Takeda, a Japanese drug company, agreed to pay $2.4 billion to settle suits claiming it concealed evidence that its diabetes drug, Actos, increased the risk of cancer. Concealing evidence of a drug's dangers is a predictable result of government-granted patent monopolies. Since patent monopolies allow drug companies to sell their products at prices that are often several thousand percent above the free market price, they provide drug companies an enormous incentive to mislead the public about the safety and effectiveness of their drugs. The damage caused as a result of these misrepresentations is likely comparable to the amount of research financed through patent monopolies.


Typos corrected, thanks to Robert Salzberg.

Yes folks, hold on to your hats, Thomas Friedman supports the Trans-Pacific Partnership (TPP). Friedman fans will recall his famous comment:

"I was speaking out in Minnesota — my hometown, in fact — and a guy stood up in the audience, said, 'Mr. Friedman, is there any free trade agreement you’d oppose?' I said, 'No, absolutely not.' I said, 'You know what, sir? I wrote a column supporting the CAFTA, the Caribbean Free Trade initiative. I didn’t even know what was in it. I just knew two words: free trade.'"

Actually, Friedman does provide useful insight into the issue when he cites President Obama referring to the TPP as a "effort to expand trade on our terms." The key question is who is "our." In these remarks President Obama made a point of mentioning the effort to increase the prices U.S. drug companies get for their drugs. That's great news for people who own lots of stock in Merck or Pfizer, but not good news for anyone else. In addition to paying more for drugs, workers in the United States are likely to see their exports crowded out by higher royalty payments to Merck and Pfizer. This form of protectionism is likely to be a drag on growth and jobs.

In addition, the Obama administration decided not to include rules on currency values. This could have helped to address the problem of an over-valued dollar. This is the main cause of the U.S. trade deficit which remains an enormous drag on growth and obstacle to full employment. If the "our" referred to workers in the United States, currency rules likely would have been at the top of the list of items to be included.

And the investor-state dispute settlement tribunals, which will allow corporations to sue governments in the U.S. and elsewhere, is also a big triumph for corporate interests. These extra-judicial tribunals could penalize any level of government for consumer, safety, labor, or environmental regulations that are deemed harmful to foreign investors.

So Friedman may be right about "our terms," but his "our" is likely not the "our" that includes most people in this country or the world.

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  • Guest - Clark

    I don’t really prefer to trade on this since I prefer to do Forex trading, it’s a really great business and that really makes my life easy. I am really happy to always be aware of these type of news as it have effect on the whole market while been trading with OctaFX broker at the moment, I find eve...
  • Guest - John Wright

    This is a reposting/cleanup of a comment I made to the incorrect post. It is probably time to re-post the link to "Thomas Freetrademan" from December 19, 2001 https://prospect.org/article/datsun-and-shoe-tree Note, this is credited to Nicholas Confessore of the NYTimes, so employees of the Times...
  • Guest - John Wright

    I meant to post a comment to the Tom Friedman commentary but it showed up in the previous "Trans-Pacific Partnership is Secret, not "Secret" " column.
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That is an important correction to the David Ignatius' Washington Post column touting the Trans-Pacific Partnership (TPP) as a way to revive Japan's economy. Unlike President Bush, who published a draft text of the Free Trade of the Americas Agreement before requesting fast-track authority, President Obama has chosen to keep the draft text of the TPP secret. This is not an allegation of TPP critics, it is a fact in the world.

Another point worth mentioning in this context is that when President Obama argued that he was pushing the TPP to help U.S. drug companies, he was effectively saying that he was hurting U.S. workers. There are two reasons this is likely to be the case. Several provisions of the deal will likely raise drug prices in the United States, for example by extending the period of data exclusivity for biosimiliar drugs (12 years in the leaked draft chapter, versus 7 years now). A decision by a future Congress to have Medicare negotiate drug prices may also be a violation of rules that effectively limit countries' ability to put in place new price controls.

The other issue is that the more money that foreigners pay Pfizer, Merck and other U.S. drug companies for their patents, the less money they will have to buy airplanes and other items produced in the United States. Unless a worker in the United States owns stock in a drug company, they would be better of if foreigners paid less for drugs rather than more. (The drug companies do employ workers, but the marginal increase in employment from higher company profits is likely to be very small.)

