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).

Follow on Twitter Like on Facebook Subscribe by E-mail RSS Feed

It really is hard to kill a false story on the state of the economy. The Economic Cycle Research Institute (ECRI) produced a report which purported to show that minorities were getting all the new jobs created by the economy and that whites were actually losing jobs. This report was made the central theme in a column by Eduardo Porter in the New York Times on Wednesday.

I pointed out that this conclusion was driven by demographics. While the number of prime age (ages 25–54) people had increased for the other demographic groups included in the analysis, it had fallen sharply for whites. This meant that the decline in employment for whites did not come from worsening labor market conditions, but rather whites retiring as they reached their sixties.

ECRI then did new analysis that looked at employment-to-population ratios (EPOPs) by age and compared November 2007 to November 2016. This showed a decline of 2.0 percentage points in the EPOP for prime age whites, while showing a modest 0.3 percentage point rise for African Americans. Porter highlighted this in a new piece on Friday. Porter also noted that ECRI find a rise in African American employment rates for the 55 to 64 age group, in contrast to a modest decline for whites in this age group.

The problem with this comparison is that the black employment data is extremely erratic so comparing single months of data can give a misleading picture. This turns out to be the case here.

As I noted, if we compare the first 11 months of 2016 with the first 11 months of 2007, the EPOP for prime age African Americans fell by 1.7 percentage points, almost the same as the 2.0 percentage point drop for whites. The decline in the EPOP for African Americans between the ages of 55 and 64 was actually slightly larger than the decline for whites in this age group.

Unfortunately, the Washington Post chose to highlight the response of ECRI to the initial complaints without checking with anyone familiar with the data. This leaves the mistaken impression that whites have fared worse than other demographic groups since the collapse of the housing bubble.

The take away is that workers, and especially workers without college degrees, have fared poorly in recent years. This gives them ample grounds for complaining about the course of the economy. However, white workers have not fared notably worse than non-whites.

Add a comment

I enjoy reading Eduardo Porter's columns in the NYT and usually learn a lot from them, but I think he has made a mistake in arguing that white workers have fared worse in the recession and recovery than African Americans. In his Wednesday piece, he included a chart showing employment among whites had actually fallen by roughly 700,000 since November of 2007, while it had risen by more than 2 million for both African Americans and Asian-Americans and by twice this amount for Hispanics. This seemed to suggest a radically worse labor market experience for whites than for other groups.

After several people asked me about this chart, I checked the change in the working age (ages 16–64) population for each group. The number of whites in this age grouping had fallen by more than 2 million between 2010 and 2015, while the number of African Americans had risen by 1.4 million and the number of Asians had risen by 1.7 million. I'm sure the number of Hispanics grew even more, but these data are on a different table. In other words, the differences in the number of people working by demographic group reflected less their differences in labor market outcomes than their different population trends.

Porter has a piece today responding to this issue, the headline of which tells readers, "across age groups, whites fared worse in employment rates." The problem is that the data really don't support this claim. Porter notes that the percentage of prime age (ages 25–54) white workers who were employed fell by 2.0 percentage points from November 2007 to November 2016. By comparison, "[l]ast month 74.5 percent of prime-aged blacks held a job, 0.3 percentage points more than in November 2007."

While that would seem to suggest that African Americans had a sharply different experience from whites, this conclusion rests on comparing single months in a very erratic data set. If we take the first 11 months of 2016, we find that the EPOP for prime age blacks was 73.2 percent. This is down by 1.7 percentage points from the 74.9 percent average for the first 11 months of 2007. This is only slightly better than the performance of the EPOP for whites, and of course starts from a lower level.

The same problem arises with the comparison of the 55 to 64 age group.

"The employment rate of whites from the ages of 55 to 64 declined slightly — to 63.6 percent from 64.1 percent. By contrast, the employment rate of blacks, Hispanics and Asians increased."

Taking the first 11 months of both years, the EPOP for African Americans declined by 0.7 percentage points, from 52.7 percent to 52.0 percent. This is actually slightly larger than the decline for white workers.

