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 NYT had an interesting piece on the hopes that West Virginians placed on the ability of Donald Trump to bring back jobs to the state. However, a comment on the loss of mining jobs under President Obama may have misled readers.
The piece noted:
"Coal has always been boom and bust; its decline began long before Mr. Obama took office. But in West Virginia alone, 12,000 coal industry jobs have been lost during his tenure."
While this is true, the start of the Obama administration was a temporary peak for the coal industry, as the sharp run-up in oil prices in the prior four years had substantially increased the demand for coal as shown in the figure below.
Coal Mining Jobs in West Virginia
Source: Bureau of Labor Statistics.
While there was a substantial loss of coal mining jobs during the Obama years, mostly due to the availability of low cost natural gas, the most recent employment levels are almost the same as they were in 2000.Add a comment
Hey, why should he be left out? He repeats the story about prime age (ages 25–54) men dropping out of the workforce. As noted here before, since 2000 there has been a comparable drop in employment rates for prime-age women. It is important to add in this respect that employment rates for women had been rising before 2000 and were almost universally expected to continue to rise. In other words, there is a simple story where the drop in both men and women's employment rates is due to a weak labor market, but hey that's too easy, let's see if we can blame the workers rather than the folks who make economic policy.
The other point where Samuelson is misleading is in citing the claim that government benefits, like disability payments, are a possible reason that men have been dropping out. While he notes that the Council of Economic Advisers (CEA) argued against this by noting that these benefits had not risen rapidly enough to explain the increase in the drop out rate, it also would have been worth noting the rest of the argument. The CEA also pointed out that the United States ranks near the bottom of OECD countries in the generosity of its benefits, but it also ranks near the bottom in labor force participation rates for prime-age workers. In other words, that doesn't sound like a very plausible explanation.Add a comment
In Washington, there are two sure ways to get rich: you can work as a corporate lobbyist or you can work with a Peter Peterson-funded organization and whine about government debt. The Peterson Foundation, along with its allies at the Washington Post and other media outlets, have long worked to fan irrational fears about government debt just as Donald Trump and other demagogues have fanned racism and xenophobia. One small positive of a Donald Trump presidency is that it may provide a teachable moment on the meaninglessness of such fears.
The NYT gives us an excellent lead in with this piece on the need to repair locks and dams on inland waterways. The piece tells us of Trump's plan to spend $1 trillion improving the country's infrastructure, then adds:
"To avoid raising taxes or increasing debt, his plan calls for much of the money to come from the private sector, with a proposed tax credit offered in return. ...
"Even with a tax credit, though, companies building roads or locks would want a return on their investment — most likely in the form of toll collection, said Mike Toohey, president of the Waterways Council, an advocacy group for the river shipping industry."
So let's look at how we are avoiding raising the debt in this story. First, the infrastructure is supported through a tax credit rather than direct spending. If we spent $1 trillion directly then this would add $1 trillion to the debt. We will then have to pay the interest on this debt as long as it is outstanding. (Currently, the real interest rate on government debt is nearly zero, since the inflation rate is almost as high as the long-term interest rate.)Add a comment
Suppose a candidate proposed ending the U.S. commitment to NATO. Based on this NYT article on Republican plans to privatize Medicare, the headline would probably tell readers that the candidate wanted to "change" U.S. involvement with NATO.
In fact, as readers of the article will discover, Republicans want to replace Medicare's commitment to provide seniors with insurance that covers most of their health care costs with a "a fixed government contribution for each beneficiary." After describing the system in this manner — virtually the textbook definition of "voucher," the article then told readers:
"For nearly six years, Speaker Paul D. Ryan has championed the new approach, denounced by Democrats as 'voucherizing' Medicare."
The use of quotation marks in this sentence is difficult to understand, since there seems little dispute that Speaker Ryan does in fact want to replace Medicare with a voucher, as this article had just explained. What is up for debate is whether it is desirable to replace Medicare with a voucher system, not whether the Republicans want to do it.Add a comment
In spite of all the stories about robots taking all the jobs, we still can't find any evidence in the productivity data. Productivity has averaged just 0.6 percent annually over the last six years, the slowest growth on record.
