Beat the Press

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.

Let me go out on a limb and speculate that the vast majority have no clue. This is why it would have been helpful to put the size of the European Union pandemic relief package in some context in this article on the negotiations.

The current GDP for the European Union is a bit over $18 trillion, which means that the rescue package would be roughly 4.5 percent of its GDP. This figure likely overstates the economic impact, since not all the money will be spent in a single year. It is also worth mentioning that most, if not all, EU countries have their own rescue packages, so this is far from the full sum that the EU is spending to offset the impact of the pandemic on their economies.

Let me go out on a limb and speculate that the vast majority have no clue. This is why it would have been helpful to put the size of the European Union pandemic relief package in some context in this article on the negotiations.

The current GDP for the European Union is a bit over $18 trillion, which means that the rescue package would be roughly 4.5 percent of its GDP. This figure likely overstates the economic impact, since not all the money will be spent in a single year. It is also worth mentioning that most, if not all, EU countries have their own rescue packages, so this is far from the full sum that the EU is spending to offset the impact of the pandemic on their economies.

That seems to be the case since an article discussing leading vaccine candidates around the world failed to mention two Chinese candidates that are already in Phase III testing. One of the vaccines, developed by the company Sinovac, is beginning testing in Bangladesh and Brazil. The other vaccine was developed by Sinopharm, and is about to begin stage three testing in Abu Dhabi.

It is difficult to understand how an article focused on leading vaccine candidates would exclude two of the vaccines that are furthest advanced in the testing process. 

That seems to be the case since an article discussing leading vaccine candidates around the world failed to mention two Chinese candidates that are already in Phase III testing. One of the vaccines, developed by the company Sinovac, is beginning testing in Bangladesh and Brazil. The other vaccine was developed by Sinopharm, and is about to begin stage three testing in Abu Dhabi.

It is difficult to understand how an article focused on leading vaccine candidates would exclude two of the vaccines that are furthest advanced in the testing process. 

Ruchir Sharma had a New York Times column today telling readers that Germany will likely emerge from the pandemic as the world’s leading economic power. Part of his story is based on Germany’s robust pandemic stimulus package, which he puts at 47 percent of GDP. (This is somewhat misleading since it includes the nominal value of government loan guarantees, but it is robust stimulus by any measure.) Germany has also successfully used work-sharing and other mechanisms to minimize unemployment.

While these points are well-taken and areas where Germany provides an excellent model, Sharma’s main reason for predicting Germany’s ascendancy is its relatively low debt levels. It is difficult to see why debt levels should be a major impediment to the United States or China, or other countries that print their own currencies. The current interest rate on long-term government bonds in the United States is 0.6 percent, which is higher than the negative 0.5 percent rate on German bonds, but it is difficult to see how it would be a major impediment to future growth. When the United States had budget surpluses at the end of the 1990s, the rate on 10-year Treasury bonds was near 5.0 percent.

If we want to look at everyone’s debt basket case, Japan is currently paying 0.03 percent interest on its 10-year Treasury bonds. Again, this is higher than Germany’s rate, but the interest burden is hardly a major strain on Japan’s economy, even with its debt to GDP  ratio of 250 percent. 

Ruchir Sharma had a New York Times column today telling readers that Germany will likely emerge from the pandemic as the world’s leading economic power. Part of his story is based on Germany’s robust pandemic stimulus package, which he puts at 47 percent of GDP. (This is somewhat misleading since it includes the nominal value of government loan guarantees, but it is robust stimulus by any measure.) Germany has also successfully used work-sharing and other mechanisms to minimize unemployment.

While these points are well-taken and areas where Germany provides an excellent model, Sharma’s main reason for predicting Germany’s ascendancy is its relatively low debt levels. It is difficult to see why debt levels should be a major impediment to the United States or China, or other countries that print their own currencies. The current interest rate on long-term government bonds in the United States is 0.6 percent, which is higher than the negative 0.5 percent rate on German bonds, but it is difficult to see how it would be a major impediment to future growth. When the United States had budget surpluses at the end of the 1990s, the rate on 10-year Treasury bonds was near 5.0 percent.

If we want to look at everyone’s debt basket case, Japan is currently paying 0.03 percent interest on its 10-year Treasury bonds. Again, this is higher than Germany’s rate, but the interest burden is hardly a major strain on Japan’s economy, even with its debt to GDP  ratio of 250 percent. 

It’s so great that the Washington Post is able to find mind readers to write their articles. We got yet another example of this gift in an article that talked about Donald Trump’s demand that a payroll tax cut be included in the next pandemic relief package.

The piece told readers:

“….Trump is again demanding a payroll tax cut. He and some allies view the policy as an effective way to stimulate the economy and quickly give workers a boost [emphasis added].”

Most reporters would not know how Trump actually views the policy, they would just know what he says about the policy. For example, Trump may have focus group data showing that a payroll tax cut is politically popular, which would be a reason for him to support it, whether or not it is actually an effective way to boost the economy.

Thankfully the Post’s reporters are able to get behind what people do and say and tell us what they actually think.

It’s so great that the Washington Post is able to find mind readers to write their articles. We got yet another example of this gift in an article that talked about Donald Trump’s demand that a payroll tax cut be included in the next pandemic relief package.

The piece told readers:

“….Trump is again demanding a payroll tax cut. He and some allies view the policy as an effective way to stimulate the economy and quickly give workers a boost [emphasis added].”

Most reporters would not know how Trump actually views the policy, they would just know what he says about the policy. For example, Trump may have focus group data showing that a payroll tax cut is politically popular, which would be a reason for him to support it, whether or not it is actually an effective way to boost the economy.

Thankfully the Post’s reporters are able to get behind what people do and say and tell us what they actually think.

