies to the idea that technology has benefitted more educated workers at the expense of those without college degrees. There would be much less money to be shared by all those software designers, computer engineers, and biotech inventors in a world without patent and copyright monopolies.

The fact that these people have done very well in the last half-century was due to the decision to not only have these government-granted monopolies, but also policy choices that made them longer and stronger. Just to take the case of prescription drugs, Congress approved the Bayh-Dole Act in 1980, which made it much easier for drug companies to get control of government-funded research.

In the last four decades, spending on prescription drugs exploded from 0.4 percent of GDP to 2.2 percent of GDP. The difference comes to $450 billion a year, more than ten times the money at stake in the Inflation Reduction Act.  

To be clear, we had other changes to policy beyond Bayh-Dole. Also, there were undoubtedly many important drugs that were incentivized by this and other policy changes that strengthened intellectual property in drugs. But, we are paying a huge amount more for drugs as a result of policy changes, not the natural workings of the market.

There is a similar story with medical equipment, computers, software, and a wide range of other items. To be clear, I don’t dispute that we should provide incentives for innovation and creative work (my preferred route with prescription drugs is more direct public funding, as we do with NIH), but the structure and size of these incentives are a matter of public policy. It is not a market outcome as the New York Times tells us.

There are other areas where policy has quite obviously shaped distribution. We could have structured globalization differently. Instead of focusing on removing barriers to trade in manufactured goods, so that our manufacturing workers had to compete with low-cost labor in the developing world, we could have focused on promoting free trade in professional services.

In this scenario, our trade teams would be working 24-7 to develop mechanisms that would allow smart ambitious kids in India, Mexico, and elsewhere to train to U.S. standards and then practice medicine in the United States, just like a native-born doctor. How much would doctors here earn, if a half million foreign-educated doctors were working here? My guess is that the sum would be substantially less than the $300,000 plus a year that the average doctor makes now. We could tell the same story for other highly-paid professionals.

The fact that globalization, as we pursued it, was designed to lower the pay of less-educated workers and not the most highly educated and highly paid, was a policy choice. It was not a natural outcome of the market.

When the Elite Lie About Taking Money from the Bottom Half, is it a Surprise the Masses are Mad?

I could go on with other economic policies that allowed for the massive upward redistribution of the last half century, those who are interested can look at Rigged, but the basic point should be clear. The upward redistribution of the last half century was the result of policies designed by the sort of people who write for and edit publications like the New York Times. They refuse to acknowledge this fact.

Let me just preempt a silly comment I have heard when raising this point. I AM ABSOLUTELY CERTAIN THAT ALMOST NO WORKING-CLASS PEOPLE VOTE BASED ON PATENT POLICY. (All caps to make it more difficult to ignore.)

The argument is that working-class voters see themselves as being screwed in the economy of the last half century and are convinced that it was something that was done to them by the elites. They are entirely right in this view, even if they (like our public intellectuals) have little understanding of the processes. And, you can’t make this claim in polite circles. And, for that reason, they are very angry.

There were headlines all over the place yesterday telling us how the Congressional Budget Office (CBO) estimated that Biden’s student debt forgiveness plan would cost $400 billion. I suspect that sounded very scary to lots of people who heard it. After all, those not named Elon Musk will never see anything like $400 billion over our lifetimes.

But suppose reporters had to work for a living. They might have taken two minutes to read the three-page CBO report (actually a letter to two members of Congress).

If they had done that, they might have noticed that this is the discounted cost projected over a 40-year time horizon. Much of the reporting might have led people to believe it was over a year, and more informed types might have assumed it is over CBO’s usual 10-year budget time horizon. The period over which the cost is incurred does matter.

The reports also could have included some context since most people would not have a clear idea in their heads of how large $400 billion is over a forty-year time horizon. Here also reading the three-page report would have been of great help. Page 2 of the report has a very nice graph showing the reduction in student loan payments from the forgiveness package measured as a share of GDP.

It peaks at a bit more than 0.09 percent of GDP in 2023-25. That is less than one-thirtieth of the military budget. It falls to around 0.07 percent of GDP by 2032 and then drops further to 0.02 percent of GDP by 2042.

It would help if reporters covering budget issues saw it as their responsibility to convey information to their audiences rather than just engaging in fraternity rituals of writing down big numbers that are meaningless to almost everyone.  

There were headlines all over the place yesterday telling us how the Congressional Budget Office (CBO) estimated that Biden’s student debt forgiveness plan would cost $400 billion. I suspect that sounded very scary to lots of people who heard it. After all, those not named Elon Musk will never see anything like $400 billion over our lifetimes.

But suppose reporters had to work for a living. They might have taken two minutes to read the three-page CBO report (actually a letter to two members of Congress).

If they had done that, they might have noticed that this is the discounted cost projected over a 40-year time horizon. Much of the reporting might have led people to believe it was over a year, and more informed types might have assumed it is over CBO’s usual 10-year budget time horizon. The period over which the cost is incurred does matter.

The reports also could have included some context since most people would not have a clear idea in their heads of how large $400 billion is over a forty-year time horizon. Here also reading the three-page report would have been of great help. Page 2 of the report has a very nice graph showing the reduction in student loan payments from the forgiveness package measured as a share of GDP.

It peaks at a bit more than 0.09 percent of GDP in 2023-25. That is less than one-thirtieth of the military budget. It falls to around 0.07 percent of GDP by 2032 and then drops further to 0.02 percent of GDP by 2042.

It would help if reporters covering budget issues saw it as their responsibility to convey information to their audiences rather than just engaging in fraternity rituals of writing down big numbers that are meaningless to almost everyone.  

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