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).
George Will really takes it to Bernie Sanders in his column this morning.
"The fundamental producer of income inequality is freedom. Individuals have different aptitudes and attitudes. Not even universal free public education, even were it well done, could equalize the ability of individuals to add value to the economy."
Got that? Bill Gates is incredible rich because of his aptitude and attitude; the government's willingness to arrest anyone who infringes on the patent and copyright monopolies it gave him has nothing to do with his wealth. We're supposed to also ignore all the other millionaires and billionaires whose wealth depends on these government granted monopolies.
And we should ignore the Wall Street boys who depend on their banks' too big to fail insurance or on the fact that the financial sector largely escapes the sort of taxation applied to the rest of the economy. And we shouldn't be bothered by the fact that Jeff Bezos got very rich in large part from avoiding the requirement to collect sales taxes which was imposed on his brick and mortar competitors. And, we need not pay attention to the tax scams that allow for much of the wealth of the private equity crew.
Nor should we pay attention to Federal Reserve Board policies that deliberately slow the economy and reduce the rate of job creation any time workers are about to get substantial bargaining power. Nor should we pay attention to trade policies that put our manufacturing workers in direct competition with low-paid workers in Mexico and China, but protect our doctors, lawyers, and other professionals.
It's all about freedom. George Will has spoken.Add a comment
No one reads the Post's opinion pages for serious economic analysis, and Bethany McLean's Outlook piece on Fannie Mae and Freddie Mac reminds us why. While the basic point is fine (we should keep Fannie and Freddie), the argument is more than a bit confused.
The problem starts near the beginning when McLean tells us that GSE stands for "government-supported entities." In fact the acronym is for "government sponsored enterprises." The government created Fannie and Freddie and then turned them into largely private companies. (I apologize if the "government-supported entities" was meant to be ironic, but it went over my head if that's the case.)
Getting to more substantive matters, McLean tells us:
"Since 2008, while Fannie and Freddie have sat in limbo, homeownership has plunged. This summer, the Census Bureau reported that the homeownership rate had fallen to 63.4 percent, the lowest level in 48 years. (It had peaked at 69 percent, in 2004.) 'Renter nation,' one blog called the United States. The decline is particularly pronounced in minority communities. At the Congressional Black Caucus Foundation’s annual legislative conference this year, housing advocates pointed out that the homeownership rate for the black population has decreased from nearly 50 percent in 2004 to about 43 percent, its lowest level in 20 years. It’s projected to continue to drop."
The story on homeownership rates is of course true, but it is not clear what it has to do with Fannie and Freddie being in "limbo." The GSEs continue to buy up the vast majority of newly issue mortgages in spite of their "limbo" status. Mortgage interest rates are at the lowest levels the country has seen in more than half a century. It's hard to see how the situation would be better for potential homebuyers if Fannie and Freddie were not in limbo.Add a comment
Mike Konczal has picked up on my post responding to his piece on too big to fail. Just to give folks a quick orientation, the point of entry here was a Paul Krugman post saying that Dodd-Frank had largely ended too big to fail (TBTF), which linked to Mike's piece.
Before getting to any of the nitty-gritty, I am not sure that we are actually arguing over anything. Mike's intro says:
"My point isn’t to say that the subsidy is completely over. Nor, as I’ll explain in a bit, is it to say that TBTF is over. Instead, understanding this decline lets us know we should push forward with what we are doing. It debunks conservative narratives about Dodd-Frank being fundamentally a protective permanent bailout for the largest firms that we should scrap, and provides evidence against repealing it. And ideally it gets us to understand this subsidy as just one part of the more general TBTF problem that needs to be solved."
I'm actually pretty comfortable with that statement. I certainly don't want to repeal Dodd-Frank, nor do I in any way buy the right-wing line that Dodd-Frank institutionalized bailouts. So I'm not sure we're really in a very different position on this one. Perhaps I have more of a difference with Krugman than Mike here. I don't believe that Dodd-Frank ended TBTF as Krugman seems to imply in his post.
