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).

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Apparently the answer is "no." Steven Rattner used his NYT column to make the important complaint that we are starving large areas of the federal government, leading to a deteriorating infrastructure and poor quality public service. All of this is fine. It has been said a few hundred thousand times, but it can't hurt to say it a few hundred thousand more.

But then Rattner tells us:

"Yes, we needed to bring the deficit down. And yes, we still face terrifyingly large obligations in years to come as baby boomers retire and expect to receive Social Security and Medicare benefits."

And how did he know we needed to bring the deficits down? Is this something he got from his parents? He sure didn't get it from any reasonable assessment of the state of the economy. The problem with overly large deficits is high interest rates and then high inflation rates if we accommodate the high interest rates with easy money. When since the downturn have interest rates been high? When has the inflation rate been too high? It's cute that Mr. Rattner remembers what his parents told him, but it would be nice when giving advise on economic policy if he relied on economics instead.

As far as the "terrifying large obligations": really? We raised Social Security and Medicare taxes in the 1980s. If we raised them by the same amount somewhere in the next three decades these programs would be fully funded for the rest of the century. It's too bad that Mr. Rattner finds this "terrifying."

There is one last point on which I am going to seriously beat up the budget whiners from now on. When we give patent and copyright monopolies to private companies and individuals the government is just as much imposing a tax on future generations as when we hand them government debt. If any budget "expert" ignores these commitments, which run into many trillions of dollars over the next decade, they are either incompetent or dishonest. Either way, anyone who tries to talk about the government deficit without factoring in the size of these obligations does not deserve to be taken seriously.

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George Will used his column to complain that the Federal Reserve Board is redistributing upward with its low interest rate policy. Since this is a source of confusion that extends well beyond Will, it is worth taking a few minutes to address this issue directly.

The essence of the argument is that low interest rates drive up asset prices like stock and assets, thereby increasing the wealth of people who own these assets. Since the rich own most of these assets, especially stock, the argument is that the higher asset prices are helping the rich at the expense of the rest of us.

Before addressing the logic of this point, it is first worth examining the extent to which asset prices have risen as a result of low interest rates. The pre-recession peak of the S&P 500 was 1576 on October 1, 2007. Since then the market has risen by roughly 35 percent to 2130. The economy has grown by just over 25 percent over the same period. Virtually no one thought there was a stock bubble in 2007. (I warned people about the market at the time, not because of a stock bubble, but rather because I expected the crash of the housing bubble to lead to a severe recession, which the market was not anticipating.)

If the market wasn’t in a bubble in 2007, it’s hard to make the case it faces one today. Also, if there has been a permanent shift to higher profits (which I don’t believe, but many economists claim), then the price to trend earnings ratio would be roughly the same today as it was before 2007.

For those keeping score, the federal funds rate was 5.0 percent in October of 2007 and the 10-year Treasury rate was 4.5 percent. That compares to today’s rates of around 0.3 percent for federal funds and 1.6 percent for 10-year Treasury bonds. If the argument is that low interest rates have given us a stock bubble, the Fed has not bought itself much for its efforts.

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In his Washington Post column this morning, E.J. Dionne warns of liberals who suffer from nostalgia in believing that we can just bring back and expand the New Deal agenda from the 1930s. He also complains about the amnesia of conservatives who forget all the ways in which government investments in infrastructure, education, and research and development paved the way for economic growth.

Although these points are well-taken, the piece suffers from myopia in failing to acknowledge how the elites have stacked the deck in ways that both redistribute income upward and slow growth. To take some of the most obvious examples, while trade deals like NAFTA have been quite explicitly designed to put our manufacturing workers in direct competition with low-paid workers in the developing world, with the predictable impact on wages, we have maintained protections for doctors, lawyers, and other highly paid professions.

No serious person can believe that the only way someone can become a competent doctor is to complete a residency program in the United States. Yet, this is the law. It costs us close to $100 billion a year in higher health care payments and allows U.S. doctors to have average earnings of more than $250,000 a year.

We also continually make patent and copyright protections longer and stronger redistributing a massive amount of income upward. We will spend close to $430 billion in 2016 on prescription drugs that would likely cost around one-tenth of this amount in a free market. (Drug patents are equivalent in their distortionary effects as tariffs in the range of 1,000 to 10,000 percent.)