In terms of the effort to revive Japan's economy, it is worth noting that OECD reports that Japan's employment to population ratio among people between the ages of 16-64 has risen by 3.1 percentage points since 2012. The ratio in the United States has only increased by 1.4 percentage points over the same period.

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  • Guest - John Wright

    It is probably time to re-post the link to "Thomas Freetrademan" from December 19, 2001 https://prospect.org/article/datsun-and-shoe-tree Note, this is credited to Nicholas Confessore of the NyTimes, so employees of the Times do make light of TF. And TF makes the usual genuflection before the Alt...
  • Guest - Bertie

    Here's what they're doing about "transparency" in Europe. http://www.euractiv.com/sections/trade-society/us-open-ttip-reading-rooms-across-eu-314175 The US government will open “reading rooms” in its embassies across the European Union, so that national politicians can read secret documents relate...
  • The TPP is SO GOOD for us, Our President can't let us know what's in it. We'd be too happy! / sarcasm ~
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That is the only possible conclusion that an informed reader can reach. After all, we all know that Representative Ryan is a huge champion of fiscal responsibility, balanced budgets, and sound money. We also remember how he denounced Ben Bernanke and the Fed for their policy of quantitative easing. He issued strong warnings about the debasement of the currency and hyperinflation.

There is no way that this celebrated fiscal hawk and sound money proponent could praise a country for running large deficits and printing money like there is no tomorrow. But there it is on the Washington Post's oped page, someone claiming to be Paul Ryan is praising Japan for having a large stimulus and the fact that they "cranked up the printing presses" in reference to the policy of quantitative easing by Japan's central bank.

For those keeping score, Japan's ratio of net debt to GDP is more than 50 percent higher than in the United States. The ratio of gross debt to GDP is more than twice as high. The I.M.F. projects that Japan's deficit for 2015 will be 6.2 percent of GDP, which would be more than $1.1 trillion in the United States.

To say this applause for Japan's economic policy is inconsistent with Ryan's past pronouncements on economic policy would be the understatement of the century. If we had a serious press corps in the United States, reporters would be pressing Ryan over this colossal flip flop. Of course Ryan wrote this column in the hope of advancing the Trans-Pacific Partnership, and we know that the media have a policy that inanities in the advancement of trade pacts are not subject to scrutiny.

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  • Guest - quantity63

    Once again, the radical liberal press (whatever the hell that means) is persecuting a good, honest, godly feller who is just trying to making a living by using his position as "representative of the people" to advance the interests of the oligarchy.
  • Guest - djb

    abe is great!!!, he is a real leader!! he is a once in a generation leader who can prove his worth by passing tpp "But the structural reform Abe promised has been slow to arrive. And no surprise, the lack of reform has meant a lack of results. Over the past six years, the United States has learned ...
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The economist Barbara Bergmann died last week. There is a memorial service on Tuesday which I will not be able to attend because of another commitment, but I did want to say a few words.

Barbara was an extraordinary person. She got her PhD in economics in the early 1960s; a time when virtually no women entered the profession. She made extensive contributions to the field, most of them in the area of gender economics.

I first encountered Barbara back in the 1980s when I was a grad student at the University of Michigan. She gave a talk in which she explained testimony she had given in a case on gender discrimination in annuities. Prior to this case, insurance companies usually made lower annual payouts to women than men, based on the fact that women had longer life expectancies. The case in which Barbara gave her testimony overturned this practice after the Supreme Court ruled it was illegal discrimination.

Barbara explained the nature of her argument by pointing out that there was huge overlap in the distribution of longevity between men and women. Women had longer life-spans on average mostly because a relatively small number of women lived very long lives. She argued that it didn't make sense to give lower annuities to all women because of these long-lived women.

During the question period, many of the faculty were upset by the nature of this argument. After all, women did on average live longer than men, why shouldn't insurers adjust for this fact in their annual payouts?

Barbara responded by making the case more extreme. She suggested a scenario in which the distribution of lifespans was identical for men and women, except for one person (I believe Barbara referred to her as a "pest") who refused to die. We then check the DNA of this person and it turns out that she is a women. Would it then make sense to reduce the annuities for all women based on this fact?

