Beat the Press is Dean Baker's commentary on economic reporting. Dean Baker is co-director of the Center for Economic and Policy Research (CEPR).
There is a recurring theme in public discussions, seemingly embraced by everyone from Steve Bannon to columnists at the New York Times and Washington Post, that we should use protectionist measures to try to keep China from overtaking the U.S. as the world’s leading economic power. This effort is both incredibly wrongheaded and doomed to failure.
In terms of it being wrongheaded, the people doing the China bashing don’t even understand that they are being protectionist. Heather Long tells readers in the Washington Post:
“The real issue is that the Chinese are pirating American ideas and technologies. In the 1990s and early 2000s, people were worried about China illegally copying movies, music and books. The stakes are a lot higher now as the world's top economies compete on groundbreaking technologies in cloud computing, robotics, artificial intelligence and gene editing. Whoever controls these technologies will dominate global business — and more.”
Okay, great diatribe here, but let’s try some serious thinking instead. What exactly makes them “American ideas and technology?”
I know, we say so. But once an idea comes into the world or technology is developed, it is really there for the taking. We have rules on patent and copyright protection that say they are “American,” but why should China or anyone who believes in free markets give a damn?
Bannon, Long, and others want the United States to get tough with China (trade war!) to make it honor our protectionist rules on ideas and technology, but there is no obvious reason that most of us should go along with this crusade. Suppose we sit back and let China continue with its evil plans. In a few years, they will be flooding the world with low-cost cloud computing, robots, airplanes and who knows what else? The horror, the horror!Add a comment
When workers are doing badly you can always count on a large number of economists to come forward with ways to argue it really ain't so. For example, we have heard endless stories about how our price indices hugely overstate inflation — we're actually way better off than we think we are. Or, they point to the growth in non-wage benefits. One problem with that story is that non-wage benefits have been shrinking as a share of total compensation in recent years, not growing, but whatever.
One recent effort along these lines, which got mentioned in a NYT article, is the argument that aggregate wage growth is being depressed by the retirement of older, more highly paid workers. The argument is that individual workers are actually seeing a healthy pace of wage growth, but the change in composition leads to the aggregate growing more slowly.
While this argument has been given credence by many, it suffers from a simple logical flaw. It is not the change in the age composition of the work force that matters for the aggregate rate of change in wage growth, but the change in the change (the second derivative for calculus fans).Add a comment
In an article on the effort to renegotiate the terms of NAFTA, the NYT noted the Trump administration's plan to put in language that would prohibit currency management. (The article uses the term "manipulation," which implies an action being done in secret. In fact, large-scale efforts to affect the value of a country's currency will almost always be open, since they are almost impossible to conceal.) The piece then notes that since both Canada and Mexico have freely floated their currencies for decades, this is a "symbolic gesture."
This is not true. Many people in trade debates have claimed that it is impossible to have currency rules in a trade agreement. They have argued that it is impossible to identify steps to manage currency and distinguish them from the normal conduct of monetary policy. Having solid language on currency management in a revised NAFTA would show that it is possible. Also, since the original NAFTA served as a model for many future trade deals, a currency provision in a revised NAFTA could be the basis for similar provisions in other trade deals.Add a comment
The NYT had a piece discussing Sinclair Broadcasting's plans for expansion and the apparent green light coming from the Federal Communications Commission (FCC). As the piece explains, the FCC is now headed by Ajit V. Pai. Mr. Pai apparently met with David D. Smith, the chairman of Sinclair, just before he became chair. Shortly thereafter, the FCC weakened a rule that may have slowed Sinclair's plans for expansion.
At one point the piece describes Mr. Pai as "an enthusiastic purveyor of free-market philosophy."
This is not at all clear from the description of his views in the piece. In a true free market, the government would not be allocating air waves. The assignment of frequencies to specific companies by the government, with the threat of arrest for interfering, is not a free market. This is government intervention.
It is possible to argue that this government intervention is necessary to make the airwaves usable (if dozens of people tried to broadcast on the same frequency, no one would be able to hear or see anything), but people who support the assignment of frequencies are not in favor of a free market. Even if we accept the need to assign frequencies, there are an infinite number of ways this can be done.
