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).
The Washington Post printed a Reuters article that included a major mistake in economics. The piece is about the plotting of conservative politicians and business leaders trying to plan for the likelihood that their ally, President Michel Temer, will be indicted and removed from office for corruption. It told readers:
"Amid the political turmoil that comes just a year after his predecessor was impeached and removed from office, preserving Temer’s agenda of austerity reforms and pulling Brazil’s economy out of recession is more important than saving the leader himself, sources in three parties that are his main allies said."
Actually, this statement is contradictory. The austerity is one of the main causes of the recession. If they want to pull the economy out of recession then they should be reversing the austerity. Hopefully, Mr. Temer's allies understand this and it is just the Reuters' reporter who is confused.
The next sentence added:
"Those measures range from reducing a gaping budget deficit through opening doors to foreign investors to weakening labor laws and tightening pensions."
Readers may have been confused by the phrase "tightening pensions." The normal English translation would have been "cutting pensions." It is understandable that politicians who are trying to pursue policies that are unpopular may use euphemisms to conceal their agenda. It is not clear why Reuters or the Post would.Add a comment
Neil Irwin examined recent patterns in wage growth in an NYT Upshot piece. Irwin noted the extraordinarily low 0.6 percent pace of productivity growth in recent years (where are the robots?) and argued that wage growth has actually been relatively fast. He then examines why productivity growth might be so slow.
One explanation he left out is that low wages make it possible to hire workers at low productivity jobs. If an employer only has to pay a worker the $7.25 federal minimum wage, then it can be profitable to hire the worker at jobs that increase revenue for the employer by just over $7.25 an hour. This can mean hiring someone to work the midnight shift at a convenience store or to work as a greeter at Walmart.
If the employer had to instead pay a worker $10 or $12 an hour, then many very low productivity jobs would no longer exist. This would raise the average level of productivity in the economy by eliminating the least productive jobs.
In this way, it is possible that the weakness of the labor market has been a factor in reducing productivity growth as workers have had no choice but to take low paying, low productivity jobs. If this is true, as the labor market tightens and wages start to grow more rapidly, we should see productivity increase more rapidly.Add a comment
As we know, the goal of the Trump administration is to redistribute as much income as quickly as possible to his family, friends, and people like his family and friends. This is why the centerpiece of his health care reform is more than $600 billion in tax cuts over the next decade that will go overwhelmingly to the richest one percent of the population.
But there is a flip side to these cuts. If the government is spending less money on health care, then the corporations and wealthy individuals who get their income from the health care sector will be seeing less money. Fortunately, the American Health Care Act of 2017 is designed to minimize this problem.
While it will reduce the percentage of insured among the under 65 population by 9.1 percentage points, according to the analysis from the Congressional Budget Office (CBO), it will only reduce the percentage of the under 65 who are privately insured by 5.9 percent.
Source: CBO 2017 and CBO 2012.
This means that if we assume the reduction in payments to private insurers are proportionate to the reduction in enrollment, insurers will see a loss of roughly $24 billion in net revenue (premiums minus payments to providers) in 2026 even though total government spending on the AHCA and Medicaid will be down by $156 billion in that year. This means that, even though insurance companies will get somewhat less money as a result of the AHCA, the Republicans have shielded them from the worst effects of the spending reduction.
 These numbers are taken from Table 4, the total insured population is derived from CBO (2012), Table 3, with the assumption that the percentages of publicly and privately insured would stay the same from the last year in that analysis (2022) until 2026.
Ever since the Trump administration released its budget on Tuesday, economists (including me) have been ridiculing its assumption that we will see an average annual growth rate of 3.0 percent over the next decade. The Congressional Budget Office (CBO) projects an average growth rate of just under 1.9 percent for this period. This projection assumes slow labor force growth, as the baby boom cohort retires, and a continuation of the weak productivity growth we have seen over the last decade.
The Trump administration's 3.0 percent growth number presumably assumes that productivity growth will rebound to something like the 3.0 percent growth rate we saw in the long Golden Age from 1947 to 1973 and again from 1995 to 2005. It seems that Mark Zuckerberg agrees with the Trump administration's assessment since, according to the Washington Post, he warned of massive job loss due to technology in the years ahead and the need to have something like a universal basic income to ensure that people have enough money to survive.
