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).
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
It's too bad the NYT doesn't have a policy of fact-checking their columnists. (I realize, it might make it harder to get columnists, but it would make their columns more informative.) Ross Douthat's confused piece on "The Democrats After Sanders" definitely would have benefited from more attachment to reality.
In the second paragraph Douthat tells us about the constraints on the budget since we are likely to face "the prospect of structural deficits for as long as baby boomers are taking Medicare." Actually, the baby boomers use of Medicare has relatively little to do with budget deficits. Medicare is projected to rise as a share of GDP from roughly 3.6 percent today to 5.5 percent in two decades (Figure II.D1). The costs are then projected to rise gradually to 6.0 percent of GDP by 2080.
In other words, there is no reduction in costs after the baby boomers are all dead. The rise in costs is not due to baby boomers, but rather the fact that people are projected to live longer (the cruel things we do to our kids). Also, the excessive cost of health care in the United States is a big factor raising the cost of the program.
But this confusion is symptomatic of Douthat's analysis. He argues that young people would be unlikely to want to pay the taxes to support a large welfare state once they are older and have higher incomes. Of course a big part of the issue is what happens to workers before tax income. If progressive Democrats are pursuing policies that lead to broadly shared wage growth, in other words workers get their share of productivity growth in wage growth, then workers can pay higher taxes and still enjoy much higher after-tax income.
For example, the Social Security Trustees Report projects that on average real wages will grow by 50 percent over the next three decades. If most workers share in these increases, then they may not be bothered much by a 1–2 percentage point increase in the Social Security tax. They would still have more than 45 percent in after-tax income than they do today.
While Mr. Douthat might want people to be concerned only about their taxes, economic theory would say that people care about their after-tax income. For after-tax income the extent to which workers can benefit from sharing productivity growth will matter far more than modest increases in tax rates.
It is also worth pointing out Douthat's confusion about the impact of deficits. As long as the economy is well below its full employment level of output, deficits will not matter except to the politicians and columnists who like to yell about them. If the economy actually is up against its resource constraints and is reaching full employment, then deficits do matter. This is actually a much simpler story than Douthat seems to recognize.
Of course, if the economy is near full employment, we will have more tax revenue and be paying out less money for unemployment benefits and other transfer programs. This will go far towards eliminating any deficits, as was the case in the high employment years of the late 1990s.Add a comment
The Census Bureau put out some pretty bad numbers on housing yesterday. March starts were down 8.8 percent from the February level and permits were down by 7.7 percent. The drop in starts was across categories and regions. There was no obvious weather-related factors to explain this drop.
Monthly housing data are erratic, but these numbers do deserve some attention. Residential construction is one of the few bright spots in an economy seeing weak consumption growth, stagnating equipment investment, and a rising trade deficit. If this is not just a one-month blip, it would be a very bad sign for the strength of the recovery.
In this respect it is worth noting that the latest number for first quarter growth from the Atlanta Fed 's "GDPNow" estimate is just 0.3 percent. This is not a good story.Add a comment
Okay, he does it against Donald Trump as well, but the theme of his column is to denounce both of them for pushing a "single story" for the difficulties confronting working people. While Sanders blames an economy rigged to favor the rich and Trump blames immigrants and the unfair trading practices of foreign countries, Brooks tells us that the real issue behind wage stagnation is "intricate structural problems."
Get it? Brooks used the words "intricate" and "structural," that means that he is a complex guy not wedded to a single story because these are big words.
Does Brooks happen to have any clue what these intricate structural problems might be? He doesn't give any hint in his piece. Perhaps he was referring to the now disproven story promoted by M.I.T. economist David Autor about the "hollowing out of the middle," which meant the loss of middle class jobs. More recent research shows that the only occupations seeing substantial growth in relative shares since 2000 were at the bottom end of the wage distribution, yet that didn't stop more income from going to the top. In other words, there is no obvious story linking the growth of income inequality and wage stagnation for those at the middle to technology.
The remaining villains are items like trade, restrictive fiscal policy that keeps the unemployment rate unnecessarily high, anti-union policies that undermine workers' bargaining power, and stronger and longer patent and copyright protection that increases the price that ordinary workers must pay for many items.
But Brooks isn't interested in looking at these topics, that could make you a single story sort of person. He'd rather just stick with his intricate structural problems even if there is no coherence to the argument that he might make. This way you can call the people you don't like names in The New York Times.