The New York Times had a piece reporting on the progress of Moderna’s coronavirus vaccine, based on a newly published article. After reporting on the relative success of the vaccine in a group of 45 healthy people, the NYT tells readers:

“Experts agree that more than one vaccine will be needed, because no single company could produce the billions of doses needed.”

This comment is more than a bit bizarre. There is no reason that a single vaccine could not be produced by many different companies. If Moderna, or any other company, has a patent monopoly, that could be an issue, but the government could force licensing of the vaccine. (Actually, since the government has picked up much, perhaps most, of the tab for this vaccine, it could just demand that the patent be placed in the public domain so that it can be produced as cheap generic by any drug company in the world.)

The piece is also somewhat bizarre in celebrating the success of this initial trial which it quotes someone on the development team as saying  “it exceeds all expectations.” According to the piece, many of the 45 healthy people who were given the vaccine developed serious, but not life-threatening, side effects. With a vaccine, we are asking people to take it who quite likely will not be infected, and many of whom would not suffer serious consequences if they are infected.

If a substantial portion of healthy people have bad side effects, the impact on less healthy people could be more serious. It may be difficult to get people to take the vaccine if they would experience serious side effects. They may just opt to be careful to avoid contact with people who might be infected.

The New York Times had a piece reporting on the progress of Moderna’s coronavirus vaccine, based on a newly published article. After reporting on the relative success of the vaccine in a group of 45 healthy people, the NYT tells readers:

“Experts agree that more than one vaccine will be needed, because no single company could produce the billions of doses needed.”

This comment is more than a bit bizarre. There is no reason that a single vaccine could not be produced by many different companies. If Moderna, or any other company, has a patent monopoly, that could be an issue, but the government could force licensing of the vaccine. (Actually, since the government has picked up much, perhaps most, of the tab for this vaccine, it could just demand that the patent be placed in the public domain so that it can be produced as cheap generic by any drug company in the world.)

The piece is also somewhat bizarre in celebrating the success of this initial trial which it quotes someone on the development team as saying  “it exceeds all expectations.” According to the piece, many of the 45 healthy people who were given the vaccine developed serious, but not life-threatening, side effects. With a vaccine, we are asking people to take it who quite likely will not be infected, and many of whom would not suffer serious consequences if they are infected.

If a substantial portion of healthy people have bad side effects, the impact on less healthy people could be more serious. It may be difficult to get people to take the vaccine if they would experience serious side effects. They may just opt to be careful to avoid contact with people who might be infected.

When the unemployment rate goes up, a standard theme in the media is that workers don’t have the right skills. We saw that yesterday in the New York Times when an article told us “The Pandemic Has Accelerated Demands for a More Skilled Workforce.” It tells us how the growth of telecommuting in response to the pandemic has led to more demand for skilled labor and less demand for less-skilled workers.

The key point in this sort of argument is that the problem is the workers, who don’t have the right skills, not an economy that doesn’t create enough demand for labor. Of course, we get this skills shortage argument every time the unemployment rate soars. In the summer of 2010, when the Great Recession was still near its trough, the NYT ran a piece telling us about the skills shortage in manufacturing. Over the next nine and a half years the sector added almost 1.3 million jobs (11.3 percent), without any notable improvement in the skills of the U.S. workforce. The overall unemployment rate fell to 3.5 percent, again without any major gains in skills in the U.S. workforce.

The focus on the skills gap is even more infuriating since even if there were an issue with demand for skills that would be the result of policy, not technology, as the piece implies. We have lots of jobs in areas like computers and biotech because the government gives out patent and copyright monopolies in these areas. If we are worried that we are creating too much demand for people with advanced skills and not enough demand for people with less education, we can make these monopolies shorter and weaker, or perhaps not even have them at all.

The latter possibility should be a major topic of debate in the context of the pandemic. The government is paying billions of dollars to drug companies for research and testing of various treatments and vaccines to combat the coronavirus. Incredibly, after putting billions of dollars upfront, and taking the big risks, the government is giving the companies patent monopolies which will allow them to charge whatever they want for what was developed on the government’s nickel.

This will likely mean redistributing tens of billions from everyone else to the shareholders, top executives, and key employees in these companies. If we don’t want to see this upward redistribution (also from Black to white, since the beneficiaries in this story are almost certainly overwhelmingly white) the key is not more skills for our workers, the key is for the government not to be giving out patent monopolies for work it has paid for.

To be clear, this is not an argument against education and training. It would be good for workers and the economy if we had a better-trained workforce. But the reason we have high unemployment today, and may have high unemployment for some time into the future, is not a lack of skills, it is a failure of economic policy.

When the unemployment rate goes up, a standard theme in the media is that workers don’t have the right skills. We saw that yesterday in the New York Times when an article told us “The Pandemic Has Accelerated Demands for a More Skilled Workforce.” It tells us how the growth of telecommuting in response to the pandemic has led to more demand for skilled labor and less demand for less-skilled workers.

The key point in this sort of argument is that the problem is the workers, who don’t have the right skills, not an economy that doesn’t create enough demand for labor. Of course, we get this skills shortage argument every time the unemployment rate soars. In the summer of 2010, when the Great Recession was still near its trough, the NYT ran a piece telling us about the skills shortage in manufacturing. Over the next nine and a half years the sector added almost 1.3 million jobs (11.3 percent), without any notable improvement in the skills of the U.S. workforce. The overall unemployment rate fell to 3.5 percent, again without any major gains in skills in the U.S. workforce.

The focus on the skills gap is even more infuriating since even if there were an issue with demand for skills that would be the result of policy, not technology, as the piece implies. We have lots of jobs in areas like computers and biotech because the government gives out patent and copyright monopolies in these areas. If we are worried that we are creating too much demand for people with advanced skills and not enough demand for people with less education, we can make these monopolies shorter and weaker, or perhaps not even have them at all.