If we continue to see the rates of productivity growth experienced in recent years and projected going forward by CBO, we will be seeing a labor shortage, not a shortage of jobs. So Mr. Zuckerberg, along with the Trump administration, has a very different view of the future than most of the economics profession (which doesn't mean they are wrong).Add a comment
That's the question the board of directors of Charter should be asking, but I suspect they never do. The company scored first in the NYT's annual compilation of CEO pay packages, coming in almost $30 million ahead of CBS, which is number 2. Of course, if the CEOs earned less than the other top people in the corporate hierarchy would likely get smaller paychecks as well. And, it might be harder for the presidents of universities, foundations, and non-profits to explain the need for seven figure salaries for their work.
It seems unlikely that directors ever push in a big way for lower pay for CEOs because they have almost no incentive to do so. More than 99 percent of the directors put up for re-election are approved by shareholders. This is because it is very difficult to organize among shareholders to unseat a director. (Think of the difficulty of unseating an incumbent member of Congress and multiply by about 100.)
As a result, there is no reason to raise unpleasant questions at board meetings. Even though they are supposed to serve shareholders, which means not paying one penny more than necessary to CEOs and top management for their performance (just as CEOs try to pay workers as little as possible), their incentive is to get along with top management. The result is the upward spiral in CEO pay that we have seen in the last four decades.
A big part of the problem is that asset managers (think Vanguard and Blackrock) routinely support management slates as they vote trillions (literally) of dollars worth of stock held by people in their 401(k)s and IRAs. These asset managers care more about staying on good terms with top management than making sure they aren't overpaid. This creates a structure where ridiculously rich CEOs, who are usually big celebrants of the market, are effectively shielded themselves from market discipline. Isn't that the way markets are supposed to work?Add a comment
The Washington Post had an article reporting on the fact that President Trump's hotels have not been consistently screening payments from foreign governments to donate to charities, as he had promised in order to comply with the constitutional ban on such payments. The article cites a document from the Trump Organization saying that it would be impractical to screen all their guests to determine which ones were representatives of foreign governments.
While this sort of screening may exceed the competency of the Trump Organization, there is an extremely simply route that would allow Mr. Trump to comply with the law. He can sell his assets and place them in a blind trust. This can quickly be done in a way that need not involve a rushed sale of assets.
It is understandable that Trump may not want to sell his business empire, but this is the sort of thing that we expect adults to think about before they take a job. If the business is so valuable to him, then he should not have run for president.Add a comment
Washington Post columnist Charles Lane is a devout proponent of the policy of selective protectionism. Under this policy, which is called "free trade" for marketing purposes, the wages of U.S. manufacturing workers and non-college educated workers more generally are pushed down by placing them in direct competition with low-paid workers in the developing world.
By contrast, highly paid professionals like doctors and dentists are able to achieve gains in wages by keeping in place the barriers that protect them from similar competition. In addition, drug companies, medical equipment companies, and software companies benefit from ever longer and stronger patent and copyright protection.
This selective protectionism is a key part of the upward redistribution of the last four decades. (Yes, this is the story of my book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer [it's free].) Anyhow, Lane is apparently upset that Donald Trump and much of the public seem to be rejecting this policy of selective protectionism so he used the 100th anniversary of John Kennedy's birth to enlist him in the cause.
As Lane tells it, John Kennedy proclaimed:
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"Ask not what your country can do for you, ask what you can do to make the rich even richer."
The NYT left this off the list of possible solutions in an article on China's rapidly growing private-sector debt. The basic story is a simple one. Creditors are given an equity stake in a company in exchange for reducing or eliminating the company's debt liability. In a rapidly growing economy like China's, there is no obvious reason this cannot be done on a large-scale, thereby radically reducing debt liabilities.Add a comment
Nope, that is not what the Washington Post said, instead it insisted to readers that the opposite is the case. The first sentence of a front page article on the Trump administration's infrastructure plans told readers:
"The Trump administration, determined to overhaul and modernize the nation’s infrastructure, is drafting plans to privatize some public assets such as airports, bridges, highway rest stops and other facilities, according to top officials and advisers."