But now the Wall Street Journal alerts us to a new problem. It tells us that small businesses can't find enough workers in low-skilled occupations. If that sounds to you like the direct opposite of the job-killing robots story, then you're way ahead of many of the pundits who get paid big bucks to say smart things about the economy.
If the Wall Street Journal piece is right, then the jobs-killing robots story is wrong. Our economy is continuing to create large numbers of jobs for people with relatively few skills.
Of course, the labor shortage story is also more than a bit misleading. Capitalism prescribes a simple remedy for addressing labor shortages. It's called higher wages. The piece does assure us that higher wages is not the problem, but some arithmetic would be helpful here.
In one case it mentions a roofer who is now paying most of his workers over $20 an hour. While this is a better wage than most workers receive, roofing is a physically demanding and dangerous job. If the minimum wage had kept pace with productivity growth since the late 1960s (as it had in the prior three decades), it would be almost $19 an hour today, so crossing $20 an hour hardly seems like especially high pay in 2016. (It's equal to 0.008 percent of what Goldman Sachs pays its speakers.)
The other area where we are told there are shortages is farmworkers. Here the pay is $11 an hour, but we assured that this is not the problem, the problem is that workers who are U.S. citizens want to be paid in cash so they don't have to pay taxes.
It's certainly possible that many of the business owners who are complaining about a labor shortage would not be able to stay in business if they offered higher wages. But this is the way a market economy works. Businesses that can't afford to pay the prevailing wage go out of business and their workers go into areas where their labor can be more productively employed. This process is the reason that half of the country is no longer working in agriculture.
In short, the story of the job-killing robots seems like a myth that helps to employ highly educated people, while the problem of the labor shortage is one of business owners who don't understand how a market economy works.Add a comment
Donald Trump has basically come right out said that he intends to use the presidency to further enrich himself and his family. After refusing to follow long-established precedent and put his assets in a blind trust, he proclaimed, "the president can’t have a conflict of interest."
Of course the president absolutely can have a conflict of interest as speakers of the English language use the expression. If a president owns a large business empire, as does Mr. Trump, there are all sorts of situations where his personal business interests could be in conflict with the country's interests.
For example, he may want favorable treatment from a foreign government for one of his hotels. This may lead him to make concessions to the government in other areas which he would not otherwise do. The same applies to domestic tax policy where he may decide to push tax changes that will help his business interests. There are literally an infinite number of situations where the president can and does have a conflict of interest when he owns a business empire like Mr. Trump.
It is also worth noting that it does not seem as though corruption will be exlcusively a family affair with Mr. Trump. David Dayen has an interesting piece in the Intercept about how Trump may hand billions to his friend and campaign contributor, John Paulson, by reprivatizing Fannie Mae and Freddie Mac. Of course this is just the tip of the iceberg. Trump seems intent on raising political corruption to a new level in his administration. As he is prone to say, it will be yuuge!
Some folks hear about this stuff and think it is just rich people's games that don't affect them. After all, who cares if Trump's hotels are able to pull away business from Hilton or Marriott because he is in the White House? Well, the incredible wealth of Trump and his cronies actually does affect the average worker, although we have to take a small detour to get the full picture.Add a comment
The world would be a much better place if the folks who wrote on economic issues at the NYT had at least an intro econ level understanding of economics. But apparently that is too much to expect, so we find Thomas Friedman telling readers:
"The one area where I think Trump is going to have the hardest time delivering on his campaign promises is to create 'millions' of good-paying jobs by incentivizing and pressuring American companies to manufacture more in the U.S. He still talks about America as a manufacturing wasteland when, in fact, manufacturing remains the largest sector of the U.S. economy but employs far fewer workers.
"As the management consultant Warren Bennis famously observed: 'The factory of the future will have only two employees, a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment.'"
While Trump will not be able to bring back the six million manufacturing jobs we have lost in the last two decades, it is certainly possible that he could bring back 1–2 million manufacturing jobs if he were to get the trade deficit closer to balance. That would be a big deal for lots of workers, especially if the workers who held these jobs were able to form unions to ensure decent wages and benefits.
In terms of the factory of the future, it may well be highly automated, but that is not the factories of today, which still employ more than 12 million workers. Contrary to what Friedman types continually tell people, the automation process is actually moving very slowly as productivity growth in manufacturing and the rest of the economy has slowed to a crawl.