The latter possibility should be a major topic of debate in the context of the pandemic. The government is paying billions of dollars to drug companies for research and testing of various treatments and vaccines to combat the coronavirus. Incredibly, after putting billions of dollars upfront, and taking the big risks, the government is giving the companies patent monopolies which will allow them to charge whatever they want for what was developed on the government’s nickel.

This will likely mean redistributing tens of billions from everyone else to the shareholders, top executives, and key employees in these companies. If we don’t want to see this upward redistribution (also from Black to white, since the beneficiaries in this story are almost certainly overwhelmingly white) the key is not more skills for our workers, the key is for the government not to be giving out patent monopolies for work it has paid for.

To be clear, this is not an argument against education and training. It would be good for workers and the economy if we had a better-trained workforce. But the reason we have high unemployment today, and may have high unemployment for some time into the future, is not a lack of skills, it is a failure of economic policy.

It is standard for economic reporters to treat higher stock prices as good news. A rising stock market is often touted in the same way that job gains or GDP growth are touted, as evidence of a stronger economy.

This can be true. When the economy is growing at a healthy pace, the stock market is usually rising also. But the link is far more tenuous than is generally recognized. The market is in principle a measure of expected future profits. Policies that redistribute income from workers or taxpayers, such as anti-union laws or a corporate tax cut, would be expected to lead to a rising stock market, even if they did not spur economic growth.

But even beyond this direct redistributive issue, there is another sense in which a rising stock market can be bad for the 90 percent of the population that doesn’t own much stock (this includes 401(k)s). Higher stock prices encourage rich people to spend more money.

To see why this is an issue we need to pull out our MMT or Keynesian handbook. (MMT is essentially Keynes. That is not an insult; the term “modern monetary theory” is taken from the Keynes’ Treatise on Money.) To my view, the main takeaway from MMT is that the limit on the government’s ability to spend is inflation. This goes against the line pushed by the deficit hawks, that we have to worry about the government borrowing too much, because at some point lenders will be unwilling to lend us money.

As those of us who are not part of the deficit hawk cult point out, the government can print money if no one is willing to lend to it. Of course, in reality, investors have been very happy to lend the government money. The current interest rate on long-term government bonds is less than 0.7 percent. That compares to interest rates in the 4.0-5.0 percent range back when the government was running a budget surplus at the end of the 1990s.

But suppose this changed and investors suddenly soured on U.S.  government debt? Well, the Fed could just buy the debt that investors wanted to dump. It would pay for it the old-fashioned way, by printing money.

This is certainly a logical possibility, after all the Fed can print as much money as it wants. (It’s actually all electronic transactions, with bank credits, but that is beside the point.) The real problem that we could run into is that printing money keeps interest rates lower than they otherwise would be. As a result, demand from public and private investment, housing, and other forms of consumption will be higher than in the case where the Fed is not buying bonds. In an economy that is operating near its capacity (definitely not the current economy), higher levels of demand can lead to inflation. If the Fed keeps printing large amounts of money, causing interest rates to stay low and demand to remain excessive, we could see spiraling inflation, or in an extreme case, hyperinflation.

In this story, the constraint on government spending is the risk of inflation, which in turn is the result of too much demand in the economy. This is the story of why we have taxes. If there is excessive demand and we don’t want to cut spending, then we can raise taxes to reduce consumption spending by the people we tax. The tax revenue is not needed to pay for the spending in the way that stores need sales to pay wages, the tax revenue is a way to reduce demand in the economy to provide the room needed for the government to spend.

With this story in mind, let’s get back to the stock market. Suppose the market rises by 10 percent, not because of expectations of greater future profits, but simply as a result of irrational exuberance. Investors are just excited about holding stock, as was the case in the 1990s stock bubble and may well be the case with certain stocks now.

If we round up somewhat, the current capitalization of the U.S. stock market is $40 trillion, which means that a 10 percent increase would imply an addition of $4 trillion. There is a well-known stock wealth effect on consumption, which is usually estimated as between 3-4 percent.[1] This means that if the value of households’ stock holdings rise by $100, they will increase their annual consumption spending by between $3-$4. If we apply this wealth effect calculation to the $4 trillion increase in market capitalization, it would imply an increase in annual consumption of between $120 billion and $160 billion, or 0.6 to 0.8 percent of GDP.

This increase in consumption generates more demand in the economy. It has roughly the same impact in employing labor and other resources as an increase in government spending of the same amount. This means that if the economy was more or less at its capacity, so that additional demand would lead to inflation, and the stock market jumped by 10 percent, we would suddenly be facing a problem with inflation.

In that case, in order to prevent inflation, the government would have to do something to reduce demand to offset the jump in consumption from stockholders.[2] This could mean that the Federal Reserve Board would raise interest rates to reduce investment spending, housing construction, and other consumption. Alternatively, the government could raise taxes to reduce consumption. However, going either route means that someone has to spend less because stockholders are spending more. In other words, higher stock prices mean that people who are not stockholders have to spend less money.

This conclusion is pretty much an inevitable implication of the wealth effect, regardless of whether or not someone accepts MMT or Keynesian economics. If stockholders are consuming more, then there is less for everyone else, at least when the economy is near full employment.

For this reason, most people have little cause to celebrate when stock prices rise. Not only do higher stock prices not benefit the typical worker, they can actually harm them by forcing government cutbacks or tax increases, or higher interest rates from the Fed. The stock market may be the home team for the people who own and run major news outlets, but not for most of the country. When the market goes up, most people should not be cheering.

[1] While people often talk about issuing stock as being a mechanism for financing investment, in reality it is rare for companies to finance investment by issuing shares. The one notable exception to this rule was in the 1990s stock bubble when many new companies found they could raise hundreds of millions or even billions by issuing shares, in some cases without even knowing how they could hope to make a profit from their business. More typically, companies issue shares to allow early investors to cash out their holdings.

