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The Republican thieves who stole health care

June 19, 2017 2 comments

from Dean Baker

In their desperation to provide $600 billion in tax cuts to their rich campaign contributors, the Republicans have decided to abandon all the standard rules by which Congress has governed itself. The actions might seem extraordinary, but we know how desperately the richest people in the country need tax cuts, so who can complain if the normal procedures are not being followed?

Unfortunately the debate over the “repeal and replacement” of Obamacare is being confused with a debate over health care. Paul Ryan, Mitch McConnell and the rest of the Republican caucuses in the House and Senate don’t give a damn about health care. This is about getting $600 billion in tax cuts for the people who pay for their campaigns and will offer them jobs as high paid lobbyists when they leave office. The fact that the tax cuts are associated with health care for tens of millions of people is just a coincidence.

If anyone thought the Republicans were interested in actually putting together a health care plan that was better than Obamacare, their actions show beyond any doubt this is not the case. After the Congressional Budget Office (CBO) projected that the first version of the American Health Care Act (AHCA) would increase the number of people without insurance by 24 million, the Republican leadership rushed a vote of the revised version before CBO had time to evaluate it.  Read more…

Going private: the Trump administration’s big infrastructure plan

June 13, 2017 8 comments

from Dean Baker

The Trump administration’s “infrastructure week” ended whatever hope any of us had that something positive could come out of this administration. It’s clear that his promise for rebuilding the country’s infrastructure is just another Trump scam.

During his campaign, Trump had made a point of complaining about the poor state of the country’s infrastructure. He had a point, as both the federal and state and local governments have cut back spending in recent years.

In the case of state and local governments, there was often little choice. Loss of tax revenue due to the recession and slow recovery, coupled with balanced budget requirements in state constitutions and city charters, meant that there was little money to spend.

In the case of the federal government, the deficit hawks insisted that we reduce the deficit, even though there is no evidence that high deficits are pushing up interest rates and/or leading to inflation. Interest rates continue to be extraordinarily low in both real and nominal terms. In fact, they were far lower in the late 1990s when the federal government was running budget surpluses.

Inflation continues to run below the Federal Reserve Board’s 2 percent target. In fact, the last few months it appears to be slowing slightly. Given this evidence, there seems little basis for the concern that budget deficits are too large.

Nonetheless, the domestic discretionary share of the budget, which includes everything from education to the Justice Department to infrastructure and public spending on medical, and other research, was cut back sharply by the deficit hawks.  Read more…

The evidence does not support Macron’s claim that deregulating labor market will boost economy

June 9, 2017 13 comments

from Dean Baker

In her Washington Post column, Catherine Rampell repeats some ill-founded conventional wisdom in telling readers that French president Emmanuel Macron’s plans to weaken labor unions and reduce restrictions on laying off workers are the path to revitalizing France’s economy. In fact, this claim is not supported by the evidence. There is little evidence that strong unions or labor market protections are associated with high unemployment.

The most obvious reason that France has had high unemployment is the turn to austerity in 2010 following the economic crisis. As a result of the cutbacks in government spending, there was no source of demand to replace the demand generated by asset bubbles prior to the crisis. For some reason, this fact is rarely mentioned in reporting on France’s economy.

It is also worth noting that France’s “stagnant labor market” has a much higher employment rate for prime age (ages 25 to 54) workers than the U.S. labor market (79.7 percent in France compared to 78.2 percent in the United States). This fact would seem to undermine the case that regulations are seriously hampering France’s labor market.

Trump voters need good economic policy, not empathy

June 6, 2017 34 comments

from Dean Baker

There has been a strange debate among many liberals and progressives since the election as to whether they should have empathy for the people who voted for Donald Trump. After all, Trump is a pretty reprehensible character who has pledged to do some pretty awful things in the White House. Is there a reason that people should have empathy for the voters who put him there?