Productivity in Manufacturing
Source: Bureau of Labor Statistics.
As the chart shows, productivity growth in manufacturing has averaged less than 0.5 percent annually over the last five years. The factory of the future may only have a person and a dog, as in Friedman's story, just as the newspaper of the future may have only a computer program to write columns, but we are not at this future yet and not likely to be there soon.Add a comment
When the initiative to take the United Kingdom out of the European Union was being debated, many people, including many economists, predicted the country would be hit with a severe recession. It didn't happen. The economy seems to be moving along fine, with no recession in sight, although the London real estate market is not looking very good. Of course the UK has not left the European Union yet, or even developed a plan to do so, but it is unlikely that many would want to place much money on that recession bet today.
Apparently, the conservative government has now abandoned its plans for further austerity and a balanced budget. It is expected to spend an additional $187 billion over the next five years (roughly 1.0 percent of GDP) to boost the economy and create jobs. According to the NYT, this spending is a direct response to concerns over the plight of working class people who voted for Brexit in large numbers.
This outcome is worth noting, because the boost to the economy from additional spending is likely to be larger than any drag on growth as a result of leaving the European Union. This would mean that the net effect of Brexit on growth would be positive. Of course the UK government could have abandoned its austerity path without Brexit, but probably would not have done so. Given the political context, working class voters who wanted to see more jobs and a stronger welfare state likely made the right vote by supporting Brexit. This doesn't excuse the racist sentiments that motivated many Brexit supporters, but it is important to recognize the economic story here.
There is a deeper lesson in this story. The elites that derided Brexit were largely content with austerity policies that needlessly kept workers from getting jobs and also weakened the welfare state. Many were willing to push nonsense economic projections of recession in order to advance their political agenda. In this context, it is not surprising that large numbers of working class people would reject their argument that Brexit would be bad for the UK.
We see a similar situation in the United States where trade policies that are designed to redistribute income upward, like the Trans-Pacific Partnership, are foisted on the public by the leadership of both parties. As with Brexit, elite economists are prepared to make absurd predictions of economic disaster if this trade agenda is rejected. Under these circumstances, it is not surprising that large portions of the working class are not willing to go along with the elite's agenda.Add a comment
Many of us have been raising the issue that Donald Trump is apparently prepared to defy well-established precedent and continue to maintain his business empire even as he serves as president. For the last fifty years presidents have put their assets in a blind trust so that there would not be a question as to whether they were working to fatten their own pockets or for what they considered the good of the country. This also prevents the most blatant forms of bribery by those seeking to curry the president's favor.
It is hard to see any reason that Donald Trump should not be held to the same rules, as argued by Jeff Hauser at CEPR's Revolving Door Project. But some have made the argument that, given his extensive holdings, it would be almost impossible to sell them off in the two months remaining until he takes office. This means that he could not avoid the problem of making decisions that will have a direct impact on his business interests.
Actually it is not hard to find a way around this problem:
1) Donald Trump arranges to hire three auditors from an independent accounting firm. Each one does an independent assessment of Trump's holdings and assigns it a value.
2) The middle assessment becomes a benchmark. Donald Trump buys an insurance policy that will guarantee him that he will get this amount of money when all assets are sold. If the total take is less than the benchmark, he collects on the insurance policy. Any money received in excess of the benchmark goes to a charity of Trump's choosing (not the Trump Foundation).
3) All the proceeds from the sales are placed in a blind trust.
There you have it, three easy steps that Donald Trump could take if he wanted to end the conflicts of interest he now faces. It doesn't seem likely that he will go this route on his own, the question is whether anyone (i.e. Republicans) will force him.Add a comment
The Republicans, including Donald Trump, have repeatedly complained that provisions of Dodd-Frank have cut off small business access to credit. David Greene picked up the charge in an interview with Barney Frank on Morning Edition. He repeatedly asked Frank if the Republican complaints about the law were correct.
While Frank responded by challenging Greene to name the provisions that were responsible for cutting off credit, there actually is a simpler response. Credit to small businesses has not been cut off, or at least if it has, small businesses don't seem to have noticed. The monthly survey of small businesses conducted by the National Federation of Independent Business shows that they feel credit has almost never been more easily available.
