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.

In an article about the difficulty the Biden administration faces in getting more funding to deal with the pandemic, the NYT told readers:

“At issue is whether the White House has provided the level of detail desired by Republicans about the trillions of dollars in Covid relief spending that Congress previously authorized.”

Unless the NYT’s reporters have mind reading capabilities, they don’t know what level of detail Republicans desire, they know what they are requesting. It would be good if they would restrict themselves to reporting on what politicians say and do, not what they think.

In an article about the difficulty the Biden administration faces in getting more funding to deal with the pandemic, the NYT told readers:

“At issue is whether the White House has provided the level of detail desired by Republicans about the trillions of dollars in Covid relief spending that Congress previously authorized.”

Unless the NYT’s reporters have mind reading capabilities, they don’t know what level of detail Republicans desire, they know what they are requesting. It would be good if they would restrict themselves to reporting on what politicians say and do, not what they think.

Sanctions

The Opera Singer and the Sanctions

The decision of the New York Metropolitan Opera to not host Russian opera singer Anna Netrebko, unless she explicitly repudiates Vladimir Putin, has received a great deal of attention. The issue is whether it is appropriate to effectively sanction artistic performers and athletes over the decision by Putin to invade Ukraine.  

This may be an easier call in the case of Netrebko than some others, since it seems that she has associated with Putin repeatedly, and her career was advanced by this association. But the issue arises with performing artists and athletes more generally. After all, they weren’t involved in Putin’s decision to attack Ukraine, why should they be punished for Putin’s murderous attack on a neighboring country?

That is a good question, but it extends far more widely than the big-name stars who have largely been the focus. The sanctions that the U.S. is imposing on Russia will lead to hardship for tens of millions of people in Russia. Millions of ordinary workers will lose their jobs. These are mostly people who do things like working in restaurants and hotels, retail stores and factories. They will likely find it difficult to pay their rent, buy food, and afford other necessities of life.

Sanctions are a reasonable response to Putin’s invasion, but we should not imagine that there will not innocent victims. Some of these will be the star performers and athletes who will be excluded from much of the world.

But for every one of these stars whose case may get written up in the New York Times there are tens of thousands of retail clerks and factory workers who lose their job because of sanctions. These people deserve our sympathy at least as much as the highly paid international stars. In any case, it is important to remember that sanctions do have collateral damage, even if they may be an effective way to punish Putin for his invasion.  

The decision of the New York Metropolitan Opera to not host Russian opera singer Anna Netrebko, unless she explicitly repudiates Vladimir Putin, has received a great deal of attention. The issue is whether it is appropriate to effectively sanction artistic performers and athletes over the decision by Putin to invade Ukraine.  

This may be an easier call in the case of Netrebko than some others, since it seems that she has associated with Putin repeatedly, and her career was advanced by this association. But the issue arises with performing artists and athletes more generally. After all, they weren’t involved in Putin’s decision to attack Ukraine, why should they be punished for Putin’s murderous attack on a neighboring country?

That is a good question, but it extends far more widely than the big-name stars who have largely been the focus. The sanctions that the U.S. is imposing on Russia will lead to hardship for tens of millions of people in Russia. Millions of ordinary workers will lose their jobs. These are mostly people who do things like working in restaurants and hotels, retail stores and factories. They will likely find it difficult to pay their rent, buy food, and afford other necessities of life.

Sanctions are a reasonable response to Putin’s invasion, but we should not imagine that there will not innocent victims. Some of these will be the star performers and athletes who will be excluded from much of the world.

But for every one of these stars whose case may get written up in the New York Times there are tens of thousands of retail clerks and factory workers who lose their job because of sanctions. These people deserve our sympathy at least as much as the highly paid international stars. In any case, it is important to remember that sanctions do have collateral damage, even if they may be an effective way to punish Putin for his invasion.  

I was wondering that, since it told us in an article subhead, and then in the article itself, that Republicans have “concerns” about federal spending. In the article, the concern was over “excessive” federal spending.

Unless the Washington Post’s reporters are mind readers, they have no idea what Republicans are actually concerned about. Republican politicians, even more so than Democratic politicians, have also demonstrated an extraordinary ability to say things that are not true, so there is basically zero reason to believe that what they claim to be their concerns are their actual concerns.

The way this should be reported is simply to tell readers what the Republicans say, for example refer to “complaints,” rather than try to tell us what they think.

I was wondering that, since it told us in an article subhead, and then in the article itself, that Republicans have “concerns” about federal spending. In the article, the concern was over “excessive” federal spending.

Unless the Washington Post’s reporters are mind readers, they have no idea what Republicans are actually concerned about. Republican politicians, even more so than Democratic politicians, have also demonstrated an extraordinary ability to say things that are not true, so there is basically zero reason to believe that what they claim to be their concerns are their actual concerns.

The way this should be reported is simply to tell readers what the Republicans say, for example refer to “complaints,” rather than try to tell us what they think.

I mention that, because some folks have been saying that only a relatively small share of the population is affected by unemployment. While this is true if we take a snapshot and say that 4.0 percent or so of the workforce is unemployed at a point in time. However, this badly misunderstands how the labor market works.

Six million people lose or leave their job every month. That comes to 72 million a year, or roughly 45 percent of the labor force. Of course, many people lose or leave their job more than once, so the total number of people changing jobs would be considerably less than 72 million. On the other hand, we also have more than 4.5 million people enter or re-enter the labor market every month. In short, rather than just affecting a relatively small group of people, the state of the labor market directly affects a very large share of the population over the course of a year.

