From CEPR Co-Director Dean Baker Archive

Donald Trump's tendency to make things up as he goes along naturally prompts a strong reaction from people who try to approach issues in a serious way. But serious people can sometimes get carried away in this reaction.

Glenn Kessler, the Washington Post's fact checker, got a bit carried away in trying to set readers straight on Trump's bizarre claim we have a $100 billion trade deficit with Canada. (We do have a trade deficit, but it is closer to $20 billion.) In his Fact Check piece, Kessler asserts:

"If overall trade increases between nations, people in each country gain, no matter the size of the trade deficit."

This is not necessarily true. Let me go through two cases, one in which the countries are below full employment and one in which they are at full employment.

Suppose in the first case one country, let's say Denmark, decided to subsidize $100 billion of exported cars to the United States, displacing $100 billion of domestic production. The immediate effect of the increased imports from Denmark is a loss of output and employment in the United States.

In principle, the Danes have another $100 billion to buy goods and services from the United States, but suppose they don't like anything we sell. In the textbook story, they would dump their $100 billion on world currency markets, driving down the value of the dollar. This would make US goods and services relatively cheaper, thereby causing us to export more and import less, possibly fully offsetting the $100 billion in increased imports.

But suppose the evil Danish central bank used these dollars to buy up US government bonds, as many countries have done over the last two decades. This would keep the dollar from falling. The purchase of US bonds would have some effect in lowering US interest rates, but this would be just like the Fed's quantitative easing policy. The lower interest rates would boost demand, but not nearly enough to offset the $100 billion increase in our trade deficit.

So, in this below full employment story we end up with a situation where trade has increased by $100 billion, but the US is left with lower employment and output. It sure looks like it has been hurt by more trade.

Yep, the senator from Oklahoma says it is good in a Washington Post column. Most of Senator Lankford's confusions are pretty standard, but he does come up with an original one.

"For starters, a powerful economy such as ours often runs a trade deficit because of the immense buying power of its people. Mexico’s average net per capita income is roughly $13,000, while the average U.S. household brings in more than $41,000 each year. Americans have a far greater capacity to buy goods than do consumers in Mexico. It should come as no surprise that we do exactly that."

Okay, we have a trade deficit simply because we are a rich country. I suppose someone forgot to tell Germany that it is a rich country since it has a massive trade surplus of more than 8 percent of GDP (roughly $1.6 trillion in the U.S. economy.)

He then tells us that our imports frrom Mexico will help it to grow and eventually make Mexico a better market for U.S. products. While this is true, Mexico's economy has actually grown less rapidly on a per person basis than the U.S. since NAFTA went into effect in 1994. While NAFTA may not be the cause of weak growth in Mexico, it apparently has not prevented the two economies from diverging further.

Then we get some of the standard confusion pushed by denialists:

"Foreign investment also tilts the trade-balance calculation. Because we have the world’s largest economy and the strongest currency, more money comes into the United States than goes out. This surplus of investment adds to our trade deficit, even though this foreign cash stimulus is a positive for our economy.

Office of Management and Budget Director Mick Mulvaney had a Wall Street Journal column highlighting the benefits of “MAGAnomics.” The piece can best be described as a combination of Groundhog Day and outright lies.

In terms of Groundhog Day, we have actually tried MAGAnomics twice before and it didn’t work. We had huge cuts in taxes and regulation under both President Reagan and George W. Bush. In neither case, was there any huge uptick in growth and investment. In fact, the Bush years were striking for the weak growth in the economy and especially the labor market. We saw what was at the time the longest period without net job growth since the Great Depression. And of course, his policy of giving finance free rein gave us the housing bubble and the Great Recession.

The story of the 1980s was somewhat better but hardly follows the MAGAnomics script. The economy did bounce back in 1983, following a steep recession in 1981–1982. That is generally what economies do following steep recessions that were not caused by collapsed asset bubbles. Furthermore, the bounceback was based on increased consumption, not investment as the MAGAnomics folks claim. In fact, investment in the late 1980s fell to extraordinarily low levels. It is also worth pointing out that following both tax cuts, the deficit exploded, just as conventional economics predicts.

It really is amazing how much effort elite types expend denying that trade has cost us manufacturing jobs. The latest entry is from Robert Samuelson who tells us that it isn't true that manufacturing jobs have been lost to trade. Samuelson's main source on this is Brad DeLong, who is actually a very good economist and surely knows better.