In other words, the Republicans have made up a nonsense claim about the economy, and Greene has chosen to re-enforce rather than checking its validity.Add a comment
There are sharp differences between the political parties in many areas, but one principle on which there has been a longstanding agreement is that the presidency should not be used as a marketing platform for the president’s personal business interests. Donald Trump seems determined to break with this principle.
The basic point is simple: when you enter the White House you put your assets into a blind trust. This way when the president makes decisions in various areas of foreign and domestic policy, he or she does not know whether they will personally profit from them. The idea is that we want the president to make decisions based on whether they are good for the country, not whether they will fatten their pocketbook.
Presidents of both parties dating back to Lyndon Johnson followed the practice of putting their assets into a blind trust. Richard Nixon did it, Gerald Ford did it, as did Jimmy Carter, Bill Clinton, and Barack Obama. Both President Bushes put their assets into a blind trust. And President Reagan put his assets into a blind trust.
None of these presidents had any problem with the idea that they should not be in a position to know whether their actions were directly helping or hurting them financially. Apparently, Donald Trump thinks he is different.
The potential for conflicts is very real and we are seeing it even now in the transition. Last weekend, Donald Trump met with Shinzo Abe, the prime minister of Japan. His daughter Ivanka sat in on the meeting. Japan is now debating whether to allow casino gambling. This is an area where Trump’s business enterprises could have considerable interest, since he has a stake in many casinos around the world.
Did legalized gambling come up at the meeting? Would Donald Trump be inclined to be more favorable towards Abe if they allowed him to open a casino in Japan? Would he not press an issue because he is worried that Abe could retaliate against his casino business?
The same would apply with every other foreign head of state. For example, Turkey has a president, Recep Erdogan, who is looking increasingly like a dictator. In response to a failed coup last summer, he has arrested a number of opposition leaders and purged universities and even high schools of teachers who are thought to be political opponents.
It turns out that Trump has a stake in a number of resorts in Turkey. Will this affect his attitude toward Erdogan?
These are the sorts of issues that will arise all the time with Trump in the White House. And, there are at least as many on the domestic side involving everything from tax reform to education policy.
Every other president was prepared to put aside their personal business interests when they entered the White House. It is a job requirement; it’s as simple as that. Anyone who cares about the integrity of the U.S. government and that the presidency not be used as a platform for personal enrichment should be demanding that Trump follow longstanding precedent by selling off his holdings and have them placed in a blind trust.Add a comment
Proving once again that you can get just about anything into the Washington Post as long as it agrees with the party line, Robert Samuelson used his column to tell us that Alan Greenspan agrees with him about Social Security and Medicare being too generous. Before getting into the details, let's first deal with the question as to whether Mr. Greenspan should be viewed as an expert on anything other than his shoe size.
Samuelson tells readers:
"Why should we listen to Greenspan? After all, wasn’t he the guy who brought us the 2008-2009 financial crisis? Well, no. Granted, he made huge errors, but so did many others. If Greenspan had become a professional musician, the financial crisis would still have occurred. And despite the crisis, Greenspan remains a highly original economic thinker."
Basically Samuelson is giving us the "who could have known amnesty" story. Yes, there were a lot of people that should have seen the $8 trillion housing bubble ($12 trillion in today's economy) whose collapse wrecked the economy, but how does that excuse the Fed chair for being completely clueless about the economy?
We saw an unprecedented nationwide run-up in house prices in the years 1996 to 2006. There was no accompanying increase in rents, which just kept pace with the rate of inflation over this period. Vacancy rates were already hitting record highs as early as 2002. You didn't have to be a genius to see that there was a bubble here. It also should not have been hard to imagine that the U.S. economy would have bubbles since the collapse of the stock bubble (also on Greenspan's watch) had just thrown us into a recession in 2001.Add a comment
The NYT ran a major article warning that a Chinese led trade deal, involving a number of countries in East Asia and the Pacific region, was likely to move forward more quickly with the demise of the Trans-Pacific Partnership (TPP). This is reported as being an ominous outcome that should concern readers.
This is the opposite position that economists generally take toward efforts to reduce trade barriers. In most economic models, when some countries reduce their trade barriers and therefore increase economic growth, it also benefits countries who are not party to these trade deals.