After the lecture, a number of the grad students were arguing over this issue. Most seemed to share the view of our faculty, that the differences in annuities was justified by women's longer life expectancies. Then someone suggested that African Americans should get larger annuities than whites, since they have shorter life expectancies. Several of the advocates of lower payments for women immediately jumped on this as race discrimination. (Yes, everyone was white.)

This episode taught me a lot about economists, if not economics. Barbara will be missed.

Recent comments

  • Guest - jroll

    it would be nice if pay and wealth gap theorists understood this logic. even people who should know better like Betsy Stevenson ("I don’t think there’s a better figure") (http://www.washingtonpost.com/blogs/fact-checker/wp/2014/04/09/president-obamas-persistent-77-cent-claim-on-the-wage-gap-gets-a-n...
  • Guest - Dean Baker

    I'm sure self-selection is a big part of the story, but economics does tend to cultivate these attitudes.
  • Guest - JSeydl

    do you think the arrogance of economists is because of self selection? Or do you buy the Robert Frank research showing people become arrogant after studying economics?
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Yeah, that was a joke. However that would be the case if the paper was consistent. Its lead editorial today complained about the people arguing that currency rules should be included in a trade deal. It told readers:

"And, yes, the International Monetary Fund has developed criteria for currency ma­nipu­la­tion — including prolonged current account surpluses and excessive foreign exchange reserve accumulation — that could, in theory, be incorporated into the agreement.

"The problem is that the definitions of these terms are subject to endless lawyerly disputation, and they could well be interpreted to rule out legitimate economic measures, including some — such as the Federal Reserve’s recent quantitative easing — that the United States itself might pursue. As Kemal Dervis of the Brookings Institution has argued, pretty much any aspect of macroeconomic policy could be construed to affect a country’s trade balance and, by extension, its exchange rate. It is therefore far better to keep such sensitive matters out of trade deals and leave them to existing, separate, diplomatic processes."

Guess what? Almost any policy that we might put forward to improve the economy to help the economy can be seen as an unfair export subsidy. This list would include items such as vocational training to give workers more skills, improved infrastructure to facilitate the transportation of goods to ports, low interest loans (i.e. the export-import bank), implicit government backing for too big to fail banks (i.e. TARP), and publicly funded research like the $30 billion a year that finances the National Institutes of Health and provides many of the breakthroughs eventually harnessed by our drug companies. 

Similarly, a wide range of consumer and environmental policies can be seen as restrictions on imports. And labor policies that applied to foreign investors can be seen as unfair takings under the TPP or TTIP. As the Post editorial says, "the definitions of these terms are subject to endless lawyerly disputation."

If the Post's editorial board were being consistent it would reject trade pacts in general as too complicated. But as we know, when it comes to trade policy, the Post cares little for consistency -- or the facts.

Remember, this is the paper that claimed Mexico's GDP had quadrupled between 1987 and 2007 in a lead editorial condemning the Democratic presidential candidates for pledging to renegotiate NAFTA. According to our good friends at the I.M.F, the actual increase was just over 83 percent.   

One more point, the Post was upset at the fast-track critics for complaining about the trade deal's secrecy. There is a very simple point here. President Obama could release a draft text of the deal indicating where issues are still being negotiated. The Post's editors are probably too young to remember, but President George W. Bush did this back in 2003 before asking Congress to vote for fast-track authority on the Free Trade of the Americas Agreement.

Recent comments

  • Guest - sd

    The new website is not at all readable on an iPad.
  • Guest - Procopius

    Obviously, President Obama thinks he has already published a draft copy of the treaty. From a story at MSNBC by Alex Seitz-Wald:And on Friday, Obama made a surprise appearance on a conference call with reporters and Labor Secretary Tom Perez. Obama took what seemed to be a shot at liberal lawmakers ...
  • Guest - Last Mover

    Your text to link See this for best takedown yet of TPP by Ralph Nader, "Obama, Corporate 'Free Traitors' and You!
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Lydia DePillis had a short piece in the Post on the workers who currently make the federal minimum wage. This is interesting, but it should not be confused with an analysis of who would be affected by an increase in the minimum wage. Because the minimum wage has fallen so far behind inflation in the last four decades, there are relatively few workers who earn exactly the federal minimum wage.