I am leaving Hispanics out, both because I don't have immediate access to their EPOPs by age group and because their EPOPs are likely to follow a different pattern due to immigration flows. Immigrants who have difficulty getting a job are likely to leave and others will not come if they face dismal job prospects. Asian-Americans actually saw a sharper decline in prime-age EPOPs than whites, as Porter notes.

To be clear, I think Porter is right in seeing support for Trump as being to a substantial extent a response to bad economic prospects. But the economic prospects of working-class whites in the last decade were not notably worse than the prospects of working-class blacks. The difference in their voting patterns can be explained by the fact that working-class whites who feel they are being left behind by the economy can see hope in a white nationalist like Trump, working-class blacks, Hispanics, and Asian-Americans cannot. 


Add a comment

A Washington Post article headlined, "[w]hy so many U.S. manufacturers are putting up 'help wanted' signs" might have led readers to believe that this is a great time for anyone looking for a job in manufacturing. That is not the case, according the Job Openings and Labor Turnover Survey (JOLTS) from the Bureau of Labor Statistics.

According to the JOLTS data, the job opening rate in manufacturing has been 2.6 percent for the last three months. This is small decline from the rate earlier in the year. The same rate was reported for three months in 2012 and two months in 2007. In two other months in 2007 the rate was 2.7 percent.

The article also tells readers that manufacturers have been raising wages as part of their effort to attract workers. The Bureau of Labor Statistics reports that the average hourly wage for production and non-supervisory workers in manufacturing rose 2.7 percent over the last year. This compares to an increase of 2.4 percent in the economy as a whole.

Add a comment

Eduardo Porter used his column to point out that Donald Trump got support from many whites who felt that they were being left behind. While there is evidence to support this view, one item in the piece may have misled readers.

The column includes a table showing the change in employment since the start of the recession for white, African Americans, Hispanics, and Asians. While the latter three groups all had increases in employment of at least 2 million, employment for whites fell by almost 1 million.

This can be misleading since the main reason for the difference is that the number of working-age whites actually fell during this period, while the number of working-age people in these other groups rose. The Census Bureau reported that there were 125.2 million non-Hispanic whites between the ages of 18 and 64 in 2010. In 2015 this number was down to 122.9 million. By contrast, the number of non-Hispanic African Americans rose from 24.2 million to 25.6 million. The number of Asians in this age band rose from 10.1 million to 11.8 million. There was a considerably larger rise in the number of Hispanics over this period.

In short, this was a period of weak employment growth, but workers from all demographic groups suffered. The numbers in this piece give a misleading picture in implying that white workers suffered disproportionately.

Add a comment

The headline of a Washington Post article told readers:

"Trump is skipping his press conference to focus on his picks for agriculture and the VA."

Of course, the Washington Post does not actually know why Donald Trump skipped his press conference. It knows why he said that he skipped his press conference. As the article itself suggests, the reason given for missing the press conference may not in fact be the real reason.

It would be helpful if the Post just reported what it knew to be true rather than implying that Donald Trump's claims are in fact truthful. It also would have been useful if it had mentioned the purpose of the cancelled press conference. This was supposed to be the conference in which he disclosed his plans for his business empire while he is president. Trump claims that he will set up an arrangement that will prevent conflict of interest problems.


Thanks to Robert Sadin for calling this to my attention.

Add a comment

Cokie Roberts outlined the history of the Electoral College in a discussion in a Morning Edition segment this morning. At the end of the segment, she was asked whether she would favor getting rid of the Electoral College and instead just having presidents elected by the direct popular vote. (Donald Trump lost in this category by more than 2.5 million votes.)

Roberts said no, that she would keep the Electoral College. Strangely, her argument was that she wanted to enhance the importance of minorities. She claimed that the Electoral College made the minority vote very important in key swing states.

While this is true, a recent analysis by Andrew Gelman and Pierre-Antoine Kremp showed that swing states are whiter on average than the nation as a whole. The basic story is that several large uncontestable states, such as California, are disproportionately minorities, while several of the swing states, such as New Hampshire and Iowa, are overwhelmingly white. This means that a focus on the outcomes in swing states will tend to reduce rather than increase the focus on minorities.