I can’t say how people form their views of the economy, but it is simply not true that the level of unemployment and the state of the labor market only affects a small minority of the population. If we combine people who are directly looking for work or changing a job over the course of a year, and their family members, it is almost certainly a majority of the population. People may for some reason not factor in their labor market prospects into their assessment of the economy, but it is not because they are not directly affected by the state of the labor market.

I mention that, because some folks have been saying that only a relatively small share of the population is affected by unemployment. While this is true if we take a snapshot and say that 4.0 percent or so of the workforce is unemployed at a point in time. However, this badly misunderstands how the labor market works.

Six million people lose or leave their job every month. That comes to 72 million a year, or roughly 45 percent of the labor force. Of course, many people lose or leave their job more than once, so the total number of people changing jobs would be considerably less than 72 million. On the other hand, we also have more than 4.5 million people enter or re-enter the labor market every month. In short, rather than just affecting a relatively small group of people, the state of the labor market directly affects a very large share of the population over the course of a year.

I can’t say how people form their views of the economy, but it is simply not true that the level of unemployment and the state of the labor market only affects a small minority of the population. If we combine people who are directly looking for work or changing a job over the course of a year, and their family members, it is almost certainly a majority of the population. People may for some reason not factor in their labor market prospects into their assessment of the economy, but it is not because they are not directly affected by the state of the labor market.

In his State of the Union Address, President Biden claimed the economy creating over 6.5 million jobs in his first year in office, which he said was the most ever. The New York Times boasted about fact-checking this claim. It rated it “partially true.”

The fact-check said: “Biden is correct on the numbers. But the government only started collecting this [sic] data in 1939.”

Okay folks, at the start of 1939, when the government started publishing this series, we had fewer than 30 million jobs by this measure (non-farm, payroll employment). An increase of more than 6.5 million jobs would have been a rise of more than 20 percent. That would be an increase of more than 30 million jobs in today’s labor market.

Does anyone at the NYT think we ever had a year where employment grew by 20 percent? That’s scary, if true.

In his State of the Union Address, President Biden claimed the economy creating over 6.5 million jobs in his first year in office, which he said was the most ever. The New York Times boasted about fact-checking this claim. It rated it “partially true.”

The fact-check said: “Biden is correct on the numbers. But the government only started collecting this [sic] data in 1939.”

Okay folks, at the start of 1939, when the government started publishing this series, we had fewer than 30 million jobs by this measure (non-farm, payroll employment). An increase of more than 6.5 million jobs would have been a rise of more than 20 percent. That would be an increase of more than 30 million jobs in today’s labor market.

Does anyone at the NYT think we ever had a year where employment grew by 20 percent? That’s scary, if true.

Earlier today, I was on a panel with Jason Furman and Joseph Stiglitz, discussing the recent surge in inflation and the prospects for the future. We took some questions from the audience, but there were a number for which we did not have time. I have picked some of these questions to answer myself, for anyone who may be interested.

Was the decision to go big with the Biden stimulus worth the cost in the form of higher inflation?

We can certainly look at the Biden stimulus and point to areas where we spent more than necessary. I would put the high reach of the $1,400 pandemic payments top on that list. If we had a phase out beginning at say, $50,000 a person, they would still reach the overwhelming majority of people who were hurt financially by the pandemic.

We also could have gotten by giving the states less money. Many now find themselves flush with cash and are giving out tax cuts to their residents.

But, we can’t design our policies retroactively. Also, there were political considerations behind the structuring of the package that can’t just be ignored.

To me, the basic question was whether it was worth the risk of going too big, as Biden did, or risk erring on the side of going too small, as was the case with the Obama stimulus in 2009. To my view, Biden made the right call.

We’ve gotten back the vast majority of jobs we lost during the pandemic. The economy is almost back to its pre-recession growth path. And, we shielded the bulk of the population from financial hardship from the pandemic.

This was really a great accomplishment and well worth the cost of say a 2.0 percentage point rise in the inflation rate. Just to be clear, we would have seen higher inflation with the reopening of the economy from the pandemic in any case. The robust stimulus of the Recovery Act added to this, but even countries without large stimulus packages had large upticks of inflation. So, the question is whether the benefits were worth the additional inflation, say going from 5.5 percent to 7.5 percent; we are not asking about the full increase to 7.5 percent.

How does the war in Ukraine affect your assessment of the prospects for the US economy?

This is hard to say at this point, since there is so much uncertainty about the longer-term effects. We can see the short-term jump in the price of oil and natural gas and many other commodities, which are clearly inflationary, but we don’t know how long these rises will be sustained, or if the prices will go higher.

These rises should push us to be more aggressive in our transition to clean energy. I would like to see us try to be innovative in reducing our reliance on fossil fuels, for example by paying people not to drive and offering free bus travel, but I realize there are serious political obstacles to going this route.

In any case, I think it would be a mistake for the Fed to aggressively raise interest rates to counteract this inflation. We need to move to clean energy as quickly as possible. A recession may slow inflation by throwing people out of work and putting downward pressure on wages, but it doesn’t help the transition to clean energy.

Do you think that the US economy has overheated, and needs to be slowed–even if it means reducing employment–in order to lower inflation?

I think there is a case that the stimulus increased demand at points in 2021 to levels that the economy could not meet. A big part of this story was that demand was so highly tilted towards goods, since people couldn’t buy a number of services due to the pandemic. Nonetheless, it was true that demand exceeded supply in wide areas of the economy.

But putting the past aside, the question is how best to deal with the inflation that resulted. I think there is a good case that inflation will largely fade as the backlogs in supply chains is resolved.