Samuelson tells readers:

"Contrary to popular opinion, trade is not a major cause of job loss. It’s true that U.S. manufacturing has suffered a dramatic long-term employment erosion, sliding from roughly one-third of nonfarm jobs in 1950 to a quarter of jobs in the early 1970s to a little less than 9 percent now, according to economist J. Bradford DeLong of the University of California at Berkeley in an essay posted on Vox. But the main cause is automation."

The cheap trick here is going back to 1950. Yes, we have lost lots of manufacturing jobs to automation and over a 70 year period that does swamp the impact of the jobs lost due to trade, but this is really a dishonest way to present the issue. Manufacturing was declining as a share of total employment even in the 1950s and 1960s, but the pace was modest enough and we were creating enough jobs in other sectors that the job loss still allowed for real wage growth in both manufacturing and the economy as a whole.

What is at issue is the rate of decline, not the fact that manufacturing employment is dropping. The graph below shows the number of manufacturing jobs in the economy since 1970.

It's hard to resist a good challenge and the Washington Post gave us one this morning in an editorial pushing the Trans-Pacific Partnership (TPP). The editorial criticized TPP opponents and praised President Obama for continuing to push the deal. It tells readers:

"Mr. Obama refused to back down on the merits of the issues, noting that other countries, not the United States, would do most of the market-opening under the TPP and challenging opponents to explain how 'existing trading rules are better for issues like labor rights and environmental rights than they would be if we got TPP passed.'"

Okay, here's how we are better off with existing trade rules than the largely unenforceable provisions on labor and environmental standards in the TPP.

1) The TPP creates an extra-judicial process (investor-state dispute settlement [ISDS] tribunals) whereby foreign investors can sue governments for imposing environmental, health and safety, and even labor regulations. Under the TPP, these tribunals are supposed to follow the far-right wing doctrine of compensating for regulating takings. This means, for example, that if a state or county restricts fracking for environmental reasons, they would have to compensate a foreign company for profits that it lost as a result of not being allowed to frack or the additional expense resulting from the standards imposed. The ISDS tribunals are not bound by precedent, nor are their decisions subject to appeal.

2) The TPP imposes stronger and longer patent and copyright protection. These protectionist measures are likely to do far more to raise barriers to trade (patent and copyright monopolies are interventions in the free market, even if the Washington Post likes them) than the other measures in the TPP do to reduce them. In addition to the enormous economic distortions associated with barriers that are often equivalent to tariffs of 1000 percent or even 10,000 percent (e.g. raising the price of a patented drug to 100 times the generic price), TPP rules may make it more difficult for millions of people to get essential medicines.

In an article that reports on plans by a new coalition to challenge the financial industry, the Washington Post implied that the financial transaction tax (FTT) supported by the coalition would hurt ordinary investors. The piece told readers:

"The proposed so-called transaction tax has already raised concerns among some on Wall Street. Such a tax would also effect pension funds or other large investors who sometimes trade thousands of stocks a day, they say.

"'While some politicians claim this tax is directed at high frequency trading, the truth is that it would directly hit the pension funds of hard-working teachers, nurses and teamsters,' said Bill Harts, chief executive of Modern Markets Initiative, which represents high frequency trading firms.

"'We don’t understand why unions would support something that would so clearly hurt their membership’s pension funds.'"

The humanitarian group, Doctors Without Borders, along with many other NGOs involved in providing health care to people in the developing world, have come out in opposition to the Trans-Pacific Partnership (TPP) over concerns that the deal will make it more difficult to provide drugs to people in the developing world. Their argument is that it will raise drug prices by making patent protection stronger and longer and by making it more difficult for countries to scale back protections that they may come to view as excessive and wasteful.

But the Washington Post editorial board tells us not to fear, that the TPP is actually "a healthy agreement." The gist of its argument is an analysis by Council on Foreign Relations Fellow Thomas Bollyky, which finds that there were few incidents of large increases in drug prices for countries following the signing of previous trade deals. 