It is also worth noting that if we ignored the likelihood that a state would be a swing state and just examined how the Electoral College skews the importance of votes, it also works to the disadvantage of minorities. The reason is that the states with small populations, like Wyoming and Montana, which are over-represented in the Electoral College, are overwhelmingly white. By this measure also, the Electoral College does not work to the benefit of minorities.

It would have also been worth mentioning the National Popular Vote drive. This is an effort to get states to agree to award their electors to the winner of the national popular vote. It would take effect as soon as states representing a majority in the Electoral College agreed to assign their electors based on the outcome of the popular vote. States that account for 165 of the needed 270 votes have made this commitment thus far. This is the most plausible path at present for turning to a direct popular vote for president. It would have been useful to mention it in a segment like this.

Add a comment

The supporters of the TPP and recent trade deals are licking their wounds and preparing their counter-attack. Rather than thinking about things like maybe structuring trade deals in ways that don't disadvantage large segments of the population (yes, this can be done — have free trade for doctors and other highly paid professionals and reduce patent and copyright protection — all in my book, Rigged [it's free]), they are focusing on new messaging for more of the same. The new messaging does not necessarily involve being truthful.

Hence, the Washington Post made a tool to show "how Donald Trump's offshoring tariff might affect your shopping." The tool is a calculator that shows how much Donald Trump's promised 35 percent tariff on the re-importing of offshored products will raise prices. If you click on, it shows that the retail price of the product is increased by 35 percent. For example, the price of the Carrier air conditioner, that the manufacturer had planned to make in Mexico, would rise by $800 from the $2,400 price listed by Amazon.

The problem with this story is that the basis for the calculation in the Post's "tool" is the retail price of the product. The basis for the tariff would be the wholesale price of the imported product, which would not include shipping costs, the markup of the retailer, nor many other costs that customers would be paying when they buy it from Amazon. As a ballpark number, the basis for the tariff would likely be in the neighborhood of half of the price that Amazon is listing.

I have said it many times before, and I'll say it again here, Donald Trump's plan for company specific tariffs for outsourced items is completely hare-brained. It would be easy to avoid and is hardly a substitute for serious trade policy. But this is not an excuse for making up stories to scare people. The way to have a serious debate on trade policy is to have a serious debate on the issues, not dumping manure on the people who disagree with you.

Add a comment

The NYT ran a lengthy piece this weekend on how two private equity (PE) firms, Apollo Global Management and Metropoulos & Company, made a huge return on buying up the rights to Hostess Twinkies and a few of the company’s other brands, following the company’s bankruptcy. There are a couple of issues that deserve somewhat further attention than the article gives them.

First, while the article notes that its bankruptcy occurred under the ownership of Ripplewood Holdings, another PE company, it doesn’t discuss the issues which led to the original bankruptcy. Although the full story of Ripplewood’s control of Hostess would require another article of at least equal length, it provides a useful example of a private equity failure. Ripplewood borrowed heavily, putting the company in a precarious financial state. It also never made the investments necessary to modernize its facilities, putting it at a competitive disadvantage.

As the article notes, the bankruptcy relieved the company of its debts and pension obligations. The latter of which would fall to the Pension Benefit Guaranty Corporation (PBGC), which is run by the federal government. The PBGC is itself under serious strain presently, due to the collapse of many large pension funds. Furthermore, even if the PBGC is able to pay benefits at the legally guaranteed levels, most former Hostess workers will still see large cuts from the pensions they had earned while working.

This point is worth noting in the context of what appears to be the main basis for the huge returns earned by the two PE companies. It appears that they were able to buy the rights to Twinkies and other Hostess brands at a price that was far below the actual market value. While this indicated good insight on the part of the PE fund managers, if these brands had been sold for closer to the correct market value, there would have been more money to pay workers’ pensions and other creditors.

Add a comment

This is really embarrassing, I'm having Robert Samuelson do my work for me. His column today pointed out that a Washington Post piece from last week may have misled readers on the amount of waste in the Pentagon's operations.

That article referred to $125 billion in waste that was identified in an internal Pentagon report that was never made public. This figure is then compared with the $580 billion annual budget for the Defense Department.