We have already seen this in a few areas. Television prices have fallen 6.3 percent in the last five months after rising 8.7 percent between March and August. Used car prices have fallen 1.5 percent in the first half of February, after rising almost 50 percent since the start of the pandemic. I expect that we will see this in many more areas in the months ahead.

In any case, I don’t think there is a serious case that the economy is overheating at present. The unemployment rate is still somewhat higher than before the pandemic. We have recently seen a modest rise in unemployment insurance claims, indicating that employers are comfortable laying off workers, rather than hoarding labor that they may not need. (I’m not happy to see people laid off, but this is an indication of a modest weakening in the labor market.)

I expect that, with cases of omicron dropping rapidly, we will get back to something closer to a normal economy. This should help to reduce inflationary pressure as businesses don’t have to continually adjust to workers missing days because of the pandemic.  

How is inflation affecting the housing market? Who is winning? Who is losing?

The low mortgage rates during the pandemic, coupled with the various pandemic payments, have given many people the ability to pay more for housing. This has sent house prices soaring.

I expect the pressure on prices to be reduced in the months ahead for several reasons. First, interest rates have risen. The interest rate in 30-year fixed rate mortgages had been under 3.0 percent at various points during the pandemic. It is now near 4.0 percent.

The second reason is that we have seen a huge increase in the number of occupied housing units. The number of occupied housing units has risen by 3.5 million in the last two years. This is a context of very slow population growth. Many people had been living with family or friends now have their own places. But the number of people in that situation, who have the means to start their own household, is clearly declining.

It is also worth mentioning the eviction moratoriums that were in place during the pandemic. During a normal year there are roughly 1 million evictions. The number was almost certainly less than half as large in 2020 and 2021. The prospect of more people getting evicted is not a pretty one, but it does mean that more units will be available.

Third, there has been a sharp upturn in the rate of construction. We were building close to 1.4 million units a year before the pandemic. We are now up to 1.8 million. In addition, many stores and office buildings are being converted to residential housing. This should help to alleviate shortages over time.

It is also worth noting a big shift in population. We are seeing rapid rises in house prices and rents in many low-cost areas like Atlanta and Detroit, with little or no increases in high-prices areas like New York City and San Francisco.

This is a story where people who can now work remotely are taking advantage of lower cost housing. That is a good story for them and a good story for renters in high-priced cities. It also benefits homeowners in lower cost areas, who see a rise in their property values. It also benefits these low-cost areas by bringing in workers whose spending will support a variety of businesses. The losers are renters who will end up paying more for their apartments.  

Is there anything that state and local governments can do or should do to help reduce inflation or the burden on American households?

There is a limit to what can be done at the state or local level. A simple measure would be to make it easier for people to buy lower cost drugs in other countries (assuming there is no action at the federal level). Utah’s public employee retirement program actually pays members to go to Canada or Mexico to buy drugs at lower prices.

Another measure these governments can do is to facilitate the transition of vacant retail and commercial space to residential housing. In many cases, this would just mean sharing best practices and removing regulatory obstacles. In other words, it doesn’t have to cost much money.

With many stores now empty, as a result of the pandemic-induced shift to online shopping, and many offices sitting vacant as people work remotely, we have lots of wasted space across the country. If these can be converted to housing, it could go a long way in alleviating the shortage of affordable housing.

Earlier today, I was on a panel with Jason Furman and Joseph Stiglitz, discussing the recent surge in inflation and the prospects for the future. We took some questions from the audience, but there were a number for which we did not have time. I have picked some of these questions to answer myself, for anyone who may be interested.

Was the decision to go big with the Biden stimulus worth the cost in the form of higher inflation?

We can certainly look at the Biden stimulus and point to areas where we spent more than necessary. I would put the high reach of the $1,400 pandemic payments top on that list. If we had a phase out beginning at say, $50,000 a person, they would still reach the overwhelming majority of people who were hurt financially by the pandemic.

We also could have gotten by giving the states less money. Many now find themselves flush with cash and are giving out tax cuts to their residents.

But, we can’t design our policies retroactively. Also, there were political considerations behind the structuring of the package that can’t just be ignored.

To me, the basic question was whether it was worth the risk of going too big, as Biden did, or risk erring on the side of going too small, as was the case with the Obama stimulus in 2009. To my view, Biden made the right call.

We’ve gotten back the vast majority of jobs we lost during the pandemic. The economy is almost back to its pre-recession growth path. And, we shielded the bulk of the population from financial hardship from the pandemic.

This was really a great accomplishment and well worth the cost of say a 2.0 percentage point rise in the inflation rate. Just to be clear, we would have seen higher inflation with the reopening of the economy from the pandemic in any case. The robust stimulus of the Recovery Act added to this, but even countries without large stimulus packages had large upticks of inflation. So, the question is whether the benefits were worth the additional inflation, say going from 5.5 percent to 7.5 percent; we are not asking about the full increase to 7.5 percent.

How does the war in Ukraine affect your assessment of the prospects for the US economy?

This is hard to say at this point, since there is so much uncertainty about the longer-term effects. We can see the short-term jump in the price of oil and natural gas and many other commodities, which are clearly inflationary, but we don’t know how long these rises will be sustained, or if the prices will go higher.

These rises should push us to be more aggressive in our transition to clean energy. I would like to see us try to be innovative in reducing our reliance on fossil fuels, for example by paying people not to drive and offering free bus travel, but I realize there are serious political obstacles to going this route.

In any case, I think it would be a mistake for the Fed to aggressively raise interest rates to counteract this inflation. We need to move to clean energy as quickly as possible. A recession may slow inflation by throwing people out of work and putting downward pressure on wages, but it doesn’t help the transition to clean energy.