In terms of the studies, I was pointing out that the GAO study found limited evidence of only a very small TBTF subsidy in 2006. I believe that the markets saw the big banks as very much TBTF in 2006. I'm not sure if Mike is arguing that TBTF only came about during the crisis. That certainly is not my view.Add a comment
That's the question that has been raging across the Internet following a piece in the NYT by Paul Theroux. Theroux decried the poverty in the South in the United States and bemoaned the fact that it was partly attributable to the outsourcing of jobs to the developing world. This prompted commentary by Annie Lowrey and Branko Milanovic and others, asking whether the gains for the poor in the developing world were worth whatever losses might have been incurred by the working class and poor in the United States.
That might be an interesting philosophical question, but it has nothing to do with the reality at hand. It assumes, without any obvious justification, that job loss and wage stagnation was a necessary price for the improvement of living standards in the developing world. Clearly, there has been an association between the two, as the manufacturing jobs lost in rich countries meant hundreds of millions of relatively good paying jobs for people in poor countries, but that doesn't mean this was the only path to growth for the developing countries. There are fundamental questions of both the size and composition of trade flows that this assumption ignores.
On the size front, there is no obvious reason that developing country growth had to be associated with the massive trade surpluses they ran in the last decade. In the 1990s, many developing countries had extremely rapid growth accompanied by large trade deficits. For example, from 1990 to 1997 GDP annual growth averaged 7.1 percent in Indonesia, its trade deficit averaged 2.1 percent of GDP. In Malaysia growth averaged 9.2 percent, while its trade deficit averaged 5.6 percent of GDP. In Thailand growth averaged 7.4 percent, while the trade deficit averaged 6.4 percent of GDP.Add a comment
Paul Krugman used his column today to tell us that any Democrat in the White House will take a tough line on regulating Wall Street. I hope that he is right, but am a bit more skeptical given past associations. But beyond the speculation, there is one factual matter where I would differ his assessment.
At one point he argues that the implicit "too big to fail" (TBTF) subsidy for large banks has mostly disappeared due to the Dodd-Frank reforms. He cites a blog post by Mike Konczal, which in turn relies on a study by the Government Accountability Office (GAO). The GAO study does seem to suggest that the TBTF subsidy has largely disappeared.
It uses 42 different models to estimate the size of the subsidy year by year. While its models get highly significant results showing a large subsidy at the peak of the crisis, most find no subsidy in 2013. This can be seen as a victory. But if we look at the results more closely, we find that the study also finds little evidence of a TBTF subsidy in 2006. While 28 of the 42 studies did get significant results indicating a subsidy, compared to just 8 in 2013, the average size of the subsidy looks to be very small. From the chart it appears to be less than 10 basis points (a tenth of a percentage point).
Obviously, the big banks did enjoy too big to fail protection in 2006, since only Lehman was allowed to fail in the crisis, yet the GAO analysis implies that this held very little value. The problem here is that interest rates spreads, between more and less risky assets, tend to collapse in normal times. The basic story is that fire insurance is not worth much if no one thinks there can be a fire.
In the GAO analysis it is difficult to distinguish between a situation in which big banks don't pay much less interest than anyone else because people no longer believe the government will bail them out in a crisis and a situation in which the big banks don't pay much less interest than anyone else because no one thinks that anyone is about to go out of business. In the latter case, TBTF insurance may still exist, it would just be difficult to measure by these techniques.
It is worth noting that Mike's blogpost also referred to a study by the I.M.F. which found a TBTF subsidy of 25 basis points. That may not sound like a very big deal, but 25 basis points on $10 trillion in big bank assets comes to $25 billion a year. That's about 0.6 percent of the federal budget, more than we are spending on TANF.
I wouldn't say the I.M.F. methodology is necessarily better, but I would say that I am not convinced the TBTF insurance is history. If Goldman sinks itself, I would not bet that the Treasury and the Fed would be prepared to let the market work its magic.Add a comment
Like the rest of the Washington media, the New York Times respects Representative Paul Ryan, the current chair of the House Ways and Means Committee and possibly next speaker of the House. An article headlined "devotion to fiscal policy may keep Ryan from taking House speaker's job" begins by telling readers about Ryan's "sweeping budget proposals." It then goes on:
"Republicans, on the other hand, passionately embraced them [Ryan's budget proposals], and Mr. Ryan came to be seen as one of his party’s most influential thinkers on fiscal issues. His budget proposals showcase the thinking and philosophy of a lawmaker who many Republicans believe is now their best choice for speaker of the House, perhaps the only man who can dress and heal the deep gash in the House Republican Conference."
