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).
It is bizarre how many people feel the need to claim that a large trade deficit in manufactured goods does not cost manufacturing jobs. You can argue all sorts of things about the merits of trade, and even make a story about how a trade deficit is good (pretty hard, when we're below full employment), but it is almost impossible to tell a story that the explosion of the trade deficit between 1997 and 2006 did not cost manufacturing jobs.
Nonetheless that is the story the NYT gave its readers when discussing Indiana's economy just before the primaries this week. It presents the views of Michael J. Hicks, director of the Center for Business and Economic Research at Ball State University in Muncie, Indiana:
"Factory jobs have declined, he added, but not because of trade deals with other countries as Mr. Trump and Mr. Sanders assert, but because Indiana factories are increasingly efficient and fewer workers are needed.
"'Manufacturing employment peaked in 1973,' he said, adding that since then the productivity of Indiana factory workers has climbed 250 percent. 'We need far fewer workers, and a very different type of worker, too.'"
In the country as whole manufacturing employment peaked in the early 1970s, but then remained more or less constant, while falling as a share of total employment since the labor force grew. However employment fell sharply in the years from 2000 to 2006. While there was productivity growth in manufacturing over the years 2000 to 2006, that was also true for the years 1973 to 2000. The difference in the years 2000 to 2006 was the sharp rise in the trade deficit.
This was also the story in manufacturing employment in Indiana, as can be seen in the graph below.
Manufacturing Employment in Indiana
Source: Bureau of Labor Statistics.
As can be seen, manufacturing employment had been rising through the 1990s recovery. It peaked in December of 1999 at 672,200 and then fell to 556,700 by December of 2006, a drop of almost 20 percent. Employment fell further during the 2008-2009 recession, although it has recovered the ground lost. Anyhow, the data certainly seems to support the case that Indiana lost a large number of jobs due to trade in the years 1999-2006, it's not clear why the NYT would want to deny this fact.Add a comment
Thomas Friedman really is a gift to the world. As a long established New York Times columnist and author of many widely touted books, he is a great source of insight into establishment thinking. He comes through brilliantly in his column today.
Friedman's basic story is that the two parties need to work out compromises, like the "Grand Bargain" on the budget, that President Obama tried to negotiate in 2011 with then Speaker John Boehner. Friedman blames the intransigence of the Republicans for failing to come to an agreement on this and other important issues. He argues that Trump is where this extremism gets them. His hope is that now the Republicans will move to the center and work out the deals that Friedman would like to see.
It's good to see that Friedman is looking forward to working with Republican centrists again, but let's look at the nature of his argument. Basically his story is that the truth lies in the center and these know nothing types need to be chased out of the political debate:
"In this vortex [the 2008 economic collapse and the political polarization that followed] a lot of the public got unmoored and disoriented, opening the way for populists with simple answers. Get rid of immigrants, end trade with China or eliminate big banks and all will be fine. It’s nonsense."
Friedman is right that it is nonsense, but it is also not what anyone is saying. Even Donald Trump doesn't propose getting rid of all immigrants, which is not to say that his plan for departing 11 million unauthorized immigrants is not absurd and inhumane. And neither Trump nor Sanders proposed ending trade with China. And, while Sanders agrees with many leading economists that breaking up the big banks is important, he has certainly never implied that this would somehow make everything fine.
In short, Friedman is making up absurd positions, attributing them to the people he doesn't like, and using this as an excuse to throw them out of the discussion. He wants to leave it to the real experts.
Okay, let's see how the experts have done, starting with some of the details of the "Grand Bargain." As Friedman reminds us, a big part of the Grand Bargain was cutting Social Security and Medicare. Is it really true, that in a world where few workers now have traditional pensions and most are not able to accumulate substantial sums in 401(k)s or other savings, Social Security is too generous? The vast majority of the public does not hold this view. On what basis has Thomas Friedman decided it is true?