A frequency can be parceled out by the hour, with individuals or companies only getting claims to short periods. To broadcast a longer show or movie it would then be necessary to buy up enough slots from others to allow for the necessary time. The slots can also be auctioned off rather than given away for free to private companies. This way, the government, rather than private companies, would benefit from the monopolization of the airwaves.
It is understandable that owners of television and radio stations would like to pretend that they support the free market when they want the government to just turn over exclusive use of frequencies, with no questions asked, but this is not true.
Note: Thanks to Keane Bhatt for calling this to my attention.Add a comment
When you're rich and powerful in the United States you get to lie freely to advance your position in public debate, including the opinion page of The New York Times. This is why the paper ran an anti-free trade diatribe against China, insisting that the country respect patent and copyright protections claimed by U.S. companies.
The column, by two former U.S. intelligence officials, asserted:
"Chinese companies, with the encouragement of official Chinese policy and often the active participation of government personnel, have been pillaging the intellectual property of American companies. All together, intellectual-property theft costs America up to $600 billion a year, the greatest transfer of wealth in history. China accounts for most of that loss."
Hmmm, $600 billion a year? That's more than 3 percent of U.S. GDP, it's more than 25 percent of all U.S. exports, it's roughly 30 times what we spend each year on TANF. Does that make sense?
The column doesn't give the source for this number, but when the industry groups have come up with these sorts of figures in the past, it is usually by assigning the retail value of their product in the United States to every unauthorized copy everywhere in the world. Let's say that there are 100 million unauthorized versions of Microsoft Windows in China. (I have no idea if this is a reasonable number.) If the retail price of Windows is $50 a copy, then the industry group writes down $5 billion as the theft, even if most of these people would switch to a decent operating system even if they were just charged a couple of dollars for Windows.
We get the same story for prescription drugs. A generic version of a drug like the Hepatitis C drug Sovaldi may sell for a few hundred dollars in the developing world. Gilead Sciences has a retail price of $84,000. If there are a million treatments in India and elsewhere, this comes to $84 billion in "theft." We, of course, have to skip the fact that Gilead Sciences doesn't have clear patent rights to this drug in much of the world. If they say so, it is good enough for the debate and The New York Times.
Anyhow, it is striking that this sort of nonsense is supposed to be treated respectfully by serious people. We expect President Trump and other political figures to go to bat with China and other countries to enforce the claims of Microsoft, Pfizer, and other companies whining about their intellectual "property," but when it comes to adjusting currency values to address the trade deficit — well, then we are all really wimpy and can't do anything. After all, that is just about the income of manufacturing workers (you know uneducated people), not the money of people who really matter.
So, there you have it. The folks who matter have a right to expect the president to massively interfere in the internal affairs of China and other countries to make them richer. But, ordinary workers? Well, let's twiddle our thumbs and pretend to give a damn.Add a comment
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.
"When a Canadian company decides to invest in a U.S.-based company, it increases our trade deficit. Similarly, when the Mexican government buys U.S. Treasury bonds (as most of the world does), the likelihood of an American trade deficit increases. Investments such as these are indicative of a strong economy.
"It should be an encouraging sign that we are by far the world’s largest receiver of foreign direct investment. Our trade deficit means, in part, that U.S. companies are considered to be a better investment than companies in other countries. More investment in American businesses means more jobs and higher wages for American workers."
Actually, there is no direct relationship between the decision to invest in a U.S. company by buying its stock and bonds and investment in the economy. The stock market has soared in the recovery, but investment is at best mediocre. Companies invest when they see more demand for their output, not when their stock price rises.Add a comment
When it comes to critics of globalization with standing in the mainstream of the economics profession, few are better than Dani Rodrik. Nonetheless, when it comes to laying out the indictment of the path pursued over the last three decades in a Washington Post interview even he largely accepts the story that the basic story is that “globalization” has some specific direction attached to it.
The point here is that globalization, meaning the greater integration of economies across the world, could have been designed an infinite number of ways. The way it was designed was intended to redistribute income upward, with those at the top of the income distribution using their political power to make changes that enhanced their wealth and power. The upward redistribution was not an accidental outcome of a process of economic integration: it was the purpose of this process.