Whatever answer you pick to that question, there is another set of questions that should be simpler for progressives to answer. What are the right economic policies to be pursuing for the working class? This is a question of designing policies that may help people who voted for Trump, but will also help tens of millions of people, largely people of color, who did not vote for Trump. Progressive economic policy has to place the interests of ordinary workers, and those unable to work, at the top of the agenda.

One item that should be laid out at the beginning of this discussion is that government policy, and specifically its trade policy, did in fact screw millions of workers and their families in the last decade. It is very fashionable to pretend the massive loss in manufacturing jobs was due to automation — the natural march of technology, not trade. That is a lie.   Read more…

Intellectual property is real money

June 1, 2017 1 comment

from Dean Baker

In the last four decades, US policymakers have taken major steps to strengthen and lengthen patents, copyrights, and other forms of intellectual property (IP). The normal duration of patents and copyrights have been extended, and patents have been expanded to cover life forms, software, and business methods. This strengthened IP regime has been supported by both political parties and has gone largely unquestioned in public debate.

That’s unfortunate, because there is an enormous amount of money at stake, and an enormous amount of money that is being redistributed from the bulk of the population to those in a position to benefit from owning intellectual property. While far from flashy, intellectual property rights have wide-ranging implications. They should be front and center on any progressive agenda.

The case of prescription drugs provides the best measure of the amount of money at stake. This year, the United States will spend more than $440 billion on drugs that would likely cost less than $80 billion without IP protections. This gap — more than $360 billion — is equal to almost 2 percent of GDP. It is almost a third of after-tax corporate profits.   Read more…

Baumol’s disease? George Will’s misdiagnosis of U.S. health care costs

May 23, 2017 7 comments

from Dean Baker

In his Washington Post column today George Will told readers that the problem of rising costs in the U.S. health care system is simply a case of Baumol’s disease. This refers to the problem identified by economist William Baumol (who recently died), that productivity in the service sector tends to rise less rapidly than productivity in the manufacturing sector. The implication is that if workers get paid the same in both sectors, then the cost of services will always rise relative to the cost of manufactured goods. Will tells us that this is the story of rapidly rising health care costs.

There are a couple of big problems with this story. First, it is not always the case that productivity in services rises less rapidly than productivity in manufacturing. ATMs have hugely increased the ability of banks to serve customers without tellers. Film developing became hugely more productive with digital cameras.

It is quite likely in the decades ahead that we will see innovations in technology that will lead to large increases in productivity in health care. For example, improvements in diagnostic technology will likely allow a skilled technician to diagnose illnesses with better accuracy than the best doctor. Similarly, robots will almost certainly be able to perform delicate surgeries with more precision than the best surgeon. In these and other areas of health care there is enormous potential for productivity gains, assuming that doctors and others who stand to lose don’t use their political power to block the technology.

This brings up the second point. While health care costs have risen everywhere, no other country pays anything close to what we do in the United States, even though they have comparable outcomes. The figure below shows per capita health care spending in the United States and five other wealthy countries since 1971. (The numbers shown are from the OECD and expressed in purchasing power parity. I converted them to 2016 dollars using the PCE deflator.)  Read more…

A tax on Wall Street trading is the best solution to income inequality

May 19, 2017 9 comments

from Dean Baker

In the years since the 2008 economic crisis, financial transactions taxes (FTTs) have gone from a fringe idea to a policy that is in mainstream policy debates. They are seen as a way to both raise large amounts of money and to slow the pace of churning in financial markets. For this reason, most progressive Democrats have come out in support, and even the Clinton campaign provided a hat-tip to some form of taxation on high frequency trading.

This is a welcome change from where things stood before the crisis, when the only people supporting FTTs were the far left of the party. As a long-time proponent of an FTT, I welcome this change, but even many of the proponents of FTTs don’t realize the full benefits of such a tax.