And, we have an incredibly bloated financial sector that pulls away five times as much resources from the productive economy as it did forty years ago. If the sector were subject to the same sort of sales tax as the rest of us pay when we buy items in stores, it would likely shrink by more than 50 percent, saving the country over $100 billion a year in fees on useless trading.

Unfortunately, Dionne omits mentions of these and other items which are responsible for the massive upward redistribution of the last four decades. I suppose these are things that you are not allowed to say in the Washington Post

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Adam Davidson had an interesting NYT Magazine piece on Donald Trump and the central Pennsylvania economy. His basic point, that Trump's proposals for high tariffs will not revitalize the region is undoubtedly correct, but there are a few points that should be made.

First, productivity and technological change has been far more important for jobs in manufacturing than trade, but that doesn't mean trade has not still been a big deal. We have seen rapid productivity growth in manufacturing through the whole post-war period, but the number of jobs in the sector remained roughly constant, with cyclical fluctuations, from the late 1960s until the end of the 1990s. Since the labor force was growing over this period, it did mean that the manufacturing share of employment was falling.

However, the absolute number of jobs plummeted at the start of the last decade as the trade deficit exploded. The drop was more than 20 percent even before the 2008 recession.

Jobs in Manufacturing

manu jobs2Source: Bureau of Labor Statistics.

This sharp decline in manufacturing employment had negative effects in many regions of the country, although it's possible that the impact in central Pennsylvania was less than in other manufacturing regions. Also, the threat of job loss, often due to trade, is an important factor affecting workers' bargaining power and therefore their ability to secure pay increases.

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There are serious arguments to be made against raising the minimum wage to $15. At this point we really don't have enough data to say with much certainty what the employment impact will be. But we do know that the story that Peter Salins tried to sell readers in his NYT column is wrong.

Salins, a professor of political science at Stony Brook University and a senior fellow at the Manhattan Institute, is a big advocate of an expanded earned income tax credit as an alternative to a higher minimum wage. He tells readers of his estimate that a $15 minimum wage would cost 3 million jobs and then adds:

"Regardless of the magnitude of job cuts caused by a minimum-wage increase, all the workers who lost jobs as a result would be ineligible for the earned-income tax credit. In most states they would receive unemployment insurance for up 26 weeks at a level well below their former earnings; after that, their income would fall to zero."

The problem with this story is that it completely misrepresents the nature of the low-wage labor market. The jobs that pay near the minimum wage tend to be high turnover jobs. According to the Bureau of Labor Statistics' Job Opening and Labor Turnover Survey, over 6.0 percent of the workers in the hotel and restaurant sector leave their job every month. That comes to more than 72 percent annually. In the strong labor market at the start of the century the turnover rate was over 8.0 percent monthly.

Given this rate of turnover, the story of job loss due to the minimum wage is not a story of people losing their jobs and going without work for the rest of the year. It's a story of people taking longer to find jobs when they lose or leave their job. This means that there will be few workers who go without work for a whole year and see their income falling to zero, as described by Salins.

It is possible that a higher minimum wage will lead to enough job loss that the net effect will be to reduce the annual pay of a large portion of low-wage workers. This is a reasonable concern, which we will be better able to answer as we experiment with higher minimum wages, but it will not be a story of millions of losers going without employment altogether, as Salins implies.

It is striking how plans to raise the minimum wage invariably brings out calls for an expanded Earned Income Tax credit (EITC) from conservatives. This is a good policy, hopefully it will be part of the mix of measures that will raise the income of low-wage earners. (A full employment policy from the Federal Reserve Board is also a big part of this picture.) It is worth noting that in standard economic models, the EITC will also lead to lower employment, since it requires more taxes and/or more borrowing, which leads to economic distortions, slower growth, and fewer jobs.

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The Washington Post is at it again, using a front page piece to repeatedly tell readers that the protectionist pacts crafted by recent administrations are "free trade." The phrase appears in each of the first two paragraphs.