Do you think that the US economy has overheated, and needs to be slowed–even if it means reducing employment–in order to lower inflation?

I think there is a case that the stimulus increased demand at points in 2021 to levels that the economy could not meet. A big part of this story was that demand was so highly tilted towards goods, since people couldn’t buy a number of services due to the pandemic. Nonetheless, it was true that demand exceeded supply in wide areas of the economy.

But putting the past aside, the question is how best to deal with the inflation that resulted. I think there is a good case that inflation will largely fade as the backlogs in supply chains is resolved.

We have already seen this in a few areas. Television prices have fallen 6.3 percent in the last five months after rising 8.7 percent between March and August. Used car prices have fallen 1.5 percent in the first half of February, after rising almost 50 percent since the start of the pandemic. I expect that we will see this in many more areas in the months ahead.

In any case, I don’t think there is a serious case that the economy is overheating at present. The unemployment rate is still somewhat higher than before the pandemic. We have recently seen a modest rise in unemployment insurance claims, indicating that employers are comfortable laying off workers, rather than hoarding labor that they may not need. (I’m not happy to see people laid off, but this is an indication of a modest weakening in the labor market.)

I expect that, with cases of omicron dropping rapidly, we will get back to something closer to a normal economy. This should help to reduce inflationary pressure as businesses don’t have to continually adjust to workers missing days because of the pandemic.  

How is inflation affecting the housing market? Who is winning? Who is losing?

The low mortgage rates during the pandemic, coupled with the various pandemic payments, have given many people the ability to pay more for housing. This has sent house prices soaring.

I expect the pressure on prices to be reduced in the months ahead for several reasons. First, interest rates have risen. The interest rate in 30-year fixed rate mortgages had been under 3.0 percent at various points during the pandemic. It is now near 4.0 percent.

The second reason is that we have seen a huge increase in the number of occupied housing units. The number of occupied housing units has risen by 3.5 million in the last two years. This is a context of very slow population growth. Many people had been living with family or friends now have their own places. But the number of people in that situation, who have the means to start their own household, is clearly declining.

It is also worth mentioning the eviction moratoriums that were in place during the pandemic. During a normal year there are roughly 1 million evictions. The number was almost certainly less than half as large in 2020 and 2021. The prospect of more people getting evicted is not a pretty one, but it does mean that more units will be available.

Third, there has been a sharp upturn in the rate of construction. We were building close to 1.4 million units a year before the pandemic. We are now up to 1.8 million. In addition, many stores and office buildings are being converted to residential housing. This should help to alleviate shortages over time.

It is also worth noting a big shift in population. We are seeing rapid rises in house prices and rents in many low-cost areas like Atlanta and Detroit, with little or no increases in high-prices areas like New York City and San Francisco.

This is a story where people who can now work remotely are taking advantage of lower cost housing. That is a good story for them and a good story for renters in high-priced cities. It also benefits homeowners in lower cost areas, who see a rise in their property values. It also benefits these low-cost areas by bringing in workers whose spending will support a variety of businesses. The losers are renters who will end up paying more for their apartments.  

Is there anything that state and local governments can do or should do to help reduce inflation or the burden on American households?

There is a limit to what can be done at the state or local level. A simple measure would be to make it easier for people to buy lower cost drugs in other countries (assuming there is no action at the federal level). Utah’s public employee retirement program actually pays members to go to Canada or Mexico to buy drugs at lower prices.

Another measure these governments can do is to facilitate the transition of vacant retail and commercial space to residential housing. In many cases, this would just mean sharing best practices and removing regulatory obstacles. In other words, it doesn’t have to cost much money.

With many stores now empty, as a result of the pandemic-induced shift to online shopping, and many offices sitting vacant as people work remotely, we have lots of wasted space across the country. If these can be converted to housing, it could go a long way in alleviating the shortage of affordable housing.

From my Twitter feed it seems that Sarah Palin has been resurrected. All sorts of centrist-liberal types are yelling “drill baby, drill!” as a response to Russia’s invasion of Ukraine. They have been pushing for ignoring environmental regulations and even directly subsidizing fracking.

While that is no doubt music to the ears of the fossil fuel industry, this is going backwards about as quickly as we can in our effort to reduce greenhouse gas emissions. There is an alternative route, we can pay people not to drive. That one might seem a little silly, but it beats paying people to wreck the environment.  

The way this could work is that ask people to submit a form to the IRS indicating how many miles they drove last year. We also have them submit a picture of their odometer reading as of today. They send in another photograph at the end of the year. Then they are entitled to a payment of 20 cents for each mile that they reduce their driving this year compared to last year. (We adjust the calendar so that it is for a 12-month period.)

If someone drove 15,000 miles last year and can reduce their driving to 10,000 miles this year, we would send them a check for $1,000. This is also approximately what they would be saving on gasoline if the price is $4 a gallon and they get 20 MPG in their car. That should be a pretty good incentive to drive less.

To make the shift to less driving easier, the federal government can also pay to make bus transportation free and vastly expand service. (The way to do this is to have the federal government pick up 90 percent of the cost, with the states having to pay the other 10 percent. The red state governors will of course all refuse to go along, so we just send the money to blue states.)

If we could reduce driving by 20 percent (640 billion miles per year), this plan would cost the government just under $130 billion a year, roughly 2.2 percent of the federal budget. If we add in another $40 billion for bus subsidies, it comes to $170 billion a year or 2.9 percent of the federal budget.

This would save us a bit less than 2 million barrels of oil a day. It would take quite a while to build up to this level of additional production, even with ambitious subsidies to the fossil fuel industry.