I will restate some of the points I have made thousands of times before. (See my book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer [it’s free]) To start, we didn’t have to make removing trade barriers in manufactured goods a central focus of trade deals. It would be every bit as much a step toward greater integration if we had focused on removing professional licensing barriers to make it as easy as possible for doctors, dentists, and other highly paid professional to train to U.S. standards and practice in the United States. This would have provided enormous gains to consumers in the form of lower costs for health care and other services while redistributing income downward, since these professionals are almost all in the top 5 percent and often top 1 percent of the income distribution.Add a comment
President Trump has made a point of very publicly donating his $400,000 annual salary as president to various civic minded efforts. He recently announced the donation of $100,000 to a camp run by the Department of Education to encourage women to enter science, technology, education, and math. He donated his first quarter's pay of $100,000 the National Park Service to help pay for the cost of the restoration of the Civil War battlefield at Antietam.
While these contributions will likely support socially useful activities, people should not be misled into thinking the national budget has benefited by having a billionaire business person in the White House. According to the New York Times, Congress had to appropriate an additional $120 million to cover the additional security costs required by Trump as a result of the unusual security demands that he and his family have placed on the Secret Service and government agencies.
To be clear, these are not the normal costs of protecting the president. This $120 million is additional spending that was needed as a result of factors unique to Trump. This includes the Secret Service protection for his adult children (adult children of prior presidents have not been protected), his decision to have his wife and one of his sons stay in New York for the first six months of his presidency, and his habit of visiting Trump properties rather than vacationing at Camp David, like prior presidents. Camp David is already well-secured, and therefore does not require much additional spending when the president visits. This is not the case with Mar-a-Lago and various other Trump properties.
The chart below gives the relative costs of the additional security spending required by the Trump family and the value of his donated salary, net of taxes. (It assumes that he would pay 40 percent of his $400,000 annual salary in taxes.)
Source: New York Times and CNN.
As can be seen, the additional cost of security for President Trump and his family is more than 400 times the net value of the contribution of his presidential paycheck. The public would be considerably better off with a president who pocketed his paycheck and made less extravagant security demands on the Secret Service and other governmental agencies.Add a comment
I had a blog post a couple of days back in which I argued that rising stock prices reflected expectations of higher future corporate earnings, at least insofar as they were not just driven by irrational exuberance. Since no one seems to be expecting higher growth, the expectation of higher corporate profits presumably means that investors are expecting a redistribution of income away from workers and consumers to corporate profits. This is actually a plausible scenario given Donald Trump's proposed tax cuts and his plans for changing regulations in ways that will benefit corporations.
This is good news for the 10 percent or so of the population that holds substantial amounts of stock. It is pretty bad news for everyone else. In other words, you probably wouldn't want to be boasting about a run-up in stock prices unless you think it's good news to redistribute money from everyone else to the richest 10 percent and especially the richest one percent.
Narayana Kocherlakota, the former president of the Minneapolis Federal Reserve district bank, and a very good economist, disagreed with my assessment. He cited work by John Cochrane arguing that stock market movements could be explained primarily by changes in risk premia. When I questioned whether risk premia had fallen since Trump was elected Kocherlakota tweeted back an index showing the spread between high yield (i.e. risky) corporate bonds and Treasury bonds. This index had indeed fallen since Donald Trump's election.
Breitbart decided to write up this exchange and expound on how Donald Trump was indeed making America great again and therefore reducing the risk that investors perceived in the economy. The only problem is that they left out my response tweet to Kocherlakota. In this tweet, I pointed out that the spread had just fallen back to its 2014 level.
This matters because if we think this index is a good measure of perceived risk, and if we think risk premia explain movements in the stock market, then we would expect the stock market in 2014 to have been close to its current level and we would have expected sharp declines in 2015 and 2016 as risk premia were rising. Of course, the market was considerably lower in 2014 than it is today. It rose throughout the next two years even as risk premia by this measure were increasing.