Of course, the deals are not about free trade. They do deliberately place U.S. manufacturing workers in direct competition with low-paid workers in the developing world. This has the predicted and actual effect of lowering their wages. However, the deals leave in place the protections for highly paid professionals like doctors and lawyers.

It is still illegal to practice medicine in the United States unless you go through a U.S. residency program here. As a result of protectionist measures our doctors earn on average more than twice as much as doctors in other wealthy countries. This costs us roughly $100 billion a year in higher health care bills. "Free traders" would be upset about this.

The trade deals also put in place longer and stronger patent and copyright protections. As a result of these protections, we will spend over $430 billion this year on prescription drugs that would cost around one-tenth of this amount in a free market. Of course, protectionism like this is not free trade.

Educated types think they have to support free trade, so labeling these trade deals as "free trade" pacts undoubtedly wins them support among a substantial segment of the population. However, it is not accurate.

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It would have been worth reminding people of this fact in an article on a proposal in California to lower drug prices. The piece might have led readers to believe that the proposal was interfering with a free market. Actually, it is limiting the ability of companies to take advantage of a government granted monopoly.

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The folks at National Public Radio assume you all know the answer to that question. Why else would they tell listeners in a piece on migrant workers in the UK after the Brexit vote that:

"Analysts estimate that Lithuanian workers abroad send home more than $300 million a year."

Hmmm, is that a big deal for Lithuania's economy? If you had to look up Lithuania's GDP to answer that question, you probably weren't alone among NPR listeners. The IMF tells us that Lithuania's GDP will be around $43 billion for 2016, which means that the $300 million in annual wages being repatriated is equal to roughly 0.7 percent of the country's GDP.

If harsher immigration rules caused this sum to be cut back by a third or even half, that would be bad news for Lithuania's economy, but not the sort of thing that is likely to send it into a recession. Anyhow, it would not have taken NPR's reporters too much time to look up Lithuania's GDP so that they could have presented a meaningful number to their listeners. As it is, they could have just saved some time by leaving this number out altogether. They were not providing information with it.

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The Washington Post had a piece assessing the power relationships in the European Union after the departure of the United Kingdom. The piece discusses whether Germany will play an even more important role. When it turns to potential rivals the piece tells readers:

"France is mired in economic woes and a war on terrorism. Spain and Italy face massive unemployment and political instability."

It would have been worth pointing out that the reason France is mired in economic woes and that Spain and Italy face massive unemployment and political instability is the austerity policies demanded by the Germans. As a result of these policies, countries are being forced to constrain their budget deficits even as long-term interest rates are near or below zero and inflation is under 1.0 percent.

According to a new study from the European Central Bank, the euro zone's economy is 6.0 percent below its potential level of output. With Germany near or at its potential level of output this means that the output gap in other countries is considerably larger. In discussion of the roles of various countries in the EU it would have been appropriate to point out how the economic policies demanded by Germany have undermined its rivals.

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Mark Landler used his "White House Letter" column to tell readers that President Obama will "need his oratory powers to sell globalization." This assertion is wrong. Landler is referring to the Trans-Pacific Partnership (TPP) which can more accurately be described as a protectionist agenda than globalization.

The reality is that the trade barriers between the United States and the other countries in the TPP are already very low. The U.S. already has trade deals with six of the other eleven countries in the TPP and even in the case of the other five most of the barriers are already at or near zero. This is why the International Trade Commission (ITC) projected that in 2032, when the gains from the deal will be mostly realized, it will have increased national income by just 0.23 percent, a bit more than one month's growth.

While the deal does little to reduce traditional trade barriers, the TPP increases protectionism in the form of stronger and longer copyright and patent protection. The provisions in the TPP will cause people to pay more for everything from prescription drugs and computer software to recorded music and old books. The impact of the protectionist measures in the TPP are likely to be much more important in slowing growth than the tariff reducing measures are in enhancing growth. (The ITC did not include the impact of stronger protections in its analysis.)

New Zealand's government estimated that the copyright extension required by the TPP, from 50 years to 70 years, would cost the country 0.023 percent of its GDP annually. This assessment implies that this one narrow provision, in a country that already has strong copyright protection, will cost the country one-tenth as much as what the ITC projected the United States will gain from the deal. The impact of the stronger protections for drugs and other products will almost certainly be many times larger than the impact of this copyright provision.