I know everyone is jumping up and down that people will cheat. What else is new? We have some ability to put limits on cheating, first and foremost by subjecting people to random audits, just as we do with taxes and did with the Paycheck Protection Program during the pandemic shutdowns. Also, any obviously absurd claims will be inviting inspection. If someone claims they drove 50,000 miles in 2021, they can expect a visit from an auditor asking how they ended up driving that far in a single year.

There undoubtedly will be people who get away with substantial amounts of cheating, but that should not be an excuse for not adopting an environmentally friendly way of reducing the price of oil on world markets. We tolerate massive amounts of cheating in other areas of our tax code, such as the expenses claimed by businesses. It would be ridiculous to get bent out of shape that someone may get $50 or $100 that they shouldn’t on this provision.

The key point here is that we don’t have to wreck the planet to show Vladimir Putin we are tough. We can instead do policies that would make sense even if he hadn’t invaded Ukraine.  

From my Twitter feed it seems that Sarah Palin has been resurrected. All sorts of centrist-liberal types are yelling “drill baby, drill!” as a response to Russia’s invasion of Ukraine. They have been pushing for ignoring environmental regulations and even directly subsidizing fracking.

While that is no doubt music to the ears of the fossil fuel industry, this is going backwards about as quickly as we can in our effort to reduce greenhouse gas emissions. There is an alternative route, we can pay people not to drive. That one might seem a little silly, but it beats paying people to wreck the environment.  

The way this could work is that ask people to submit a form to the IRS indicating how many miles they drove last year. We also have them submit a picture of their odometer reading as of today. They send in another photograph at the end of the year. Then they are entitled to a payment of 20 cents for each mile that they reduce their driving this year compared to last year. (We adjust the calendar so that it is for a 12-month period.)

If someone drove 15,000 miles last year and can reduce their driving to 10,000 miles this year, we would send them a check for $1,000. This is also approximately what they would be saving on gasoline if the price is $4 a gallon and they get 20 MPG in their car. That should be a pretty good incentive to drive less.

To make the shift to less driving easier, the federal government can also pay to make bus transportation free and vastly expand service. (The way to do this is to have the federal government pick up 90 percent of the cost, with the states having to pay the other 10 percent. The red state governors will of course all refuse to go along, so we just send the money to blue states.)

If we could reduce driving by 20 percent (640 billion miles per year), this plan would cost the government just under $130 billion a year, roughly 2.2 percent of the federal budget. If we add in another $40 billion for bus subsidies, it comes to $170 billion a year or 2.9 percent of the federal budget.

This would save us a bit less than 2 million barrels of oil a day. It would take quite a while to build up to this level of additional production, even with ambitious subsidies to the fossil fuel industry.

I know everyone is jumping up and down that people will cheat. What else is new? We have some ability to put limits on cheating, first and foremost by subjecting people to random audits, just as we do with taxes and did with the Paycheck Protection Program during the pandemic shutdowns. Also, any obviously absurd claims will be inviting inspection. If someone claims they drove 50,000 miles in 2021, they can expect a visit from an auditor asking how they ended up driving that far in a single year.

There undoubtedly will be people who get away with substantial amounts of cheating, but that should not be an excuse for not adopting an environmentally friendly way of reducing the price of oil on world markets. We tolerate massive amounts of cheating in other areas of our tax code, such as the expenses claimed by businesses. It would be ridiculous to get bent out of shape that someone may get $50 or $100 that they shouldn’t on this provision.

The key point here is that we don’t have to wreck the planet to show Vladimir Putin we are tough. We can instead do policies that would make sense even if he hadn’t invaded Ukraine.  

I don’t agree with much about Ross Douthat’s politics, but he often makes some interesting points. He did so in his latest column on the Canadian “truckers” protest against vaccine mandates. Douthat argues that support for the protest stems from resentment by people who do various types of manual labor against the professional class. His point is that the latter have largely been setting the rules in ways that disadvantage the group of people who rely on manual labor for their living.

Unfortunately, it seems that no one other than Douthat is given the opportunity by major news outlets to argue that policy, rather than inevitable processes like globalization or technology, is responsible for the relative deterioration in the situation of people who do manual labor. To be clear, there are prominent columnists like, Paul Krugman at the NYT and E.J. Dionne at the WaPo, who argue for welfare state policies to reverse this deterioration, but you won’t see any pieces saying that the deterioration itself was the result of deliberate policy.

This absence is striking, given how the major news outlets are perfectly comfortable giving large amounts of space to pieces based on little evidence, or that sometimes even fly in the face of the evidence that does exist. The NYT gave us an example of this with the Sunday magazine’s cover piece proclaiming “The Age of Anti-Ambition.”

The substantive basis to this piece is the highest recorded quit rate since the Labor Department began its current series in December of 2000 and the drop in labor force participation since the start of the pandemic. As NYT columnist Peter Coy has pointed out, quit rates were likely much higher in the late 1940s, and comparable at many points in the 1960s and 1970s. So, there is not all that much new here.

There also is far less than meets the eye with the decline in labor force participation rates (LFPR), widely touted as “The Great Resignation.” If we look at the prime age workforce (ages 25 to 54), the drop from the pre-pandemic peak to January of 2022, is 1.4 percentage points.

But LFPRs always fall in recessions. Three and half years after the start of the 2000 recession, the prime age LFPR was down by 2.7 percentage points from its pre-recession level. The prime age LFPR was 4.1 percentage points below its pre-recession peak four years after the start of the Great Recession.