That would indicate that a fall in risk premia is not a good explanation of the run-up in stock prices in the last six months. The shift of income from workers and consumers to corporate profits is still the leading candidate.Add a comment
The Washington Post had a column by Ohio attorney general Mike DeWine explaining why he was suing five opioid manufacturers. Dewine explains:
"We believe evidence will show that they flooded the market with prescription opioids, such as OxyContin and Percocet, and grossly misleading information about the risks and benefits of these drugs. And as a result, we believe countless Ohioans and other Americans have become hooked on opioid pain medications, all too often leading to the use of cheaper alternatives such as heroin and synthetic opioids. Almost 80 percent of heroin users start with prescription opioids."
The incentive to distribute "grossly misleading" information about their products comes from the government-granted patent monopolies which allow companies to charge prices that can be several thousand percent above the free market price. This is straight textbook economics. Corporations are motivated by profit. If they can sell a pill for five dollars that costs them a few cents to manufacture, they have an enormous incentive to market it as widely as possible.
This is a problem with prescription drugs more generally. Manufacturers often exaggerate the effectiveness and safety of their drugs. While it is illegal to knowingly misrepresent the quality of a drug, it is extremely difficult to prove this in court, which means a company has a big incentive to do so. The cost to the public from such misrepresentations is enormous, and unfortunately, it gets very little attention from the media even in the context of the opioid crisis where it is quite obvious.
In the case of opioids, it is true that some of the villains are generic manufacturers. When a drug comes off patent, it is subject to competition. However, even the generics benefit from the high prices that result from patent and related protection. The first generic in a market gets six months of exclusivity, which means that no other generic is allowed to enter the market. Over time more generics will typically enter bringing the price closer to the free market price, but there will be a substantial period in which prices remain inflated, compared to a scenario in which all drugs could be produced as generics on the day they were approved by the Food and Drug Administration.
Since some folks don't think the pharmaceutical industry has been deliberately pushing opioids, here a good WaPo piece on the topic.Add a comment
The usually sensible Brad DeLong is very unhappy with those who oppose the agenda that has passed for globalization over the last three decades. He argues that people are foolish for believing that globalization has had a major impact on employment and the distribution of income in recent years. I'll take the side of Brad's "fools" in this matter.
First, Brad is well aware that the economy has operated well below full employment at least since the collapse of the housing bubble, I would argue this has been the case for almost all of the period since the collapse of the stock bubble in 2001. But he attributes this to a simple failure of the government to run full employment policies, rather than the large trade deficits we saw develop following the East Asian financial crisis in 1997.
While Brad is right, the government could maintain full employment by running much larger budget deficits, as he is well aware, that does not appear to be politically feasible. Even among Democrats, very few are willing to say that we should have larger budget deficits to bring the economy to full employment and some even insist on balanced budgets. There is no need to talk about Republican ideas on stimulus here.
It's also worth noting that the costs of being below full employment are disproportionately borne by disadvantaged groups in the labor market, especially African Americans and Hispanics.
Anyhow, if the political reality is that we will not have full employment fiscal policies, does it take a "fool" to argue that big trade deficits are a real problem? The cost of the shortfall in demand that we have seen over the last decade almost certainly exceeds $10 trillion by now and it is enduring, as we have seen lasting reductions in capacity, as Brad has written about himself. And millions have seen their lives and families disrupted by long periods of unemployment. Should we not worry about this damage from the demand shortfall created by trade deficits because there is in principle an economic fix, even though everyone knows it is not politically feasible?Add a comment
I was listening to a BBC radio news show this morning in which they proclaimed today as the 10th anniversary of the beginning of the financial crisis based on the date in 2007 when the French bank BNP Paribas first blocked withdrawals from hedge funds that specialized in U.S. mortgage debt. The show then said that following this move house prices began dropping.
Really, folks? House prices began falling after this date? That's not what the data show.
At the most aggregate level, the Case-Shiller national index for the U.S. was already down 3.4 percent from its peak in 2006 by August of 2007, but there was enormous dispersion around this figure. House prices in Phoenix had fallen by almost 10.0 percent from their peak the prior year. Prices were down 7 percent in Los Angeles, 11 percent in San Diego, and 10 percent in Washington. And the momentum was clearly downward, with prices in many of these cities falling at the rate of more than 1.0 percent a month.