The problem is that the $125 billion is a cumulative sum over a five-year period. While the piece does identify it that way, it is likely that many readers would be prone to compare the $125 billion in waste identified by the report with the annual budget, rather than taking the implied $25 billion annual figure. The latter figure would imply that just over 4.0 percent of total spending fell into this waste category, while the full $125 billion figure would be more than one-fifth of spending.

Samuelson was right to call attention to this issue. There is no reason the Post could not have been clear in putting these numbers in an apples to apples context, either highlighting the amount of money spent annually that is identified as waste or comparing the $125 billion figure to five-year spending.

Remember, the point is supposed to be informing readers.

Add a comment

Paul Krugman told readers that intellectual types like him tend to vote for progressive taxes and other measures that benefit white working class people. This is only partly true.

People with college and advanced degrees tend to be strong supporters of recent trade deals [I'm including China's entry to the WTO] that have been a major factor in the loss of manufacturing jobs in the last quarter century, putting downward pressure on the pay of workers without college degrees. They also tend to support stronger and longer patent and copyright protections (partly in trade deals), which also redistribute income upward. (We will pay $430 billion for prescription drugs this year, which would cost 10 to 20 percent of this amount in a free market. The difference is equal to roughly five times annual spending on food stamps.)

Educated people also tended to support the deregulation of the financial sector, which has led to some of the largest fortunes in the country. They also overwhelmingly supported the 2008 bailout which threw a lifeline to the Wall Street banks at a time when the market was going to condemn them to the dustbin of history. (Sorry, the second Great Depression story as the alternative is nonsense — that would have required a decade of stupid policy, nothing about the financial collapse itself would have entailed a second Great Depression.)

His crew has also been at best lukewarm on defending unions. However, they don't seem to like free trade in professional services that would, for example, allow more foreign doctors to practice in the United States, bringing their pay in line with doctors in Europe and Canada. The lower pay for doctors alone could save us close to $100 billion a year in health care expenses.

None of this means that the plutocrats standing alongside Trump are somehow better for working class people. They have made it pretty clear that they intend to use his presidency to take everything they can from the rest of the country. But Krugman is engaging in some serious fanciful thinking if he thinks that intellectual types have in general been acting in the interests of the working class. (And, I suspect many do ridicule the behavior and lifestyles of the working class.) 

Yes, all of this is talked about in my new book Rigged: How Globalization and the Rules of the Modern Economy Have Been Structured to Make the Rich Richer (it's free).

Add a comment

In an article discussing the Trump administration's attitudes toward unions, the Washington Post misrepresented so-called right-to-work laws.

"Some union leaders are worried that a Trump administration would attempt to introduce a national right-to-work law — allowing any employee anywhere to exempt themselves from participating in a union — and block unions from deducting dues from paychecks."

Workers already have the option not to participate in a union. Workers cannot be compelled to join a union anywhere in the United States. They currently can be required to pay a representation fee in a workplace represented by a union. Under the law, a union is obligated to represent all the workers in a bargaining unit, whether or not they join the union. This means that all workers will benefit in the same way from the wages and benefits negotiated by the union. Also, the union is obligated to defend a worker in disciplinary matters or other individual issues even if they are not members of the union.

The issue is whether workers can be obligated to pay for this representation or have the option to get it for free. Twenty-six states now deny workers the right to negotiate contracts that require all workers to pay for the representation they get from a union. Apparently, some of those associated with Trump also want to prohibit workers from negotiating contracts under which the employer deducts union dues as a service to the union.

This is an issue about freedom of contract, where the government is limiting what sort of contracts unions can sign with an employer. It is not an issue about individual rights. Any worker who doesn't like unions has the option to work at a workplace where employees are not represented by a union. Just as an employer can impose conditions on workers (for example, wearing a silly uniform or requiring workers to address customers in a particular way), current law allows contracts under which workers set conditions on employment for their co-workers. Apparently, people associated with Trump want to take away this right.

Add a comment

That would have been an appropriate headline for the NYT piece profiling Andrew Puzder, Donald Trump's pick to be head of the Labor Department. According to the piece, Puzder, who runs a restaurant chain:

"...strongly supports repealing the Affordable Care Act, which he maintains has helped create a 'restaurant recession' because rising premiums have left middle- and working-class people with less money to spend dining out."