It would be helpful if the paper could devote more time to the content rather than praise. Ryan essentially proposed eliminating virtually all of the federal government by 2050 according to the Congressional Budget Office (CBO) analysis of his plan that was done under his direction. According to CBO's analysis (page 16), under his plan in 2050 government spending on the military, infrastructure, law enforcement, research, and all non-health forms of income support, would be 3.5 percent of GDP. This is roughly equal to current levels of military spending, a level that Ryan and other Republicans have indicated they want to maintain. The implication is that Ryan would shut down just about all other parts of the federal government.
It would be more informative to readers if the NYT told them what Ryan's "thinking and philosophy" is rather than devoting an article to praising him for having one.Add a comment
We all have heard the stories about how the robots are going to take our jobs. The line is that innovations in computer technology will make robots ever more sophisticated, allowing them displace a rapidly growing number of workers. This could leave large numbers of workers with nothing to do, implying a massive amount of long-term unemployment.
There are two basic problems with this story. The first is a logical problem. The story of worker displacement by technology is not new, it goes back hundreds of years and it is ordinarily considered to be a good thing. This is what we call productivity growth. It means that workers can produce more goods and services in the same amount of time. This is the basis of rising wages and living standards.
If we see rapid productivity growth, as robots allow for the same output with fewer workers, this should allow the remaining workers to be paid more for each hour of work. This will allow them to spend more money, creating more demand in other sectors, which will allow displaced workers to be re-employed elsewhere.
Of course we have not seen workers getting the benefits of productivity growth in higher pay in recent years. This is due to policies and institutional changes that undermine workers' bargaining power. For example, trade policy has deliberately put manufacturing workers in competition with low paid workers in the developing world. The Federal Reserve Board routinely raises interest rates to slow job growth when it fears that workers are getting too much bargaining power and could possibly get inflationary wage increases. And, lower unionization rates mean that workers are less effective in demanding higher pay from employers.
For these reasons, most workers have not gotten their share of the gains from productivity growth, but there is another problem with the robots displacing workers story. Rather than robots leading to a massive surge in productivity, in recent years productivity growth has been unusually slow. According to the Bureau of Labor Statistics, annual productivity growth has averaged less than 0.6 percent since 2010. This compares to an average rate of 3.0 percent in the Internet boom years from 1995–2005 or 2.8 percent in the long post-World War II boom from 1947–1973. Even in the years of the productivity slowdown, from 1973–1995, had a 1.4 percent annual rate of growth, more than twice the recent pace. In short, there have not been many gains to share.Add a comment
Yep, it's hard to find out about the path of health care costs. You would probably have to go to one of the government websites, or read a newspaper, or maybe even listen to National Public Radio. In a piece discussing Republican presidential candidate Jeb Bush's health care plan, which repeals the Affordable Care Act (ACA), NPR told listeners that health care costs have been growing rapidly.
This is in fact not true. Since 2008, health care costs have barely outpaced the overall growth of the economy. While the exact causes of this slowdown are not clear, including how much credit the ACA should get, the slowdown itself is not in dispute.Add a comment
The NYT was unfair in its fact check of the Democratic presidential candidates' claim that spending on the environment can be an engine for economic growth. The piece quotes Keith Hall, the former commissioner of the Bureau of Labor Statistics:
"The goal should be to secure the largest possible environmental benefit at the lowest economic cost. Counting green jobs equates to counting part of the economic cost of achieving this environmental impact. We want this to be small, not large.”
This is true in the context of an economy at full employment, just as we should want as few people as possible to be employed in Silicon Valley designing our software or Wall Street managing finance. If the economy is at full employment then jobs in any sector are coming at the expense of meeting other needs. If we can get our energy with fewer workers, this would be mean we would have more people who could meet our health care or education needs. There would be a similar story if the Fed thought we were at full employment, even if it were wrong, and it was raising interest rates to slow the economy and prevent more job creation.