John Schmitt and Janelle Jones did an analysis a few years ago of the workers who earned less than what the minimum wage would have been if it had kept pace with inflation since its peak in 1968. This much larger group workers is far more educated, older, and more likely to be supporting children than the group who earn exactly the minimum wage. Of this larger group, 33.3 percent have at least some college, and an additional 9.9 percent are college grads. If the federal minimum wage were raised back enough so that it had the same purchasing power as it did in 1968, all of these workers would see pay increases, as would many others who currently earn just above the new minimum.

Recent comments

  • Guest - skeptonomist

    Yes, the minimum wage has fallen behind inflation, but so have all wages. This plot shows yearly real wages for production workers from Table B-8 of the BLS. The minimum wage (for a 40-hour week) at the bottom has actually followed a trajectory which is very similar to the average for all wage-earn...
  • I wonder if Dean thinks that minimum wage laws are good way to raise low income workers' standard of living. Also I know of a lot of people who have worked for much less that minimum wage (like selling Cutco knives, Amway, AL Williams, selling pot, picking up cans etc.) Does Dean think that people ...
  • Guest - Faithful Reader

    With the new Web design, please change the text color to something darker. Gray text on a light background is really hard to read.
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The Washington Post had a front page story in the Sunday business section headlined, "The Great Unraveling of Globalization," which told readers that the overseas profits of U.S. corporations are not growing in line with their expectations from two decades ago. Among the main complaints is that consumer markets have not developed as expected.

"Those vast new consumer markets in globalized nations have not emerged either. For example, Chinese household consumption accounts for about 34 percent of GDP — down four points in the past decade — compared to a healthier 70 percent in the United States. And Chinese consumer diffidence is not an outlier."

Okay, we will need Mr. Arithmetic to help with this one. Mr. Arithmetic points out that a relatively small share of the pie in China goes to consumption, but because of its rapid growth, this is now a very large pie. Since 1994 China's economy has grown by more than 520 percent. By comparison Mexico's economy, which was the beneficiary of NAFTA and the basis for many Post articles on a rising middle class, has grown by just 66 percent over this same period. Mr. Arithmetic tells us that if China's economy had grown at the same rate as Mexico's, but its consumers spent 70 percent of GDP instead of the current 34 percent cited in the article, its consumer market would be just over half the current size.

This means that even if consumption is a relatively small share of GDP in China, because of the economy's extraordinary growth, the consumer market has probably increased by at least as much as anyone could have reasonably expected. It is also worth noting that the small share of consumption in GDP is directly related to growth. In general, countries that invest more grow more rapidly. (In addition, some of the companies discussed in this piece, like Caterpillar and IBM, largely sell investment goods. They would be helped by the large share of investment in China's GDP.

If U.S. companies are not faring well in international markets it likely means that they are losing ground to foreign competitors. This could reflect the quality of the highly paid CEOs at U.S. companies. Perhaps some of the much lower paid CEOs at companies in Europe and Asia are better at their jobs.

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  • Guest - djb

    How much of their gdp is exports minus imports.... meaning consumption by other countries
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The Washington Post has long been known for its willingness to ignore the distinction between news and editorial pages in pushing the case for deficit reduction in the United States. Today it took its drive for austerity overseas. In an article on public attitudes on the eve of national elections in the United Kingdom it discussed the likelihood that military spending would be cut to "pay down a still-burdensome deficit."

The Post doesn't explain how it has determined that the deficit [it may mean "debt," since countries can't really pay down an annual deficit] is burdensome. The usual signs of a debt being burdensome are not present. The interest rate on 10-year government bonds is just 1.65 percent, much lower than at any point in the four decades before the collapse of the U.K.'s prior housing bubble in 2007. Its overall inflation rate over the last year has been virtually zero.

Given that it has extremely low interest rates and zero inflation, it would seem that neither the deficit or debt in the U.K. is now burdensome. A real newspaper would have referred to a deficit that "politicians claim is burdensome."

That's what millions are asking after reading the front page piece in the NYT on the state of the National Health Service in the United Kingdom in the context of upcoming elections there. The piece discusses the widespread public support for the system, but notes some of the issues that have been raised concerning the quality of care in recent years.