As I noted in a previous post, this analysis almost seemed designed not to find substantial rises in prices. Bollyky looked at changes in drugs prices immediately after a trade deal took effect. The problem with this approach is:

"In most cases, the rules in these agreements will only apply to new drugs, and even then to a subset of new drugs, for example patent protection for a drug that is a combination of already approved drugs. They may also allow for the extension of patent terms beyond the date where they would have expired under pre-trade deal rules, but here again the impact will only be felt gradually over time.

"Furthermore, the date of a trade deal with the United States may not be the key factor in pushing up drug prices. The United States signed a deal with South Korea in 2012 that required stronger patent and related protections, but most of these conditions were already law as of 2009 due to a trade agreement Korea signed with the European Union."

Given the recent flood of opeds and editorials on the wonders of the Trans-Pacific Partnership (TPP), the Obama administration must be about to present the deal to Congress for approval. Otherwise, it’s hard to see why so many pieces would spontaneously appear on the TPP. Since there is real money at stake, we can expect the debate to get pretty low and nasty, with the pro-TPP forces liberally substituting ad hominems and claims to expertise for serious arguments.

My favorite on the lack of argument side is the exciting news that if the TPP is approved it will eliminate 18,000 tariffs on U.S. exports to the countries in the deal. That sounds like a huge boon to trade, right? Public Citizen looked up the 18,000 tariffs that would be eliminated. If found that the United States is not currently exporting in more than half of the categories in which these tariffs apply. Included in the list of tariffs to be removed are Malaysia’s shark fin tariffs, Vietnam’s whale meat tariffs, and Japan’s ivory tariffs.

The overwhelming majority of these tariffs are of little consequence in very narrow product categories, like Brunei’s tariff on ski boots. So when the proponents of the TPP tout the 18,000 tariffs is this because they have no clue what they are talking about, or are they deliberately trying to deceive the public?

As the Democratic presidential primary heats up, one of the major issues has been which candidate has the better approach towards regulating Wall Street. While financial regulation can get into many complex areas, there are some basic points that people should know.

First, financial regulation always leaves enormous room for discretion. Some regulatory agencies, like the Office of the Comptroller of the Currency, are notoriously lax, not because they lack the authority to control the banks and other financial institutions, but because their leadership is content to let the banks do what they want.

Sometimes an agency's character changes with its leader. The Commodity Futures Trading Commission became a serious regulatory agency under Gary Gensler, who headed it in the first six years of the Obama administration. (Gensler is now the chief financial officer of Secretary Clinton's campaign.)

This is a crucial point, since the effectiveness of any regulation will always depend on the political will to enforce it. Even with the deregulatory steps of the 1990s, the Federal Reserve Board still had all the power it needed to rein in the housing bubble. The Fed had authority to regulate mortgage issuance. It chose to ignore this authority during the run-up of the bubble.

For those who closely follow financial markets the first two weeks of 2016 have been the most fun since the financial crisis triggered by the collapse of the housing bubble. The market has lost more than 10 percent of its value since its late December peak, destroying more than $2 trillion of stock wealth.

Markets elsewhere in the world have experienced comparable declines. Slowing economic growth has sent oil prices plummeting to less than $30 a barrel, pushing many oil companies to the edge of bankruptcy and devastating the economies of countries that are heavily dependent on oil exports. All this may sound very grim, but unless you were borrowing to buy large amounts of stock or oil futures, there is no reason to look for a ledge from which to jump.

As Herbert Hoover famously said, the fundamentals of the economy are strong. OK, that's not serious.

The fundamentals are not strong, but the economy is also not about to fall into another recession. The basic story is the one we were seeing before all the fun on Wall Street, we are looking at an economy that is growing slowly and still has not come close to recovering from the last recession. The rollercoaster ride on Wall Street has little effect on this picture.

The public's confidence in economists was rightly shaken by the fact that almost no economists recognized the housing bubble and the damage that would be caused by its collapse. We still don't know the full cost of this failure, but the latest projections from the Congressional Budget Office imply lost output of more than $17 trillion (at $50,000 per person) through 2025. And that is apart from the lives that have been ruined due to unemployment and the loss of homes.

Given this track record, it is not surprising to find economists spinning tales of robots and the development of technology that don't make sense. An often repeated story from economists is that technology is displacing jobs that had paid a middle-class wage. In this story, we see fewer middle-class jobs, and therefore a shrinking middle class. Most workers are left to compete for low-end jobs, driving down the wages in already low-paying occupations. This leads to a redistribution of income from workers to the people who own the technology.