I guess this is another case where we are relying on the extraordinary mind-reading skills of reporters, since the rest of us would not know that the administration is pursuing privatization plans because it is "determined to overhaul and modernize the nation’s infrastructure," as opposed to making the Trump family and people like them even richer. The evidence of past privatizations might suggest the opposite.
While the piece does note some of the past failures of privatization projects, the framing in the first sentence attributes good faith in its motives which there is zero reason to assume. It is certainly possible that the Trump administration is acting in what it perceives to be the public good but it is also entirely possible that it is trying to further enrich a small group of wealthy people at the expense of everyone else.
The Post has no basis for its assertion that Trump administration actually gives a damn about the public interest.Add a comment
The New York Times ran a column by Maya MacGuineas, the president of the Peter Peterson-backed Committee for a Responsible Federal Budget. The piece begins with the ominous announcement:
"President Trump entered office facing the worst ratio of debt to gross domestic product of any new president in American history except Harry Truman — an onerous 77 percent."
It could have also begun with the announcement that the ratio of debt service (interest on the debt, net of payments from the Federal Reserve Board) to GDP is less than one percent. This contrasts with a ratio of almost 3.0 percent in the early and mid-1990s. Are you scared yet?
Actually, you should be. Folks like Ms. MacGuineas have pushed austerity policies in the United States and around the world for the last decade. These policies have prevented the government from spending the amount necessary to restore the economy to full employment. This has not only kept millions of people in the United States from having jobs, it has prevented tens of millions from getting pay increases by weakening their bargaining power.
Furthermore, the lower levels of output have an enduring impact on the economy. They are associated with less investment in public and private capital and less money spent on research and development. In addition, unemployed workers don't gain the experience they would have otherwise. Many of the long-term unemployed drop out of the labor force and may end up never working again.
As a result of these effects, the Congressional Budget Office now estimates that the economy's potential level of output for 2017 is 10 percent less than what it had projected for 2017 back in 2008 before the Great Recession really took hold. The loss in output due to this austerity tax is roughly $2 trillion a year. This is the reduction in wages and profit income as a result of the smaller size of the economy. That comes to $6,000 per person per year.
This is the burden that the Peter Peterson crew have imposed on our children and grandchildren due to their scare tactics on the deficits. (Hey, remember the Reinhart-Rogoff 90 percent debt to GDP cliff?) And fans of logic everywhere know that it will not matter one iota to our kids' well-being if the government were to increase taxes on each of them by $6,000 or whether its austerity policies lead them to earn $6,000 less each year.
Unfortunately, because of the distribution of money and power in society, it is only the taxes that will draw attention. The fact that inept economic management needlessly caused us to sacrifice economic growth, and did so in a way that disproportionately hurt the poor and middle class, is considered rude to mention in polite company.
Instead, we get columns with meaningless figures about debt to GDP that are designed to scare people.
I somehow forget to mention the rents from government-granted patent and copyright monopolies. As I point out in Rigged, these come to close to $400 billion a year in the case of prescription drugs alone. This is the difference between the patent-protected price and the free market price. It is effectively a privately collected tax. If we add in the rents from medical equipment, software, and other items the figure could easily be twice as high. In other words, we are making our kids pay $400 billion to $800 billion a year to pay for the research and creative work that was done in the past.
Anyone seriously concerned about the burden we impose on our kids has to include this cost in their calculations. Otherwise, they just deserve to have their pronouncements treated with ridicule.Add a comment
Paul Ryan won widespread applause from the Peter Peterson-types some years back for proposing a budget that would virtually eliminate the federal government by 2050, excepting Medicare, Medicaid, Social Security, and the military. According to the Congressional Budget Office's analysis of the Ryan budget (done under Speaker Ryan's supervision), spending on everything other than Social Security, Medicare, and Medicaid would be reduced to 3.5 percent of GDP in 2050. With military spending likely running in the neighborhood of 3.0 percent of GDP, this left around 0.5 percent of GDP for federal spending on education, infrastructure, the Justice Department, research and development, national parks, and all the other things we think of the government as doing.