With Medicare the problem is a wasteful health care system, not the coddling of the over 65 population. One of the ironies, that has apparently escaped Friedman's attention, is that the slowdown in health care cost growth over the last six years has actually led to more savings in Medicare than had been sought by Bowles and Simpson in their deficit cutting plan that was the basis for the Grand Bargain.
Of course the whole idea that we needed to reduce the deficit in an economy that was and is still well below its full employment level of output is wrong. Had the Grand Bargainers gotten their way in 2011, the recovery would have been even slower and weaker.
But this is the real story of the establishment. After all, the 2008 crash was not a rare weather event that struck the country and the world unexpectedly. It was the result of the incompetence of our country's leading economists in both parties. They could not see the dangers in an $8 trillion housing bubble.
A similar story applies in foreign policy circles, where many foreign policy experts were prepared to believe the Bush administration's transparent lies about Saddam Hussein's weapons of mass destruction. And, they actually thought that the United States could go into Iraq and put in place a stable government that enjoyed popular support.
The amazing part of the story is that the establishment types pay no price for being wrong in really big ways in their areas of expertise. This is best exemplified by Friedman himself. He can be wrong on every single thing he writes, every day of his life, and it will not in any way jeopardize his standing as one of the country's most respected commentators on policy and politics.
And he wonders why the public is angry.Add a comment
Eduardo Porter used his weekly column to chronicle Brazil's economic course over the last two decades. He argues that many of its current problems are due to excessive government involvement in the economy in imposing price controls and trade barriers.
While there is likely some truth to this argument, it is worth extending Porter's warning to patent and copyright protection. These forms of protection are equivalent to tariffs of many thousand percent, they typically raise the price of protected items by ten or even a hundred times the free market price.
The rationale for this protection is to promote innovation and creative work, but the market doesn't care about the rationale, raising prices by 2000 percent above the free market price has the same impact whether we call the cause a "tariff" or a "patent." And, patents and copyrights do affect a very large segment of the economy. In the case of prescription drugs alone, patents and related protection likely add close to $380 billion (@ 2.1 percent of GDP) to the what the country pays for drugs each year.
If anyone wants to give advice to developing countries, avoiding the protectionism that the United States is trying to impose in deals like the Trans-Pacific Partnership would be a good place to start. These deals would both create enormous economic distortions through their impact on the prices of protected products and also be a substantial drain on these countries economies, since the income from the patents and copyrights will mostly go to foreign corporations.Add a comment
That's what a Reuters article in the NYT inadvertently told readers. The piece begins by telling readers:
"Some of the richest, smartest and most powerful humans have an important message for the rest of us as they convened this week to discuss pressing global issues: the robots are coming.
"At the Milken Institute's Global Conference in Beverly Hills, California, at least four panels so far have focused on technology taking over markets to mining - and most importantly, jobs."
The piece goes to blame technology for destroying large numbers of middle class jobs, which it argues is a main cause of wage stagnation. The problem is that if these smart and powerful people had access to the Bureau of Labor Statistics website (BLS) they would know that productivity growth (the rate at which robots and other technologies are taking our jobs), has been extremely slow over the last decade, as in the opposite of fast.
This means that we have to look to other causes of inequality, like boneheaded macro policy that leaves millions unemployed, trade policy that displaced millions of manufacturing workers, and longer and stronger patent and copyright protection that make the rest of us pay larger rents for drugs, software, and other protected items.
But the rich and powerful prefer the robot story, and apparently, because they are rich and powerful, they can get the media to take it seriously.Add a comment
President Obama continued the administration’s boasting about how the Trans-Pacific Partnership (TPP) will eliminate Vietnam’s tariff on exports of U.S. whale meat. You may have missed it, but this tariff, along with Malaysia’s tariff on U.S. exports of shark fins, and Japan’s tariff on our ivory exports, are among the 18,000 tariffs that President Obama said would be eliminated by the TPP in a Washington Post column today.
This 18,000 tariff figure was intended to sound very impressive, but according to Public Citizen the United States doesn’t export at all in more than half of the categories and in almost all the ones in which it does export the tariffs are already low. One important exception is tobacco. Several of the countries in the TPP have high tariffs on U.S. tobacco exports, so the TPP will be making cigarettes cheaper for kids in Vietnam, Malaysia, and elsewhere.