There is both a small and big problem with this story. The smaller problem is that the "hollowing out of the middle" story doesn't seem to fit the data. The only occupations that have been seeing a substantial growth in their share of the labor market have been those at bottom end. Occupations at both the middle and top end of the labor market have seen a decline in their share of total employment in this century.

But this is the less important problem with the story of a redistribution to the people who own the technology. The more important problem is that "owning" a technology is not an economic relationship, but rather a legal one. If we are seeing a redistribution to the owners of technology it is because we have written laws that give strong ownership claims, not because of the technology.

Jeff Bezos, the CEO and founder of Amazon, is routinely touted in the media as an entrepreneurial genius. That assessment may well be correct. After all, Amazon has made huge breakthroughs not only in Internet marketing, but also in promoting the spread of e-books, and more recently as a new source of television shows.

But however brilliant Bezos may be, the public should recognize that his success has come with a huge helping hand from the taxpayers. He has received in the neighborhood of $4 billion in subsidies from taxpayers over the last two decades to help his business grow.

If you missed that line item in the budget, it's probably because the media have mostly chosen not to give it much attention. The basic point is a simple one: the brick and mortar retailers with whom Amazon competes are required to collect state and local sales taxes on the products they sell. For most of its existence, Amazon was exempted from this requirement in most of the states it did business.

This amounts to a massive subsidy to Amazon at the expense of both big chains and tiny family operated business. For example, in a state like New York, where combined state and local sales taxes average over 8.0 percent, Amazon could charge a price that was 1.0 percent below its brick and mortar competition, and still have an additional profit of 7 percent on everything it sold. That is a huge deal in an industry where profits are often just 2-3 percent of revenue.

Last week United Health Care (UHC), the country's largest health insurance company, announced that it was considering leaving the health care exchanges set up under the Affordable Care Act (ACA). It claimed that it was losing money on the plans it offers in the exchange, so it might decide to give up this market.

The prospect of UHC leaving the exchanges naturally delighted foes of Obamacare. Many quickly celebrated this as the beginning of the end. If other insurers follow the lead of UHC, there may be no one left offering insurance in the exchanges. And if there are no exchanges, there is no Obamacare. People would no longer be guaranteed the option to buy an insurance policy without regard to their health.

Before we join the death of Obamacare celebration there are a few questions worth asking. First, is UHC really losing money in all of the exchanges in which it is participating? Remember each of these state exchanges are treated as separate pools, with rates set based on the costs for treating people in the state. If UHC is pulling out of all the exchanges does that mean it is losing money in every single state? Presumably that would be the case, since it's hard to see why UHC would be leaving a market in which it is making money.

If UHC is losing money in all the exchanges it has entered, that would really say a great deal about the competence of UHC's management. The day after UHC's announcement, Aetna, another major insurer, announced that it was happy with the performance of its plans in the exchanges and that it has no intention of leaving this market. If Aetna can apparently make a profit in most of the exchanges and UHC can't make money in any of them, then it doesn't sound like UHC is run by a very good team.

Everyone has seen the news stories about how Representative Paul Ryan, the likely next Speaker of the House, is a budget wonk. That should make us feel good, since we would all like to think a person in this position understands the ins and outs of the federal budget. But instead of telling us about how much Ryan knows about the budget (an issue on which reporters actually don't have insight), how about telling us what Ryan actually says about the budget?

Unless reporters give Ryan a pop quiz, they really don't know what he knows about the budget, but they do know what he says. And, he has said a lot on the budget and much of it is very clear. In addition to wanting to privatize both Social Security and Medicare, Ryan has indicated that he essentially wants to shut down the federal government in the sense of taking away all of the money for the non-military portion of the budget.

This is a fact that is easy to find for any reporter who could take a few minutes away from telling us what a great budget wonk the next speaker is. In 2011, when he chaired the House Budget Committee, Ryan directed the Congressional Budget Office to score his budget plans. The score of his plan showed the non-Social Security, non-Medicare portion of the federal budget shrinking to 3.5 percent of GDP by 2050 (page 16).