It would have been useful to tell readers that the U.K. spends 9.1 percent of its GDP on health care. By comparison, the United States spends 17.1 percent of its GDP on health care. The difference in costs between the U.S. and U.K. comes to $5,900 per person per year, or $23,600 for a family of four. This information should have been included in the piece to give readers a better understanding of the relative efficiency of the two systems.

Recent comments

  • And 1. The USA is richer so we spend much more than on dollars that they do in the UK. 2. Most other things are cheaper in the USA that in the UK so it is even worse than that. The USA Government should easily be able to cover all USA citizens for what it spends now. My preferred system and why....
  • Guest - Shawn Wilkinson

    I think the health expenditure, public spending is an interesting metric for comparison as well (same as your source). As a percent of GDP, both countries give roughly equal percent (and interestingly, our GDP per capita is ~equal if my napkin math is right). So basically the UK government spends ab...
  • Guest - B

    It's also worth pointing out on the Commonwealth Fund's international comparison of 11 nations' healthcare systems, the UK ranked #1 on every metric of quality of care. The US ranked 5th. http://www.commonwealthfund.org/publications/fund-reports/2014/jun/mirror-mirror...
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I apologize to those disgruntled over Beat the Press's new format. I adhere strongly to the view that website makeovers are everywhere and always for the worse. But CEPR had to change its website because the old one was becoming increasingly dysfunctional at the back end. One of the great things about software innovation is that it forces people to upgrade their software simply to preserve compatibility. That was the main motivation for the change.

Being forced to get a new website, we did try to make it as user friendly as possible. There are many kinks that our crew here is still working on and hopefully will get resolved soon. And then those reporters will really have to worry about a beating.

Recent comments

  • Guest - leofromChicago

    What also might help for viewing on PC monitors is a "max-width: 800px;" for the "container" div.
  • Guest - Bart

    I like the photo at the new top, but the rest is New Cokeish.
  • Guest - Leo from Chicago

    Note, text doesn't enlarge through a 'pinch' on my android phone. This may -- may! -- be due to the fact that the css for paragraphs (known to cognoscenti as 'p') is "font-size: 12px;" -- or in other words, fixed as opposed to something like "font-size: 1em;". Not sure but worth a check.
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Greg Mankiw joined the parade of prominent people saying silly things to help push fast-track trade authority through Congress. He headlined a column:

"Economists actually agree on this point: The Wisdom of Free Trade." 

The piece then goes on to argue for fast-track trade authority to allow for the passage of the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Pact (TTIP).

It's nice that Mankiw has apparently gotten out his bag of economist's holy water and blessed them both as free trade agreements, but that doesn't make it true. (Hey, I want to have the Congress Gives $1 Trillion to Dean Baker Free Trade Act. As an economist in good standing, Mankiw will have to support this free trade measure.)

The basic story here is a very simple one. There are merits to reducing trade barriers, but traditional trade deals will have winners and losers. If this is hard to understand, imagine that we had a free trade deal in physicians' services so that a flood of foreign doctors cut the pay of doctors by 50 percent (@$125,000 a year on average). This would make most of us winners, since we will pay less for health care, but doctors would be big losers. Most traditional trade deals have this character. So people, including economist people, may reasonably oppose them if they think the losers will be hurt so much that it offsets the gains from the deal. (Yes, we can do redistribution, but that is a children's story. We don't.)

But the key point here is that neither the TPP or TTIP is a traditional trade deal. The formal trade barriers between the parties to these deals are already low, which means there is not much room to lower them further. These deals are mostly about putting in place a business friendly structure of regulation. Some of this business friendly regulation involves increasing barriers in the form of stronger and longer patent and copyright protection. (Yes, that is "protection," as in protectionism.)

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  • Guest - Carlito

    Freedom is absolutely necessary in order to succeed, if we don’t have freedom to trade than we will struggle. I am extremely fortunate that as a Forex trader, I have complete freedom with OctaFX broker, it’s an epic company with having low spread of 0.2 pips, high leverage up to 1.500 and also rebat...
  • Guest - George Balella

    You should address these guys claims; http://econlog.econlib.org/archives/2015/04/dean_baker_on_s.html
  • Guest - martman1

    Would a cheaper dollar versus the Yuan (ending of currency manipulation) make the purchase by Americans of Chinese produced products of U.S. chartered multinationals more expensive?..i.e would they be more likely to produce here what they sell here if the currency exchange rate changed enough? I do...
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Glenn Kessler, the Washington Post fact checker, gave four Pinocchios this morning to Ohio Senator Sherrod Brown for for mis-attributing a claim on lost jobs from the trade deficit to George W. Bush. Since I may have played a role in the Pinocchio warranting comments, let me try to clear up some possible confusion on the issue.