President Obama framed the TPP as an anti-China measure, warning readers:
“As we speak, China is negotiating a trade deal that would carve up some of the fastest-growing markets in the world at our expense, putting American jobs, businesses and goods at risk.”
Actually, this is not the way the economy works. If China reduces trade barriers with other countries in Asia, allowing the region to grow more rapidly, then it should also make the United States more prosperous. The region would be a bigger source of demand for U.S. exports and a more efficient provider of goods and services to the United States. That was exactly the logic of the Marshall Plan that helped to rebuild West Europe after World War II. Greater economic integration in the region, even if engineered in part by China, is something that the United States should applaud, not fear.Add a comment
A NYT article on Donald Trump's threats to impose high tariffs on Chinese imports discussed the possibility that Trump might seek rules that addressed policies aimed at currency management. The piece included the strange assertion that:
"A central problem is defining currency manipulation in a way that excludes the United States — in particular, the Federal Reserve’s post-recession stimulus campaign, which had the effect of weakening the dollar much in the same way that other countries do to their currency."
Actually it is difficult to see the problem here. Currency management ("manipulation" is a peculiar term, since it is generally done in the open) involves buying another country's bonds, the Fed's quantitative easing program involved buying U.S. bonds. It's not clear what the basis for confusion is.
Add a comment
Washington Post editorial writer Charles Lane appeared to be throwing in the towel on the Post's dream of cutting Social Security and Medicare in a column headlined, "Entitlement Reform, RIP." The piece recounts a sad story whereby the bulk of currently scheduled federal spending is already committed to entitlement programs like Social Security, Medicare, and Medicaid:
"Seventy-five percent of planned federal spending between now and the end of the next two presidential terms is mandatory: Social Security, Medicare and other entitlement programs, plus interest on the national debt, according to Congressional Budget Office forecasts. That money is going out the door no matter who’s president."
The piece complains that this indicates a lack of democracy, since it means that spending will have been committed by past decisions. Of course a problem with this story is that voters seem to overwhelmingly support this spending, as Lane complains:
"Moreover, if the primary results demonstrate anything so far, it is that voters of both parties oppose trimming entitlements, especially the two giants, Social Security and Medicare, that benefit the elderly."
So, we are suffering from a lack of democracy because voters are getting what they want? Only in the Washington Post.Add a comment
My guess is that many people reading this NYT article on Europe's GDP growth will think that its 0.6 percent rate was only slighly better than the anemic 0.5 percent rate the U.S. had just reported for the first quarter. Actually, it is a lot better, because the the European Union (EU) rate is a quarterly growth rate, while the U.S. rate is an annualized growth rate. If the EU growth rate were also annualized, it would be approximately 2.4 percent.
In Europe and many other parts of the world it is standard to report growth figures at quarterly rates. In the United States they are always reported at annualized rates. This is no big deal as long as everyone is clear which rates they are using, but it is likely that many NYT readers will see the 0.6 percent figure and assume it is an annualized number. (The piece does indicate it is quarterly growth.)
The simplest solution would seem to be to just report all numbers as annual rates. It's a pretty simply conversion that NYT economics reporters should be able to do in a second.Add a comment
Neil Irwin noted the incredibly weak productivity growth of the last six years and then considered three possible explanations. Unfortunately, he left out what may be the plausible one: labor is cheap.
The high unemployment of the last seven years has left many people desperate for work. As a result, they are willing to work for very low wages. If businesses can get people at very low wages, they don't mind having them do relatively low productivity tasks. For example, Walmart will have large numbers of workers standing around waiting to help customers. Convenience stores will remain open all night even though only a few people an hour may come in between midnight and 5:00AM.