But wait, it gets better. If we turn to Case Shiller tiered indexes, we find that prices for homes in the bottom third of the San Diego had fallen by more than 13 percent, in San Francisco they were down 12 percent, and in Seattle, they were down 10 percent.
In short, prices had already fallen sharply in many areas and there was every reason to think they would drop further. This is before we got to the official beginning of the financial crisis.
This is not a trivial point. The reversal of ordering matters because the key problem was an over-valued housing market. All of the fraudulent mortgages and exotic financing would not have given us a worldwide financial crisis if they had not been based on a hugely over-valued housing market. The key problem was the bubble. If we don't recognize this fact, then we have learned nothing.Add a comment
Donald Trump has been anxious to take credit for the sharp run-up in stock prices since his election. While it is not clear that anything really lies behind this run-up (remember Wall Street investors are the same folks who thought AOL.com was worth $250 billion back in 2001 and that subprime mortgage backed securities were perfectly safe assets), in principle, stock prices are supposed to represent the present value of future corporate profits. If we assume that the rise in stock prices actually reflect something in the world, and not just Wall Street fantasies, then Trump has given these companies a reason to expect larger future profits.
Profits can rise for two reasons. Either they can be the same share of a larger economic pie or they can be a larger share of the same economic pie. There is no reason to believe that anyone is now expecting faster economic growth than before the election. In fact, the I.M.F. recently cut its growth projection for the U.S. If nothing Trump has done or given any indication of doing is likely to boost the U.S. growth rate then the higher expected profits must mean that investors anticipate that corporations will have a larger share of the economic pie.
There are several paths through which Trump's policies could have this effect. Most obviously, he has called for sharp reductions in the corporate tax rate. If his tax cuts go through, then after-tax corporate profits will be higher even if there is no change in before-tax profits.
A second route for higher corporate profits is by facilitating rip-offs of consumers. The Consumer Financial Protection Bureau (CFPB) was set up in large part to prevent predatory practices by the financial industry. For example, it has sought to make it more difficult for financial firms to slip conditions into contracts that no one would ever agree to if they understood them.
If the CFPB is prevented from protecting consumers then we can assume that financial firms will put more effort into ripping off their customers. This will actually reduce growth since the resources spent writing deceptive contracts could have otherwise been devoted to productive uses.
Another route in which corporate profits can be increased is by letting them destroy the environment at zero cost. For example, the Trump administration reversed an Obama administration executive order that required mining companies to restore hilltops after they did surface mining. By allowing these companies to mine areas without repairing the damage the Trump administration is saving them money. The people in the communities will suffer the consequences in the form of polluted streams and ruined forests, but this is still good news for corporate profits.
Lastly, Trump's regulatory changes might shift money from wages to profits. The most obvious example here is the plan to reverse the Obama administration's rule raising the cap under which salaried workers are automatically entitled to overtime pay. By allowing employers to require salaried workers to put in more than 40 hours a week, often without any additional pay, the Trump administration will be putting downward pressure on wages and boosting corporate profits.
For these reasons, investors might have some real cause for expecting higher corporate profits as a result of the Trump presidency. However, none of these reasons are good news for the 90 percent of the country that does not have substantial stock holdings.Add a comment
Since several people have asked, I thought I would do some recycling. My plan (which I know I have stolen from someone) is to require companies to turn over an amount of stock, in the form of non-voting shares, roughly equal to the targeted tax rate. This means if we're shooting for a 28 percent tax rate, then the shares going to the government are equal to 28 percent of the total. If the target is 20 percent, then the government's shares are equal to 20 percent of the total.
From that point forward the government's shares are treated the same as the other shares of the company. If the company pays a $2 per share dividend, the government gets $2 for each of its shares. If the company buys back 10 percent of its shares at $100 a share, it buys back 10 percent of the government's shares at $100 per share. A company taking over the company at a $120 per share price has to also pay the government $120 per share. The basic story is that there is no way to cheat the government out of its tax revenue unless the corporation's management is also cheating its shareholders.
To be as clear as possible, this is not a government takeover of corporate America. As it stands now, the government makes a claim on corporate profits in the form of income taxes. This just changes the form of this claim on profits.