To get some bearing, it is first worth recognizing how much money is potentially at stake. The Joint Tax Committee projected that a modest tax of 0.03 percent on all trades of stocks, bonds, and derivative instruments, along the lines of a proposal by Representative Peter DeFazio, would raise more than $400 billion over the course of a decade. This is roughly equal to 0.2 percent of gross domestic product (GDP. This would be enough money to cover 60 percent of the cost of the food stamp program.There have been proposals for larger FTTs. The Tax Policy Center of the Urban Institute and the Brookings Institution analyzed an FTT with a varying rate structure on stocks, bonds, and derivative instruments. They calculated that the maximum revenue would be achieved with a rate on stocks of 0.34 percent, with lower tax rates on other financial instruments. This tax would raise more than  $800 billion, or 0.4 percent of GDP, over the course of a decade.   Read more…

Trump family and friends: in your pockets

May 16, 2017 6 comments

from Dean Baker

Donald Trump has openly said that he doesn’t care at all about the rules that prohibit the president and those around him from profiting from their government positions. In breaking with longstanding precedent, he is holding on to his business empire and having his children run it as he carries on with the business of being president.

With the government forced to pay the bills for the Secret Service to stay at his golf resorts and hotels, Trump obviously feels no compunction about gouging taxpayers to put more money in his pockets. But this open graft is almost certainly the least important way in which Donald Trump’s family and friends will profit at the expense of the rest of us.

We still don’t know most of the details of Trump’s tax plan, but the main parts of the plan we do know look like it was written to benefit him personally as much as possible. First, it gets rid of the Alternative Minimum Tax (AMT). This tax was put into law in 1986 to ensure that wealthy people, who can use deductions to drastically reduce their taxes, will still have to pay some amount of tax.

In his leaked 2005 tax return we know that Trump paid 25 percent AMT rather than the much lower rate that his aggressive use of tax loopholes would have allowed. It’s not a big surprise then, that Trump’s tax plan gets rid of the AMT.  Read more…

Where’s the productivity growth? The Bureau of Labor Statistics can’t find the robots!

May 15, 2017 3 comments

from Dean Baker

Manu prod

Source: Bureau of Labor Statistics.

We hear endless stories in the media about how the robots are taking all the jobs. There was a new rush of such stories after the release of a study by Daron Acemoglu and Pascual Restrepo, which found that robots were responsible for a substantial share of the job loss in manufacturing in the last decade. (For example, this Bloomberg piece by Mira Rojanasakul and Peter Coy.)

However, there remains a very basic problem in the robot story, it is not showing up in the productivity data. To step back a minute, robots are supposed to replace human labor. This means that for the same number of hours of human work, we should see much higher output of goods and services, since the robots are now adding to total output. This is what productivity growth means.

So if robots are having a large impact on jobs, then we should see productivity growth going through the roof. Instead, it is falling through the floor. It has averaged less than 1.0 percent annually in the last decade. This compares to an average growth rate of 3.0 percent in the decade from 1995 to 2005 and also in the long Golden Age from 1947 to 1973.

Strikingly, productivity growth has been especially bad in manufacturing, the place where we see the greatest use of robots. Here’s the picture since 1988, the period for which the Bureau of Labor Statistics (BLS) has a consistent series.
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Global warming must be addressed now

May 9, 2017 7 comments

from Dean Baker

There are two enormous myths about global warming. One is that dealing with it is optional. The other is that the measures needed to slow the process will devastate the economy. Neither is true.

On the first point, we are already seeing major changes in weather that are almost certainly related to global warming, both in the United States and around the world. In the United States, we are seeing rising water levels eroding beachfront property all along our coast lines.

We are also seeing extraordinary conditions like the multi-year drought that until recently had much of California rationing water.

In addition, we have seen extreme weather events like Superstorm Sandy, which destroyed hundreds of homes in New Jersey and New York and made many areas uninhabitable.

The story is much worse elsewhere in the world. The Sahara Desert is rapidly moving southward in Africa, depriving millions of people of the means to support themselves.