It is also worth noting that stronger patent and copyright protection shifts income upward. Not many low-income people own patents and copyrights. By making these protections stronger, under standard economic assumptions, the United States trade deficit in manufactured goods and other items will increase. (It is worth noting that the TPP does nothing to weaken the protections for highly paid professionals like doctors and dentists. These protections add over $100 billion a year to the country's health care bill.)

The TPP would also make the far-right legal doctrine of compensation for regulatory takings part of U.S. law. Under current law, if Congress or a state legislature determine that a company's pollution imposes a health or environmental hazard, they can simply prohibit the company from polluting. However, under the TPP governments would have to compensate foreign investors for the profits they would lose if they are not able to pollute.

NAFTA already has a similar provision, but TPP would greatly expand the number of companies in a position to sue for regulatory takings. It could also create a situation in which U.S. companies pressure Congress to grant them the same treatment as foreign companies in getting compensation for regulatory takings. (U.S. companies could also transfer divisions to a foreign based subsidiary or sell them to a foreign company if they thought it was likely that they could face a reduction in profits due to regulatory measures.)

It is very generous of Mr. Landler to call the push for greater protectionism and the advancement of a right-wing legal doctrine "globalization," however these actions do not fit the normal meaning of the term.

Note: this was altered slightly from an earlier version to clarify the issue on regulatory takings. Thanks to Robert Salzberg.

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Paul Krugman has again waded into trade and employment turf in his latest blog post. I agree completely with the post-Great Recession story where Krugman acknowledges that the trade deficit creates a demand gap that we have not been able to fill.

The problem is that fiscal policy is limited by a bizarre austerity cult that works to prevent larger budget deficits even though the economy clearly needs them to reach full employment levels of output. Monetary policy has been helpful, but with the Fed up against the zero lower bound there is not much more the Fed can do by way of traditional monetary policy to boost the economy. As a result, the trade deficit really does mean lost jobs.

Where I differ with Krugman is in his assessment that the trade deficit did not cost the economy jobs in the pre-recession period. He argues that we were pretty much at full employment in the period prior to the 2008 recession.

"Up through 2007 we basically had a Fed which raised rates whenever it thought the economy was overheating; in the absence of the China shock it would have raised rates sooner and faster..."

Just to refresh folks' memory, the unemployment rate was 4.0 percent as a year-round average in 2000. In the recovery, we bottomed out at 4.4 percent for several months in 2006 and 2007, although we didn't get back below 5.0 percent until the end of 2005. But the unemployment rate doesn't really tell the whole story.

The employment rate for prime age men (ages 25–54) peaked at 89.5 percent at the start of 2000. In the recovery, it never crossed 88.0 percent. When the recession hit at the end of 2007 it was at 87.2 percent, more than two full percentage points below its 2000 peak. This gap corresponds to a drop in employment among this group of more than 1 million.

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Neil Irwin raises the question of whether economists have been too single-minded in pushing efficiency, while ignoring issues of distribution. This is way, way too generous to economists. In fact, economists have been totally happy to ignore efficiency considerations when the inefficiencies redistribute income upward. This situation pops up all the time.

As I frequently point out in comments here and elsewhere, we protect doctors, dentists and other highly paid professionals from competition with their lower paid counterparts in the developing world or even other wealthy countries. We have maintained these protections even while our trade negotiators did everything they could to make steel workers and textile workers compete against their low-paid counterparts in Mexico, China, and other developing countries.

This protectionism is obviously inefficient and cost U.S. consumers more than $100 billion a year in higher medical bills and other costs. Yet economists act really dumb when questioned about it. Apparently, it never occurred to them that competent doctors could be trained in Mexico, India, or even Germany. Sorry folks, economists don't give a damn about efficiency in this case. They want to protect the income of highly paid professionals.

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It is possible to make serious arguments against Donald Trump's views on trade, but apparently the Washington Post can't find anyone with sufficient knowledge and skills. Instead they assigned Fareed Zakaria the task and he failed badly.