Add a comment
The Washington Post had a major article telling readers, "why populist uprisings could end a half-century of greater economic ties." The piece notes the rise of populist sentiment in both Europe and the United States. In the former case it is turning against immigration and also the European Union. In the case of the United States, populist sentiment is directed against trade agreements and immigration (also efforts to cut Social Security and Medicare.)
The piece doesn't give elites the credit they deserve for this backlash to their efforts to construct a system that serves their interest. In both Europe and the United States, elites have pushed policies of fiscal austerity that have the effect of keeping millions of people out of work and depressing the wages of tens of millions more by reducing their bargaining power. Overwhelmingly, the people who are victims of this austerity policy are less educated workers. There are few doctors and dentists thrown out of work by policies to reduce budget deficits. (It is worth noting that in the United States the Federal Reserve Board seems prepared to raise interest rates to throw workers out of work, if they start to get enough bargaining power to make up the ground they lost in the downturn.)
The elites have also structured economic integration to redistribute income upward. This is especially notable in the United States, where protections for doctors, dentists, and other highly paid professionals have been largely left in place, while trade agreements have sought to put U.S. manufacturing workers in direct competition with their low-paid counterparts in the developing world. The predicted and actual effect of this pattern of trade is to increase inequality.
Both Europe and the United States have used trade deals to make patent and copyright protection longer and stronger. The intent of this policy is also to redistribute income upward. They have also put in place extra-judicial mechanisms to provide special protection to businesses that they do not enjoy under national law.
In other words, populists are revolting against policies that are designed to redistribute income from the bulk of the population to the elites. The elites have tried to imply that such policies are necessary for integration. This is not true. It is just as easy to design policies that promote integration that benefit people equally, but elites in Europe and the United States have little interest in integration on these terms.Add a comment
I like Jonathan Cohn personally and have great respect for his work as a reporter and writer on health care issues. However, I think he actually told readers the opposite of what he intended in his Huffington Post piece headlined, "this one line sums up the big Clinton-Sanders policy argument."
The big line in Cohn's piece is that Senator Sanders' proposal for a single-payer system would cause a single mother with two children, earning $26,813 a year, to pay $2,314 in payroll taxes rather than getting health insurance for her family free through Medicaid, as would be the case now. Cohn sees this as a major hit to this family, which is a serious problem with Sanders' proposal.
There are several points here worth noting. First, as Cohn points out, Sanders is also proposing a $15 an hour minimum wage. This means that if this single mother were working a full-time job, she would see her pay increase by almost $3,200 a year, even if her pay was only at the new minimum. Of course, since she is earning substantially more than the minimum wage now, it is likely that her pay would increase enough to leave her still well above the minimum. This means that she would be substantially better off with Sanders's agenda. (There are serious questions about whether we can have a $15 an hour minimum wage without a considerable impact on employment, but we'll ignore those for the moment.)
The second point is that Cohn has to be very selective in finding his victim here. Let's suppose that this single mother was getting health care insurance through her employer, as most workers do. If we say the employer was paying $5,000 a year for health care insurance, under standard economics assumptions, this money will find its way into the worker's paycheck. This means that she will be paying an additional $2,314 in payroll taxes, but this will be deducted from the $5,000 a year that her employer used to pay in premiums that now going into her paycheck. (No, this will not happen immediately and not be the story with all workers, but this is what all good economists believe will eventually be the case.) This means that this worker will be $2,686 better off as a result of the Sanders plan.Add a comment
Paul Krugman had a good column this morning pointing to a lack of competition as an explanation for relatively weak investment in spite of low interest rates and high corporate profits. His immediate target is Verizon, where workers are now striking, which shows little interest in expanding its Fios high-speed Internet network in spite of soaring profits. Krugman points out that with little competition, Verizon sees little need to invest more to improve the quality of its service. He then argues that this weak investment is a major cause of secular stagnation, the ongoing weakness of demand that prevents the economy from reaching full employment.
I'd agree with virtually everything in the piece (Krugman may be a bit overly optimistic about the interest in the Obama administration in pursuing a serious competition policy), but there is an aspect to the argument that bothers me. While we should perhaps expect investment to be booming in a context of high profits and very low interest rates, investment actually is not low measured as a share of GDP.