[2] In reality, any increase in consumption takes time. Stockholders are not changing their consumption based on day to day movements in the stock market, rather this wealth effect on consumption would be phased in over 1 to 2 years.

It is standard for economic reporters to treat higher stock prices as good news. A rising stock market is often touted in the same way that job gains or GDP growth are touted, as evidence of a stronger economy.

This can be true. When the economy is growing at a healthy pace, the stock market is usually rising also. But the link is far more tenuous than is generally recognized. The market is in principle a measure of expected future profits. Policies that redistribute income from workers or taxpayers, such as anti-union laws or a corporate tax cut, would be expected to lead to a rising stock market, even if they did not spur economic growth.

But even beyond this direct redistributive issue, there is another sense in which a rising stock market can be bad for the 90 percent of the population that doesn’t own much stock (this includes 401(k)s). Higher stock prices encourage rich people to spend more money.

To see why this is an issue we need to pull out our MMT or Keynesian handbook. (MMT is essentially Keynes. That is not an insult; the term “modern monetary theory” is taken from the Keynes’ Treatise on Money.) To my view, the main takeaway from MMT is that the limit on the government’s ability to spend is inflation. This goes against the line pushed by the deficit hawks, that we have to worry about the government borrowing too much, because at some point lenders will be unwilling to lend us money.

As those of us who are not part of the deficit hawk cult point out, the government can print money if no one is willing to lend to it. Of course, in reality, investors have been very happy to lend the government money. The current interest rate on long-term government bonds is less than 0.7 percent. That compares to interest rates in the 4.0-5.0 percent range back when the government was running a budget surplus at the end of the 1990s.

But suppose this changed and investors suddenly soured on U.S.  government debt? Well, the Fed could just buy the debt that investors wanted to dump. It would pay for it the old-fashioned way, by printing money.

This is certainly a logical possibility, after all the Fed can print as much money as it wants. (It’s actually all electronic transactions, with bank credits, but that is beside the point.) The real problem that we could run into is that printing money keeps interest rates lower than they otherwise would be. As a result, demand from public and private investment, housing, and other forms of consumption will be higher than in the case where the Fed is not buying bonds. In an economy that is operating near its capacity (definitely not the current economy), higher levels of demand can lead to inflation. If the Fed keeps printing large amounts of money, causing interest rates to stay low and demand to remain excessive, we could see spiraling inflation, or in an extreme case, hyperinflation.

In this story, the constraint on government spending is the risk of inflation, which in turn is the result of too much demand in the economy. This is the story of why we have taxes. If there is excessive demand and we don’t want to cut spending, then we can raise taxes to reduce consumption spending by the people we tax. The tax revenue is not needed to pay for the spending in the way that stores need sales to pay wages, the tax revenue is a way to reduce demand in the economy to provide the room needed for the government to spend.

With this story in mind, let’s get back to the stock market. Suppose the market rises by 10 percent, not because of expectations of greater future profits, but simply as a result of irrational exuberance. Investors are just excited about holding stock, as was the case in the 1990s stock bubble and may well be the case with certain stocks now.

If we round up somewhat, the current capitalization of the U.S. stock market is $40 trillion, which means that a 10 percent increase would imply an addition of $4 trillion. There is a well-known stock wealth effect on consumption, which is usually estimated as between 3-4 percent.[1] This means that if the value of households’ stock holdings rise by $100, they will increase their annual consumption spending by between $3-$4. If we apply this wealth effect calculation to the $4 trillion increase in market capitalization, it would imply an increase in annual consumption of between $120 billion and $160 billion, or 0.6 to 0.8 percent of GDP.

This increase in consumption generates more demand in the economy. It has roughly the same impact in employing labor and other resources as an increase in government spending of the same amount. This means that if the economy was more or less at its capacity, so that additional demand would lead to inflation, and the stock market jumped by 10 percent, we would suddenly be facing a problem with inflation.

In that case, in order to prevent inflation, the government would have to do something to reduce demand to offset the jump in consumption from stockholders.[2] This could mean that the Federal Reserve Board would raise interest rates to reduce investment spending, housing construction, and other consumption. Alternatively, the government could raise taxes to reduce consumption. However, going either route means that someone has to spend less because stockholders are spending more. In other words, higher stock prices mean that people who are not stockholders have to spend less money.

This conclusion is pretty much an inevitable implication of the wealth effect, regardless of whether or not someone accepts MMT or Keynesian economics. If stockholders are consuming more, then there is less for everyone else, at least when the economy is near full employment.

For this reason, most people have little cause to celebrate when stock prices rise. Not only do higher stock prices not benefit the typical worker, they can actually harm them by forcing government cutbacks or tax increases, or higher interest rates from the Fed. The stock market may be the home team for the people who own and run major news outlets, but not for most of the country. When the market goes up, most people should not be cheering.

[1] While people often talk about issuing stock as being a mechanism for financing investment, in reality it is rare for companies to finance investment by issuing shares. The one notable exception to this rule was in the 1990s stock bubble when many new companies found they could raise hundreds of millions or even billions by issuing shares, in some cases without even knowing how they could hope to make a profit from their business. More typically, companies issue shares to allow early investors to cash out their holdings.

[2] In reality, any increase in consumption takes time. Stockholders are not changing their consumption based on day to day movements in the stock market, rather this wealth effect on consumption would be phased in over 1 to 2 years.

Ross Douthat has good news for folks who don’t like China. His NYT column yesterday told us that China’s economy will run out of steam in a decade and that the U.S. will again be able to reclaim world leadership after 2030. The problem is that the piece presents nothing to support this claim.