Some folks may want the government to run the whole economy. I don't. I value having firms compete in the market. This tax proposal doesn't change that story. In fact, it has the nice feature that companies will no longer make decisions with an eye toward reducing their tax liability, since the only way they can do that is by screwing shareholders. Instead, companies will make decisions that maximize their expected profits.
I should also point out that this can be done on a voluntary basis. Wherever the tax rate is set, companies can be given the option of issuing stock in the same amount (e.g. a 25 percent tax rate means 25 percent of shares). This would have the advantage from the company's perspective of ending the need to file tax returns. They just pay the government what they are paying shareholders.
From the government's standpoint it reduces the enforcement costs. The companies that go this route will require minimal enforcement resources. Meanwhile, the companies that don't opt to go this route will be telling the I.R.S. that they think they can reduce their tax liability substantially below the official rate. The I.R.S. can then focus its resources on policing these companies. That might not be as good as requiring all companies to go the stock route, but it would be a big step forward in my view.
Add a comment
I understand people can have reasonable differences of opinion on trade deals like the Trans-Pacific Partnership (TPP), but why is it that the proponents have to insist, with zero evidence, that not doing the deal was an economic disaster? Yes, I know the political argument, which seemed to arise late in the game, that U.S. standing in the world has collapsed because we didn't folllow through on the TPP. But, let's just stick with the economics.
Yesterday, Politico ran a lengthy piece saying that the U.S. pullout from the TPP undermined the hopes for a revival of rural America. It cited as evidence a report from the United States International Trade Commission that projected the deal would increase agricultural output by 0.5 percent when fully phased in 15 years from now. Seriously folks, a 0.5 percent increase in output is going to save rural America? That's 3 months of normal growth, who are you trying to fool?
The NYT joins the act this morning with a news article that starts out by pointing to the costs from the Trump adminstration's ambiguities on trade policy. While the piece makes many reasonable points, it then turns to the losses from pulling out from the TPP. It tells readers:
"One accomplishment that Mr. Trump has notched on trade has been an agreement with China that opened its market to American beef exports. For the beef industry, however, the benefits of that deal pale in comparison with the cost of abandoning the Trans-Pacific Partnership, which had been spearheaded by President Barack Obama. It would have provided access to the enormous Japanese market.
"Instead, Japanese tariffs on American frozen beef, which would have declined under Mr. Obama’s deal, are on the rise. Last week, they increased to 50 percent from 38 percent, making America’s meat even more vulnerable to competition from countries such as Australia.
"'TPP was fantastic,' said Kent Bacus director of international trade for the National Cattlemen’s Beef Association. 'When you walk away from it without a meaningful alternative, that causes a lot of alarm in the beef industry.'"
While the piece tells us how important the Japanese beef market is, it would have been useful to get some sense of proportion. According to the piece, Japan's entire market is $1.5 billion annually. U.S. beef production is currently $60 billion. This means that if U.S. producers were able to secure half of Japan's market, a very impressive accomplishment for a country halfway across the world, it would raise the demand for U.S. beef by 1.3 percent.
The piece also misleads readers on the nature of global markets. If Australia gets preferred access to Japan's beef market, then some of the beef that Australia used to export to other countries will be diverted to Japan. This will open up new export markets for U.S. beef. It is worth noting that, while the piece includes the exuberant praise of the TPP from Mr. Bacus, it does not quote or cite any critics of the deal.Add a comment
Politico gets into the act telling readers how tragic the demise of the Trans-Pacific Partnership (TPP) is for the rural economy in a special report. Here's the punch line:
"But for the already struggling agricultural sector, the sprawling 12-nation TPP, covering 40 percent of the world’s economy, was a lifeline. It was a chance to erase punishing tariffs that restricted the United States—the onetime 'breadbasket of the world'—from selling its meats, grains and dairy products to massive importers of foodstuffs such as Japan and Vietnam.
"The decision to pull out of the trade deal has become a double hit on places like Eagle Grove. The promised bump of $10 billion in agricultural output over 15 years, based on estimates by the U.S. International Trade Commission, won’t materialize. But Trump’s decision to withdraw from the pact also cleared the way for rival exporters such as Australia, New Zealand and the European Union to negotiate even lower tariffs with importing nations, creating potentially greater competitive advantages over U.S. exports."