Zakaria tells readers:

"The appeal of both Trump and Sanders has many politicians mouthing cliches about the deep problems with globalization. It is true that two gifted populists have been able to give voice to people’s fears about a fast-changing world. But this does not alter the truth. Their central charge is false. Free trade has not caused the hollowing out of U.S. manufacturing.

"Manufacturing as a share of all U.S. jobs has been declining for 70 years, as part of a transition experienced by every advanced industrial economy."

If Zakaria had access to data from the Bureau of Labor Statistics he would have better knowledge of trends in employment in U.S. manufacturing.

Jobs in Manufacturing Industries

manu jobs2Source: Bureau of Labor Statistics.

As can be seen, employment in manufacturing hovered near 17.5 million from the late 1960s until 2000. At that point, the explosion in the size of the U.S. trade deficit sent employment in manufacturing plummeting. We lost roughly over 3 million manufacturing jobs in this period, almost 20 percent of total employment, before the onset of the recession. It is difficult to believe that a Washington Post columnist could be so ignorant of these data and still be writing a column on the topic.

It is also important to note that Zakaria insists on saying the United States has been pursuing a policy of free trade even though this is clearly not the case. Under U.S. law, it is necessary to go through a residency program in the United States to practice as a doctor. It is necessary to go to a U.S dental school (or recently a Canadian school) to be a dentist. Does anyone seriously believe that the only way to be a competent doctor is to go through a U.S. residency program or to be a competent dentist is to go to a U.S. dental school?

These protectionist barriers inflate the pay of both doctors and dentists and add over $100 billion a year to our health care bill. Are we supposed to believe columnists at the Post are too stupid (to use Trump's word) to notice this fact?

What about patent and copyright protection? We will spend over $430 billion this year for prescription drugs that would likely cost around one-tenth this price in a free market. This is massive protectionism that imposes enormous costs on people's health. Did this also escape Zakaria's attention? (There are more efficient ways to finance drug research.)

Trump is obviously a blowhard without a coherent trade or economic policy, but in this battle he beats Zakaria hands down.

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A new study from the European Central Bank (not official bank policy) estimated the size of the output gap in the euro area at 6.0 percent of GDP. Most analyses put the cost to the UK's from its exit from the European Union at around 2.0 percent of GDP. If the ECB's estimate of the output gap is correct, then austerity is imposing three times as much harm on the euro zone countries as Brexit is projected to impose on the UK.

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David Brooks apparently thinks he has things down. The major divide isn't between supporters of big government and small government, it's a debate between supporters of an open economy that looks to increase trade and a closed economy that looks to protectionism. This is the theme of his column that tells us about "the coming political realignment."

To make his case, he gets a lot of things wrong. For example, he seriously misrepresents research on the impact of trade liberalization. Brooks refers to a study by the Peterson Institute that "found that past trade liberalization laws added between $7,100 to 12,900 in additional income to the average household." The vast majority of the gains estimated from liberalization by this study occurred before 1980, a point at which trade was largely non-controversial. The gains estimated from the trade deals of the last quarter century (post-NAFTA) have been far more limited.

Brooks then notes a study from the Peterson Institute for International Economics which projects that the Trans-Pacific Partnership (TPP) would increase national income by $131 billion. It would have been useful to point out that this gain is projected for 2030, a point at which it would be equal to 0.5 percent of GDP. This means that if the study projections are correct, we will as wealthy on January 1, 2030 with the TPP as we would be in mid-March of 2030 without the TPP.

It is also worth noting the Peterson Institute's projection of gains from the TPP assumes the economy is at full employment. It also does not calculate any costs associated with the increased protections in the TPP as a result of stronger and longer patent and copyright protections. This increased protectionism could easily offset the projected gains from the modest tariff reductions in the TPP. It is also worth noting that the non-partisan International Trade Commission projected gains that were less than half as large (roughly one month's growth) also while assuming full employment and not counting any negative impact from the increased protections in the TPP.

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Paul Krugman has an excellent blog post ridiculing the doomsayers on Brexit. I agree with just about everything he says. His basic point is that, while the UK will pay a substantial economic price if it leaves the European Union (especially if the EU imposes punitive tariffs), there is not a plausible story that Brexit will lead to a near-term recession.