However, during the recession and for any period where the economy is below full employment, spending on the environment is a job creator. This means that additional support for environmental spending over the last eight years would have created jobs. And, this would quite possibly be the case for years into the future, depending on the strength of the economy.Add a comment
Actually, the NYT did not say that Bush wanted to raise taxes on small businesses and it would not say this because it is not true. If for some reason one of its reporters mistaken drafted a story saying that it was true, an editor undoubtedly would have insisted that they double-check their source to make sure they got it right. That would be good journalism.
On the other hand, the NYT apparently does not exercise the same care when it comes to reporting on tax proposals for Wall Street. This is why we got the Upshot article titled "solution without a problem." The piece begins:
"If there’s one thing that the Democratic presidential candidates can agree on, it’s that high-frequency traders are a problem. Hillary Rodham Clinton has now followed Bernie Sanders and Martin O’Malley in calling for a tax on the traders who, they complain, use their high-speed computers and expensive data lines to pick the pockets of ordinary investors.
"The odd thing about all this concern is that most of the investors who are actually facing off against the high-frequency traders — often on behalf of retirement savers — don’t see this as anything like the most costly problem they are facing, even in the arcane realm of trading mechanics."
While Clinton and O'Malley have talked about taxing high-speed trading, Sanders has been very clear that his intention is to tax trading in general. His argument is that the financial sector as a whole wastes too many resources in trading that has little or no economic value. He expects his tax to raise enough money to finance free college tuition at public universities, something that would clearly be impossible if he was just looking to impose the tax on high-speed trading.
The author of the piece, Nathanial Popper, surely could have discovered Sanders plan with a call to his campaign staff or a quick trip to the website (here and here). That would have been the responsible thing to do, but it might have made it more difficult to write an article telling us about a solution that lacked a problem.Add a comment
FactCheck has decided to revive its campaign on Social Security contributing to the budget deficit in the context of claiming that Senator Bernie Sanders is wrong on this issue. The basic point that Sanders and other targets of FactCheck have made is that Social Security was explicitly set up to be funded separately from the rest of the budget. It is legally prohibited from spending any money other than what it receives through its designated taxes and from the interest on the bonds bought with these funds.
I have a fuller criticism of the FactCheck argument here, but Sanders is really just referring to the law on this one. FactCheck's problem is with the law, not Sanders.Add a comment
It seems some establishment types are getting worried about the support that Senator Bernie Sanders is drawing in his presidential race. Breakingviews, the syndicated financial news service that promotes its "agenda setting insight," went full scare tactics in a piece warning about "Bernienomics."
The punchline is in the first sentence:
"A Bernie Sanders White House would be $8 trillion in the hole over a decade."
Wow! $8 trillion in the hole, who would vote for that guy?
Okay, let's first get out of the children's section and put this in terms that at least some of Breakingviews' readers would understand. An $8 trillion shortfall is a really big number, but expressed as a share of projected GDP in the ten years after President Sanders takes office it comes to about 3.4 percent. That is hardly a trivial figure, but probably a bit less scary than $8 trillion. After all, at their peak, the wars in Afghanistan and Iraq cost more than half of this sum.
But this is the less important point. Somehow it escaped the attention of the Breakingviews crowd that if everyone has Medicare through the government, then they no longer have to pay health insurance premiums. According to the Centers for Medicare and Medicaid Services (Table 1) this will save us roughly $15 trillion (@6.3 percent of GDP) over the first decade following the election of President Sanders.
There is a problem of how we get the money that we are now paying to private health insurers, mostly through our employers, to the government to pay for universal Medicare, but this is a political issue, not a problem of inadequate resources. In other words, most of us would not feel terribly aggrieved if the money that our employers are currently sending to private health insurance companies for our insurance were instead sent to the government to pay for universal Medicare.