At 12.7 percent of GDP in the 4th quarter, it's comparable to its pre-recession peaks. Given the weak growth of demand (yes, this is partly circular — stronger investment would mean stronger demand — but companies make their investment decisions individually, not collectively), investment is certainly not low by historical measures.
On the other hand, we continue to run a trade deficit that is close to 3.0 percent of GDP, or more than $500 billion a year. Suppose that our trade deficits were still in the neighborhood of 1.0 percent of GDP, which was the case before the East Asian financial crisis in 1997.
This difference of 2 percentage points of GDP would have the same impact on demand as increasing investment by 2 percentage points of GDP. That would be a huge increase in investment. If better competition policy could increase demand by even half of this amount everyone would view it as an enormous success.
So the question is, why do Krugman and others highlight the lack of competition in many areas as a cause of secular stagnation, but largely ignore the trade deficit? This question is further aggravating since the trade deficit has featured very prominently in the upward redistribution of income in the last two decades.
Note that contrary to the latest thinking in elite circles, it is not normal for rich countries to run large trade deficits with poor countries. The textbook economics say that capital is supposed to flow in the opposite direction. It is an incredible failure of the international financial system, traceable to the botched bailout from the East Asian financial crisis, that poor countries have been forced to grow by lending capital to rich countries. It certainly is not a necessary path for development and it has had horrible consequences for the working class in the United States and other rich countries.Add a comment
The New York Times had an article on the downsizing of Citigroup in the wake of the passage of Dodd-Frank. The piece twice refers to the “vise of regulation” in discussing the pressures created by the law to downsize. While one use of the expression appears in a quote from an industry friendly source, the other use is the paper’s own characterization of the law.
It seems unlikely that the NYT would say that a vise of regulation is preventing Pfizer from marketing unsafe drugs. This is clearly an expression of disapproval implying that the regulations are excessive and unnecessary. That is the sort of thing that belongs in an opinion piece, not a news article.Add a comment
Charles Lane used his op-ed column in the Washington Post to repeat the line that is now quite popular in elite circles: the stagnating wages and worsening living standards of large segments of the U.S. working class were a necessary price for lifting hundreds of millions of people in the developing world out of poverty. Oh yeah, and also the richest one percent happened to get unbelievably rich in the process as well. So people like Bernie Sanders, who want trade policies that will help U.S. workers, are actually being selfish. It's the one percent who are really serving the poor.
This argument is incredibly wrongheaded for many reasons, but let's just focus on its basic structure. The story goes that in the last three and a half decades we have seen substantial growth in the incomes of the poor in the developing world. (Actually the bulk of this story is in East Asia, but we'll leave that aside for the moment.) During this period incomes of ordinary workers in the United States, and to a lesser extent Europe and Japan, have stagnated. Therefore, stagnating wages for rich country workers was a necessary condition for hundreds of millions of people to escape poverty.
Obviously there was a link between these events, but the serious question (okay, that leaves the WaPo folks out) is whether it was a necessary link. Suppose that a natural disaster, like a flood or earthquake, devastates a major city. In response the federal government throws in tens of billions in assistance to rebuild the city. Ten years later, the city has a thriving economy.
In Charles Lane Eliteland the disaster was a good thing, because otherwise the city never would have been revitalized. But that is not the real question. The question is whether we could have had a path that allowed developing countries to prosper without impoverishing U.S. workers.
The simple answer is we certainly could have gone a different route and most of the story is textbook economics. I lay this out more fully in a piece that was solicited for the Post Outlook/Post Everything section, but never run there because they lost the ability to reply to e-mails.
The basic story is that there is no reason that we had to run large trade deficits with developing countries like China. In the economics textbooks, capital is supposed to flow from rich countries to poor countries to finance their development. That would mean we run trade surpluses with developing countries. Furthermore, the reason that our autoworkers compete with low-paid autoworkers in the developing world, but our doctors don't compete with their much lower paid counterparts (trained to U.S. standards), is that doctors have much more power than autoworkers. And, we enriched our one percent, while making developing countries poorer, by making patent and copyright monopolies stronger and longer.