Hundreds of millions of people in low lying areas of Bangladesh and elsewhere in East Asia face far greater risk from storms and flooding due to rising oceans.  Global warming is a reality; we can’t solve the problem by looking away any more than we can deal with a weight problem by throwing out our scale and continuing to eat unhealthy foods.   Read more…

People in France and Germany work much less than in the U.S

May 3, 2017 5 comments

from Dean Baker

The NYT had an article reporting on how the Pew Research Center had discovered work done by the Economic Policy Institute for a quarter century (the middle class is hurting). At one point the piece compares the United States with France and Germany:

“The United States, including the middle class, has a higher median income than nearly all of Europe, even if the Continent is catching up. The median household income in the United States was $52,941 after taxes in 2010, compared with $41,047 in Germany and $41,076 in France.”

When making such comparisons it is important to note that people in Europe work many few hours than people in the United States. Five or six weeks a year of vacation are standard. In addition, these countries all mandate paid sick days and paid family leave.

According to the OECD, the length of the average work year in the United States in 2015 was 1790 hours. It was 1482 hours in France (17 percent fewer hours) and just 1371 hours (23 percent fewer hours) in Germany. While these comparisons are not perfect (there are measurement issues) it is clear that people in these countries and the rest of Europe are working considerably fewer hours than people in the United States in large part as a conscious choice. This should be noted in any effort to compare them.

Monopoly Power: Is it time to bring back anti-trust?

May 2, 2017 5 comments

from Dean Baker

There has been growing attention in recent years to the near monopolization of many sectors of the U.S. economy. For example, Google completely dominates the search engine market, while Facebook has an overwhelming presence in social media. Amazon controls close to 70 percent of book sales in the United States and an ever growing share of retail more generally. Microsoft remains by far the dominant force in computer operating system software.

Recent research has found an increasing concentration of corporate profits in recent decades in such large firms. In addition, the workers at these dominant firms tend to be paid much more than at their less successful competitors. For these reasons, increasing concentration could be one of the main factors behind the rise of income inequality.

While it is good to see many mainstream political figures raising concerns over excessive market power, there are a couple of important caveats that need to be included in this story. First, it is important to note that this is not a simple story of corporate profits rising at the expense of wages.

Corporate profits rose sharply following the collapse of employment in the Great Recession. Profits peaked as a share of corporate income at 26.8 percent in 2014. This was a full 5.0 percentage points above the peak in the nineties of 21.8 percent. However, most of the upward redistribution of income had occurred before 2005, when the profit share first began to rise notably. And the pre-recession increase is inflated by the profits booked on housing bubble related loans, which subsequently went bad.    Read more…

Trade denialism continues: Trade really did kill manufacturing jobs

March 29, 2017 21 comments

from Dean Baker

There have been a flood of opinion pieces and news stories in recent weeks wrongly telling people that it was not trade that led to the loss of manufacturing jobs in recent years, but rather automation. This means that all of those people who are worried about trade deficits costing jobs are simply being silly. The promulgators of the automation story want everyone to stop talking about trade and instead focus on education, technology or whatever other item they can throw out as a distraction.

This “automation rather than trade story” is the equivalent of global warming denialism for the well-educated. And its proponents deserve at least as much contempt as global warming deniers.

The basic story on automation, trade and jobs is fairly straightforward. “Automation” is also known as “productivity growth,” and it is not new. We have been seeing gains in productivity in manufacturing ever since we started manufacturing things.

Productivity gains mean that we can produce more output with the same amount of work. Before the trade deficit exploded in the last decade, increases in productivity were largely offset by increases in output, making it so the total jobs in manufacturing did not change much.

Imagine that productivity increased by 20 percent over the course of a decade, roughly its average rate of growth. If manufacturing output also increases by 20 percent, then we have the same number of jobs at the end of the decade as at the beginning. This is pretty much what happened before the trade deficit exploded.

