Saturday , October 31 2020
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Dean Baker

Dean Baker

I am a senior economist at the Center for Economic and Policy Research (@ceprdc). I also run the blog Beat the Press (@beat_the_press)

Articles by Dean Baker

Washington Post Reports on How Top Execs at Bankrupt Companies Get Large Bonuses

4 days ago

The Post had a nice piece reported on how the top executives of major companies that went into bankruptcy were able to get large bonuses. As the piece points out, the bonuses are not tied to performance outcomes, like getting the companies out of bankruptcy in a specific time frame. Of course, ordinary workers at these companies are not so lucky, with many being laid off with little or nothing by way of severance pay.
While the piece does not make this point explicitly, these sorts of payouts to CEOs and top executives are hard to reconcile with a story where companies are being run to maximize shareholder value. They are more consistent with a story where CEOs are able to use their power to rip off the companies for which they work.
This matters because the bloated pay of CEOs affects pay

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Yet Another Diatribe on Patent Monopolies and How They Are Not Talked About in Polite Company

5 days ago

I had a short vacation last week, so my comments are both late and short. I will yet again take a shot at patent monopolies as a mechanism for financing the development of prescription drugs. This is because it is in the news, both with Purdue Pharma’s settlement in the opioid case and also with China’s moving forward in distributing a coronavirus vaccine.
 
Patents and Lying
 
Starting with the Purdue Pharma settlement, I did not see any mention anywhere of the fact that government-granted patent monopolies give companies like Purdue incentive to push their drugs. While I would not expect every article that reported on the settlement, or the opioid crisis more generally, I would expect that we would see references to this obvious point at least some of the time.
It would be as though news

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Red State Governors Still Flunk Coronavirus Testing

5 days ago

A few weeks back I did a post noting that states governed by Republicans had the highest positive test rates, while the states with the lowest positive rates were mostly governed by Democrats. I argued that positive test rates are a good measure of how serious the governors are in trying to bring the pandemic under control.
While they can take measures to limit the actual spread, such as longer and stronger lockdowns and mask requirements, many factors determining the spread are outside their control. By contrast, they do have control over the amount of testing, although legislatures can play a role, since they can appropriate or restrict funding. Testing has also become a political issue, since Donald Trump explicitly said that he wanted to see testing slowed so as to reduce the number of

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The Impact of the Pandemic on Superstar Cities

7 days ago

The Washington Post had a piece last week discussing the extent to which the pandemic, and more specifically increased opportunities for remote work, will affect thriving cities like New York and San Francisco. The main conclusion of the piece is that it won’t have much impact.
This view is a bit peculiar. The argument in the article is essentially that these cities are very attractive places to live, and that will continue to be the case even if people have more opportunities to work remotely.
However, that is not really the question. This is not a zero/one proposition. People will still want to live in places like Seattle, San Francisco, and New York even if everyone could work remotely. But that is besides the point. The issue is whether fewer people will want to live in these cities if

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Government-Granted Patent Monopolies Gave Purdue Pharma Incentives to Push Opiods

10 days ago

Maybe this is too obvious a point, but I don’t see it mentioned in news coverage of the company’s settlement. If we could ever have a serious debate on the relative merits of government-granted patent monopolies compared with direct upfront funding, as we did with Moderna’s research on a coronavirus vaccine, the incentive that patents give to lie about the safety and effectiveness of drugs would be an important factor.
Unfortunately, we may never have this debate because our policy types refuse to consider any alternatives to the patent monopoly system. It’s sort of like in the days of the Soviet Union, they didn’t have public debates on the merits of central planning.
The post Government-Granted Patent Monopolies Gave Purdue Pharma Incentives to Push Opiods appeared first on Center for

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Washington Post Suffers from Which Way Is Up Problem: Repealing Section 230 is DEREGULATING Facebook

14 days ago

A common problem in policy circles is that government protections that redistribute income upward are defined as part of the market, and getting rid of them or weakening them is described as government intervention. This issue comes up most frequently with government-granted patent monopolies with prescription drugs. Any measure to lower prices by weakening patent monopoly protections is treated as a government intervention, while the patent monopoly itself is treated as the free market. And, just to remind people, patent monopolies on prescription drugs cost us more than $400 billion annually, more than twice the amount at stake with the Trump tax cut.
This Washington Post piece describes the prospect of the Federal Communications Commission (FCC) removing Section 230 protection for

