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Article Artículo

Folks Who Believe in Secular Stagnation Don't Think the Trade Deficit Is Determined by the National Savings-Investment Balance

It is common for economists to assert that the trade deficit is equal to the gap between national savings and national investment. If the United States invests more than it saves (combining private savings and government savings) then it is running a trade deficit. This is true by definition.

Intro Econ fans may remember that we have the basic accounting identity saying that output is equal to income:

C+I+G+(X-M)=Y

...where C is consumption,

...I is investment,

...G is government spending,

...X-M is net exports (exports minus imports),

and Y is income.

We also can say that Y=S+C+T,

...where S is savings,

...C is consumption,

...and T is taxes.

The basic story is that the government taxes away some of our income and the rest is either saved or consumed (saved means it is not consumed).

CEPR / October 31, 2017

Article Artículo

Government

Latin America and the Caribbean

Puerto Rico

World

GoldenTree: An Optimistic Vulture Circling Puerto Rico

Last month, a joint investigation by In These Times and the Puerto Rico-based Centro de Periodismo Investigativo revealed the top 10 holders of Puerto Rico’s $74.8 billion debt. The authors write:

The popular narrative of Puerto Rico’s debt holders is that they are “small” individual bondholders—rookie investors who trusted their savings to financial firms. But our investigation reveals that some of the most aggressive players demanding debt repayment in Puerto Rico’s bankruptcy court are so-called “vulture firms.” These hedge funds specialize in high-risk “troubled assets” near default or bankruptcy and cater to millionaire and billionaire investors.

While these bondholders are tied up in court with Puerto Rico and the congressionally mandated Oversight Board, the situation on the ground remains grim after the devastation caused by Hurricanes Irma and Maria. Storm-related damages are estimated to be as high as $95 billion.

If Puerto Rico was unable to pay its debt before the storms, it’s virtually impossible now. But that hasn’t stopped at least one vulture, GoldenTree Asset Management, from doubling down on its Puerto Rico bet.

Number five on the In These Times/Centro de Periodismo Investigativo list, GoldenTree reportedly held $587,253,141 worth of Puerto Rican COFINA bonds (bonds backed by income from Puerto Rico’s sales tax). That figure was based on a court filing from mid-August. On October 26, however, bondholders were required to again disclose their financial interests. That filing showed GoldenTree holding assets valued at $852,578,549, meaning that in the last two months, GoldenTree has acquired an additional $250 million in Puerto Rican bonds.

This is classic vulture behavior ? and exactly why many are now arguing for urgent and significant debt relief for the struggling island.

It’s impossible to know exactly when or at what cost GoldenTree acquired those additional bonds ? a spokesperson for GoldenTree declined to answer questions on the timing or cost of the purchases. But even before the hurricanes, COFINA bonds were trading at significantly less than face value. After Hurricane Maria, with Puerto Rico’s inability to pay becoming more obvious, prices have plummeted even further. Given that, and based on where some COFINA bonds are currently trading, it appears unlikely GoldenTree would have paid more than 20 cents on the dollar. At that price, if GoldenTree were repaid in full just on these recent acquisitions it would stand to make a tidy 400 percent profit.

Jake Johnston / October 31, 2017

Article Artículo

Latin America and the Caribbean

Venezuela

World

The Media, Venezuela, and Hunger Statistics: A Case Study in Careless Reporting

Two weeks ago, the Food and Agriculture Organization of the United Nations (FAO) released a report on food insecurity and nutrition in Latin America and the Caribbean. The report highlighted a regional increase in food insecurity, a first since the agency started collecting annual data for the Millennium Development Goals in 2000. The authors noted that the food crisis in Venezuela was central to this increase. While the percentage of the population in Venezuela experiencing undernourishment was lower than several other countries in the region ? such as Bolivia, Guatemala, Haiti, and Honduras ? in the last three years, Venezuela contributed an estimated 1.3 million newly food-insecure people to Latin America’s total.

The FAO study confirms that the Bolivarian Republic is facing a growing hunger crisis that requires action. For the past year and a half, the media have decried the Venezuelan government for its management of the crisis, but the figures they have cited do not match the FAO’s. Over the past 18 months, it has become accepted fact that the crisis is even worse than the FAO describes: the New York Times writes that “93 percent of the [Venezuelan] population cannot afford food,” and CNN reports Venezuelans “in the past year dropp[ed] an average of 19 pounds.” (In addition, a Jacobin article states: “Almost 90 percent of the population cannot buy enough food,” while The Independent laments that “75 per cent of the country’s population has lost an average of 19 pounds.”) This is because media coverage on hunger in Venezuela has relied primarily on anecdotal evidence and an inconclusive report authored in part by a member of the political coalition trying to remove Venezuelan President Nicolás Maduro from office.

US newspapers and journals often attribute their Venezuelan hunger figures to “a recent survey … by the country’s leading universities.” The survey in question was published on February 27, 2016 by Simón Bolívar University, the Central University of Venezuela, and the Bengoa Foundation. The report, which focuses on Venezuelan nutrition, is part of an annual review covering the state of living conditions in the country. Maritza Landaeta-Jiménez, who as recently as 2013 was a member of the Venezuelan opposition’s Nutrition Commission, headed the 2016 research. The document, based on a survey of 6,413 Venezuelans, reported that 93 percent of Venezuelans felt that they did not have enough money to purchase food, and that 72.7 percent of Venezuelans had lost an average of 8.7 kilograms (19 pounds) in the past year. However, the same survey revealed that 67.5 percent of Venezuelans were eating three meals a day, and only 25 percent of the country felt that their nutrition could be categorized as “deficient.”