If these stores had to pay workers higher wages, then many of these jobs would disappear. This would raise average productivity by eliminating many of the least productive jobs. If the Fed doesn't raise rates to reduce the pace of job creation, we may get a chance to test this theory.Add a comment
Andrew Ross Sorkin presented a confused account of the state of the economy and economic policy under President Obama. The account repeats many self-serving comments from Obama without comment and offers little useful context to readers.
The confusion starts early when he reports Obama's complaint that he doesn't get sufficient credit for the economy's strength, pointing out:
"His economy has certainly come further than most people recognize. The private sector has added jobs for 73 consecutive months — some 14.4 million new jobs in all — the longest period of sustained job growth on record. Unemployment, which peaked at 10 percent the year Obama took office, the highest it had been since 1983, under Ronald Reagan, is now 5 percent, lower than when Reagan left office."
The economy has also seen close to 3 million prime age workers (ages 25-54) drop out of the labor force. No one had predicted this back in 2009 when President Obama took office. The number of people who are working part-time involuntarily is still close to 1.7 million above their pre-recession level. No one had expected this back in 2009 either.
The 73 consecutive months of private sector job growth, "the longest period of sustained job growth on record," is kind of a joke. This is sort of like a weak scoring basketball player telling a reporter about the number of consecutive games in which he scored points, it is an utterly meaningless statistic. It is the average job growth, GDP growth, and improvement in living standards that matter, not the monthly job creation streak. (And President Obama wonders why people don't feel better.)Add a comment
Sorry couldn't resist, but the lecture on why we should not care about manufacturing jobs from Eduardo Porter brought it out in me. Porter makes many valid points. Manufacturing has been declining as a share of total employment in the United States for half a century. The same is happening almost everywhere else in the world. And, he's right that the main cause has been productivity growth.
But that doesn't change the fact that the huge explosion in the trade deficit in the decade following 1997 led to a collapse of manufacturing unemployment. This drop in employment had a huge impact on large segments of the workforce.
Source: Bureau of Labor Statistics.
The surge in the trade deficit, which did not have to happen (i.e. it was the result of policy) and could be reversed, cost 20 percent of manufacturing employment in a very short period of time. It is reasonable for politicians to talk about this policy even if the pundits don't like it.
The other point is that opponents of "walls" should pay attention to patents. These are not god-given or natural features of the market. U.S. policy has been focused on making patent and copyright protection longer and stronger for the last four decades. To engage in this sort of policy and then wonder why income is being redistributed upward is a bit like filling a body with bullets and then wondering why the person is dead.Add a comment
Why are none of the "free trade" members of Congress pushing to change the regulations that require doctors go through a U.S. residency program to be able to practice medicine in the United States? Obviously they are all protectionist Neanderthals.
Will the media ever stop the ridiculous charade of pretending that the path of globalization that we are on is somehow and natural and that it is the outcome of a "free" market? Are longer and stronger patent and copyright monopolies the results of a free market?
The NYT should up its game in this respect. It had a good piece on the devastation to millions of working class people and their communities from the flood of imports of manufactured goods in the last decade, but then it turns to hand-wringing nonsense about how it was all a necessary part of globalization. Actually, none of it was a necessary part of a free trade.
First, the huge trade deficits were the direct result of the decision of China and other developing countries to buy massive amounts of U.S. dollars to hold as reserves in this period. This raised the value of the dollar and made our goods and services less competitive internationally. This problem of a seriously over-valued dollar stems from the bungling of the East Asian bailout by the Clinton Treasury Department and the I.M.F.
If we had a more competent team in place, that didn't botch the workings of the international financial system, then we would have expected the dollar to drop as more imports entered the U.S. market. This would have moved the U.S. trade deficit toward balance and prevented the massive loss of manufacturing jobs we saw in the last decade.
The second point is political leaders are constantly working to make patents and copyrights stronger and longer. This raises the price that ordinary workers have to pay for everything from drugs to computer games. The result is lower real wages for ordinary workers and higher incomes for the beneficiaries of these rents. It also slows economic growth since markets are not smart enough to distinguish between a 10,000 percent price increase due to a tariff and a 10,000 percent price increase due to a patent monopoly. (In other words, all the bad things that "free trade" economists say about tariffs also apply to patents and copyrights, except the impact is far larger in the later case.)