After telling readers that China is passing the U.S. for world leadership due to the inept presidency of Donald Trump, Douthat gets to the meat of his piece:

“It’s possible that we’re nearing a peak of U.S.-China tension not because China is poised to permanently overtake the United States as a global power, but because China itself is peaking — with a slowing growth rate that may leave it short of the prosperity achieved by its Pacific neighbors, a swiftly aging population, and a combination of self-limiting soft power and maxed-out hard power that’s likely to diminish, relative to the U.S. and India and others, in the 2040s and beyond.

“Instead of a Chinese Century, in other words, the coronavirus might be ushering in a Chinese Decade, in which Xi Jinping’s government behaves with maximal aggression because it sees an opportunity that won’t come again.”

The problem is that the cited piece for “China’s slowing growth rate” still has China growing close to 4.0 percent annually. That is almost 2.0 percentage points faster than the 2.1 percent growth rate projected for the U.S. in the last five years of the decade.

Furthermore, the U.S. economy is starting from a much lower base. In 2019 China’s economy was already more than 25 percent larger than the U.S. economy, while the U.S. economy is projected to shrink by 5.5 percent this year, China’s is expected to grow by 1.8 percent. It is hard to see how an economy that is starting from a lower level and growing at a slower pace, will pass a larger economy that is growing more rapidly. I guess it takes an NYT columnist to figure that one out.

One final point, there seems to be an obsession in the media with China’s lower birth rate and likely declining population. While the idea that this is a big problem for China is repeated endlessly, it really lead to the obvious question, why?

So the country will have fewer people. This will likely mean fewer people working in very low productivity jobs in agriculture and the service sector. And why exactly would this be a problem for China?

Ross Douthat has good news for folks who don’t like China. His NYT column yesterday told us that China’s economy will run out of steam in a decade and that the U.S. will again be able to reclaim world leadership after 2030. The problem is that the piece presents nothing to support this claim.

After telling readers that China is passing the U.S. for world leadership due to the inept presidency of Donald Trump, Douthat gets to the meat of his piece:

“It’s possible that we’re nearing a peak of U.S.-China tension not because China is poised to permanently overtake the United States as a global power, but because China itself is peaking — with a slowing growth rate that may leave it short of the prosperity achieved by its Pacific neighbors, a swiftly aging population, and a combination of self-limiting soft power and maxed-out hard power that’s likely to diminish, relative to the U.S. and India and others, in the 2040s and beyond.

“Instead of a Chinese Century, in other words, the coronavirus might be ushering in a Chinese Decade, in which Xi Jinping’s government behaves with maximal aggression because it sees an opportunity that won’t come again.”

The problem is that the cited piece for “China’s slowing growth rate” still has China growing close to 4.0 percent annually. That is almost 2.0 percentage points faster than the 2.1 percent growth rate projected for the U.S. in the last five years of the decade.

Furthermore, the U.S. economy is starting from a much lower base. In 2019 China’s economy was already more than 25 percent larger than the U.S. economy, while the U.S. economy is projected to shrink by 5.5 percent this year, China’s is expected to grow by 1.8 percent. It is hard to see how an economy that is starting from a lower level and growing at a slower pace, will pass a larger economy that is growing more rapidly. I guess it takes an NYT columnist to figure that one out.

One final point, there seems to be an obsession in the media with China’s lower birth rate and likely declining population. While the idea that this is a big problem for China is repeated endlessly, it really lead to the obvious question, why?

So the country will have fewer people. This will likely mean fewer people working in very low productivity jobs in agriculture and the service sector. And why exactly would this be a problem for China?

It really gets annoying how all discussions of inequality in the media take the White Savior route, where we need the government to act to reduce inequality created by the natural workings of the market. David Leonhardt gave us another dose of this one today when he speculated about the state of the post-pandemic world.

While much of his speculation is interesting, he hypothesizes that we will see greater corporate consolidation in the post-pandemic world. He then says that this can lead to greater inequality, however, he holds out the hope that under a Biden administration, the government might take action to counter this trend.

First, it is important to note that increased corporate profits have been a relatively small factor in the rise of inequality over the last four decades. The vast majority of the upward redistribution was within the wage structure, with CEOs, Wall Street traders, doctors, and other highly paid professionals gaining at the expense of ordinary workers. Only about 10 percent of the gap between productivity and wage growth could be attributed to the shift to profits. Furthermore, the labor share had been rising in the tight labor market of the last few years, so this shift could well have been reversed completely if the pandemic had not hit.

This point is important not only because Leonhardt’s concerns about the impact of concentration on inequality may be misplaced, but because he ignores the real sources of inequality. In particular, government-granted patent and copyright monopolies have been a huge factor in the rise of inequality over the last four decades. Reducing their impact on the upward redistribution of income requires less government action, not more.

This point should be especially obvious to people paying attention to efforts to develop a vaccine to protect against the coronavirus. The government is paying companies billions of dollars to research and test a vaccine. Incredibly, it is also giving these companies patent monopolies, which will then let them charge whatever they want for a successful vaccine.

These monopolies are likely to be worth tens or even hundreds of billions of dollars to their holders. If the government instead went the route where it said that if it paid for the research, then it would be fully open and all vaccines developed can then be sold as cheap generics, it would both save the public an enormous sum in paying for the vaccine and mean that the shareholders and top researchers at these drug companies would not get so rich.

This issue of course comes up more generally. We will spend more than $500 billion this year on prescription drugs that would cost us less than $100 billion in a free market. The gap of $400 billion is roughly 20 percent of all before-tax corporate profits. There are similar stories in medical equipment, computer software, and many other major sectors of the economy.

If the government had alternative mechanisms to finance research and development it would redistribute less income upward, which would mean that we would have less inequality. The government also promotes inequality through its regulation of the financial sector, rules of corporate governance, and protection for highly paid professionals. (It’s all in Rigged [it’s free].)