This is what Senator Sanders is proposing. It would have been nice if Breakingviews could have been honest enough to explain this simple fact to its readers instead of trying sleazy scare tactics. But, that is what folks do when they don't think they have a very good argument.Add a comment
Nope, that isn't the complaint of leftist agitators in Greece or Latin America, that is a comment from Axel A. Weber, who is identified in the NYT as "a former senior official at the European Central Bank who is now chairman of the investment bank UBS." This comment appears along with several other complaints from bankers about the I.M.F.'s support for low interest rates by the Fed, the European Central Bank, and other rich country central banks. Of course the I.M.F. comments on monetary policy all the time and has done so since it was created 70 years ago.
The piece also has this gem:
"'When I travel around the world, I find hardly anyone supporting the Fed’s policy on interest rates,' said a senior European official, who did not want to be publicly identified criticizing the I.M.F. 'The fund has become very short-term-oriented.'"
This tells us a great deal about who this senior European officials speaks with.Add a comment
Hey, we should all be thankful that Ben Bernanke saved us from a Second Great Depression and a Martian invasion. Yes, the Second Great Depression theory is being touted yet again, this time by Robert Samuelson. He tells us that unemployment would have soared to 25 percent without the bailout of the banks.
As I've written any number of times, neither Bernanke, Samuelson, or anyone else has said a word as to why a big stimulus package from the government would not have quickly gotten the economy going again and unemployment falling. This is what finally got us out of the first Great Depression; the government spent a ton of money to fight World War II. There is no magic or mystery to spending on wars, any spending in the economy has the same effect.
If someone wants to make a political argument, that we could not have gotten political support for a serious stimulus, that's fine, they should put that argument on the table. But that is a political argument, not an economic one. Furthermore, we have never seen our political leaders refuse to take steps to boost the economy out of a severe recession in the post-World War II era. George W. Bush signed the first stimulus when the unemployment rate was 4.7 percent. So it would be an interesting political argument, but one that lacks any evidence to support it.
After going through the account of how Bernanke saved us from the Martians (sorry, the Second Great Depression), Samuelson genuflects about the cause of the prolonged downturn. He notes that Bernanke blames the financial crisis, while he attributes the prolonged downturn to the loss of confidence. Fans of data everywhere attribute the weakness to the loss of $8 trillion in housing wealth.
With the plunge in house prices, we saw the end of the boom in residential construction, costing us roughly 4 percentage points of GDP (@$720 billion annually in today's economy). The loss of wealth also led to a drop in consumption, in accordance with the housing wealth effect that economists have been writing about for around 60 years. The drop in consumption was around 2–3 percentage points of GDP ($360 billion to $540 billion annually in today's economy).
There was nothing that would obviously rise up to fill this massive gap in demand. We did get the stimulus in 2009–2010, which helped a great deal. But it wasn't large enough or long enough to get us back to full employment. It's hard to imagine what anyone thought would fill the gap in the absence of a larger stimulus.
I know this is all distressingly simple, and folks really want to believe the downturn was very complicated and mysterious (who could have known?), but it wasn't. The basic story was pretty much as clear as day for anyone who could look at the economy with open eyes. Unfortunately, we didn't have anyone like that in a position of responsibility in the last decade.Add a comment
David Brooks is shocked, shocked to find out that political considerations might affect Hillary Clinton's stand on the Trans-Pacific Partnership (TPP) in the presidential campaign. Brooks goes through the basic story. Yes, Clinton had been a supporter of the TPP in the Obama administration, but now Brooks tells us that Clinton has changed her position because she'll say what "she needs to say now to become Bernie Sanders in a pantsuit."
Let me give a brief sidebar on the sexism here. Yes, Hillary Clinton is a woman. Does that mean it is not possible to discuss her political positions without referring to what she wears or how she looks?
I'll skip over Brooks' general complaint about how Clinton has changed her positions on other issues. I want to talk about the TPP.
Brooks has apparently become a big humanitarian worried about the plight of people in the developing world.