Furthermore, more than half of the drop in the LFPR is explained by the 1.8 million people who reported that they were not working or looking for a job in January directly because of COVID-19. The real surprise of the pandemic recession is how little labor force participation has fallen.

The other part of the picture, that people no longer have great career ambitions, is also not exactly new. Those of us old enough to remember the 1960s recall the slogan, “turn on, tune in, drop out.” The story that many young people, who have the option, choose not to pursue a high-prestige, high-paying career path, is not a new one.

But even “The Age of Ambition” story probably contains more validity than another frequent topic in major media publications: the robots taking all the jobs. This one was especially painful because not only was it not supported by the evidence, it was directly contradicted by the evidence.

We actually have a very good measure of how rapidly robots or anything else is taking jobs, it’s called “productivity growth.” Productivity growth measures the increase in the amount of output in an hour of work. From the standpoint of the individual worker, it doesn’t matter whether productivity growth increases because employers have figured out a magical formula that allows them to produce 20 percent more cars, restaurant meals, or haircuts with an hour of a worker’s time, or because they are now working next to a team of robots. In both cases, employers need 20 percent fewer workers to produce the same amount of output.

In the decade from the fourth quarter of 2009 to the fourth quarter of 2019 productivity growth averaged just over 1.0 percent annually. This compares to growth of more than 2.5 percent annually in the quarter century from 1947 to 1972 and almost 3.0 percent annually in the decade from the fourth quarter of 1995 to the fourth quarter of 2005.

In other words, in a period where stories in major media outlets repeatedly warned us that robots were taking all the jobs, we were actually seeing very few jobs lost to robots or any other form of productivity growth. It’s probably also worth mentioning that economists usually see productivity growth as being a great thing, since it can provide a basis for higher living standards in the form of either more goods and services, or more leisure time.

A Piece on Rigging the Market to Redistribute Upward?

I mention the pieces on workers losing ambition and robots taking all the jobs, not just to bash poor editorial choices. Rather, these are examples of cases where major media outlets have been willing to go far out on a limb to tell grand stories, even when they are not well-supported by evidence. So clearly there is a market for big arguments about the shape of the economy.

My question is why does that market literally never include a piece that says that economy was deliberately structured to benefit more highly educated workers at the expense of workers without college degrees? Why is the only place we can hear this line is the occasional comment in a Ross Douthat column?

As my regular readers know, this story is not hard to tell. We have seen many pieces on the pandemic billionaires, with Moderna alone accounting for five of them, as of last July.

This was not just a story of technology. No one at Moderna, or any other pharmaceutical company, would be getting hugely rich without government-granted patent monopolies. We all know the argument that without these government-granted monopolies we wouldn’t have the COVID-19 vaccines and other great medical breakthroughs. But this is a debatable point, since we have seen enormously important breakthroughs in research that was publicly funded and not dependent on patent monopolies.

In any case, patent monopolies are quite explicitly a government policy. They can be longer and stronger or shorter and weaker. And, they may not apply in certain areas at all. (We didn’t have patent monopolies in software until the 1990s.)

The same story applies to copyright monopolies, the cousin of patent monopolies. This is again a government policy designed to foster creative work. It is not simply an outgrowth of technology. Without government-granted patent monopolies, Bill Gates would likely still be working for a living or getting by on his Social Security check, instead of being one of the richest people in the world.

Trade Policy

It is not just intellectual property rules that have been restructured to redistribute a massive amount of income upward. Our trade policy has developed along the same lines. It has been about putting our manufacturing workers in direct competition with low-paid workers in the developing world.

This has the predicted and actual effect of lowering the pay of manufacturing workers. And, since manufacturing has historically been a source of relatively high-paying jobs for workers without college degrees, this policy has had the effect of putting downward pressure on the wages of less educated workers more generally.

Here too, there was nothing inevitable about our trade policy, which often passes as the impersonal force of “globalization.”  We could have had trade policy that was designed to put our doctors, dentists, and other highly paid professionals in direct competition with their lower paid counterparts in other countries. (We could have created rules that ensured high standards.)

This policy would have had the exact same logic as the conventional economists’ gain from trade story, although in this case the winners would be less-educated workers who would benefit from lower cost medical care, legal services, and other services provided by the most highly-educated workers, which would raise their real wages. But this path for globalization was never on the agenda, perhaps because the people designing and writing on trade policy directly benefited from the course trade policy actually took.

The General Picture: Policy Was Structured to Redistribute Upward

I have written on other ways that policy was structured to redistribute upward in Rigged [it’s free]. (I would add to the list in my book, Section 230 protection, which has allowed Mark Zuckerberg and others to get fabulously rich.) But, my point here is not to argue for my specific take on these policies.

Rather, I am just making the case that there is a plausible story that policy was designed over the last four decades to redistribute income from workers without college degrees (loosely defined as Douthat’s manual laborers) to those with college and advanced degrees (loosely defined as Douthat’s professional class). The basis for this assertion is at least as strong as the case that we are now in the middle of “The Great Resignation,” or that robots are taking all the jobs.

Yet, for some reason we never see this argument in the New York Times, New York Review of Books, New Yorker, The Atlantic, the Washington Post or other leading media outlets.  (If I missed it, please send me the link.) This matters not only for policy reasons, but also for the shape that the resentment of the losers takes.

When the people who have been on the losing end of policy for four decades only hear that their plight was the unfortunate outcome of trends in technology and globalization, when in fact it was the result of policy deliberately designed by the winners, they are likely to be angry. The direction of their anger is often ugly and irrational, such as when they lash out at racial and ethnic minorities, or blindly follow a billionaire buffoon who has barely concealed contempt for ordinary workers.