Finally, the fact that trade has exposed manufacturing workers to international competition, but not doctors and lawyers, was a policy choice, not a natural development. There are enormous potential gains from allowing smart and ambitious young people in the developing world to come to the United States to work in the highly paid professions. We have not opened these doors because doctors and lawyers are far more powerful than autoworkers and textile workers. And, we rarely even hear the idea mentioned because doctors and lawyers have brothers and sisters who are reporters and economists.
Since some folks asked about the botched bailout from the East Asian financial crisis, the point is actually quite simple. Prior to 1997 developing countries were largely following the textbook model, borrowing capital from the West to finance development. This meant running large trade deficits. This reversed following the crisis as the conventional view in the developing world was that you needed massive amounts of reserves to avoid being in the situation of the East Asian countries and being forced to beg for help from the I.M.F. This led to the situation where developing countries, especially those in the region, began running very large trade surpluses, exporting capital to the United States. (I am quite sure China noticed how its fellow East Asian countries were being treated in 1997.)Add a comment
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."
In other words, this before and after approach is a bit like weighing people the day after they gave up drinking sugary soda to determine whether this decision will affect obesity. It's not serious stuff.
There is evidence that prior trade agreements have affected drug prices. As I noted in that earlier post:
"An analysis of the impact of the rules in the 2001 trade agreement between the United States and Jordan found that it had increased annual spending on drugs by $18 million by 2004. This is slightly less than 0.16 percent of Jordan’s GDP in that year, the equivalent of $28 billion annually in the U.S. economy today.
"There is a similar story of sharply higher drug spending in Morocco, which signed a pact with the United States in 2006. In Morocco, spending on drugs went from $662 million in 2009 (0.7 percent of GDP) to $1.4 billion (1.4 percent of GDP) in 2015."Add a comment
The NYT had an account of the negotiations that led an agreement where holders of defaulted debt received billions of dollars in payments from the Argentine government. It made a point of contrasting the attitude of the new government, which was elected last fall, with the prior government, which it tells readers had referred to the debt holders as "vultures."
In fact, this is not pejorative term invented by the prior Argentine government, it is actually the self-definition of these funds. They are called "vulture funds" because they buy up assets that are in default, or expected to be in default, with the expectation that they will be able to get more money than the current market price.
In the case of Argentina, this expectation was based on the (correct) belief that they could use their political power to block efforts to have the I.M.F. and the United States accept the deal under which more than 90 percent of Argentine bondholders settled with the Argentine government. Had this effort been successful, as many in both the I.M.F. and Treasury wanted, then these vulture investors would not have profited from their holdings of Argentine debt.Add a comment
Robert Samuelson had what he thinks is good news, the pay gap in hourly wages between men and women is just 8.0 percent once we control for occupations and experience, not the more widely cited 21 percent. Samuelson tells us that it is a mistake to throw around this 21 percent figure since it doesn't include proper adjustments. While Samuelson is correct that the 21 percent figure does not include all the controls that we would like to see, it is wrong to claim, as Samuelson is implicitly claiming, that the choice of occupation is not in part the result of discrimination.
In almost all occupations, there is a clear pattern where the most highly paid sub-sections are predominantly male, while the lower paid ones are predominantly females. This is clearest in the case of medicine. Highly paid specialists like neurosurgeons and cardiologists continue to be disproportionately male. Family practitioners and pediatricians are disproportionately women.
One can believe that women just don't like to do things like learn about hearts, or one can believe that women face obstacles advancing in residency programs dominated by men. Samuelson seems to think the former. While it is probably not the case that women are ever formally blocked from entering higher paying areas of medicine or other occupations, there are many subtle ways in which the men already in these fields can make woman entrants feel uncomfortable. If these are not tackled then we are likely to end up with a situation where women's pay remains well below the pay of men, even if it is comparable when we adjust for occupation and experience.Add a comment
I suppose the NYT should get credit for only doing it once, but it is still necessary to ask what information it thought it was providing readers in describing the Trans-Atlantic Trade and Investment Pact (TTIP) as a "free trade" agreement? As a practical matter, the formal trade barriers between the United States and the European Union are already near zero, so there is not much to be gained from further reducing the remaining barriers.