This week marks the 7th anniversary of the collapse of Lehman Brothers, the huge investment bank. This collapse set off the worldwide financial panic that brought Wall Street to its knees. The anniversary of this collapse, September 15th, is the day set aside to ridicule the people who warned of a second Great Depression (SGD) if the Treasury Department and the Federal Reserve Board didn't rescue the Wall Street banks.

Just to recount the basic story, there is no doubt that without a government bailout most of the big Wall Street banks would have gone under. Citigroup and Bank of America were both effectively bankrupt and remained on life support with hundreds of billions of dollars of government subsidized loans well into 2010. The remaining investment banks, Merrill Lynch, Morgan Stanley, and Goldman Sachs were all facing bank runs. These would have been unstoppable without the helping hand of big government. Many other financial institutions also would have been brought down in the maelstrom, but these giants were for sure dead ducks at the time of the bailouts.

There is no doubt that the initial downturn would have been more severe if the market was allowed to work its magic and put these banks out of business. But the question the SGD gang could never answer is how this collapse would prevent the government from boosting the economy immediately afterward? After all, then Federal Reserve Board Chair Ben Bernanke once ridiculed people who questioned the ability of the government to boost the economy, commenting the government "has a technology, called a printing press... ."

The celebration of Labor Day is a good time to remember the role that labor unions have played in raising living standards and improving the quality of life for working people in the United States. While most people recognize that unions have been beneficial for their members -- raising pay, improving work conditions and increasing job security -- there is little appreciation of role of labor unions in promoting benefits and work rules that protect all workers.

Unions were crucial in the passage of just about all the benefits and rules that we take for granted today, starting with the weekend. The 40-hour workweek became the standard in the 1937 with the passage of the Fair Labor Standards Act. This bill, which also put in place a federal minimum wage, required a premium of 50 percent of pay for any hours that an employer required in excess of 40 hours a week. Unions had pressed for similar rules for decades, but it took the power of a militant labor movement, coupled with a sympathetic president and Congress to finally make the 40 hour workweek a standard across the country.

This was also the year that the Social Security system was created. Again, the leadership of President Roosevelt was essential, but the Social Security would not have come into existence without the support of the labor movement. There was a similar story with the passage of the Medicare Act three decades later. The leadership of President Johnson was important, but there is no way the bill would have passed Congress without the pressure coming from organized labor.

For decades the idea of a financial transactions tax (FTT), in effect a modest sales tax on stock, bonds, derivatives and other financial assets, has been a fringe idea pursued by a small group of progressive politicians. While the concept had drawn the interest of many of the world's most prominent economists, including former Treasury Secretary Larry Summers, and Nobel laureates Joe Stiglitz, James Tobin, and Paul Krugman, few political figures in the United States were willing to go near an FTT. That situation is changing.

The latest news in this area is the release of a report last week on financial transactions taxes from the Tax Policy Center (TPC), a joint project of the Brookings Institution and the Urban Institute. The report assessed the potential revenue and the burden by income group from a FTT. This report, while not providing an endorsement of FTT, provides further support to an FTT as a serious policy.

This is an important development because the TPC has developed a strong reputation in policy circles as a reliable source for non-partisan analysis. For this reason, a report from the TPC can be seen as comparable to a report from the Congressional Budget Office. The center exists to analyze policy, not to advocate for it.

President Obama must be having trouble getting the votes for fast-track authority since the administration is now pulling out all the stops to push the deal. This has included a press call where he apparently got testy over the charge by critics that the Trans-Pacific Partnership (TPP) is a secret trade deal.

Obama insisted the deal is not secret, but googling "TPP" will not get you a copy of the text. Apparently President Obama is using a different definition of "secret" than the ordinary English usage.

But that wasn't the only fun in the last week. The administration got 13 former Democratic governors to sign a letter boasting about the jobs generated by the growth of exports. The letter noted that exports had added "$760 billion to our economy between 2009 and 2014 -- one-third of our total growth." It neglected to mention that imports had grown even faster, diverting $890 billion in demand away from the domestic economy to foreign economies.

In the week since Secretary Clinton announced she is entering the presidential race, there have been numerous stories asking about the agenda that she will adopt in her campaign. In her announcement video, she indicated she wanted to be a champion for the average worker against the wealthy.