I can’t promise that being truthful about the design of policy over the last four decades will redirect populist anger in a more productive direction, but it seems worth a try. In any case, news outlets that are ostensibly committed to the truth, should feel the need to tell it here.  

 

 

 

I don’t agree with much about Ross Douthat’s politics, but he often makes some interesting points. He did so in his latest column on the Canadian “truckers” protest against vaccine mandates. Douthat argues that support for the protest stems from resentment by people who do various types of manual labor against the professional class. His point is that the latter have largely been setting the rules in ways that disadvantage the group of people who rely on manual labor for their living.

Unfortunately, it seems that no one other than Douthat is given the opportunity by major news outlets to argue that policy, rather than inevitable processes like globalization or technology, is responsible for the relative deterioration in the situation of people who do manual labor. To be clear, there are prominent columnists like, Paul Krugman at the NYT and E.J. Dionne at the WaPo, who argue for welfare state policies to reverse this deterioration, but you won’t see any pieces saying that the deterioration itself was the result of deliberate policy.

This absence is striking, given how the major news outlets are perfectly comfortable giving large amounts of space to pieces based on little evidence, or that sometimes even fly in the face of the evidence that does exist. The NYT gave us an example of this with the Sunday magazine’s cover piece proclaiming “The Age of Anti-Ambition.”

The substantive basis to this piece is the highest recorded quit rate since the Labor Department began its current series in December of 2000 and the drop in labor force participation since the start of the pandemic. As NYT columnist Peter Coy has pointed out, quit rates were likely much higher in the late 1940s, and comparable at many points in the 1960s and 1970s. So, there is not all that much new here.

There also is far less than meets the eye with the decline in labor force participation rates (LFPR), widely touted as “The Great Resignation.” If we look at the prime age workforce (ages 25 to 54), the drop from the pre-pandemic peak to January of 2022, is 1.4 percentage points.

But LFPRs always fall in recessions. Three and half years after the start of the 2000 recession, the prime age LFPR was down by 2.7 percentage points from its pre-recession level. The prime age LFPR was 4.1 percentage points below its pre-recession peak four years after the start of the Great Recession.

Furthermore, more than half of the drop in the LFPR is explained by the 1.8 million people who reported that they were not working or looking for a job in January directly because of COVID-19. The real surprise of the pandemic recession is how little labor force participation has fallen.

The other part of the picture, that people no longer have great career ambitions, is also not exactly new. Those of us old enough to remember the 1960s recall the slogan, “turn on, tune in, drop out.” The story that many young people, who have the option, choose not to pursue a high-prestige, high-paying career path, is not a new one.

But even “The Age of Ambition” story probably contains more validity than another frequent topic in major media publications: the robots taking all the jobs. This one was especially painful because not only was it not supported by the evidence, it was directly contradicted by the evidence.

We actually have a very good measure of how rapidly robots or anything else is taking jobs, it’s called “productivity growth.” Productivity growth measures the increase in the amount of output in an hour of work. From the standpoint of the individual worker, it doesn’t matter whether productivity growth increases because employers have figured out a magical formula that allows them to produce 20 percent more cars, restaurant meals, or haircuts with an hour of a worker’s time, or because they are now working next to a team of robots. In both cases, employers need 20 percent fewer workers to produce the same amount of output.

In the decade from the fourth quarter of 2009 to the fourth quarter of 2019 productivity growth averaged just over 1.0 percent annually. This compares to growth of more than 2.5 percent annually in the quarter century from 1947 to 1972 and almost 3.0 percent annually in the decade from the fourth quarter of 1995 to the fourth quarter of 2005.

In other words, in a period where stories in major media outlets repeatedly warned us that robots were taking all the jobs, we were actually seeing very few jobs lost to robots or any other form of productivity growth. It’s probably also worth mentioning that economists usually see productivity growth as being a great thing, since it can provide a basis for higher living standards in the form of either more goods and services, or more leisure time.

A Piece on Rigging the Market to Redistribute Upward?

I mention the pieces on workers losing ambition and robots taking all the jobs, not just to bash poor editorial choices. Rather, these are examples of cases where major media outlets have been willing to go far out on a limb to tell grand stories, even when they are not well-supported by evidence. So clearly there is a market for big arguments about the shape of the economy.

My question is why does that market literally never include a piece that says that economy was deliberately structured to benefit more highly educated workers at the expense of workers without college degrees? Why is the only place we can hear this line is the occasional comment in a Ross Douthat column?

As my regular readers know, this story is not hard to tell. We have seen many pieces on the pandemic billionaires, with Moderna alone accounting for five of them, as of last July.

This was not just a story of technology. No one at Moderna, or any other pharmaceutical company, would be getting hugely rich without government-granted patent monopolies. We all know the argument that without these government-granted monopolies we wouldn’t have the COVID-19 vaccines and other great medical breakthroughs. But this is a debatable point, since we have seen enormously important breakthroughs in research that was publicly funded and not dependent on patent monopolies.

In any case, patent monopolies are quite explicitly a government policy. They can be longer and stronger or shorter and weaker. And, they may not apply in certain areas at all. (We didn’t have patent monopolies in software until the 1990s.)

The same story applies to copyright monopolies, the cousin of patent monopolies. This is again a government policy designed to foster creative work. It is not simply an outgrowth of technology. Without government-granted patent monopolies, Bill Gates would likely still be working for a living or getting by on his Social Security check, instead of being one of the richest people in the world.