In fact, restaurant spending and employment have risen rapidly since the key provisions of the Affordable Care Act (ACA) took effect in January of 2014 as shown in the figure below.

Jobs in Restaurants

restaurant jobsSource: Bureau of Labor Statistics.

Employment in restaurants in the most recent data is nearly 1 million higher than in December of 2013, the month before the health care exchanges created by the ACA began operating. Clearly Mr. Puzder is badly confused about business conditions in the restaurant sector. It would have been appropriate to point this fact out to readers, especially since it is very relevant to the job of the Labor Secretary.


Note: Thanks to Robert Salzberg for calling this to my attention.

Add a comment

A NYT article that discussed Donald Trump's conflict-of-interest problem because of his business empire somehow couldn't find anyone who knew a way to do it without forcing him to risk selling it a large loss. Actually there are fun and easy way- to allow Donald Trump to quickly eliminate his conflict-of-interest problem without risking large losses. The article should have pointed out this fact to readers so they fully recognize how extraordinary Trump's behavior is in ignoring his conflict-of-interest problem.

Add a comment

The NYT had a column by Nicholas Bagley and Austin Frakt noting the problem that in the current insurance market, all workers at a company get the same plan, regardless of their income. The price of the policy is a much larger share of a low-paid worker's wage than a high-paid worker's wage, implying a much larger effect on their after-health care insurance income.

As the column notes, a big part of this story is the high price of new medical technology. It is worth noting this high price is the result of government-granted patent monopolies. If the research were paid for up front by the government (it could be done by private companies under contract) the technology would be cheap in almost all cases. The differences between the cost of the most modern scanning equipment and an old-fashioned x-ray would be trivial and new drugs would be available at the same price as generics. In other words, this is to a large extent an avoidable problem, although one that cannot be easily addressed because of the power of the affected industries.

Add a comment

Economists have been disappointed by the extraordinarily weak productivity growth of the last decade. Low productivity growth means that there is less room for improvements in living standards and more leisure.

Fortunately there may be an answer. Timothy Lee at Vox tells us that higher minimum wages are leading to more rapid automation. According to his piece, higher wages are pushing McDonald's around the country to experiment with touchscreen ordering. This will raise productivity at McDonald's and at other restaurants that adopt the technology.

While Lee for some reason views higher productivity as a bad thing, virtually all economists view productivity growth as the main determinant of living standards in the long-run. While productivity growth can displace workers, we know how to run macroeconomic policies (e.g. keep the Federal Reserve Board from raising interest rates and/or run larger budget deficits) to maintain full employment. So if Lee is right and higher wages are leading to more rapid productivity growth, this is great news.

Add a comment

The NYT had an article presenting the comments of several people genuflecting over the lack of public support for current trade policy (wrongly referred to as "free trade"). The obvious reason for this lack of support, which is overlooked by those cited in the article, is that the intention and the outcome of trade policy has been to redistribute income upward.

The point of making it as easy as possible to move a factory to Mexico, and then import the output back to the United States, is to get access to low cost labor. The predicted and actual effect of this policy is to reduce the number of jobs available to manufacturing workers in the United States. This puts downward pressure on their wages, as fans of Econ 101 everywhere know. And, since manufacturing is a traditional source of high-wage employment for workers without college degrees, the loss of manufacturing jobs to Mexico and other developing countries puts downward pressure on the wages of non-college educated workers more generally.

For some reason, the NYT and other news outlets never point out that the "free traders" seem to have no problem with protectionist measures that benefit highly-educated professionals. For example, foreign doctors are prohibited from practicing medicine in the United States unless they complete a U.S. residency program. As a result, our doctors are paid twice as much as doctors in other wealthy countries (more than $250,000 a year on average, net of malpractice insurance and other expenses). This costs the country almost $100 billion a year in higher health care costs (@ $700 per family, per year). 

We prohibit dentists from practicing in the United States unless they graduate from a U.S. dental school. (Since 2011, graduates of Canadian schools are also allowed to practice here.) These and other protectionist measures inflate the pay of highly educated professionals at great cost to the economy. However, these protectionist barriers never seem to be on the agenda of free traders.