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Waiting for a Vaccine and the Collaborative Research Alternative

15 days ago

It seems increasingly likely that China will begin providing vaccines to its own people, as well as those in some other countries, by December, and possibly as early as next month. The prospect of a vaccine being available that soon has to look good to people here, now that the Trump administration’s pandemic control efforts have completely failed. The whole country would like to get back to normal, but that doesn’t seem like a serious possibility until we have an effective vaccine widely available.
It seems China’s leading vaccine makers got ahead of the ones in the U.S. and Europe by using the old-fashioned dead virus approach to developing a vaccine. This is well-known technology that they were apparently able to quickly adapt for a vaccine providing protection against the coronavirus.

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Educating the Washington Post on Section 230

17 days ago

In an article on a contribution by Facebook to support efforts to administer the election, the Washington Post noted that Donald Trump recently tweeted “REPEAL SECTION 230!!!.” The piece then described Section 230 as “a part of U.S. law that protects social networks from litigation for their decisions regarding content moderation.”
Actually, Section 230 has nothing to do with protecting Facebook and other social networks from litigation over their content moderation. Facebook is a private network. That means, that just like the Washington Post it can make any decision it wants about the content that it carries.
What Section 230 does is protect Facebook from liability for defamatory content. This means, for example, if someone transmitted false assertions on Facebook that a person was a

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The Washington Post Has Never Heard of the International Monetary Fund

19 days ago

That would seem to be the case from reading the paper’s editorial on the need to take steps to reduce extreme poverty in developing countries. The editorial never once mentions the proposal before the International Monetary Fund to substantially increase the special drawing rights available to developing countries.
This measure, which has the support of the I.M.F. leadership, and most of its member states (but not the Trump administration), would give the developing countries resources to help their economies recover from the pandemic. It is surprising that the Post would not mention it in an editorial on reducing world poverty.
It is also worth noting that the Trump  method of pursuing a vaccine, with grants of patent monopolies, rather than an open collaborative effort, is likely to make

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Waiting for a Vaccine: Killing for Inequality

20 days ago

I have been harping on the fact that it is very likely China will be mass producing and distributing a vaccine at least a month, and quite possibly several months, before the United States. This should make people very angry.
Even a month’s delay is likely to mean tens of thousands of avoidable deaths and hundreds of thousands of avoidable infections. And, it adds a month to the time period before we can get back to living normal lives. Of course, the delay could end up being many months, since we still have no idea how the clinical trials will turn out for the leading U.S. contenders.
We are in the situation where we can be waiting several months for a vaccine, after one has already been demonstrated to be safe and effective, because the Trump administration opted to pursue a route of

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Auto Suppliers Complain that They Can’t Get Good Help

23 days ago

The business press routinely gives us stories of employers complaining about labor shortages. This Reuters piece on struggling auto suppliers is the latest example.
The piece does tell us the suppliers have tried the one proven remedy for labor shortages, higher wages, but the data don’t support the claim. According to the graph in the article, the average hourly wage rose from $26.80 in January of 2019 to $28.20 in August. This amounts to a 5.2 percent increase over one and two-thirds years or a 3.1 percent annual rate. That is almost exactly the economy-wide average for the rate of wage growth in the pre-pandemic period. (It’s lower than the current rate.) In other words, auto suppliers are not raising wages especially rapidly, which is likely the reason they are having trouble getting

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Jump in Wage Growth Shows Disparate Impact of Layoffs

24 days ago

This recession has been very different from prior recessions. Most prior recessions were caused by the Fed jacking up interest rates to fight inflation, which sinks the housing and auto sectors. The last two recessions were driven by the collapse of bubbles that were driving the economy (stocks and housing). This recession is due to the pandemic, which has whacked personal services that are especially likely to spread the disease, such as restaurants, hotels, and gyms.
This has meant that a very different group of workers is being hit with unemployment. Historically, manufacturing and construction, two relatively high-paid sectors were hardest hit. (Manufacturing is no longer a relatively high-paying sector.) The sectors now being hard-hit are relatively low-paying. While there is always

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How Much Will Trumpcare Insurance Cost People with Health Issues?