Trade Policy

It is not just intellectual property rules that have been restructured to redistribute a massive amount of income upward. Our trade policy has developed along the same lines. It has been about putting our manufacturing workers in direct competition with low-paid workers in the developing world.

This has the predicted and actual effect of lowering the pay of manufacturing workers. And, since manufacturing has historically been a source of relatively high-paying jobs for workers without college degrees, this policy has had the effect of putting downward pressure on the wages of less educated workers more generally.

Here too, there was nothing inevitable about our trade policy, which often passes as the impersonal force of “globalization.”  We could have had trade policy that was designed to put our doctors, dentists, and other highly paid professionals in direct competition with their lower paid counterparts in other countries. (We could have created rules that ensured high standards.)

This policy would have had the exact same logic as the conventional economists’ gain from trade story, although in this case the winners would be less-educated workers who would benefit from lower cost medical care, legal services, and other services provided by the most highly-educated workers, which would raise their real wages. But this path for globalization was never on the agenda, perhaps because the people designing and writing on trade policy directly benefited from the course trade policy actually took.

The General Picture: Policy Was Structured to Redistribute Upward

I have written on other ways that policy was structured to redistribute upward in Rigged [it’s free]. (I would add to the list in my book, Section 230 protection, which has allowed Mark Zuckerberg and others to get fabulously rich.) But, my point here is not to argue for my specific take on these policies.

Rather, I am just making the case that there is a plausible story that policy was designed over the last four decades to redistribute income from workers without college degrees (loosely defined as Douthat’s manual laborers) to those with college and advanced degrees (loosely defined as Douthat’s professional class). The basis for this assertion is at least as strong as the case that we are now in the middle of “The Great Resignation,” or that robots are taking all the jobs.

Yet, for some reason we never see this argument in the New York Times, New York Review of Books, New Yorker, The Atlantic, the Washington Post or other leading media outlets.  (If I missed it, please send me the link.) This matters not only for policy reasons, but also for the shape that the resentment of the losers takes.

When the people who have been on the losing end of policy for four decades only hear that their plight was the unfortunate outcome of trends in technology and globalization, when in fact it was the result of policy deliberately designed by the winners, they are likely to be angry. The direction of their anger is often ugly and irrational, such as when they lash out at racial and ethnic minorities, or blindly follow a billionaire buffoon who has barely concealed contempt for ordinary workers.

I can’t promise that being truthful about the design of policy over the last four decades will redirect populist anger in a more productive direction, but it seems worth a try. In any case, news outlets that are ostensibly committed to the truth, should feel the need to tell it here.  

 

 

 

When most people are confused about an issue they try to get more information. Steven Rattner writes a New York Times column.

The gist of Rattner’s piece, as told in the title, “Biden Keeps Blaming the Supply Chain for Inflation. That’s Dishonest,” is that the Biden administration is lying when it says the jump in inflation is due to supply chain issues. Rattner tells us instead that the inflation is due to the large budget deficits that have created too much demand in the economy.

The biggest problem with Rattner’s story is that there has been a large jump in inflation rates in other wealthy countries as well, most of which did not have stimulus packages anywhere near the size of the recovery package pushed through by Biden. While the Biden package surely added to inflation in the U.S., the fact that other countries also saw a rise in inflation suggests that the main factor was reopening from pandemic shutdowns, not an overheated economy.

The dividend from the Biden package was that it quickly got the unemployment rate down to almost its pre-pandemic level . It also pushed GDP almost back to its trend path, a feat no other country has accomplished. Also, with GDP more or less on its trend growth path, it is hard to maintain that the economy is now suffering from excess demand, as opposed to an inability to meet current demand due to supply chain issues, as the Biden administration claims. 

When most people are confused about an issue they try to get more information. Steven Rattner writes a New York Times column.

The gist of Rattner’s piece, as told in the title, “Biden Keeps Blaming the Supply Chain for Inflation. That’s Dishonest,” is that the Biden administration is lying when it says the jump in inflation is due to supply chain issues. Rattner tells us instead that the inflation is due to the large budget deficits that have created too much demand in the economy.

The biggest problem with Rattner’s story is that there has been a large jump in inflation rates in other wealthy countries as well, most of which did not have stimulus packages anywhere near the size of the recovery package pushed through by Biden. While the Biden package surely added to inflation in the U.S., the fact that other countries also saw a rise in inflation suggests that the main factor was reopening from pandemic shutdowns, not an overheated economy.

The dividend from the Biden package was that it quickly got the unemployment rate down to almost its pre-pandemic level . It also pushed GDP almost back to its trend path, a feat no other country has accomplished. Also, with GDP more or less on its trend growth path, it is hard to maintain that the economy is now suffering from excess demand, as opposed to an inability to meet current demand due to supply chain issues, as the Biden administration claims. 

As I just noted, given the rise in pay for low wage workers over the last two years, as well as a variety of progressive government benefits, most people in the bottom fifth of the income distribution are almost certainly better off than they were before the pandemic. This doesn’t mean that plenty of families are not struggling, tens of millions are. But that was also true in 2019, before the pandemic hit.

If news outlets, like the Washington Post, are giving more coverage to struggling families today than they did before the pandemic, that is a result of their editorial policy, not a reflection of reality.

As I just noted, given the rise in pay for low wage workers over the last two years, as well as a variety of progressive government benefits, most people in the bottom fifth of the income distribution are almost certainly better off than they were before the pandemic. This doesn’t mean that plenty of families are not struggling, tens of millions are. But that was also true in 2019, before the pandemic hit.

If news outlets, like the Washington Post, are giving more coverage to struggling families today than they did before the pandemic, that is a result of their editorial policy, not a reflection of reality.

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