Anyhow the story that U.S. workers had to suffer to help the world's poor is very comforting for the country's elite, and let's face it, they own the media outlets. This means that we can look forward to hearing it repeated endlessly, no matter how little sense it makes.Add a comment
Some readers may have been misled by a statement in a NYT article on the Verizon strike that the union members at Verizon receive an average of $130,000 a year in wages and benefits. This is what the company pays in labor costs per worker. This includes not only straight pay, but also overtime pay, employer-side Social Security and Medicare taxes, health insurance, and pension benefits. The pension payments are everything that Verizon pays into its pension, including payments to cover costs of retired employees, averaged over the size of its current unionized workforce.
While the $130,000 number would imply an average hourly wage of $65. The average non-overtime pay of Verizon's workers is probably in the range of $35 to $40 an hourly. While this is still a relatively good wage in the U.S. economy, it is considerably lower than the $65 an hour that readers may have inferred from too quickly reading the article.Add a comment
I'm glad to see that Paul Krugman has the same story about falling oil prices, inflation, and real interest rates as me. He pointed out that to the extent that falling oil prices reduce the overall rate of inflation it should not matter for real interest rates. What matters for the real interest rate is the expected rate of inflation for goods and services in general. Lower oil prices will matter for energy investment, but not for the vast majority of goods and services in the economy.
I made this point a couple of months back, although probably many times before that as well.Add a comment
There has been a flurry of recent articles touting recent work by Stanford Business School Professor Joshua Rauh, arguing that state and local pension fund liabilities are far larger than generally reported. Rauh puts the unfunded liabilities of state and local pension funds at $3.4 trillion, more than three times the figures that the pensions themselves calculate. He predicts looming crises with many local governments driven into bankruptcy.
The reason for the difference between Rauh’s $3.4 trillion number and the shortfall of roughly $1 trillion using the pension fund’s methodology is the rate of discount used to evaluate pensions’ liability. Pension funds calculate their liability using their expected rate of return as the rate of discount. This currently averages just over 7.0 percent on their assets. In contrast, Rauh uses the risk-free rate of interest for discounting, using the current 2.5 percent yield on 30-year Treasury bonds. The lower interest rate puts a much higher value on projected funding shortfalls 20-30 years in the future.
While many would like the public to be scared by Rauh’s calculations, there are a few points worth keeping in mind. First, the return numbers that pension funds use are not pulled out of the air. They reflect projections of investment returns based on actual experience and a range of standard economic projections. They will of course not be exactly right, but they are also unlikely to be hugely wrong.
As a recent report from Pew Research Center points out, the main reason that some pension funds are in serious trouble is not that they were overly optimistic about investment returns, the pensions that are into serious trouble were the ones that failed to make their required contributions. In states like New Jersey and Illinois, not making pension contributions became almost a sport among politicians. The same was true for the city of Chicago under Mayor Richard M. Daley. If governments don’t contribute to their pensions, they will be underfunded regardless of what returns are assumed.
Olivier Blanchard is one of the world’s leading macroeconomists. In addition to a long and distinguished academic career, in his tenure as the chief economist at the I.M.F. he turned its research department into a major producer of cutting edge research. In particular, the research department was instrumental in producing work that undermined the case for austerity that was being widely pushed across the globe. Unfortunately, politics was able to overcome the research, and austerity won.
But that is the past. In an interview with the Telegraph, Blanchard warned that Japan will soon switch from combating deflation to a struggle to contain inflation. The core problem is its debt burden, which now stands at almost 250 percent of GDP.
This concern seems more than a bit bizarre, especially coming from an economist as knowledgeable as Blanchard. The first point is that, in spite of the high ratio of debt to GDP, Japan actually has a low interest burden. According to the OECD, Japan’s net interest payments on its debt were 1.0 percent of GDP in 2015. By contrast, U.S. payments were well over 3.0 percent of GDP in the 1990s.
This matters, not only because the interest payments represent the actual drain on resources, but also because the value of the debt is largely arbitrary. If that sounds strange, it’s worth thinking about what happens to the value of debt when interest rates rise. The current interest rate on a 10-year Japanese government bond is -0.09 percent. On a 30-year bond it’s 0.41 percent. Suppose that the interest rate on a 10-year bond rose to a still historically low 4.0 percent and the 30-year bond to 5.0 percent.