Well, Ryan now has some serious competition from Donald Trump. In his budget, he has these same categories of spending shrinking to 3.6 percent of GDP by 2027, down from 6.3 percent of GDP at present. While Ryan's endpoint may be more impressive, it is important to remember that he has another 23 years to get there. According to CBO, in 2030 Ryan's budget has 5.25 percent of GDP going to the same categories of spending, including the military. If we pull out 3.0 percent for the military (Ryan is more hawkish than Trump, who only spending 2.3 percent of GDP on the military in 2027) then Ryan would have 2.25 percent of GDP for this everything else category in 2030.
So we have Trump at 3.6 percent of GDP for the bulk of the federal government in 2027 compared to 2.3 percent in the same categories for Ryan in 2030. If we assume the same rate of decline in the years from 2027 t0 2030 as in the years 2017 to 2027, then Trump's budget would be down to 2.8 percent of GDP by 2030. It looks like Ryan is still somewhat ahead of Trump in his plan to eliminate the federal government, but Trump can still hope to catch up.Add a comment
A major and frequent sin of reporting is to tell readers the intentions of politicians. This is bad reporting because the reporter does not know the intentions of politicians, they know what the politicians say and do. When a news story tells its audience that a politician "wants," "believes," or is "concerned" it is making an assertion that the reporter cannot possibly know to be true. The reporter is effectively assuring their audience that what the politician claims as their motive is in fact their motive.
The NYT carried this bad practice a step further in its reporting on the Trump budget. The very first sentence of the piece tells readers:
"...seeks to balance the federal budget through unprecedented cuts to programs for poor and working-class families, effectively pitting them against older Americans who would largely escape the budget ax (emphasis added)."
In this case, we have a reporter telling us the goal of the budget, presumably based on the claims of the politicians who drafted it. The idea that the goal of Trump administration is balancing the budget with this proposal is at least implausible, if not blatantly false. It is also not especially accurate to make the divide described in this sentence between the old and the poor.
On the issue of balancing the budget, the key item here is the assumption that the economy will grow at annual rate of 3.0 percent over the next decade rather than the 1.9 percent rate projected by the Congressional Budget Office. There are very few economists who will support the claim that the economy can sustain anything close to 3.0 percent annual growth for a decade.Add a comment
Yes, it's yet another example of the skills shortage. In the middle of his review of a new book by Mervyn King, the former head of the Bank of England, Steven Pearlstein tells readers:
"If you are like me, just thinking about the constant interplay among trade flows, investment flows, savings rates, exchange rates, inflation, interest rates and asset prices makes your head hurt. Perhaps that’s because it’s never exactly clear what is cause and what is effect, or whether the effect is up or down."
For people whose head doesn't hurt, the chains of causation are actually fairly clear. While Pearlstein tells readers that the United States and the other Anglo-Saxon countries are "saving too little," in a context where other countries are propping up the dollars (as King claims and Pearlstein apparently agrees), causing us to run large trade deficits, we are saving too much.
The trade deficits the United States and other countries run as a result of having over-valued currencies lead to unemployment unless they are offset by large budget deficits. The budget deficits run in the years after the 2001 recession and 2008–2009 recession were insufficient to restore the economy to full employment. (We did eventually reach something close to full employment in 2006–2007 due to the construction and consumption demand generated by the housing bubble.)
Larger budgets would mean less national savings, although the increased borrowing associated with the deficit would be partially offset by the additional output in the economy, which would lead to more savings. It is also possible to get back to full employment by reducing labor supply through measures such as work sharing, mandated paid vacations, and other measures designed to shorten the average work year. This is how Germany managed to reduce its unemployment in the Great Recession, even though it had a sharper fall in output than the United States.
Pearlstein's confusion on cause and effect also leads him to claim some sort of crisis is imminent, since at some point other countries are likely to stop propping up the dollar. There is no basis for this assertion. We actually have a clear precedent for this story of adjustment.