At the most basic level there are two different ways to view trade based on two different views of the overall economy. The conventional view is that trade affects the allocation of output (i.e. we produce more of some goods and services and less of others) but has little impact on the overall level of output. This is because the economy is assumed to be at or near full employment. The other view is that trade can have a large impact on employment and output because the economy is often not near full employment. In this case, the size of the trade deficit can make a big difference.

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  • Only few person got amazon gift card codes when they search on internet. And some person buy amazon gift codes because they didn't reach right place to get. This is the place for free amazon gift card codes.
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That's not exactly what Samuelson said, after all a 12 percentage point increase in the income tax would take a lot of money from rich people. Samuelson told readers that increasing the normal retirement age for Social Security by an additional two years between now and 2027 (it is already scheduled to rise to 67) "wouldn’t impose major hardship." Raising the normal retirement age by two years is effectively a 12 percent cut in benefits. (For orientation, the average Social Security benefit is less than $1,300 a month.)

Since Social Security is more than 90 percent of the income for one third of retirees this would be equivalent to almost a 12 percentage increase in the income tax for this group. It's more than half of the income for two-thirds of retirees, which means that Samuelson's proposal would be equivalent to a tax increase more than 6 percentage points for this larger group of seniors. By comparison, the Republicans claimed that President Obama's proposal to raise the marginal tax rate by 4.6 percentage points on the rich would be devastating.

The context is Samuelson's praise for New Jersey Governor Chris Christie's proposal to phase in an increase in the normal retirement age for Social Security to 69, which he proposes to phase in by 2034. Samuelson wants it done immediately. Samuelson also applauds Chrstie's proposal to phase out benefits for seniors with incomes between $80,000 and $200,000. This would have the same incentive effect on these seniors as an increase in the income tax rate of 25 percentage points.

Since it affects relatively few people, and would provide a substantial incentive for evasion and avoidance, this proposal would have little impact on the finances of the program, although it would likely help to undermine political support since it would no longer be a universal program. The cutoff for benefit cuts could also be gradually lowered as the promised savings are not realized. It is also worth noting that the $80,000 cutoff for being wealthy in the context of Social Security cuts, and also Christie's proposal to cut Medicare, is one-fifth of the $400,000 cutoff set for the higher income tax rates put in place in 2013.

But the most striking part of Samuelson's piece is that these cuts to Social Security are supposed to be part of a drive for "generational justice." Samuelson complains that:

"Boomers’ children and grandchildren would pay for these more generous benefits [Social Security and Medicare] while their own future benefits would drop."

Recent comments

  • The current payroll tax is almost 13%. We could scrap the cap and get more revenue in that way, but at some point in the future there are just not going to be enough workers to keep seniors in clover for retirements lasting 30-40 years. So we need to tax more than payrolls. We need to tax capital, s...
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Those of us who work for progressive think tanks are always happy when one of the better funded centrist outfits replicates our work, since the findings are then more likely to get attention in major news outlets. For this reason, it was great to see that the Robert Rubin funded Hamilton Project had done a short paper analyzing trends in earnings by education level over the last two decades. This piece got written up in the NYT's Upshot section by Neil Irwin.

While the Hamilton Project folks got some things right -- workers without college degrees have been big losers over the last two decades -- they also missed much of the story. Since they only looked at endpoints, they failed to recognize that even workers with college degrees have seen their wages stagnate since the turn of the century.

This makes the technology driving down wages story harder to sell. That story is supposed to mean that there is a shift in demand from less-educated workers to more educated workers. But if even the wages of college grads are falling or stagnant, then it is hard to make a case that there has been a shift in demand towards more educated workers.