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The Wrongest Profession

March 16, 2017 2 comments

from Dean Baker

Over the past two decades, the economics profession has compiled an impressive track record of getting almost all the big calls wrong. In the mid-1990s, all the great minds in the field agreed that the unemployment rate could not fall much below 6 percent without triggering spiraling inflation. It turns out that the unemployment rate could fall to 4 percent as a year-round average in 2000, with no visible uptick in the inflation rate. As the stock bubble that drove the late 1990s boom was already collapsing, leading lights in Washington were debating whether we risked paying off the national debt too quickly. The recession following the collapse of the stock bubble took care of this problem, as the gigantic projected surpluses quickly turned to deficits. The labor market pain from the collapse of this bubble was both unpredicted and largely overlooked, even in retrospect. While the recession officially ended in November 2001, we didn’t start creating jobs again until the fall of 2003. And we didn’t get back the jobs we lost in the downturn until January 2005. At the time, it was the longest period without net job creation since the Great Depression.

When the labor market did finally begin to recover, it was on the back of the housing bubble. Even though the evidence of a bubble in the housing sector was plainly visible, as were the junk loans that fueled it, folks like me who warned of an impending housing collapse were laughed at for not appreciating the wonders of modern finance. After the bubble burst and the financial crisis shook the banking system to its foundations, the great minds of the profession were near unanimous in predicting a robust recovery. Stimulus was at best an accelerant for the impatient, most mainstream economists agreed — not an essential ingredient of a lasting recovery.   Read more…

Tony Blair, who brought us the war in Iraq, lectures on the evils of populism

March 13, 2017 4 comments

from Dean Baker

Tony Blair, the former Prime Minister of the United Kingdom, who is best known for lying his country into participating in the Iraq War, lectured NYT readers on the evils of populism. Once again he gets many key points wrong.

He criticizes the left for abandoning centrist politicians:

“One element has aligned with the right in revolt against globalization, but with business taking the place of migrants as the chief evil. They agree with the right-wing populists about elites, though for the left the elites are the wealthy, while for the right they’re the liberals.”

Blair then tells us:   Read more…

The new trade agenda: deals that promote equality rather than inequality

March 8, 2017 6 comments

from Dean Baker

With the Trans-Pacific Partnership now definitely dead and Donald Trump pushing for a renegotiation of NAFTA, many progressives are looking for a fundamental re-examination of trade deals. As supporters of international cooperation rather than narrow nationalists, progressives have often felt uncomfortable opposing trade deals.

While there is no reason to be defensive about opposing trade deals that favored business interests at the expense of workers, consumers, and the environment in all the countries participating, it is worth asking how trade deals can be crafted to promote a progressive agenda. There really is no shortage of ideas in this area.

To start, from a U.S. perspective, the items opened up for trade has to be broadened. High-end professional services, such as physicians’ and dentists’ services should be front and center in any future trade deals. The U.S. has highly protectionist rules in this area. In the case of physicians, foreign doctors are prohibited from practicing in the United States unless they complete a U.S. residency program. Foreign dentists must graduate from a U.S. dental school, although in recent years graduates of Canadian schools have been allowed also.

As a result of this protectionism, doctors in the United States earn on average more than $250,000 a year, twice as much as their counterparts in other wealthy countries. The potential gain to the United States from standardizing licensing requirements in professional services is at least $100 billion a year and quite likely close to $200 billion (0.5-1.0 percent of GDP). The goal need not be that all countries have the same standard, but rather that licensing rules are transparent and based on legitimate public interest, not protecting the incomes of professionals.   Read more…

Bill Gates Is clueless on the economy

February 28, 2017 9 comments

from Dean Baker

Last week Bill Gates called for taxing robots. He argued that we should impose a tax on companies replacing workers with robots and that the money should be used to retrain the displaced workers. As much as I appreciate the world’s richest person proposing a measure that would redistribute money from people like him to the rest of us, this idea doesn’t make any sense.

Let’s skip over the fact of who would define what a robot is and how, and think about the logic of what Gates is proposing. In effect, Gates wants to put a tax on productivity growth. This is what robots are all about. They allow us to produce more goods and services with the same amount of human labor. Gates is worried that productivity growth is moving along too rapidly and that it will lead to large scale unemployment.