In the late 1980s, following the 1985 Plaza Accord, Japan, Germany, and our other major trading partners helped to engineer a sharp reduction in the value of the dollar, which caused our trade deficit to decline from a peak of more than 3.0 percent of GDP in 1986 to roughly 1.0 percent of GDP by 1989. The economy grew at a respectable pace throughout this period and there was no major uptick in inflation.Add a comment
If anyone thought that Republicans believed in local rule or protecting the public from criminals, the Texas legislature is working hard to correct this misunderstanding. It just passed a new law that prohibits Texas' cities from imposing requirements on taxi services like Uber or Lyft.
The law was passed in response to a measure by Austin that required that drivers for Uber and other services undergo a background check that included fingerprints. Uber and Lyft claimed that they were too incompetent to administer the same sort of background checks as their competitors. After spending millions of dollars on a city-wide initiative, which they lost, the two companies chose to end service in the city rather than comply with the ordinance.
They then turned to lobbying the Texas legislature where their millions in lobbying fees paid off. The new law could also override a measure in Houston that requires these companies to service people with handicaps.
Anyhow, this action by the Republican-controlled legislature should make it clear that the core Republican principle is giving more money to those who have money. Anything else is secondary.
I wrote this post in haste and likely gave the readers the impression that I thought people who had been convicted of felonies should not be able to drive cabs and should possible be denied other types of employment. I very much regret that. We have had far too many people, disproportionately people of color, go through our prison system. Most have enormous difficulty being employed after they have completed their sentence.
It is entirely reasonable that people convicted of crimes in the past would be allowed to drive Ubers or cabs, if it can be determined that they do not pose a danger to passengers. The key is the ability to do a proper background check of the person, which likely would include fingerprint checks, which was the issue with the Austin regulation.
I wrote the post because it is not plausible that the Texas legislature was motivated by a concern about the employment prospects of people who had been convicted of crimes. They were obviously responding to Uber's high dollar lobbying campaign. I should have been more careful in writing this post, recognizing the difficulty that many convicted of crimes face in getting jobs.
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It is so annoying when the economy refuses to listen to what the economists say it should be doing. In this case, it seems to be ignoring the insistence that new jobs require more education and typically a college degree.
The problem is that in the last four years the employment-to-population ratio has actually been rising for people with just a high school degree while it is has fallen slightly for people with college degrees.
Since January of 2013, the employment-to-population ratio (EPOP) for people with just a high school degree has risen by almost two percentage points while it has fallen by almost one percentage point for college grads. This certainly doesn't fit the simple story of people needing more education for the jobs being created in today's economy.
Obviously, there are other factors at play here, but the most obvious one, the retirement of the baby boom generation, should work the other way. The people who reached retirement age during the last four years were disproportionately less educated, which should depress the EPOP of workers with just high school degrees relative to college grads.
To be clear, people with college degrees are undoubtedly better off in today's labor market than those with less education. Their overall employment is 72 percent, compared to just 55 percent for high school grads. And, they get paid much more when they do work. But at least by the EPOP measure, it does not appear that the labor market is being increasingly tilted in their favor as often claimed.Add a comment
In his Washington Post column today George Will told readers that the problem of rising costs in the U.S. health care system is simply a case of Baumol's disease. This refers to the problem identified by economist William Baumol (who recently died), that productivity in the service sector tends to rise less rapidly than productivity in the manufacturing sector. The implication is that if workers get paid the same in both sectors, then the cost of services will always rise relative to the cost of manufactured goods. Will tells us that this is the story of rapidly rising health care costs.
There are a couple of big problems with this story. First, it is not always the case that productivity in services rises less rapidly than productivity in manufacturing. ATMs have hugely increased the ability of banks to serve customers without tellers. Film developing became hugely more productive with digital cameras.
It is quite likely in the decades ahead that we will see innovations in technology that will lead to large increases in productivity in health care. For example, improvements in diagnostic technology will likely allow a skilled technician to diagnose illnesses with better accuracy than the best doctor. Similarly, robots will almost certainly be able to perform delicate surgeries with more precision than the best surgeon. In these and other areas of health care there is enormous potential for productivity gains, assuming that doctors and others who stand to lose don't use their political power to block the technology.