They also are somewhat sloppy in discussing globalization as though it is an event that occurred as opposed to a policy of the U.S. government. We have designed our trade agreements to put U.S. manufacturing workers in direct competition with low paid workers in the developing world. The predicted and actual effect of this competition is to drive down the wages of U.S. manufacturing workers and less--educated workers more generally.

However, we have largely left in place the barriers that protect doctors, lawyers, dentists and other highly paid professionals from competition with their lower paid counterparts in the developing world. This was a policy choice, not an inevitable process of globalization.

The focus on endpoints also caused the Hamilton Project folks to miss the sharp upturn in wages for less-educated workers during the low unemployment years of the late 1990s. Our research has found that low rates of unemployment disproportionately benefit those at the bottom end of the wage distribution. We have not returned to the low unemployment of the the late 1990s because of a decision not to have a larger stimulus or to address the problem of an over-valued dollar that is giving us large trade deficits. (Yes, this is directly relevant to the lack of currency rules in the Trans-Pacific Partnership.) As a result, the economy does not have the demand needed to get back to full employment. (If the Federal Reserve Board raises interest rates to slow growth, it also will not help in the effort to get back to full employment.)

In any case, the decision to not have a full employment economy is also a policy choice. In short, it's touching to read the Hamilton Project people's plea that we should see inequality as both an issue of policy and technology, but if they had done more careful research, they would realize they don't have much evidence for the technology portion of their argument.

Did someone in Japan call the Washington Post's news reporting "crappy?" Usually newspapers refrain from name-calling, especially in the news section, but this is the Washington Post, there we find the paper telling us:

"With a rapidly aging society and miserable birth rate, Japan hasn’t been able to replace the people leaving outlying towns and cities as quickly as they’ve departed."

"Miserable" in this context means "low." Given that Japan is a densely populated country, it is not clear why anyone should see it as a bad thing that the country may be less densely populated in the future and contribute less to global warming, but obviously this prospect has the Post upset.

This story, about a school that has lost most of its pupils, could be written about thousands of towns across the United States over the last five decades and certainly many more in the decades ahead. These can be sad stories, but hardly amount to a national crisis. More generally, the demographic horror story that the Post and others like to tell about Japan cannot stand up to simple arithmetic. Even very modest rates of productivity growth will raise living standards by far more than demographic changes could possibly lower them. 

The Washington Post has established itself over many decades as a major mouthpiece of elite opinion. Its editorial pages argue strongly for the interests of the wealthy, with scarcely concealed contempt for people who have to work for a living. (They do support alms for the poor, hence they are okay with programs like food stamps and TANF.) 

This attitude has been shown many times over the years, but perhaps never more clearly than in its editorial on the bailout of General Motors and Chrysler, where it fumed about auto workers who earned $56,650 a year. By contrast, it was an ardent supporter of the Wall Street bailout, which was largely about helping people who make this much money in a day.

In fact, the Post helped to conceal one of the major scams that was used to pass the bailout, the claim that the commercial paper market was shutting down. When people were saying that the economy was at the edge of collapse following the Lehman bankruptcy, the commercial paper market was the most immediate issue.

Many large profitable companies (e.g. Verizon or Boeing) were dependent on issuing commercial paper to meet their monthly bills such as payroll, utility bills, and payments to suppliers. If these companies could not get the credit needed to make these payments, the economy really would collapse. What most of the country, and almost certainly most members of Congress, did not know at the time the bailout was approved was that Ben Bernanke and the Fed single-handedly had the ability to support the commercial paper market. The weekend after Congress approved the TARP, Ben Bernanke announced the creation of the Commercial Paper Funding Facility. Congress would have had a much more informed debate about whether it wanted to save Wall Street if it knew the Fed had this power before it voted, but folks like the Washington Post editorial board didn't want any delays before the Wall Street folks got the money.

The paper must have assumed everyone knew the answer to this question since it didn't bother to put these budget numbers in any context, like expressing them as a share of the total budget. These numbers appeared in an article on the fiscal situations of states this year.

Incredibly, the article threw out numbers for budget shortfalls and gave readers no context whatsoever. While the Post undoubtedly has a well-educated readership, it is not likely that many are familiar with the relative sizes of different state budgets.