This was the reason that the United States generally supported the process through which European countries came together, first in the common market and then in the European Union. The argument was that a more economically prosperous Europe would be a better customer for U.S. products and also a better competitor. In the latter role, Europe would provide economic gains to U.S. consumers as well by offering better and/or lower cost products.
It is interesting that the NYT and other proponents of the TPP are now prepared to turn standard economic logic on its head in order to push this pact. For those without a stake in promoting the TPP, the greater economic integration of the region should be viewed positively.Add a comment
Hedge fund manager and Trump transition team member Anthony Scaramucci, repeated one of the great lies of the era of Trump on Morning Edition today. He claimed that businesses could not get access to credit and blamed it on the regulations in the Dodd-Frank financial reform bill. This is the reason that he and others have given for repealing Dodd-Frank.
The problem with this story is that it is entirely an invention of the right wing. As I point out earlier this week the National Federation of Independent Businesses has been conducting a monthly survey of small businesses for more than thirty years. One of questions it poses is about credit conditions. In the most recent survey only 2 percent reported that financing was their top business problem. This is near a low point for the survey's history. In other words, they are finding that small businesses are having very little problem getting access to credit.
Larger businesses that can borrow directly through credit markets also have little problem. Many economists, including Fed Chair Janet Yellen, have worried about the collapse of credit spreads, meaning that they are concerned that risky businesses actually are getting credit at too low an interest rate.
In other words, the idea that Dodd-Frank is preventing businesses from getting credit is a complete invention, like Fox's War on Christmas.Add a comment
Every economist in the world can quickly explain how a 10 percent tariff on imported steel will lead to corruption. The same logic applies to drug patents, although since they are the equivalent of tariffs many thousand percent (they typically raise the price of protected drugs by factors of ten or even 100 or more), the incentives for corruption are much greater.
This is why every economist in the world should have been nodding their heads saying "I told you so" when they read this NYT article about a kickback scheme between a major drug manufacturer and a mail order pharmacy. Unfortunately, there were no economists mentioned in this piece. And, it is quite possible that most economists support this form of protectionism, in spite of the enormous inefficiency and corruption that results. (Yes this is a major point in my book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.)Add a comment
Sebastian Mallaby use his Washington Post column to warn readers that the fiscal stimulus from a Trump administration, in the form of stimulus spending and tax cuts, could lead to too much demand in the economy. The result will be higher interest rates and higher inflation. And then things might get really bad:
"The economy would spiral back toward the stagflationary 1970s. It is too dark a prospect to believe. But the logic that takes us from here to there is chillingly straightforward."
Woooooooo, "chillingly straightforward?"
Okay, some of us are old enough to remember the seventies and they were not exactly the horror story that Mallaby paints. Employment grew by more than 27 percent over the course of the decade. This translates into an annual growth rate of almost 2.5 percent, which would come to more than 3.2 million new jobs a year. Are you scared yet?
GDP grew at an annual rate of almost 3.2 percent. That looks pretty good compared to the 2.0 percent rate we have been seeing the last six years.
Of course, the seventies were not all great. There was a sharp slowdown in productivity growth that began in 1973. This led to stagnating wages for the rest of the decade. It is worth noting that, in contrast to later decades, the wage stagnation of the 1970s was due to weak productivity growth, not upward redistribution.
It is also worth pointing out that there were unique events that pushed inflation higher in the 1970s, most importantly the quadrupling of world oil prices in 1973–74 and then again in 1978–1979 following the Iranian revolution. Also, there was a measurement error in the consumer price index that had the effect of amplifying rises in the inflation rate at a time when wage and other contracts were widely indexed.
Anyhow, the key point here is that the horror story of the seventies, which is often told by Mallaby and others, is their own invention, not something that existed in the real world. This is important in the context of Trump's economic proposals, since they actually could provide a considerable boost to demand and employment.
It is certainly possible that his tax cuts go too far in creating large deficits, which could mean higher interest rates and higher inflation, as Mallaby suggests. But it is absurd to claim that economic disaster, in the form of runaway inflation, is just around the corner.
There are many very good reasons to fear a Donald Trump administration, but the risk that he might over-stimulate the economy is not one of them.Add a comment
The Washington Post editorial page decided to lecture readers on the meaning of progressivism. Okay, that is nowhere near as bad as a Trump presidency, but really, did we need this?