"Third, there’s the humanitarian issue. Clinton once supported the Pacific trade deal for good reason. According to a report from the Peterson Institute for International Economics, the deal would bolster U.S. gross domestic product growth and jobs over the next decade. It would lift Malaysian growth by 6.6 percent and Vietnamese growth by 14 percent. It would also build a solid Asian alliance to balance Chinese hegemony. If Clinton’s flip-flop ends up sinking the deal, she will have helped sentence millions of people to further poverty and destabilized the world’s most dynamic region."
That sounds pretty awful. But before we worry too much about the millions of people who Secretary Clinton has sentenced to poverty in Malaysia and Vietnam, it is worth looking at these numbers a bit more closely. First, Brooks meant GDP, not growth. When the benefits of the TPP are fully realized in about a dozen years, the report projects that Malaysia's GDP will be about 6.6 percent higher and Vietnam's GDP will be about 14 percent higher.
Second, the vast majority of these projected gains do not come from anything that the United States or the other TPP countries are giving Malaysia and Vietnam, they come from reducing their own tariff and other trade barriers. This is almost always the story with trade agreements. In the standard modeling, tariffs are distortionary taxes. If you reduce or eliminate them, your country will benefit even if no other country has made any change in their own barriers.Add a comment
Ben Bernanke was on the Diane Rehm show on Tuesday (unsolicited plug: one of the most serious talk shows around). Anyhow, there was much good back and forth on the show. I will skip over most of what the former Fed chair said (here's my comment on saving Lehman), but I do want to address his response to the question of why the Fed didn't see the financial crisis coming.
Here's the sequence:
"REHM It's remarkable that you said that the recent financial crisis was the worst in human history, even worse than the Great Depression. But that's where I think an awful lot of people wonder, if it was so big, why didn't you see it coming and why couldn't you have done something to stop it before it happened?Add a comment
"BERNANKE Well, again, we were aware of the fact that house prices were very high. And we thought it quite possible that they would correct at some point. By 2006, 2007, we also were aware of the problems in the subprime lending market. What we did not anticipate and no one anticipated was the vulnerability of the financial system overall to a run, a panic. You know, in the 19th century, early 20th century, we had bank runs all the time. People would run to the bank, pull their cash out and the bank would have to close. That was this, in the 1930s story. So now we have deposit insurance. We didn't see that coming.
"BERNANKE But there's still a lot of short-term money in banks — whether it was lent through what's called the repo market or — in any case, money that is not insured, which ran just like the old-fashioned depositors ran. And, you know, we — there was just not enough appreciation that that was possible or that it would happen. Once it happened, it brought the whole financial system down, essentially to its knees. And then, you know, the rest is history, as they say."
The Washington Post deserves credit for being the first major media outlet to discover the sharp increase in women's labor force participation in Japan. It ran a piece headlined, "How American women fell behind Japanese women in the workplace," which pointed out that employment rates are now higher for women in Japan than for the United States. (The difference in employment rates would be even larger if the article focused on prime-age — 25–54 — women.)
This shift has been clear in the OECD data for several years, but has been almost completely ignored. (There have been a few rants on the topic at BTP, for example here, here, and here.) Anyhow, it is always good to see the media discovering major trends in the world, even if they might be a bit slow to notice.Add a comment
Eduardo Porter had a good piece in the NYT pointing out the importance of having independent evaluations of government programs. The point is that the agencies undertaking a program have a strong incentive to exaggerate its benefits. He discusses this in the context of weatherization programs, but the problem applies more generally.
One of the areas noted by Porter is in the rating of mortgage backed securities (MBS). During the housing bubble years, the bond-rating agencies routinely gave investment grade ratings to MBS that were stuffed with junk mortgages. They ignored the quality of the mortgages because they wanted the businesss. They knew if they gave honest ratings, the investment banks would take away their business.
While Porter notes this is a problem with the issuer pays model (the banks pay the rating agencies), there actually is a very simple solution. In the debate on Dodd-Frank, Senator Al Franken proposed an amendment which would have the Securities and Exchange Commission pick the rating agency, instead of the issuer. The bank would still pay the fee, but since they were no longer controlling who got the work, it eliminated the conflict of interest problem. The amendment passed the senate 65-34, with considerable bi-partisan support.