(As many people have pointed out to me, if we simplified the rules so that more foreign professionals could practice in the United States we would get more professionals from developing countries. This could lead to a serious problem of "brain drain" as these countries lose their brightest and most educated people. As I have pointed out many times, we do know how to compensate for this flow of professionals. We could pay the countries from which these people came, so that they would be able to train two or three doctors or other professionals for every one that comes to the U.S. As I have also pointed out, we already get a substantial number of professionals from these countries and provide zero compensation, so it is striking that this concern only arises in the context of a proposal that jeopardizes the pay of high-end professionals.) 

It is also important to note that stronger and longer patent and copyright and related protections have been a central part of recent trade deals. These protections are protectionism, the opposite of free trade. They are enormously costly and redistribute income upward. In the case of prescription drugs alone, patent and related protections raise the amount we pay for drugs by around $350 billion annually (@ $2,500 per family, per year) compared with the free market price. Patent monopolies do support research, but there are other more efficient mechanisms for financing research. (Get the full story in my book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. It's free.) 

Anyhow, it is touching to see that elite types are discovering that much of the country is unhappy with policies that were designed to redistribute from them to elite-types. The question we all must ask is, "are our elites learning?"


Add a comment

Harvard professor, textbook author, and occasional New York Times columnist Greg Mankiw told readers today that Donald Trump's economic team is wrong to worry about the trade deficit.

"The most important lesson about trade deficits is that they have a flip side. When the United States buys goods and services from other nations, the money Americans send abroad generally comes back in one way or another. One possibility is that foreigners use it to buy things we produce, and we have balanced trade. The other possibility, which is relevant when we have trade deficits, is that foreigners spend on capital assets in the United States, such as stocks, bonds and direct investments in plants, equipment and real estate." ...

" reality, trade deficits are not a threat to robust growth and full employment. The United States had a large trade deficit in 2009, when the unemployment rate reached 10 percent, but it had an even larger trade deficit in 2006, when the unemployment rate fell to 4.4 percent.

"Rather than reflecting the failure of American economic policy, the trade deficit may be better viewed as a sign of success. The relative vibrancy and safety of the American economy is why so many investors around the world want to move their assets here."

There are three points worth making here. First, purchases of financial assets, like stock and bonds, do not necessarily translate into greater output and employment. Mankiw may have missed it, but we had a long stretch of very high unemployment following the collapse of the housing bubble in 2008. The Fed purchased plenty of financial assets in this period, it had some effect on boosting output and employment, but did not come close to getting the economy back to full employment. (The assets don't care whether the Fed or foreigners purchase them, it has the same effect on output and employment.)

Second, much of the foreign purchases of U.S. assets were not because of the "vibrancy and safety" of the U.S. economy. Following the East Asian financial crisis in 1997 many developing countries felt that their central banks had to accumulate massive amounts of reserves to avoid ever facing the same situation as the countries of the region faced in 1997. (In other words, they didn't want to have a U.S.-directed I.M.F. bailout.)

This meant buying up massive amounts of dollars. That held down the value of their currencies, which in turn allowed these countries to run large trade surpluses. That reversed the textbook pattern where capital is supposed to flow from rich countries where it is plentiful to poor countries where it is scare. In the years since 1997, poor countries have been massive exporters of capital to rich countries.

The third point is that this trade deficit has created a large gap in demand, pretty much as Trump's economics team claims. In the late 1990s we filled this gap in demand with the demand generated by the stock bubble. When that bubble burst in 2000–2001, the ensuing recession gave us the longest period without job growth since the Great Depression.

Add a comment

Traditional taxi companies are required to have their drivers undergo extensive background checks, including finger-print based checks. Apparently, Uber lacks the competence to deal with similar requirements to ensure the safety of their passengers. According to the Washington Post the company is prepared to pull out of the state of Maryland if it requires such checks.

It may well be that the Uber management lacks the competence to deal with the safety requirements that traditional taxi companies have adhered to for decades. If this is the case, then hopefully the top management will be replaced by a more competent group. Perhaps they will spend more of their resources managing the company and less on highly paid lobbyists like former Obama adviser David Plouffe.