The editorial gives us a potpourri of neo-liberal (yes, the term is appropriate here) platitudes, all of which we have heard many times before and are best half true. For framing, the villains are Bernie Sanders and Elizabeth Warren who it tells us “are embracing principles that are not genuinely progressive.”
I’ll start with my favorite, the complaint that the trade policy advocating by Warren and Sanders would hurt the poor in the developing world, or to use their words:
“And their ostensible protection of American workers leaves no room to consider the welfare of poor people elsewhere in the world.”
I like this one because it turns standard economic theory on its head to advance the interests of the rich and powerful. In the economic textbooks, rich countries like the United States are supposed to be exporting capital to the developing world. This provides them the means to build up their capital stock and infrastructure, while maintaining the living standards of their populations. This is the standard economic story where the problem is scarcity.
But to justify trade policies that have harmed tens of millions of U.S. workers, either by costing them jobs or depressing their wages, the Post discards standard economics and tells us the problem facing people in the developing world is that there is too much stuff. If we didn’t buy the goods produced in the developing world then there would just be a massive glut of unsold products.
In the standard theory the people in the developing world buy their own stuff, with rich countries like the U.S. providing the financing. It actually did work this way in the 1990s, up until the East Asian financial crisis in 1997. In that period, countries like Malaysia, Vietnam, and Indonesia were growing very rapidly while running large trade deficits. This pattern of growth was ended by the terms of the bailout imposed on these countries by the U.S. Treasury Department through the International Monetary Fund.
The harsh terms of the bailout forced these and other developing countries to reverse the standard textbook path and start running large trade surpluses. This post-bailout period was associated with slower growth for these countries. In other words, the poor of the developing world suffered from the pattern of trade the Post advocates. If they had continued on the pre-bailout path they would be much richer today. In fact, South Korea and Malaysia would be richer than the United States if they had maintained their pre-bailout growth rate over the last two decades. (This is the topic of the introduction to my new book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer, it’s free.)Add a comment
The NYT bizarrely equated trade with trade agreements in an article on a debate within the Democratic Party over its future policy course. The piece referred to Senator Bernie Sanders' opposition to recent trade pacts then presented a quote from Colorado Governor John Hickenlooper:
"I don’t think you can be anti-trade...In the modern world, we need consumers overseas for our products as well."
Of course Sanders has never indicated he was against trade, nor has any prominent figure in this debate, so as presented, Mr. Hickenlooper's comment is essentially a non sequitur. In fact, the Trans-Pacific Partnership (TPP), the trade deal most in the news at present, actually contains major protectionist measures in the form of stronger and longer patent and copyright related protections, arguably it is supporters of this pact who can most accurately be called "anti-trade."
Anyhow, if Mr, Hickenlooper is effectively speaking in non sequiturs it would be appropriate to call attention to this fact. After all he is identified in the piece as being "mentioned as a possible 2020 presidential candidate."Add a comment
One of the great myths perpetuated by the right is that Dodd-Frank and other financial regulations by the Obama administration are preventing the financial sector from functioning. As a result, small businesses supposedly can't get the credit they need to grow or even survive. University of Maryland economist Peter Morici made this argument in a Morning Edition segment in a debate with my friend Jared Bernstein.
There is actually a simple response to this claim: it's not true. The National Federation of Independent Businesses has been conducting a monthly survey of small businesses for more than thirty years. One of questions it poses is about credit conditions. In the most recent survey only 2 percent reported that financing was their top business problem. This is near a low point for the survey's history. In other words, if small businesses are having serious problems getting credit, someone forget to tell them.Add a comment
Lara Merling and Dean Baker
For the second time in the last five elections we are seeing a situation where the candidate who came in second in the popular vote ends up in the White House. This is of course due to the Electoral College.
As just about everyone knows, the Electoral College can lead to this result since it follows a winner take all rule (with the exception of Nebraska and Maine). A candidate gets all the electoral votes of a state whether they win it by one vote or one million. In this election, Secretary Clinton ran up huge majorities in California and New York, but her large margins meant nothing in the Electoral College.