The TTIP is primarily about putting in places rules on intellectual property, investment, and health and safety regulations. It also establishes an extra-judicial process to enforce these rules. Free trade has almost to do with the TTIP, so why use the term to describe the pact? It is not providing accurate information to readers.Add a comment
Yep, all is fair in love and war and pushing trade agreements, and the Washington Post really really wants the Trans-Pacific Partnership (TPP). So, when they asked Ivo Daalder and Richard Kagan to make the case for the TPP as part of a story about preserving American leadership in the world, the Post apparently gave the greenlight to name-calling.
This meant that the opponents of the TPP appear in the piece as "demagogues." Sounds good, now we don't have to deal with arguments from people like Nobel prize winning economist Joe Stiglitz or Jeffrey Sachs. Hey, if you oppose the TPP you're just a demagogue, not someone who might have a serious argument.
This is not the only cheap trick in the Daalder and Kagan's deck. They also tell us that:
"According to the Peterson Institute for International Economics, the agreement will increase annual real incomes in the United States by $131 billion."
Wow, $131 billion, that sounds like really big money. Of course if Daalder and Kagan were actually interested in conveying information rather than pushing their agenda, they might have told us that this projection is equal to 0.5 percent of projected GDP for 2030, when the full benefits are realized. In other words, the Peterson Institute is projecting that with the TPP the United States will be as rich on January 1, 2030 as it would otherwise be on April 1, 2030. Sound like a must-pass deal?
It's also worth noting that computable general equilibrium models of the sort used by the Peterson Institute to make this projection have a really bad track record in projecting the outcomes of trade deals. Therefore, we may not want to rely on this projection too much in making policy.
There is much else that is not quite right in Daalder and Kagan's argument. For example, they tell readers:
"The widely touted “rise of the rest” — the idea that the United States was being overtaken by the economies of Brazil, Russia, India and China — has proved to be a myth."
If the "rise of the rest" is a myth, then the I.M.F. is now a purveyor of this myth. According to its data, China's economy is now more than 10 percent larger than the U.S. economy.Add a comment
Neil Irwin had a good piece in the Upshot section of the NYT pointing out that the growing gap in life expectancies for rich and poor have made Social Security a less progressive program. He argues that this is a good reason not to consider increases in the Social Security retirement ages as a way to reduce the projected shortfall in funding.
This is true, but there is also a further reason that raising retirement ages would be regressive. Lower income people are far more likely to work at physically demanding jobs. A recent paper by Cherrie Bucknor found that 81.4 percent of older workers (over age 58) with less than a high school degree and 61.0 percent of those with a high school degree worked at jobs that were either physically demanding or in difficult workers conditions, this was true for only 29.4 percent of those with college degrees and 20.4 percent of those with advanced degrees.
The basic story is that it might not be any big deal for a lawyer or an economist to work until they are 70 or beyond, it might be considerably harder for a custodian or a waitress. We can run into serious problems when our retirement policy is designed by lawyers and economists who think that everyone has jobs like theirs.Add a comment
Alan Blinder is a very good economist. For this reason, I am quite certain that he is familiar with the concept of "secular stagnation," which means a persistent shortfall in aggregate demand. In fact, I suspect I could probably quickly find a few pieces he has written on the topic.
This is why it is surprising to see him assert boldly in the Wall Street Journal:
"The U.S. multilateral trade balance — its balance with all of its trading partners — has been in deficit for decades. Does that mean that our country is in some sort of trouble? Probably not. For example, people who claim that our trade deficit kills jobs need to explain how the U.S. managed to achieve 4 percent unemployment in 2000, when our trade deficit was larger, as a share of GDP, than it is today."