Add a comment

The answer may not be as simple as readers were led to believe in a NYT article on the topic. The article explains several ways in which tariffs can be counter-productive. As evidence that tariffs tend to be net job losers, the article cites a study by the Peterson Institute on tariffs that President Obama imposed on tires imported from China, ostensibly to counter dumping. The study concluded:

"Some 1,200 American tire-making jobs were preserved, but American consumers paid $1.1 billion extra for tires. That prompted households to cut spending at retailers, resulting in more than 2,500 net jobs lost."

There are several important assumptions that drive this calculation of net jobs lost.

Add a comment

You need not be a fan of Donald Trump to say that trade has had a big impact on manufacturing jobs, you really just need to be someone in the reality-based community. Unfortunately, a lot of people who should, and probably do, know better are insisting that trade is not a big deal. The story is that we lost the jobs due to productivity growth, not trade.

There are three points worth making here. The first is a simple logical one, we have a trade deficit of around $500 billion a year, a bit less than 3.0 percent of GDP. This is basically all due to a deficit in manufactured goods (we have a surplus on services). Does anyone believe that the extra imports associated with the trade deficit are not associated with jobs? Can $500 billion worth of manufactured goods be produced without hiring people? (This matters much more in a context where we face secular stagnation, meaning there is not enough overall demand in the economy.)

The second point is that our trade deficit has not always been this large. Our deficits had been around 1.0 percent of GDP through most of the period from the late 1970s until the East Asian crisis in 1997. Following the crisis, the value of the dollar soared and the trade deficit did also. It eventually peaked at almost 6.0 percent of GDP in 2005–2006. (I should be giving the non-oil deficit, but I'm too lazy to look that up just now.)

Anyhow, this explosion in the trade deficit coincided with a sharp decline in manufacturing employment.

Jobs in Manufacturing

manu empl

Source: Bureau of Labor Statistics.

As can be seen, manufacturing employment stayed close to 17.5 million from the early 1970s to 2000. We had plenty of productivity growth over these three decades, but little net change in manufacturing employment, in spite of cyclical ups and downs. It was declining as a share of total employment, which almost doubled over this period. Then, as the trade deficit explodes, we see manufacturing employment plummet. Note that most of the drop is before the Great Recession in 2008. 

The final point is that much of the gains in productivity in the last two decades are illusory. Susan Houseman points out that the bulk of the reported gains in productivity growth are not in industries like autos and steel, but in the computer sector. So a pickup in productivity growth cannot explain the decline in manufacturing employment in most sectors.

I should also add that even the productivity growth we do see is in part due to the trade deficit. When jobs are lost due to import competition, it is generally going to be jobs in the least productive plants. By eliminating low productivity jobs, average productivity will rise even if no plant has actually increased its productivity.

Anyhow, we should not look to combat Donald Trump by following his tendency to ignore reality. Yes, trade has cost manufacturing workers jobs. We can propose different remedies (mine begin with getting the value of the dollar down against other currencies), but let's not deny what is true.

Add a comment

Steve Rattner had a column on Donald Trump's deal to keep 1,000 jobs at the Carrier air conditioner factory in Indiana in the country. The column argues against imposing tariff barriers that would protect manufacturing workers, but ignores the protectionist barriers that inflate the wages of doctors and other highly paid professionals.

The United States prohibits foreign doctors, even those with top quality health care systems like Germany and Netherlands, from practicing in the United States unless they complete a U.S. residency program. It also prohibits foreign dentists from practicing in the United States unless they graduate from a U.S. dental school. (Since 2011, graduates of Canadian dental schools have also been allowed to practice here.)

As a result of these and other protectionist measures we pay far more for the services provided by these professionals. In the case of doctors, their average pay of more than $250,000 a year (net of malpractice insurance and other expenses) is twice the average of other wealthy countries. This costs the country close to $100 billion a year (@$700 per household) in higher health care costs.

There are enormous potential gains to the economy from removing the protectionist barriers in these high-end professionals. It would also be a huge step toward reducing inequality. Unfortunately, it seems that people like Rattner and other protectionists who write on trade for the NYT are not willing to consider free trade policies.

Add a comment