CEPR and Jacob Wilson / October 31, 2017

Article Artículo

United States

Workers

The Gender Wage Gap within Race and Ethnicity

Women in the United States across races and ethnicities make approximately 80 cents to a man’s dollar. However, some groups of women make disproportionately less than that; namely blacks and Hispanic/Latina women, making the wage gap an issue that strongly depends on gender, race, and ethnicity.

A closer look at Bureau of Labor Statistics data on usual weekly earnings by race, ethnicity and gender shows that the gender wage gap increases as earnings increase across all races and ethnicities. In addition, the divide between men and women’s earnings widens at a steeper rate among whites and Asians than with blacks and Hispanics/Latinos. At the first decile, black women and Hispanic/Latina women make earnings far closer to that of their black and Hispanic/Latina male counterparts than white and Asian women do to their respective male counterparts.

CEPR and Daniella Zessoules / October 31, 2017

Article Artículo

Are 401(k)s Cheaper than Defined Benefit Pensions for Employers?

An NYT article discussing Republican plans to sharply limit the tax deduction for 401(k)s noted how these retirement accounts have largely replaced traditional defined-benefit pensions and said that they were cheaper for employers. This is not entirely clear.

In principle, a payment for a retirement benefit is supposed to be a substitute for wages. If a worker gets $2,000 a year paid into a defined-benefit pension or a 401(k) plan, this is supposed to be offset by roughly a $2,000 reduction in wages. In the simple case, the retirement benefit is not costing the employer anything, since the worker is seeing a reduction in pay corresponding to the value of the benefit. (This is the same story economists tell about employer-provided health care insurance.)

As a practical matter, the offset is almost certainly not one to one. Many workers will view the contribution for retirement as worth more than the same amount of dollars in their paycheck while younger workers who are far from retirement might view the contribution as being worth less than the same amount of dollars in their paycheck.

CEPR / October 29, 2017

Article Artículo

Response to Doctors Unhappy Over the Idea They Get Paid Too Much

Earlier this week I had a column in Politico pointing out that doctors in the United States get paid roughly twice as much as their counterparts in other wealthy countries and that we could save almost $100 billion a year ($700 per family) if we got doctors pay in line with their pay elsewhere by opening up the market. This made many folks (most identifying themselves as doctors) angry, as they let me know with e-mails, tweets, facebook comments and various other outlets. My response to these criticisms is below.

Folks also may be interested in picking up the discussion with a segment next Monday (10-30) on Wisconsin Public Radio at 7:00 A.M. EDT.

 

Response to Critics

The criticisms of my piece took a variety of directions but the vast majority noted the large debt that many doctors incur in med school. This is a serious issue, but I would raise a couple of points here. First, a debt burden of $250,000 comes to less than $9,000 a year over a 30-year career. That’s less than 4 percent of the average doctors’ pay. Even if you add in one-third for interest costs, it is still less than 5 percent of the average doctors’ pay and only around 10 percent of the difference between the average doctors’ pay in the U.S. and their pay in other wealthy countries.

I would agree that we should alter the way med school is financed and instead have it covered by the government, as is largely the story elsewhere. (The same applies to college.) However, it is interesting to note how when we talk about opening up the market for doctors to more international and domestic competition we get this huge outcry over the fate of doctors with high debt. I don’t recall similar outcries about the risk to the continued employment and pensions and retiree health care benefits of autoworkers and steelworkers when these sectors were opened to international competition. Nor do we hear these complaints expressed as vocally in reference to efforts to restrict Amazon and other internet retailers when it means the loss of hundreds of thousands or even millions of jobs in traditional retail stores.

Many complained that I had no evidence for what I argued in the piece. The links in the piece provide pretty solid evidence that U.S. doctors are paid substantially more than their counterparts in other wealthy countries. Here’s another source that readers may find useful.

CEPR / October 27, 2017

Article Artículo

Globalization and Trade

IMF

World

A Discussion of the IMF’s Role in Globalization and the Effects of Its Policies on Developing Countries

In mid-October, the International Monetary Fund (IMF) and the World Bank Group held their Annual Meetings in Washington, DC. In events throughout the week, the Fund and the Bank stressed the importance of globalization, emphasizing “Its long-acknowledged benefits to economic growth, poverty reduction, and consumers’ access to varied goods at lower prices.” Missing from the schedule was a broader discussion of the IMF’s role in globalization, and the effects of its policies on developing countries.

On October 9, the Center for Economic and Policy Research hosted a panel in which the renowned economist Jeffrey Sachs, CEPR Co-Director Mark Weisbrot, and Nancy Alexander of the Heinrich-Böll-Stiftung provided their perspectives on both the Fund’s policies and global trends in development. The event centered on the release of CEPR’s “Scorecard on Development 1960-2016: China and the Global Economic Rebound,” the fourth report in a series examining global macroeconomic trends over the past 50 years. Previous “Scorecard” reports found a dramatic slowdown in economic growth and social indicators in low- and middle-income countries during the 1980–2000 period when the IMF’s policies were most influential in developing countries. Critically, the latest report found that China was responsible for much of the improvement in economic and social indicators sometimes attributed to the “Washington Consensus” variety of globalization.

Below are excerpts from each panelist’s presentation, as well as links to each panelist’s lecture:

CEPR and Jacob Wilson / October 27, 2017