If Blinder accepted the problem of secular stagnation, then as a matter of accounting identities he would have to accept that a trade deficit makes the problem worse. The whole point of secular stagnation is that the economy is not bouncing back to its full employment level of output. The standard story that economists liked to tell prior to the Great Recession was that we didn't have to worry about unemployment created by trade deficits because the Fed would just lower interest rates and that would boost the economy back to full employment.
But if we believe that the Fed can't lower interest rates enough to lift the economy back to full employment, in part because it is difficult to push nominal rates much below zero, then the loss of demand resulting from a trade deficit is not made up by an increase in demand from other sectors. (Actually, Blinder has elsewhere written this risk of demand loss was a very big deal, when he justified the Wall Street bailout.)Add a comment
That would seem to be the implication of her Washington Post column, the headline of which told readers, "Republicans don't like Kasich because he sounds like Obama." What Rampell actually means by this is that Governor Kasich doesn't sound angry, not that his political positions are at all similar to the ones advocated by President Obama. (In addition to the headline items, I should also mention that Kasich is opposed to the steps President Obama has taken to curb global warming and wants the Federal Reserve Board to raise interest rates.)
This obsession with tone rather than substance is common among reporters, but the Washington Post seems to have gone especially over the top in this area with reference to Mr. Kasich. (Anyone interested in verifying that Mr. Kasich actually has a very right-wing agenda can make a quick trip to his website.)
This obsession with Mr. Kasich's moderate tone is remarkable because it flips the responsibilities of reporters on their head. Most of us are pretty good at listening to a politician and assessing whether they are angry, calm, reasoned, or other aspects of their demeanor. In any case, reporters don't possess any obvious expertise in this area, they are not theater critics.
On the other hand, reporters should be in a position to know that the claim that large tax cuts will boost growth and increase revenue has been tried and repeatedly failed and that almost no economists accept this view. They also should know that the promise to maintain a balanced budget regardless of the condition of the economy would lead to long and severe recessions. And, they should know that the Fed's expansionary monetary policy has helped to spur growth and reduce unemployment.
They should be sharing this information with readers so that they will understand that Mr. Kasich is making promises that are out of touch with reality. The amateur efforts at theater criticism have no place in serious political analysis.Add a comment
The Washington Post gave high marks to Ohio Governor John Kasich after he met with the Post's editorial board. The lead editorial noted that Mr. Kasich, "does not dismiss science." It goes on to point out that he recognizes that climate change is human caused, although he has no plan to address the problem. (Kasich does reject President Obama's plan, as the piece notes.) Editorial writer Charles Lane was even more effusive, asking readers, "what's not to like?"
People who follow politics and economics would have little difficulty answering that question. For example, Mr. Kasich signed a bill prohibiting the state of Ohio from contracting for health services with Planned Parenthood or any other organization that performs abortions. Kasich also has bizarre views on economic policy.
In addition to supporting tax cuts for the rich, which the Post criticized because of the impact on the deficit, Kasich also criticized the Fed for its quantitative easing policy. According to Kasich, this only led to companies “buying up more of their stock and making the rich richer.” It is difficult to envision how Kasich thinks this process works.
Most immediately, quantitative easing leads to lower interest rates. For believers in economics, this lead to more borrowing for things like buying homes and both public and private investment. It also frees up money for homeowners who refinance their mortgages. This allows them to spend money on other things. Lower interest rates also mean a lower valued dollar, other things equal. This makes our goods and services more competitive internationally, reducing our trade deficit.
All of these things create more jobs, which also puts workers in a better position to get wage gains. It is true that lower interest rates can also make it easier for companies to borrow to buy back shares of stock, although it is pretty bizarre to find a Republican who would argue against a policy that leads to more growth and jobs, just because it can increase the wealth of the rich. (Low interest rates also help to raise house prices, which are the main source of wealth for the middle class.)
Anyhow, the Post apparently thinks great things about a candidate who seems to have zero understanding of economics and has no ideas on how to address a potentially catastrophic environmental problem. It is worth noting that he proposed tax cuts, rather than tax increases for the rich.Add a comment