Krugman furthermore makes the point that many economists feel the need to exaggerate their case when arguing on trade. The point is that they believe their "free trade" policies to be good and therefore are willing to sort of make stuff up to advance their case. (Can you say "TPP?")

This is all very well-taken and I agree with Krugman 100 percent on these issues. Where I would differ is on the assumption that Brexit won't lead to a recession in the near-term. The argument is not that the reduction in trade resulting from the withdrawal would be so large as to lead to a recession. Rather, the reason stems from the fallout of collapsing bubbles.

There is a very credible case that the UK was experiencing a serious housing bubble, especially in the London market. Brexit may be bringing this to an end for two reasons.

First, UK real estate was seen as a safe haven for rich people across the globe. Therefore, they were willing to sink large chunks of money to purchase condos and houses in the UK. This perception of safety may no longer hold in the post-Brexit world. Instead of money flowing into London real estate it may start to flow out.

The other reason has to do with the strength of the London economy. It is virtually certain that the financial industry will take a big hit from the Brexit vote; the only question is how large a hit. The London finance boys were big buyers of London real estate. If they have to relocate to Paris, Frankfurt, or elsewhere, it could send London prices plummeting. 

The net effect of a plunge in real estate prices could very well be a recession. The construction sector will see a sharp fall in demand, leading a major contraction and large-scale layoffs. Similarly, as millions of homeowners see their house prices plummet they will cut back spending in response to the loss of wealth. (Have we ever seen anything like this?)

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Sure, it's tough to get a job in reporting that pays a decent wage. But now you can get on the fast track to a successful career in journalism by writing pieces that make fun of opponents of U.S. trade policy.

No knowledge of the economic theory of trade or actual trade practices is required. You just have to be able to trivialize any argument against a current or future trade deal by saying that opponents want to end trade and close borders. Apply at the Atlantic or other major news outlets.

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Media coverage of U.S. trade policy with China and other countries has been remarkably one-dimensional. The coverage almost exclusively treats the issue as being one of relative toughness. While this is certainly the way some politicians, notably Donald Trump, speak about trade, it conceals the real issues involved.

The United States pursues a variety of agendas in its trade negotiations. Naturally, it does not get everything it wants, it prioritizes some items over others. In some areas it clearly has been very "tough" as measured by outcomes. For example, Pfizer and Microsoft and other drug, software, and entertainment companies are collecting tens of billions of dollars a year from foreign countries because U.S. trade negotiators have been very tough in demanding that these countries adopt U.S.-type rules on patents and copyrights.

The United States has also demanded that other countries allow U.S. corporations to take their complaints to special tribunals outside of their domestic legal system. This is a central feature of the newly negotiated Trans-Pacific Partnership. Undoubtedly our negotiators had to be very tough to get these countries to surrender this aspect of their national sovereignty. (We even had to make a reciprocal sacrifice of sovereignty, allowing foreign investors a route around the U.S. legal system.)

Negotiators have not been tough in pressing demands on currency values, which would have meant a lower U.S. trade deficit with countries like China. While the trade deficit matters hugely to workers, some of whom directly lose jobs to imports and others who suffer indirectly from a weak labor market (in the era of secular stagnation we have no mechanism for making up the demand lost due to a trade deficit), it actually benefits many major corporations.

Companies like GE benefit from being able to produce at low cost in countries like China. Retailers like Walmart also benefit from having low-cost supply chains in the developing world. And highly-paid professionals like doctors, who are largely protected by regulations from foreign competition, benefit from a weak labor market by being able to hire cheap help.

In this context, a call to address currency values and thereby bring down the trade deficit, is not necessarily an issue about being tough with China and other trading partners. It is an issue about what will be prioritized in trade negotiations. Presumably if these countries met U.S. demands on currency, they would be less likely to meet demands on patents and copyrights or special courts for foreign investors.

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The NYT ran an article on how France's far-right sees the vote in the UK for leaving the European Union as a boost to its own efforts. After outlining the state of anti-EU sentiment in France, the piece tells readers:

"Given the array of other issues facing France, including a near-stagnant economy and high unemployment, it remains to be seen how central an issue membership in the bloc might be in the presidential race."