Anyhow, it is apparently satisfying for policy types to say that we need good government to address the inequality that the bad market is giving to us, but this view has little to do with reality. First and foremost we need the government to stop structuring the market in ways that give us ever more inequality.

It really gets annoying how all discussions of inequality in the media take the White Savior route, where we need the government to act to reduce inequality created by the natural workings of the market. David Leonhardt gave us another dose of this one today when he speculated about the state of the post-pandemic world.

While much of his speculation is interesting, he hypothesizes that we will see greater corporate consolidation in the post-pandemic world. He then says that this can lead to greater inequality, however, he holds out the hope that under a Biden administration, the government might take action to counter this trend.

First, it is important to note that increased corporate profits have been a relatively small factor in the rise of inequality over the last four decades. The vast majority of the upward redistribution was within the wage structure, with CEOs, Wall Street traders, doctors, and other highly paid professionals gaining at the expense of ordinary workers. Only about 10 percent of the gap between productivity and wage growth could be attributed to the shift to profits. Furthermore, the labor share had been rising in the tight labor market of the last few years, so this shift could well have been reversed completely if the pandemic had not hit.

This point is important not only because Leonhardt’s concerns about the impact of concentration on inequality may be misplaced, but because he ignores the real sources of inequality. In particular, government-granted patent and copyright monopolies have been a huge factor in the rise of inequality over the last four decades. Reducing their impact on the upward redistribution of income requires less government action, not more.

This point should be especially obvious to people paying attention to efforts to develop a vaccine to protect against the coronavirus. The government is paying companies billions of dollars to research and test a vaccine. Incredibly, it is also giving these companies patent monopolies, which will then let them charge whatever they want for a successful vaccine.

These monopolies are likely to be worth tens or even hundreds of billions of dollars to their holders. If the government instead went the route where it said that if it paid for the research, then it would be fully open and all vaccines developed can then be sold as cheap generics, it would both save the public an enormous sum in paying for the vaccine and mean that the shareholders and top researchers at these drug companies would not get so rich.

This issue of course comes up more generally. We will spend more than $500 billion this year on prescription drugs that would cost us less than $100 billion in a free market. The gap of $400 billion is roughly 20 percent of all before-tax corporate profits. There are similar stories in medical equipment, computer software, and many other major sectors of the economy.

If the government had alternative mechanisms to finance research and development it would redistribute less income upward, which would mean that we would have less inequality. The government also promotes inequality through its regulation of the financial sector, rules of corporate governance, and protection for highly paid professionals. (It’s all in Rigged [it’s free].)

Anyhow, it is apparently satisfying for policy types to say that we need good government to address the inequality that the bad market is giving to us, but this view has little to do with reality. First and foremost we need the government to stop structuring the market in ways that give us ever more inequality.

I have written many times that I thought the focus on wealth inequality, as opposed to income inequality, was misplaced. There are many practical, political, and legal problems associated with taxing wealth that are considerably smaller when we talk about altering the economic structures that redistribute so much income upward.

But beyond the issue of whether inequalities of income or wealth are more easily tackled, there is also a very strange argument for focusing on wealth that is based on its impact on political power. The argument is that people like the Koch brothers or Mark Zuckerberg can gain enormous political power as a result of their immense wealth. Therefore, if we believe in democracy, we have to bring such outsized fortunes down to earth.

It is certainly true that the rich and very rich enjoy enormous political power under our current system, but it does not follow that attacking their wealth is the most effective way to restore a more functional democracy. To see this point, just imagine the most optimistic plausible scenario.

Let’s say that we get progressives in the presidency, a progressive majority in Congress, and can either get a sympathetic Supreme Court or find a workaround with a hostile court. Maybe in that scenario, we can get a wealth tax in place in eight to ten years. Then let’s say the tax has been in operation for ten years. Again, being optimistic but at least somewhat realistic, perhaps after ten years, we will have downsized the big fortunes, like those held by Koch and Zuckerberg, by 50 percent.

So, in this optimistic scenario, twenty years from now, Jeff Bezos will still have $80 billion, Bill Gates will have $50 billion, and Mark Zuckerberg will have $40 billion. Will the United States then have a functioning democracy, with everyone getting a more or less equal voice?

The point here is that the rich do have a hugely disproportionate amount of political power, and we should be upset about this, but the fact is that we cannot plausibly hope to balance the scales by reducing their wealth, or at least not any time in the foreseeable future. There is an alternative route, which is both simple and already in practice: the Seattle Democracy Voucher program.

This program gives Seattle residents four vouchers, worth $25 each, to be given to the candidate(s) of their choice. To be eligible to receive a voucher, a candidate must accept limits on both overall spending and the amount of money that they can get from any individual donor. This system has allowed many candidates to run competitive campaigns, without relying at all on getting the support of rich people.[1]   

This sort of system of campaign finance focused on giving low and middle-income people a voice, will not necessarily be able to the match the millions or tens of millions that the very rich can shower on their favored candidates, but it is adequate to ensure that candidates appealing to the non-rich can get their arguments out. And, there is sufficient research to show that, while candidates need a certain amount of money to be competitive, the biggest spending candidate does not always win.

This raising of the voice of the bottom approach can be applied elsewhere, including to the media and creative work more generally. A major problem for those of us concerned about the future of democracy is the collapse of traditional newspapers and other print media. The Internet, and the rise of Facebook and Google, have deprived them of the advertising revenue they depended upon to survive. As a result, hundreds of newspapers have gone out of business in the last quarter-century, and even most of those that survive have hugely cut back on their staff of reporters.