29 days ago

One of the main goals of Obamacare was to make insurance affordable for people with health problems. Insurers are happy to insure healthy people. People in good health have few claims, so essentially they are just sending a check to the insurer every month. It’s a good deal if you can get it.
But it’s a very different story if you have serious health issues. For these people insurers actually have to cough up money. In the good old days, before  the Affordable Care Act (ACA), insurers would either refuse to insure people with serious health conditions altogether (e.g. cancer survivors, heart disease, diabetes) or add large supplements to their premiums.
The ACA prohibited insurers from discriminating against people based on their health condition. They could charge different premiums by

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Patent Monopolies in Prescription Drugs Cause Corruption # 43,508

September 30, 2020

Economists and economic reporters all know that tariffs can lead to corruption. The idea is that if a government-imposed tariff raises the price of a product by 10-25 percent above the free market price, companies have a large incentive to find ways to avoid the tariff. This can mean reclassifying imports to get around the tariff or trying to curry favor with politicians to get exemptions. The New York Times and ProPublica have run several excellent pieces providing examples of such behavior (e.g. here, here, and here).
The reasonable takeaway from these stories is that tariffs should be applied sparingly and with clear purposes in mind. Indiscriminate use of tariffs is likely to lead to large-scale corruption, as corporations use their political power to gain special treatment.
We should

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How’s that Recovery Going?

September 29, 2020

Donald Trump boasts endlessly about the economic recovery and insists that people are doing great now. The numbers disagree.
We will get the last employment report before the election on Friday. The unemployment rate reported for August was 8.4 percent. We’ll see what happens on Friday, but we are not doing especially well compared to other countries. Here’s the picture.

Source: OECD.
As can be seen, the 8.4 percent August unemployment rate reported for August was well above the 2.9 percent rate reported for Japan, 3.4 percent rate for the United Kingdom, and 4.4 percent rate for Germany. (These are July rates, except for the UK, for which the OECD only has the May rate.) Denmark comes in at 6.0 percent and France at 6.9 percent. The U.S does come in better than Italy, which had a 9.7

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Your Periodic Reminder that CEOs Maximize CEO Pay, Not Shareholder Returns

September 24, 2020

It is a cult among policy types to say that CEOs maximize shareholder returns, as in this NYT piece. This is in spite of the fact that returns to shareholders have not been especially good in the last two decades. And, this is even though returns were boosted by a huge corporate tax cut in 2017 that increased after-tax profits by more than 10 percent, other things equal.
There is considerable evidence that CEOs do not earn their $20 million pay, in the sense of providing $20 million in additional returns to shareholders, compared to the next schmuck down the line. This matters in a big way because CEO pay influences pay structures throughout the economy. If CEOs got paid 20 to 30 times the pay of ordinary workers, like they did in the 1960s or 1970s, or around $2 million to $3 million a

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It’s Not Vaccine Nationalism, It’s Vaccine Idiocy

September 22, 2020

Last week an official with China’s Center for Disease Control and Prevention (CDC) said that the country may have a vaccine available for widespread distribution by November or December. This would almost certainly be at least a month or two before a vaccine is available for distribution in the United States, and possibly quite a bit longer.
While we may want to treat statements from Chinese government officials with some skepticism, there is reason to believe that this claim is close to the mark. China has reported giving its vaccines to more than 100,000 people. In addition to giving it to tens of thousands of people enrolled in clinical trials, it also has given them to front line workers, such as medical personal, through an emergency use authorization. 
This may not have been a good

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Are Red State Governors Getting Their People Killed to Help Donald Trump’s Re-election Chances?

September 21, 2020

This is an incredibly ghoulish question that would be absurd to ask in normal times. But these are not normal times. We know Donald Trump has staffed the top levels of his administration with people who unhesitatingly put Donald Trump’s political prospects above the well-being of the people. It is certainly plausible that Republican governors have similar priorities.
A simple test for the governors is to look at their positive test rates for the coronavirus. Test rates are a good measure of how serious the governors are in trying to bring the pandemic under control. While they can take measures to limit the actual spread, such as longer and stronger lockdowns and mask requirements, many factors determining the spread are outside their control.
For example, New York, New Jersey, and other

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Trade Wars Are Class Wars: Even More than Klein and Pettis Say