In addition to the problem of this winner take all logic, there is also the issue that people in large states are explicitly underrepresented in the Electoral College. While votes are roughly proportionately distributed, since even the smallest states are guaranteed three votes, the people in these states end up being over-represented in the Electoral College. For example, in Wyoming, there is an electoral vote for every 195,000 residents, in North Dakota there is one for every 252,000, and in Rhode Island one for every 264,000. On the other hand, in California there is an electoral vote for every 711,000 residents, in Florida one for every 699,000, and in Texas one for every 723,000.
The states that are overrepresented in the Electoral College also happen to be less diverse than the country as a whole. Wyoming is 84 percent white, North Dakota is 86 percent white, and Rhode Island is 74 percent white, while in California only 38 percent of the population is white, in Florida 55 percent, and in Texas 43 percent. White people tend to live in states where their vote counts more, and minorities in places where it counts less. This means that the Electoral College not only can produce results that conflict with a majority vote, but it is biased in a way that amplifies the votes of white people and reduces the voice of minorities.
The figure illustrates the gap in Electoral College representation for minority voters. Based on the weight of each vote in each state and given the fact that most minority voters reside in states where each person’s vote counts less in the Electoral College, the result is minority voters are grossly underrepresented. African American votes on average have a weight that is 95 percent as much as white votes, Hispanic votes are on average 91 percent, and Asian American votes, 93 percent as much of a white vote. In the Electoral College, white votes matter more.
It is worth noting that there is a fix to this problem which does not require a constitutional amendment or even action by Congress. The organization, National Popular Vote, has been pushing states to pass legislation whereby their electoral votes will go to the winner of the national popular vote. This switch does not happen until states representing a majority of electoral votes have passed the same legislation. At that point, the winner of the popular vote will automatically be the winner of the electoral vote.Add a comment
The NYT had an interesting piece that focused on the Carrier air conditioner factory in Indianapolis, Indiana that the company is closing and moving to Mexico. The piece describes the impact on the city and the people who work in the factory, many of whom apparently voted for Donald Trump in the hope that he would save their jobs.
One item in the story is somewhat misleading. The piece presents the views of John Van Reenen, an economist at M.I.T.:
"'These are fundamental forces that have more to do with technology than trade.'
In particular, he said, across developed economies more national income is going to capital, that is, owners and shareholders, rather than labor. 'We’ve seen this in many countries with different political systems,' he said. 'It’s a winner-take-all world.'"
There are two important qualifications that should be made to these comments. First, while there was a substantial shift of income from labor to capital in most wealthy countries in the the last four decades, that was not really the case in the United States. While there were cyclical ups and downs, there was little change in the capital share of corporate income until 2005, as shown below.
Source: Bureau of Economic Analysis and author's calculations.
This is worth noting since the bulk of the upward redistribution had already been accomplished by 2005. The implication is that the upward redistribution was not due to firms getting more profits are the expense of workers in general, but rather higher paid workers benefiting at the expense of less-highly paid workers.
In the context of the trade story discussed here, this means that the lower cost of labor from outsourcing jobs to other countries was largely passed on to consumers in lower prices. While the workers who lost jobs and/or were forced to take pay cuts are hurt in this story (essentially the portion of the work force without college degrees), high end workers like CEOs and Wall Street types benefit. Also professionals like doctors, who benefit from protectionist restrictions (foreign doctors are prohibited from practicing in the United States unless they complete a U.S. residency program), benefit as well. This policy of selective protectionism had the predicted and actual effect of redistributing income upward.
The shift of income to profits since 2005 is likely in large part a result of the weakness in the labor market following the collapse of the housing bubble and the resulting recession. It appears that the labor share is again recovering, but whether it actually gets back to its pre-recession (and pre-2005) level will depend in large part on whether the labor market is allowed to tighten further or the Fed prevents further tightening by hiking interest rates.
The other qualification to Van Reenen's comments is that technology does not by itself determine distribution. The claims to ownership of technology (i.e. patent protection, copyright protection, and related forms of intellectual property claims) are what determine distribution. In the past four decades, Congress has implemented numerous measures both nationally and internationally through trade agreements that had the explicit purpose of making these protections stronger and longer. So the resulting upward redistribution cannot be attributed simply to "technology," rather it was the result of policy decisions that were intended for this purpose.Add a comment