This brings up the second point. While health care costs have risen everywhere, no other country pays anything close to what we do in the United States, even though they have comparable outcomes. The figure below shows per capita health care spending in the United States and five other wealthy countries since 1971. (The numbers shown are from the OECD and expressed in purchasing power parity. I converted them to 2016 dollars using the PCE deflator.)
As can be seen, health care costs have been rising everywhere, but nowhere have they risen anywhere near as rapidly as in the United States. At the start of this period in 1971 the United States didn't even lead the pack in per capita spending, coming in slightly below Denmark. In 2015, health care costs in the U.S. were more than twice as high as in Denmark and France and almost 2.4 times as high as in the United Kingdom. Even if we compare costs with Germany, the second most expensive country in this group, the savings would still be almost $4,200 a year per person, or more than $1.3 trillion for the country as a whole.
The reason our health care costs have risen so much more rapidly than anywhere else is not Baumol's disease. Health care is a service everywhere, not just in the United States. The difference stems from the fact that doctors, insurers, drug companies, and medical equipment makers are far more capable of controlling the political process in the United States than in these other countries. They use their political power to restrict competition and get government subsidies. As a result, these actors are able to secure massive rents that come out of the pockets of the rest of us.
It is understandable that columnists and newspapers that would like to protect these rents would try to tell the public that high-cost health care is just a fact of nature, but it is not true.Add a comment
There were a number of articles about the scary news that debt levels are again above their housing bubble peaks. If you need something to be scared about (really?) I suppose you can worry about this, but if you want to seriously consider the economic impact of this data point, there ain't much there.
There are two big differences between now and our previous peak ten years ago. One is that the economy and income is considerably higher today. The other major difference is that interest rates are considerably lower on average than they were ten years ago.
We actually have a very good summary statistic from the Federal Reserve Board that tells us the burden of the debt level. It is called the "financial obligations ratio." It measures the ratio of debt service payments, plus rent, to disposable income. (Rent is included since rent and mortgage payments can be seen as substitutes.)
Here's the story since they started the series in 1980.
Source: Federal Reserve Board.
As can be seen, at 15.4 percent, this ratio is near its low point for the last four decades. It is far below the peaks hit during the housing bubble years. In other words, there is little reason to worry about debt burdens suddenly creating a massive drag on the economy and leading to the sort of financial crisis we saw when the housing bubble collapsed.
This doesn't mean that many people are not struggling to cope with student loans and other debts. Household income has barely recovered from pre-crisis levels and many families are still worse off than they were a decade ago. That's a really bad story, but it doesn't mean a financial crisis is imminent.
Can the picture change if interest rates rise? Sure, but not very quickly. (Most of this debt is fixed rate mortgage debt.) Furthermore, how much do we expect rates to rise and how quickly?
The long and short is that many people (not me) were caught sleeping by the run-up of debt in the housing bubble years. They aren't making up for it by worrying about debt now, they are just being wrong again.Add a comment
We have all heard the argument from conservatives about the benefits of relying on the private sector rather than the government. Private companies are fast moving and can respond more quickly to changing conditions and technology. By contrast, the government is slow and bureaucratic. And, there is more than a bit of truth to this story.
So what happens when we have the slow-moving bureaucratic government making payments to fast moving dynamic insurers in a program like Medicare. Well, all good believers in the superiority of the private sector will expect the insurers to rob the government blind. And this seems to be the case.
The NYT reported the allegations of a whistle-blower at United Health, the country's largest insurer. According to the whistle-blower,
The issue here involves Medicare Advantage program, which now includes roughly one-third of the people receiving Medicare benefits. People enrolled in Medicare Advantage get their health care covered by a private insurer. The insurer gets compensated by Medicare, with the fee adjusted depending on the patient's health condition. The insurers get more money for enrolling a less healthy person than enrolling a more healthy person.