There are two problems with this story. First productivity growth has actually been very slow in recent years. The second problem is that if it were faster, there is no reason it should lead to mass unemployment. Rather, it should lead to rapid growth and increases in living standards.

Starting with the recent history, productivity growth has averaged less than 0.6 percent annually over the last six years. This compares to a rate of 3.0 percent from 1995 to 2005 and also in the quarter century from 1947 to 1973. Gates’ tax would slow productivity growth even further.   Read more…

The “Free Traders” do not believe in free trade: #46,765

February 25, 2017 4 comments

from Dean Baker

The concept of “free trade” has acquired near religious status among policy types. All serious people are supposed to swear their allegiance to it and deride anyone who questions its universal benefits.

Unfortunately, almost none of the people who pronounce themselves devotees of free trade actually do consistently advocate free trade policies. Rather they push selective protectionist policies, that have the effect of redistributing income to people like them, and call them “free trade.”

The NYT gave us yet one more example of a selective protectionist masquerading as a free trader in a column this morning by Jochen Bittner, a political editor for Die Zeit. Bittner contrasts the free trading open immigration types, who calls Lennonists (in the spirit of John Lennon’s song, Imagine) and the Bannonists who are nationalists followers of Steve Bannon or his foreign equivalents.

The problem with this easy division is that the “free traders” wholeheartedly support very costly protectionist measures in the form of ever stronger and longer patent and copyright protections. These protections redistribute several hundred billions dollars annually (at least 3 percent of GDP in the United States) from the bulk of the population to the small group of people who are in a position to benefit from these government granted monopolies.   Read more…

Bill Gates wants to undermine Donald Trump’s plans for growing the economy

February 21, 2017 15 comments

from Dean Baker

Yes, as Un-American as that may sound, Bill Gates is proposing a tax that would undermine Donald Trump’s efforts to speed the rate of economic growth. Gates wants to tax productivity growth (a.k.a. “automation) slowing down the rate at which the economy becomes more efficient.

This might seem a bizarre policy proposal at a time when productivity growth has been at record lows, averaging less than 1.0 percent annually for the last decade. This compares to rates of close to 3.0 percent annually from 1947 to 1973 and again from 1995 to 2005.

It is not clear if Gates has any understanding of economic data, but since the election of Donald Trump there has been a major effort to deny the fact that the trade deficit has been responsible for the loss of manufacturing jobs and to instead blame productivity growth. This is in spite of the fact that productivity growth has slowed sharply in recent years and that the plunge in manufacturing jobs followed closely on the explosion of the trade deficit, beginning in 1997.

Manufacturing Employment

manu empl
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The trouble with trade: people understand it

February 16, 2017 12 comments

from Dean Baker

Ever since Donald Trump was elected there has been a huge backlash among elite-types against those blaming trade for their problems. Major news outlets have been filled with misleading and dishonest stories claiming that the real cause of manufacturing job loss has been automation and that people are stupid to worry about trade.

In fact, people are exactly right to be concerned about the impact of our trade policies on their living standards. It is the fact that people are right that is worrying our elites. Trade is just one of the areas in which politicians of both parties have promoted policies to redistribute income upward. It just happens to be the area in which the impact is most recognizable and therefore people have mounted an effective resistance.

The story with trade is simple. When a manufacturing worker in the US is placed in direct competition with a worker in Mexico, China or some other developing country, who earns one-tenth of their pay, it puts downward pressure on their wages. Either their jobs go away or they are forced to take substantial pay cuts to keep their job.

This competition has cost a huge number of manufacturing jobs in this century. It has also put downward pressure directly on the wages of manufacturing workers and indirectly on the wages of less-educated workers more generally, as displaced manufacturing workers sought jobs in other sectors.

Elite media types have tried to deny these facts by claiming that the source of job loss is automation (i.e. productivity growth), not trade. This claim deserves to be met with the same sort of derision as the claims of climate change deniers.

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