September 18, 2020

I have long enjoyed reading Matthew Klein’s columns in the Financial Times and elsewhere. They are invariably insightful and I have learned much from them. I am less familiar with Michael Pettis’ work, but I have liked what I have read. Therefore, I expected a lot from their book, Trade Wars are Class Wars, and I was not disappointed.
The basic point is that the major trade imbalances in the world over the last four decades have been driven by the suppression of wage growth, with income being redistributed from labor to capital. This has led to shortfalls in aggregate demand that countries try to offset by having trade surpluses. The main actors in that picture are China and Germany.
In the Klein-Pettis view, the U.S. has also suffered from this upward redistribution, although it has taken

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Robert Samuelson Hangs It Up

September 14, 2020

Robert Samuelson, the Washington Post columnist who has provided so much material for this blog over the years, announced his retirement today. I’ll take this opportunity to agree with a couple of points he made in his final column.
Samuelson notes the work that Treasury secretaries Henry Paulson and Timothy Geithner, along with Federal Reserve Board Chair Ben Bernanke did to combat the Great Recession, and then says “but that doesn’t excuse their failure to anticipate the housing boom and to preempt the bust.” This is absolutely right.
The fact that house sale prices had risen in an unprecedented manner, with no corresponding rise in rents, and at a time when vacancy rates were hitting record levels, should have been the sort of thing that even a top economist could notice. The fact that

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Is Repealing Section 230 the Way to Fix Facebook? Exchange with Siva Vaidhyanathan

September 9, 2020

This is the first part of a four part exchange with Siva Vaidhyanthan, a professor of media studies at the University of Virginia. Professor Vaidhyanathan will write a response. I will then draft a rejoinder and he will get the last word.
 
Repeal Section 230 to Fix Facebook
Many people are worried that Facebook is playing the same role in the 2020 election that it did in the 2016 election, acting as a conduit for massive amounts of false and misleading information. They hope that Mark Zuckerberg will rise to the task and act to limit the spread of false and hateful stories.
This blind faith in Mark Zuckerberg is bizarre. Mark Zuckerberg and Facebook are there to make money. Fostering democracy is not really on their agenda, in the same way that helping the Kansas City Royals win the World

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Blue States are Not Wrong to Want to Restore the Deduction for State and Local Taxes

September 8, 2020

Richard Reeves and Christopher Pulliam had a New York Times column complaining that Democrats want to restore the full deductibility for state and local income taxes, which was ended with the 2017 tax cut bill. They claim, rightly, that the vast majority of this deduction goes to rich people.

While that is true, the point is that ending the deduction means that rich people in blue states now face much higher tax rates. This gives them more incentive to not live in blue states. To get an idea of the money involved, California has a top tax bracket of 13.0 percent. If someone had an income of $2.2 million a year, they would be paying around $200,000 a year in state taxes. (The top rate applies on income above $1.2 million.) The loss of the deduction would mean that their federal tax bill

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It Was Not “Flaws in the U.S. Financial System” that Caused the Great Recession, It Was the Collapse of the Housing Bubble

September 7, 2020

Our elites work hard to cover up for each other even if it means an almost Trumpian denial of reality. We got another taste of this effort in a New York Times piece on Joe Biden’s actions with regard to China over the years. The piece talks about the massive job loss of manufacturing jobs due to trade in China and then tells us the problem of the Great Recession was about the financial system:

“From 1999 to 2011, competition from China cost the United States more than two million factory jobs, according to academic research. In the midst of that, flaws in the U.S. financial system set off a global economic crisis. In 2008 and 2009, as Mr. Biden took the reins of the second most powerful office in the United States, the major G.M. and Chrysler plants in his state shuttered.”

In fact, the

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The U.S., China, and the New Cold Warriors

September 7, 2020

On the days when he is not celebrating his friendship and trade deals with China’s president Xi Jinping, Donald Trump has sought to hype China as the United States’ major enemy in the world. This has meant not only absurd allegations about the pandemic (top Trump economic adviser Peter Navarro has claimed that China deliberately sent infected people to the U.S. to spread the virus and damage the U.S. economy), but also sanctions, tariffs, and hints of military confrontations. While much of this silliness will go away if Donald Trump is defeated, the idea that the United States is involved in an intense global rivalry with China has gained serious credence among elite types. This is both wrong and dangerous.
First, just to clear the deck of some obvious points, China is not a democracy and

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Do Most Economists Think Government Deficits Should Have Been Lower Before the Pandemic Hit?