While many policies will be needed to improve the situation of the poor and middle class, there are three simple ones that could make a big difference: a more competitive dollar, a Federal Reserve Board committed to full employment and a financial transactions tax to rein in Wall Street. If Clinton or any other presidential candidate wants to level the playing field, these policies would be a great place to start.

The competitive dollar is an issue that is actually quite simple, but obscured by bad reporting in the media. The value of the dollar relative to other currencies is by far the main determinant of the country's deficit. We currently have a trade deficit of more than $500 billion a year (at three percent of GDP).

The reason most of us have seen little gain from economic growth over the last three decades is that the rich have rigged the rules to ensure that money flows upward. Through their control of trade policy, Federal Reserve Board policy, and other key levers of government, they have structured the market to weaken the bargaining power of ordinary workers and benefit the CEOs and Wall Street crew. As a result, the typical worker has seen almost none of the gains from economic growth over the last four decades.

Most of this rigging comes in before-tax income. The big gains to the rich have not been primarily because they have become better at avoiding taxes than they were four decades ago, but there are some notable exceptions. At the top of this list is the fund managers' tax break (a.k.a. the carried interest tax deduction). As tens of millions of people prepare to file their tax returns this week, it is a good opportunity to celebrate this tax deduction which gives billions of dollars every year to some of the richest people in the country for no reason whatsoever.

Many issues in tax law are complicated; the fund managers' tax break is not. It's just a good old-fashioned rip-off of ordinary taxpayers for the benefit of the wealthy. The basic point is very simple. The fund managers' tax break allows managers of hedge funds, private equity funds, and various other investment funds to have much of their pay taxed at the capital gains tax rate rather than the tax rate applied to wage income.

One of the most important Supreme Court cases this year is King v. Burwell. The suit questions the legality of the subsidies to low- and middle-income families in the health-insurance exchanges run by the federal government. If the Court rules for the plaintiff, millions of people in the 36 states that did not set up exchanges could lose their subsidies. With insurance now unaffordable for much of the population in these states, their exchanges will no longer be operational, leading to the collapse of the Affordable Care Act in much of the country.

The whole basis for King v. Burwell is one sentence in the 1,700 page law indicating that subsidies are only supposed to be paid to people in states that have set up their own exchanges. This sentence contradicts the rest of the law, which clearly says that people are eligible for the subsidies regardless of whether they are enrolled via a state-established exchange or an exchange established by the federal government. The plaintiff’s argument is also at odds with the understanding of every member of Congress at the time they voted on the bill, as well as the understanding of all the various independent analysts assessing its impact.

In short, King v. Burwell should be a joke case. But in a context where at least four members of the Supreme Court are prepared to rule in whatever way they feel advances the interests of the Republican Party, it is very possible that it will be the basis for undermining a law that provides health insurance to millions of people and access to insurance to tens of millions more.

There is an enormous amount of political debate over various pieces of legislation that are supposed to be massive job killers. For example, Republicans lambasted President Obama's increase in taxes on the wealthy back in 2013 as a job killer. They endlessly have condemned the Affordable Care Act as a jobs killer. The same is true of proposals to raise the minimum wage.

While there is great concern in Washington over these and other imaginary job killers, the Federal Reserve Board is openly mapping out an actual job-killing strategy and drawing almost no attention at all for it. The Fed's job-killing strategy centers on its plan to start raising interest rates, which is generally expected to begin at some point this year.

The Fed's plans to raise interest rates are rarely spoken of as hurting employment, but job-killing is really at the center of the story. The rationale for raising interest rates is that inflation could begin to pick up and start to exceed the Fed's current 2.0 percent target, if the Fed doesn't slow the economy with higher interest rates.

The U.S. House of Representatives recently adopted a new rule that requires lawmakers to take long-term macroeconomic effects into consideration when deciding how to vote on tax and spending bills. In theory, this could show that tax cuts, particularly for billionaires, boosts the U.S. economy, since expectations of paying fewer taxes would encourage people to work a little harder, leading to more growth that would help offset revenues lost from tax cuts.

There is some truth to the logic behind this type of forecasting — what policymakers call ‘dynamic scoring.’ But this approach put forth by the House has little to do with the way the economy actually works. True, lower tax rates do give workers somewhat more incentive to work and save, but serious analysis shows that the impacts of this incentive is small. This was the conclusion that the U.S. Congressional Budget Office reached in 2005 when it examined this issue under economist Douglas Holtz-Eakin. In a model that examined the effects of a 10% reduction in all federal individual income tax rates, the economy was slightly larger in the first five years after the tax cut and slightly smaller in the five years that followed. In this case, using dynamic scoring showed the tax cut costing more revenue than in the methodology the CBO currently uses.