According to Mr. Poehling, United Health would find ways to have patients be labeled with conditions that came with higher reimbursements. He claims that other insurers engaged in the same practice. According to the piece, this could have meant billions of dollars in overpayments over the last 15 years. While this is not a large amount relative to Medicare's total budget (the program will spend over $600 billion this year), it is a large amount for one company to steal.
This sort of gaming of a government program is exactly the sort of behavior that would be expected in this situation. Since insurers stand to gain large amounts of money by making their insurees appear sicker than they actually are, we should expect that they would engage in this sort of gaming.
While there is no easy way to prevent this sort of practice (the insurer will always know more about the health of the patient than the government), the best route is to have an effective deterrence. Since most cases of this sort of fraud are likely to go undetected, it is important that when individuals are caught, they face serious penalties.
If the higher-ups at United Health could look forward to spending most of the rest of their lives in jail, then it may discourage this sort of fraud in the future. Alternatively, we could look to go back to a single-payer system similar to the traditional Medicare program. Since neither of these outcomes seem likely at the moment, look forward to a lot more taxpayer dollars going into the pockets of corrupt insurance company executives.
Note: Typos corrected from earlier version, thanks to Robert Salzberg.Add a comment
Who said it's not a good labor market when you can get paid hundreds of millions of dollars for losing your investors money (compared with a stock index). The big question is why do the people who sign these contracts (managers of pension funds and university endowments) still have jobs?Add a comment
Morning Edition had an interview (sorry, not posted yet) with Republican Senator Ben Sasse talk about the need for honest leadership. He was critical of Donald Trump's claims that he would help manufacturing workers. While the criticism is justified, Sasse condemned the idea of turning to protectionism.
Of course, the United States would not have to turn to protectionism: it has been practicing selective protectionism for decades. We have maintained the barriers that largely protect our doctors, dentists, and other highly paid professionals from foreign competition. This allows doctors and dentists to earn twice as much as their counterparts in Canada and Western Europe.
We also have been pushing longer and stronger patent and copyright protection in both trade deals and domestic law. This is the reason that we pay $440 billion (2.3 percent of GDP) a year for prescription drugs rather than their free market price, which would likely be in the range of $40 billion to $80 billion.
The protection for highly paid professionals and patent and copyrights are a major part of the upward redistribution of the last four decades. Unfortunately, Senator Sasse was not prepared to talk about this protectionism honestly even if he could condemn Donald Trump's flirtation with protectionism for manufacturing workers as being dishonest.Add a comment
Trade denialism seems to be a fast-growing sector of the economy these days. Robert Samuelson, the Washington Post columnist, is one of the leading practitioners. In today's column, he has a new study by Gary Clyde Hufbauer and Zhiyao “Lucy” Lu from the Peterson Institute for International Economics, which tells us both that the job loss from imports was not a really big deal and also that we have gained hugely from trade.
The gist of the job loss exercise is to take the period from 2001 to 2016, measure the growth in imports, and then calculate the job loss over this fifteen year period. As Samuelson tells us:
"...the Peterson study estimates that from 2001 to 2016, imports displaced 312,500 jobs per year . Even this overstates the impact, because it ignores exports. In the same years, they boosted jobs by 156,250 annually, offsetting half the job loss."
He then tells us this is no big deal in an economy with 160 million workers that adds 200,000 jobs a month.
Some folks may beg to differ. First, the growth in exports doesn't really offset the gross job loss due to increased imports. The exports are generally in different industries and almost certainly in different factories. In other words, the jobs lost due to imports is the figure we should focus on in terms of the people who are seeing their lives disrupted.
It is also worth noting that the trade-related job loss was heavily concentrated over a narrow period of time, the explosion in the trade deficit from 2001 to 2007. While this took place during the George W. Bush presidency, the main cause was the run-up in the value of the dollar from the Clinton years, so we can make the blame bipartisan.
Anyhow, using the study's methodology, we get that the economy lost an average of 620,000 jobs a year due to imports in these six years, with almost 400,000 of the yearly job loss occurring in manufacturing. This means that almost 15 percent of the people employed in manufacturing may have seen their jobs disappear due to imports in this six-year time period. That doesn't seem like a minor issue.Add a comment