September 6, 2020

Washington Post reporter Heather Long has a series of useful charts comparing the economy’s performance under Presidents Obama and Trump. Most of the discussion is quite good, but one item that raised my eyebrow was in the section on deficits, where it told readers:

“Many economists say the bulge in spending after the Great Recession and pandemic recession were necessary and unavoidable, but they fault Obama and Trump for not doing more to right the federal budget during the good economic years.”

I’m sure many economists do fault Obama and Trump for not having lower deficits, but many also feel that at least Obama, was too aggressive in reducing the deficit. The problem of an excessive budget deficit is that it creates too much demand in the labor market, leading to rapidly rising wages,

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New York Times Again Forgets to Mention the Fool Proof Way to Prevent Foreign Governments from Stealing Vaccine Research

September 5, 2020

Of course that would be having open research that was freely shared. That would immediately make theft impossible, since there would be nothing to steal.
This simple and obvious point is not mentioned once in a piece describing efforts by Russia and China to gain access to vaccine research being done at U.S. universities and private companies. Since the whole world is struggling to get a vaccine as quickly as possible to bring the pandemic under control, it might have made sense to have a cooperative effort, where all research would be freely shared and any vaccines that are developed could be produced by any manufacturer with the capability to make it.
Instead, we went the route of restricting research access, which is both likely to slow down the development of effective vaccines and

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Post Fact-Checker Buys Trump’s “Just Joking” Defense on Eliminating Social Security

September 4, 2020

Donald Trump routinely says outlandish things and then when he is called on them, he or his staff insist he was just joking. To take some recent favorites, people may recall his “joke” about injecting people with disinfectant at a press conference a few months back. And then there was the joke about telling his aides to slow down testing so that there would be fewer reported infections with the coronavirus. Just this week, we heard Trump quite explicitly tell his supporters in North Carolina to vote by mail and then go in and try to vote in person, in other words, commit election fraud.
In these three cases, and many others, Trump and/or his staff insisted he didn’t really mean the things he said. Now we are getting the same game with Trump’s plan to end the payroll tax.
Donald Trump said

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Seeing the Last Acceptable Prejudice Clearly: The More Educated Screwed the Less-Educated

September 2, 2020

I was happy to see Michael Sandel’s piece in the NYT arguing that is still acceptable to have negative views of less-educated people because of their lack of education. Sandel makes the lonely argument that rather than focusing on increasing opportunities for people to become more educated:

“We should focus less on arming people for a meritocratic race and more on making life better for those who lack a diploma but who make important contributions to our society — through the work they do, the families they raise and the communities they serve. This requires renewing the dignity of work and putting it at the center of our politics.”

This argument is very well-taken. It should also be warmly embraced by anyone concerned about racial inequality because even if our most ambitious plans for

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Are Corporate CEOs Worth $20 Million?

August 31, 2020

This simple and important question does not get anywhere near the attention it deserves. And, just to be clear, I don’t mean are they worth $20 million in any moral sense. I am asking a simple economics question; does the typical CEO of a major company add $20 million of value to the company that employs them or could they hire someone at, say one-tenth of this price ($2 million a year) who would do just as much for the company’s bottom line?
This matters not only because a thousand or so top executives of major corporations might be grossly overpaid. The excessive pay of CEOs has a huge impact on pay structures throughout the economy. If the CEO is getting $20 million it is likely the chief financial officer (CFO) and other top tier executives are getting in the neighborhood of $8-12

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The Old Japan’s Debt Burden is Reaching Its Limits Story

August 31, 2020

That’s a theme we have been hearing for decades. Japan is a huge embarrassment for the deficit hawks. It has a debt to GDP ratio of close to 250 percent, more than twice as high as in the United States, yet it has none of the problems that the deficit hawks tell us will come from high debt.
It currently pays 0.05 percent interest on its long-term bonds. Much of its debt carries a negative interest rate so that its debt burden is currently near zero. This means that in spite of its high debt, the country neither has interest rates nor faces a crushing debt burden.
It also does not have an inflation problem. Inflation over the last year has been 0.5 percent. The country has actually been struggling to raise its inflation rate.
Nonetheless, the NYT quotes an expert telling us that Japan

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