Actually, since France is in the euro (unlike the UK), its stagnant economy is very directly linked to its membership in the EU. The rules imposed on it by the EU leadership have prevented it from adopting the sort of stimulus that would be needed to boost its growth and reduce unemployment. It would be very surprising if this issue were not front and center in France's presidential race since it is so important in people's lives. The EU is forcing both a deterioration in the quality of France's public services and higher unemployment with its pointless austerity policies.

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This is a serious question. BBC told readers that Fitch and Moody's both lowered their outlooks for debt issued by the British government following the Brexit vote. The question is, what do these bond-rating agencies mean when they lower the rating of a country that issues debt denominated in a currency it prints.

This issue came up back in 2011 when S&P downgraded the debt of the United States following a long standoff on a budget agreement between President Obama and the Republican Congress. While U.S. debt is also denominated in a currency we print, there was at least a not 100 percent absurd story where another standoff could lead to the government not paying its debt. (It's only 99.99999999 percent absurd.)

But in the UK there is no possible issue of a division of power blocking normal debt payments since the country has a parliamentary government. So what are the bond rating agencies telling us when they lower its debt rating? For private companies or governments that issue debt in a currency they do not issue, the meaning is clear. There is a possibility they won't have enough money to pay their debts. In the case of companies, this means a risk of bankruptcy. In the case of governments that can't go bankrupt, there is still a risk of a write-down in which creditors will have to accept less than full payment on their bonds.

But the UK will always be able to print the pounds needed to pay the bonds it has issued. So what are the credit rating agencies saying when they downgrade them. This could be seen as an inflation risk projection, except the rating agencies don't have special expertise in inflation projections and furthermore have not historically tied their ratings to inflation. For example, they did not downgrade the debt of the United States and other countries in the seventies even as inflation increased to double-digit rates. (FWIW, inflation in the UK has been close to zero in the last year.)

So what do the bond-rating agencies think they are telling us about the UK? Inquiring minds want to know.

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Phillippe Legrain began his NYT column denouncing the supporters of Brexit by noting their contempt for economic expertise. He then went on to give good reasons for such contempt.

Legrain tells readers:

"Experts are, of course, known to make mistakes. But in this case, the people who voted for Brexit will pay a big price for ignoring economic expertise. The harmful effects of this vote are both immediate and lasting.

"Britons are already worse off. The pound has — so far — plunged by nearly 9 percent against the dollar, slashing the value of British assets, with higher import prices likely to follow. The stock market has also taken a hit. The prices of property, most British people’s main asset, are almost certain to fall, too."

Actually the pound's fall was a necessary and good development in the long-run, even if it would have been better had it occurred over a longer period of time. The UK was running a trade deficit in the neighborhood of 5.0 percent of GDP (@ $900 billion in the U.S.), this was unsustainable. And, contrary to what Legrain claims in this piece, the best way to get the trade deficit down is to lower the value of the pound.

Legrain incorrectly asserts that the drop in the pound in 2008 did not lead to a reduction in the trade deficit. In fact it led to a substantial reduction, although with a 1–2 year lag as would be expected. (The pound fell from a peak of more than 1.5 euros in 2007 to just over 1.0 euro at its trough in 2008. It remained low until it began to rise sharply in 2013, reaching values of more than 1.4 euros last year, hence the large rise in the trade deficit.)

The inflow of money from abroad was fueling a housing bubble in the UK. This has priced many people out of the real estate market. Bubbles do burst, often with very bad outcomes.

The problem with bubbles is not the factor that causes them to burst, the problem is allowing them to grow in the first place. Apparently the "experts" in the UK had no idea that real estate markets could develop bubbles or that their bursting could lead to harm. The problem Legrain describes here is entirely on the shoulders of the experts, not the Brexiters.

It is also worth noting that a high stock market is not an economic good. It is a distributional measure. It means that the owners of stock have more claim on society's income. There is very little direct relationship between the stock market's value and investment. (In the U.S. the investment share of GDP peaked in the late 1970s when the stock market was in the doldrums.)

The piece also implies that the UK will face punitive tariffs from the EU after it leaves. This is possible, but the fault will then be with the EU leadership. They will be deliberately making the EU poorer so that they can extract revenge on the UK for leaving. 

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