According to my bond calculator, the market price of a newly issued 10-year bond would drop by almost one-third and the price of a newly issued 30-year bond would fall by more than 75 percent. Of course not all Japanese debt is long-term, nor is it all newly issued, but the point is that the market value of its outstanding debt would drop sharply if interest rates rose to even modest levels. If the 30-year rate got as high as 7.0 percent (lower than the U.S. rate in much of the 1990s), then the market price of the newly issued 30-year bond would drop by more than 85 percent from its current level.
The way governments typically keep their books, this plunge in the market price would not affect Japan’s debt to GDP ratio. But if the markets were actually troubled by the high ratio of debt to GDP, Japan could simply issue new debt to buy up old debt at a fraction of its face value. This would quickly send its debt to GDP ratio plunging. (This is why the Reinhart-Rogoff 90 percent cliff story never should have passed the laugh test even before the exposure of the famous Excel spreadsheet error.)Add a comment
The Obama administration is starting its full court press to get Congress to approve the Trans-Pacific Partnership. Yesterday, Secretary of State John Kerry gave a speech in support of the pact according to the Washington Post.
According to the Post, in his speech blamed technology rather than trade for eliminating jobs in manufacturing. It is easy to show that this is mistaken. The number of jobs in manufacturing was little changed, apart from cyclical fluctuations from the early 1970s to the late 1990s. From the late 1990s to 2006 we lost more than 3.5 million manufacturing jobs, almost 20 percent of employment in the sector, as the trade deficit exploded.
Source: Bureau of Labor Statistics.
There had been large gains in productivity due to technology throughout this period. It was only when the trade deficit soared from just over 1.0 percent of GDP in 1996 to almost 6.0 percent of GDP in 2005 that we saw massive job loss in manufacturing. It would have been helpful if the Washington Post had corrected Mr. Kerry's misstatement, as it might have done for other public figures, like Senator Bernie Sanders.Add a comment
Eduardo Porter had an interesting piece discussing the extent to which patents can pose an obstacle to the diffusion of technology, especially in the case of drugs and clean energy. The piece points out that some folks have suggested alternatives to patent financing for drug research, generously linking to a CEPR paper. However, the piece only mentions the routes of buying up patents and placing them in the public domain and paying drug makers based on how much their drugs increased quality adjusted life-years.
There is another route preferred by some of us, which would just pay for the research upfront. The United States already does this to a substantial extent with the National Institutes of Health, which funds over $30 billion annually in biomedical research. The advantage of paying for the research upfront is that the results can be fully public and available to other researchers from the beginning. Also, there is no need for complex calculations to determine how important a specific contribution was to the end product.
An obvious point of entry would be to finance clinical trials, which account for more than 60 percent of research costs. The trial results would be fully public with detailed data (consistent with anonymity) on individual outcomes. Also, the drugs themselves would be available as generics from the day they are approved. The trials would be paid for on a contract basis, similar to the way the Department of Defense pays contractors to develop new technologies, with the difference that everything is placed in the public domain.Add a comment
A popular theme in the media in recent days is that the world’s poor would face disaster if Bernie Sanders ended up in the White House. The story is that Sanders would try to protect jobs for manufacturing workers in the United States. The loss of these jobs has been a major source of downward pressure on the wages and living standards of a large portion of the working class over the last four decades.
While saving manufacturing jobs here may be good for U.S. workers, the media line is that by trying to block imports from the developing world, Sanders would be denying hundreds of millions of people their route out of poverty. This story may be comforting for elites in the U.S. and Senator Sanders’ political opponents, but it defies basic economics and common sense.
To see the problem in the logic, note that the essence of the Sanders as an enemy of the world’s poor story is that manufacturing workers in the developing world need people in the United States to buy their stuff. If people in the United States didn’t buy their stuff, these workers would be out on the street and growth in the developing world would grind to a halt.
In this story, the problem is that we don’t have enough people in the world to buy stuff — there is a shortage of demand. But is it really true that no one else in the world would buy the stuff produced by people in the developing world if they couldn’t sell it to consumers in the United States? Suppose people in the developing world bought the stuff they produced, you know, raising their living standards by raising their consumption.
That is actually the way the economics is supposed to work. In the standard theory, general shortages of demand are not a problem. Economists have traditionally assumed that economies tended toward full employment. The economic constraint was a lack of supply. The problem was that we couldn’t produce enough goods and services, not that we were producing too much and couldn’t find anyone to buy them.Add a comment