The few outlets that still maintain a large staff of reporters, such as the New York Times and Washington Post, depend on the goodwill of rich people who are prepared to lose money or at least get well below market returns on the money they have invested in their papers. While it is great that some of the very rich are committed to helping maintain a vibrant press, this is not a viable long-term mechanism.

We can pick up on the Seattle democracy voucher approach to support the media as well. Suppose that every adult had a $100 a year fully refundable tax credit to be used to support the creative worker or organization of their choice. This could include individual reporters, writers, musicians, singers, or any type of creative worker, or alternatively they could support an organization, such as a newspaper, a publisher, a movie production company, or any other organization that supports creative work.

There are two reasons for including creative workers more generally and not just journalists and news outlets in the list of potential beneficiaries. The first is that they have also seen plunges in revenue as a result of the Internet. The amount of spending on recorded music, in particular, has dropped by close to 90 percent over the last two decades. It is important to set up a new source of revenue to support creative workers.

The other reason for extending eligibility beyond news media is that we don’t want the government to be in the business of deciding what qualifies as news. If a news outlet were to include opinion pieces or satire on political events, would the government allow it to get money designated for news reporting? If we draw the lines broadly, this should not be an issue. There will always be issues of outright fraud, which must be policed, but these should be far removed from anything resembling judgments about what constitutes proper news reporting and commentary.

The $100 figure is arbitrary, but even this modest sum could provide more than $20 billion a year to support creative work.[2] At a pay rate of $80,000 a year, this could support 250,000 journalists and other creative workers. It is also important to realize that this system does not preclude other mechanisms for raising revenue.

For example, newspapers can still sell print copies and get ads, as they do today. The big difference would be that this would not be their primary mode of raising revenue. Musicians, writers, and creative workers could still earn money from other sources, such as live performances or conducting workshops. So, the money they receive through this tax credit system would not be the sole support for newspapers and other creative work, but it would provide an enormously important supplement that could maintain a vibrant news media and creative sector that did not depend on the goodwill of a small number of very wealthy people.

Going Local

Another tremendously important aspect of this tax credit route is that it can be implemented at the state or even local level, as demonstrated by the Seattle democracy voucher program. The ability to start a measure like this at the state or local level is tremendously important given the improbability of major action addressing the unequal distribution of political power at the national level.

As a practical matter, it would be a relatively simple thing for a state or city to give each of its adult residents a voucher of $100 to support journalism and other creative work. To avoid freeloading by residents of other states or cities, it can even put up paywalls, as most newspapers do now. That way, if people in Chicago, or the state of Illinois, were prepared to use their vouchers to support a high-quality newspaper like the New York Times, they would be able to get free access themselves, but people elsewhere in the United States would have to pay, just as they do now for the New York Times.   

On the creative worker side, a state or city going this route could set itself up as an artistic mecca with this sort of system. It could just include a requirement that to be eligible to receive money through the voucher system, a person had to be physically present for at least nine months a year. This would attract musicians, singers, writers, and other creative workers since they would want to be eligible for this pool of money. Furthermore, to make additional money and to increase the likelihood that residents would support them, they would want to perform their music, or offer workshops, or engage in other activities that would make them known to the community. These activities would also attract tourists from around the country.

The key point here is of course to establish an alternative mechanism for supporting independent media. If this can be done successfully in a city or state, it is likely to be emulated by others. Ideally, it would be adopted nationally, but even if just a small number of cities and states went this route it can provide a substantial measure of support that does not currently exist.

In any case, even a single city would be a big step forward. We can sit around and wait for the gods to make things work out to our liking so that there is a radical downward redistribution from the very rich to everyone else or we can take simple steps that will actually have an impact. We know liberal funders much prefer the former route, but anyone who actually gives a damn about inequality better be looking for things we can do now.

[1] There are comparable systems that amplify the voice of people with less money, such as the “super-match” system that New York City has in place for local elections. Under this system, small donations can be matched up to eight to one for candidates that limit their spending and large contributions and meet other criteria. The advantage of the Seattle system is that the vouchers can give a voice even to people who may find a small contribution to be a substantial burden.

[2] I would require a trade-off to be eligible for this money that the recipients could not also get copyright protection for their work. The government supports you once, not twice. If you take the money, then your work is in the public domain and can be freely reproduced and transferred. We want people to have access to the material that the government has paid for. I discuss the mechanics of this sort of system in more detail in chapter 5 of Rigged [it’s free].

I have written many times that I thought the focus on wealth inequality, as opposed to income inequality, was misplaced. There are many practical, political, and legal problems associated with taxing wealth that are considerably smaller when we talk about altering the economic structures that redistribute so much income upward.

But beyond the issue of whether inequalities of income or wealth are more easily tackled, there is also a very strange argument for focusing on wealth that is based on its impact on political power. The argument is that people like the Koch brothers or Mark Zuckerberg can gain enormous political power as a result of their immense wealth. Therefore, if we believe in democracy, we have to bring such outsized fortunes down to earth.

It is certainly true that the rich and very rich enjoy enormous political power under our current system, but it does not follow that attacking their wealth is the most effective way to restore a more functional democracy. To see this point, just imagine the most optimistic plausible scenario.

Let’s say that we get progressives in the presidency, a progressive majority in Congress, and can either get a sympathetic Supreme Court or find a workaround with a hostile court. Maybe in that scenario, we can get a wealth tax in place in eight to ten years. Then let’s say the tax has been in operation for ten years. Again, being optimistic but at least somewhat realistic, perhaps after ten years, we will have downsized the big fortunes, like those held by Koch and Zuckerberg, by 50 percent.

So, in this optimistic scenario, twenty years from now, Jeff Bezos will still have $80 billion, Bill Gates will have $50 billion, and Mark Zuckerberg will have $40 billion. Will the United States then have a functioning democracy, with everyone getting a more or less equal voice?