The Post's reporter could have taken five minutes to look up these numbers. This would have made it possible to tell readers that Kansas' $1 billion shortfall is a bit more than 4 percent of its $24 billion budget, while Pennsylvania's $1.8 billion gap is a bit more than 1.3 percent of its $130 billion budget.

Is there some reason that a reporter can't spare the few minutes necessary to write these numbers in a way that would make them meaningful to most of the people who read them? Is there some reason that the Post's editors don't demand they put numbers in context rather than writing numbers that are meaningless to almost everyone who reads them?

According to inside reports, the main reason the Washington Post opposes nuclear war is because of its impact on the budget deficit. The paper's never ending obsession with the budget deficit, even as it is clear that we have been suffering from a deficit that is too small, is a testament to the ability of people to ignore reality. 

Ruth Marcus treated us to another example of this obsession when she warned of a restructuring of Medicare payments that comes at the cost of:

"a whopping half-a-trillion dollars over the next 20 years... ."

A bit of context might be helpful here. While none of us will see a half trillion dollars in our lifetime, the federal government will see considerably more than this over the next twenty years.

The Congressional Budget Office projects GDP will be more than $550 trillion over the next two decades, making this whopping sum less than 0.1 percent of GDP over this period. Federal revenue will be roughly $100 trillion so this comes to around half of one percent of projected revenue. That's hardly trivial, but if it's "whopping," then whopping ain't what it used to be.

It is also worth noting that if Ruth Marcus and the Washington Post are really concerned about budget deficits, they could support more expansionary policy from the Fed. In addition to giving millions of workers jobs and tens of millions the bargaining power they need to get pay increases, lower unemployment due to expansionary Fed policy can easily knock $2 trillion off the size of the deficit over the next decade. That's four times "whopping." (It could also support trade policy that reduces health care costs by exposing doctors to international competition and weakens patent protection for drugs.)

Neil Irwin had an interesting Upshot piece that noted polling data showing people do not favor much higher taxes on the rich. It questioned why it was that people were opposed to redistribution even though inequality has become a major national concern.

A major problem with this sort of analysis is that it treats distribution as though it is only a function of tax policy. This is clearly secondary. The upward redistribution of the last 35 years was overwhelmingly the result of government policies that structured the market to favor the wealthy.

For example, trade policy has been quite explicitly designed to put manufacturing workers in direct competition with low-paid workers in the developing world. The predicted and actual effect of this policy is to reduce their wages and also the wages of non-college educated workers more generally. By contrast, doctors and other highly-paid professionals (who comprise much of the one percent) have been largely protected from international competition. The argument for exposing these professionals to competition is the same as the argument for trade more generally: it will lead to lower prices and more economic growth. But because of the political power of these groups, free trade in the services of doctors and other professionals is not even discussed in polite circles.

The Federal Reserve Board has also quite explicitly adopted policies that keep unemployment higher than in the years prior to 1980. Higher rates of unemployment not only deny workers jobs, but they also reduce their bargaining power, thereby preventing them from getting wage increases. The government's labor policies have also been much more hostile to workers over the last three decades, making it far more difficult to form unions. And, the government handed out trillions of dollars in below-market interest rate loans to rescue Wall Street banks and prevent the market from working its magic.

Given a whole set of policies that have redistributed a massive amount of income upward, it is understandable that many people would not trust the government to be taxing the rich to help the poor and middle class. 


Apparently the NYT feels it has to protect Chris Christie from his unpopular proposals. In an article on the Republican presidential candidates, it told readers:

"He [Christie] has not spent as much time in New Hampshire as some other candidates, and he chose to focus on introducing his own policy ideas, like major changes to Social Security, Medicare and Medicaid."

Christie has proposed raising the normal retirement age to 69, which is equivalent to a 12 percent cut in benefits. He would also raise the early retirement age, when people are first eligible for benefits, from 62 to 64. In addition, he would cut benefits for people with income over $80,000 a year and eliminate them altogether for people with incomes over $200,000.

These are very serious cuts to Social Security. The NYT should be reporting what Governor Christie is proposing for Social Security, not using euphemisms to hide the substance of the plan he has put forward.


Note: Numbers corrected, thanks John.

Recent comments

  • All supplemental medicare insurance plans differ from each and every provider though I heard? Prices are supposed to be standardized.
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