The House Democratic Party leadership made a remarkable step forward last week in putting out a proposal for a financial transactions tax (FTT). The proposal is part of a larger package which includes a substantial tax credit for workers, and also a limit on the tax deductibility of high CEO pay, but the FTT portion is the most remarkable.

There has long been interest in financial transactions taxes among progressive Democrats. The list of people who have proposed financial transactions taxes over the years includes Representatives Peter DeFazio and Keith Ellison, along with Senators Tom Harkin and Bernie Sanders.

But the proposal last week came from Representative Chris Van Hollen, who is part of the party's leadership. And Minority Leader Nancy Pelosi indicated that she also supports the proposal. This means that financial transactions taxes are now part of the national debate on tax and financial policy.

The Washington Post reports that the Democrats have a new plan for middle class tax cuts that will be financed in part by a 0.1 percent tax on financial transactions like stocks, bonds, and derivatives. Since the financial industry and its employees will undoubtedly be pushing tirades telling us that this tax will kill middle class savers, BTP decided to call in Mr. Arithmetic to get his assessment of the issue.

Mr. Arithmetic points out that the amount of the tax born by savers will depend in large part on their response to the tax. Since research indicates that trading volume declines roughly in proportion to the increase in trading costs, this means that ordinary savers will bear almost none of the tax.

To see this point, imagine that our middle class saver has $100,000 in a 401(k). Suppose that 20 percent of it is traded every year and that the trading costs average 0.2 percent. This means that our saver is spending $40 a year on trading costs (0.2 percent of $20,000).

One of the big end-of-the-year sports-news items was Jim Harbaugh leaving the San Francisco 49ers to become head football coach at the University of Michigan. Reportedly, his salary at the University of Michigan will be $7 million for the first year. If that doesn't sound like the income of a food-stamp beneficiary, then you'd better look more closely.

One of the arguments for shelling out big bucks for Harbaugh is that a winning football team will encourage enough contributions from devoted University of Michigan alums to easily cover the $7 million paid to Harbaugh. Insofar as this is the case, taxpayers are picking up a large chunk of Harbaugh's salary.

Apparently that is how the DC-insider crowd saw the elections last week. The elite media were filled with news and opinion pieces on how the election opened the door for the approval of the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Pact (TTIP). According to the purveyors of elite opinion, this is one of the key areas on which the Republicans in Congress and President Obama can agree.

That assessment is striking since few, if any, of the winning candidates in last week's election made a point of running on their support of these agreements. Nor did President Obama highlight his work on these pacts in his re-election campaign. In fact, the last thing most voters probably remember President Obama saying about trade was his pledge to renegotiate NAFTA when he was running for president the first time, back in 2008.

Developing explanations for the growth in inequality over the last three decades has been a huge growth industry in economics and policy circles. Many economists have made their careers with a novel explanation of how the natural development of technology and the market has concentrated income and wealth in the top one percent. It's even better if you can show that inequality hasn't risen. While the explanations that blame inequality on technology can get complicated, there were three items in the last week that painted the picture very clearly for the rest of us.

First, we got new data from the Federal Reserve Board and the Census Bureau, both of which showed that typical families are still seeing very little benefit from the recovery to date. The Fed released the 2013 Survey of Consumer Finance which showed median family wealth was still below the 2010 level in spite of the run-up in the stock market.

The Affordable Care Act (ACA) was pushed primarily as a way to extend health insurance coverage. This was, and is, an important goal.

However, another important aspect of the ACA is its impact on the labor market. The vast majority of people who are below Medicare age get their insurance through their job. This meant that tens of millions of people felt tied to a job because this was the only way they could get insurance for themselves and their families.

A key feature of Obamacare is that by allowing people to get insurance through the exchanges, workers would no longer feel tied to their jobs in the same way. Workers that wanted to look for jobs that may be a better fit, or wanted to try to start their own business, or just hated their boss, could now take this step without worrying about losing insurance for themselves and their families.