Unfortunately, as Geithner indicated in his autobiography, the Obama administration apparently did not like the dismantling of the perfect system we have today. The Franken amendment was removed in the conference committee and the existing structure was left in place. This was possible because the bond-rating agencies and the banks have real lobbies, whereas the folks who like honest evaluations don't. Of course the news media didn't help much, giving the issue very little coverage. And what attention it did get largely reflected the views of the financial industry.
Anyhow, this is a good example of the difficulties in putting in place the sort of independent auditing process that Porter seeks.Add a comment
Ben Bernanke just released his memoir which includes his account of the events around the financial crisis. According to Andrew Ross Sorkin, Bernanke claims the decision to not save Lehman in the fall of 2008 was not really a decision. Bernanke claims that the Fed did not have the ability to save Lehman. This is not true. Since the Fed has essentially a limitless ability to lend money, it surely could have provided enough loans at below market interest rates, for a long enough period of time, that Lehman would eventually have been a viable bank.
Sorkin points to $200 billion in losses suffered by Lehman creditors. This is comparable to the sums lent to both AIG and Fannie and Freddie (combined) at the time they faced insolvency, so getting enough money to at least temporarily patch any holes would clearly have been doable. In October of 2008, the assets held by Lehman were near their lowest levels. (That's not based on an analysis of specific assets, just looking at house prices and the price of other assets.)
Suppose that the Fed had lent Lehman the money needed to meet all its immediate obligations and gave the bank Timothy Geithner's "no more Lehmans" guarantee. This was a commitment that big banks would not be allowed to fail. Geithner repeats it endlessly in his autobiography. This would have allowed the bank to continue to operate and presumably make around $3 billion a year in profit (its pre-crisis level) on its ongoing business.Add a comment
It is amazing how the elite media can be dragged along by their noses into accepting that the Trans-Pacific Partnership (TPP) can have a big impact on trade and growth. If I had a dollar for every time the deal was described as "massive" or that we were told what share of world trade will be covered by the TPP, I would be richer than Bill Gates. The reality is that the vast majority of the trade between the countries in the TPP is already covered by trade agreements as can be seen.
Source: International Monetary Fund.
We continue to hear superlatives even as the evidence suggests the trade impact will be trivial. For example, the NYT reported that U.S. tariffs on Japanese cars will be phased out over 30 years. Wow! The most optimistic growth estimates show a gain by 2027 of less than 0.4 percent, roughly two months of normal GDP growth.
This doesn't mean that the TPP can't have an impact. It will lock in a regulatory structure, the exact parameters of which are yet to be seen. We do know that the folks at the table came from places like General Electric and Monsanto, not the AFL-CIO and the Sierra Club. We also know that it will mean paying more for drugs and other patent and copyright protected material (forms of protection, whose negative impact is never included in growth projections), but we don't yet know how much.
We also know that the Obama administration gave up an opportunity to include currency rules. This means that the trade deficit is likely to persist long into the future. This deficit has been a persistent source of gap in demand, leading to millions of lost jobs. We filled this demand in the 1990s with the stock bubble and in the last decade with the housing bubble. It seems the latest plan from the Fed is that we simply won't fill the gap in this decade.
Add a comment
Naturally, the paper had an editorial celebrating a deal on the Trans-Pacific Partnership (TPP). In it they referred to the TPP as a free-trade deal and denounced opponents for appealing to "protectionist sentiment." If we want to think about this one seriously, does the Post have any evidence whatsoever that the reduction in tariffs and other barriers in the TPP are economically larger than the increase in protectionist measures in the form of copyrights and patents? If so, it has never bothered to share this information with readers.
We get that the Washington Post likes patent and copyright protection. Its friends and advertisers benefit from these government granted monopolies. But, just because the Post likes patents and copyrights does not make them any less protectionist.
At a time like this it is hard not to remember when the Post claimed that Mexico's GDP had quadrupled between 1987 and 2007 because of NAFTA. (I have no idea why they chose 1987 as the base year.) The actual growth figure was 83 percent. Anyhow, the point is that these are not people who feel bound by the evidence in making their case for trade agreements.Add a comment