The point here is that the rich do have a hugely disproportionate amount of political power, and we should be upset about this, but the fact is that we cannot plausibly hope to balance the scales by reducing their wealth, or at least not any time in the foreseeable future. There is an alternative route, which is both simple and already in practice: the Seattle Democracy Voucher program.

This program gives Seattle residents four vouchers, worth $25 each, to be given to the candidate(s) of their choice. To be eligible to receive a voucher, a candidate must accept limits on both overall spending and the amount of money that they can get from any individual donor. This system has allowed many candidates to run competitive campaigns, without relying at all on getting the support of rich people.[1]   

This sort of system of campaign finance focused on giving low and middle-income people a voice, will not necessarily be able to the match the millions or tens of millions that the very rich can shower on their favored candidates, but it is adequate to ensure that candidates appealing to the non-rich can get their arguments out. And, there is sufficient research to show that, while candidates need a certain amount of money to be competitive, the biggest spending candidate does not always win.

This raising of the voice of the bottom approach can be applied elsewhere, including to the media and creative work more generally. A major problem for those of us concerned about the future of democracy is the collapse of traditional newspapers and other print media. The Internet, and the rise of Facebook and Google, have deprived them of the advertising revenue they depended upon to survive. As a result, hundreds of newspapers have gone out of business in the last quarter-century, and even most of those that survive have hugely cut back on their staff of reporters.

The few outlets that still maintain a large staff of reporters, such as the New York Times and Washington Post, depend on the goodwill of rich people who are prepared to lose money or at least get well below market returns on the money they have invested in their papers. While it is great that some of the very rich are committed to helping maintain a vibrant press, this is not a viable long-term mechanism.

We can pick up on the Seattle democracy voucher approach to support the media as well. Suppose that every adult had a $100 a year fully refundable tax credit to be used to support the creative worker or organization of their choice. This could include individual reporters, writers, musicians, singers, or any type of creative worker, or alternatively they could support an organization, such as a newspaper, a publisher, a movie production company, or any other organization that supports creative work.

There are two reasons for including creative workers more generally and not just journalists and news outlets in the list of potential beneficiaries. The first is that they have also seen plunges in revenue as a result of the Internet. The amount of spending on recorded music, in particular, has dropped by close to 90 percent over the last two decades. It is important to set up a new source of revenue to support creative workers.

The other reason for extending eligibility beyond news media is that we don’t want the government to be in the business of deciding what qualifies as news. If a news outlet were to include opinion pieces or satire on political events, would the government allow it to get money designated for news reporting? If we draw the lines broadly, this should not be an issue. There will always be issues of outright fraud, which must be policed, but these should be far removed from anything resembling judgments about what constitutes proper news reporting and commentary.

The $100 figure is arbitrary, but even this modest sum could provide more than $20 billion a year to support creative work.[2] At a pay rate of $80,000 a year, this could support 250,000 journalists and other creative workers. It is also important to realize that this system does not preclude other mechanisms for raising revenue.

For example, newspapers can still sell print copies and get ads, as they do today. The big difference would be that this would not be their primary mode of raising revenue. Musicians, writers, and creative workers could still earn money from other sources, such as live performances or conducting workshops. So, the money they receive through this tax credit system would not be the sole support for newspapers and other creative work, but it would provide an enormously important supplement that could maintain a vibrant news media and creative sector that did not depend on the goodwill of a small number of very wealthy people.

Going Local

Another tremendously important aspect of this tax credit route is that it can be implemented at the state or even local level, as demonstrated by the Seattle democracy voucher program. The ability to start a measure like this at the state or local level is tremendously important given the improbability of major action addressing the unequal distribution of political power at the national level.

As a practical matter, it would be a relatively simple thing for a state or city to give each of its adult residents a voucher of $100 to support journalism and other creative work. To avoid freeloading by residents of other states or cities, it can even put up paywalls, as most newspapers do now. That way, if people in Chicago, or the state of Illinois, were prepared to use their vouchers to support a high-quality newspaper like the New York Times, they would be able to get free access themselves, but people elsewhere in the United States would have to pay, just as they do now for the New York Times.   

On the creative worker side, a state or city going this route could set itself up as an artistic mecca with this sort of system. It could just include a requirement that to be eligible to receive money through the voucher system, a person had to be physically present for at least nine months a year. This would attract musicians, singers, writers, and other creative workers since they would want to be eligible for this pool of money. Furthermore, to make additional money and to increase the likelihood that residents would support them, they would want to perform their music, or offer workshops, or engage in other activities that would make them known to the community. These activities would also attract tourists from around the country.

The key point here is of course to establish an alternative mechanism for supporting independent media. If this can be done successfully in a city or state, it is likely to be emulated by others. Ideally, it would be adopted nationally, but even if just a small number of cities and states went this route it can provide a substantial measure of support that does not currently exist.

In any case, even a single city would be a big step forward. We can sit around and wait for the gods to make things work out to our liking so that there is a radical downward redistribution from the very rich to everyone else or we can take simple steps that will actually have an impact. We know liberal funders much prefer the former route, but anyone who actually gives a damn about inequality better be looking for things we can do now.

[1] There are comparable systems that amplify the voice of people with less money, such as the “super-match” system that New York City has in place for local elections. Under this system, small donations can be matched up to eight to one for candidates that limit their spending and large contributions and meet other criteria. The advantage of the Seattle system is that the vouchers can give a voice even to people who may find a small contribution to be a substantial burden.

[2] I would require a trade-off to be eligible for this money that the recipients could not also get copyright protection for their work. The government supports you once, not twice. If you take the money, then your work is in the public domain and can be freely reproduced and transferred. We want people to have access to the material that the government has paid for. I discuss the mechanics of this sort of system in more detail in chapter 5 of Rigged [it’s free].

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