Wow, we could have had another $10 billion in agricultural output after 15 years, if only Donald Trump had not pulled the plug. Hmm, $10 billion in additional agricultural output in 2032, is that a big deal?
Well, if we turn to the International Trade Commission (ITC) report cited in the piece, we see that it amounts to 0.5 percent of projected agricultural output in 2032. That's about equal to six months of normal growth of the agricultural economy. This means that, according to the ITC report, with the TPP in effect, the agricultural economy would be producing roughly as much on January 1, 2032 as it would otherwise be producing on July 1, 2032 without the TPP.
Is this a "lifeline" for the agricultural economy?
There is also reason to be wary of the ITC report, since these models have been incredibly bad at predicting the outcome of past trade deals.
It's also worth commenting on the apparent horror with which Politico views the possibility, "rival exporters such as Australia, New Zealand and the European Union to negotiate even lower tariffs with importing nations." In the good old days, economists used to believe that the United States was helped by stronger trading partners. This was one reason the U.S. generally supported the process of economic integration that led to the European Union.
If other countries remove barriers between them, this could make some of their goods better positioned relative to U.S. exports, but it can also lead to more rapid growth in these countries, which will increase demand for U.S. exports. While both effects are likely to be small relative to the size of U.S. production, it is entirely possible that the growth effect will exceed the substitution effect. Long and short, there is no need for reasonable people to be terrified by the prospect of other countries crafting trade deals.Add a comment
According to the Bureau of Labor Statistics, productivity growth, especially in manufacturing, has slowed to a record slow pace. In light of this fact, the Washington Post naturally decided to run a major front page article, jumping to two full inside pages, on automation.
It would be good if we were seeing more rapid productivity growth. It would mean that we could enjoy higher wages and/or shorter hours. The Fed could also stop raising interest rates since it wouldn't have to worry so much about having too many jobs. But that is not the world we are seeing — or at least not the world that we are seeing outside of the pages of the Washington Post.Add a comment
In his NYT column on whether the turmoil of Trump's presidency is slowing economic growth, Neil Gross refers to concerns about "secular stagnation" raised by former Treasury Secretary Larry Summers. Secular stagnation just means insufficient demand in the U.S. economy. While the column sees the major cause as weak investment demand, the more obvious cause of secular stagnation is the U.S. trade deficit.
The trade deficit is running at annual rate of more than $540 billion a year, close to 2.8 percent of GDP. This is money that is creating demand in other countries, not the United States. If the trade deficit were suddenly brought to zero it would have the same effect on demand as an increase in annual investment of $540 billion. That is far larger than any shortfall that could be explained by factors Summers cited.
It is bizarre that the trade deficit never features in discussions of secular stagnation since it is obviously a major drain on demand in the U.S. economy. It also runs contrary to textbook economics which holds that rich countries like the United States should be capital exporters to the developing world, which means that we should be running large trade surpluses, not deficits.
But, as the saying goes, economists are not very good at economics.Add a comment
It is strange how the media often respond to the prospects of tariffs on imports by pointing to foreign-owned factories in the United States, implying that these are somehow at risk if tariffs are imposed. The NYT gives us an example of this reporting today in a front page article.
The piece highlights a number of foreign-owned factories in the United States and includes data on foreign direct investment by country and also employment levels. It also includes the warning:
"But political and business leaders here in Hamilton County, a conservative stronghold where Donald J. Trump won a majority of the votes, worry that the president’s attacks on trading partners and exhortations to 'Buy American' could set off a protectionist spiral of tariffs and import restrictions, hurting consumers and workers."
This seems to be a non-sequitur. Tariffs on imports increase the incentive for foreign companies to invest in the United States. They allow them to produce for the U.S. market and get around any tariffs. The first Japanese auto factories in the United States were a direct response to the "voluntary export restraints" on the major Japanese manufacturers agreed to in the Reagan years. The cars that Toyota and other companies produced in the United States did not count against these limits.
There are good arguments to be made against putting up import tariffs, but the idea that it would somehow hurt foreign direct investment in the United States is not one of them. If new tariffs are put in place, it would more likely increase foreign investment than reduce it.Add a comment
It's standard practice in news stories to refer to France's economy as a basket case. The NYT went this route in an article on President Emmanuel Macron's efforts to rewrite the country's labor laws.
The article refers to Macron's efforts to "revitalize" the French economy and then tells readers:
"The code is regarded by many as the wellspring of the country’s malaise and the chief obstacle to generating jobs, leaving the country with an unemployment rate that hovers persistently around 10 percent."
Of course, many economists regard the German government's insistence on austerity in spite of low interest rates and low inflation as "the wellspring of the country’s malaise," but apparently there was no room to mention this fact. Anyhow, it is worth noting that while France has a considerably higher unemployment rate than the United States a larger portion of its prime-age population (ages 25 to 54) have jobs than in the United States.
According to the OECD, the employment-to-population ratio for this age group is 79.6 percent in France, compared to 78.2 percent in the United States. For this age group, the French economy is doing better producing jobs than the U.S. economy, in spite of its malaise.
It does have lower employment rates for younger and older workers, but this is largely the result of deliberate policy. A college education is largely free in France, and as a result, few students work. France also has a more generous social security system than the United States, which discourages older workers from staying in the labor force. It's arguable whether these are good policies but it is these policies, rather than the state of the economy, that explain differences in employment rates between the U.S. and France for these age groups.
The piece also includes this interesting paragraph:
"The Macron changes would help employers set the rules on hiring and firing, ignore the crippling restraints in the code that discourage taking on new workers, and limit unions’ ability to get in the way. Instead, individual agreements would be negotiated at the company or industry level between bosses and workers."
It is interesting that NYT thinks that unions "get in the way" between workers and employers. This is, of course, true just as when we allow defendants to have lawyers, the lawyer "gets in the way" of discussions between police and prosecutors and the accused.Add a comment
Okay, this is getting beyond ridiculous. Productivity growth, especially in manufacturing, is at a record slow (as in not fast) pace. This is not secret information. The data are published every quarter by the Bureau of Labor Statistics. You can even find a nice graph in my previous post. Yet, in spite of the fact that all the evidence shows that workers are not losing jobs due to automation, or at least at a much slower pace than in prior decades, the Washington Post still tells us:
"Yet manufacturing hit a new low in July as a share of all U.S. jobs, said Kolko. While manufacturing has been a focus of the Trump administration, the sector continues to shed jobs, due largely to automation."
Apart from the fact that manufacturing has actually been adding jobs for last eight months, how does the Post get off blaming non-existent job loss on automation? This seems like a knee jerk response.
No, job loss can't be due to a trade deficit. The idea that importing things rather than producing them here, couldn't possibly mean that we hire fewer people to produce things here. The papers can't have people believe this. So we get outright lies. (Sorry, it is a lie — it is reasonable to expect reporters/editors at a major news outlet to be able to look up data that is readily accessible from a government agency. At the least, there is a deliberate decision to remain ignorant at work here.)
Let me also point out another aspect to this issue. Even if automation was the factor costing jobs, it would not be technology that was responsible for any increase in inequality. The ownership of technology is determined by government policy on patent and copyrights. The government can (and has) made these forms of protection longer and stronger. It could make them shorter and weaker.
Without patent and copyright protection, Bill Gates, the richest person in the world, probably would not have much more money than your average successful doctor or lawyer. It is possible to argue that these are good policies and that we have all benefited from making them stronger and longer, but to deny that the resulting upward redistribution was just technology is just flat-out dishonest.
Incredibly, I have never seen any discussion of this simple and obvious point in any major outlet. I haven't seen in the NYT, WaPo, WSJ, heard it on NPR or PBS Newshour. I haven't even seen it mentioned in ostensibly liberal and progressive magazines like the New Republic and the Nation.
It is worth noting that the technology view does have the implication that upward redistribution is something that happened, as opposed to upward redistribution being something that was done through deliberate policy. The implication that the rich getting richer is just the natural state of things is convenient for the winners in this story.Add a comment