August 11, 2017

August 11, 2017 (Prices Byte)

Mark Weisbrot The Nation, August 9, 2017

The usually sensible Brad DeLong is very unhappy with those who oppose the agenda that has passed for globalization over the last three decades. He argues that people are foolish for believing that globalization has had a major impact on employment and the distribution of income in recent years. I'll take the side of Brad's "fools" in this matter.

First, Brad is well aware that the economy has operated well below full employment at least since the collapse of the housing bubble, I would argue this has been the case for almost all of the period since the collapse of the stock bubble in 2001. But he attributes this to a simple failure of the government to run full employment policies, rather than the large trade deficits we saw develop following the East Asian financial crisis in 1997.

While Brad is right, the government could maintain full employment by running much larger budget deficits, as he is well aware, that does not appear to be politically feasible. Even among Democrats, very few are willing to say that we should have larger budget deficits to bring the economy to full employment and some even insist on balanced budgets. There is no need to talk about Republican ideas on stimulus here.

It's also worth noting that the costs of being below full employment are disproportionately borne by disadvantaged groups in the labor market, especially African Americans and Hispanics.

Anyhow, if the political reality is that we will not have full employment fiscal policies, does it take a "fool" to argue that big trade deficits are a real problem? The cost of the shortfall in demand that we have seen over the last decade almost certainly exceeds $10 trillion by now and it is enduring, as we have seen lasting reductions in capacity, as Brad has written about himself. And millions have seen their lives and families disrupted by long periods of unemployment. Should we not worry about this damage from the demand shortfall created by trade deficits because there is in principle an economic fix, even though everyone knows it is not politically feasible?

As Puerto Rico’s debt saga plays out in court, its Financial Oversight and Management Board continues to push for further austerity measures that directly impact the people of Puerto Rico. In an effort to comply with the demands of the board, the Puerto R

I was listening to a BBC radio news show this morning in which they proclaimed today as the 10th anniversary of the beginning of the financial crisis based on the date in 2007 when the French bank BNP Paribas first blocked withdrawals from hedge funds that specialized in U.S. mortgage debt. The show then said that following this move house prices began dropping.

Really, folks? House prices began falling after this date? That's not what the data show.

At the most aggregate level, the Case-Shiller national index for the U.S. was already down 3.4 percent from its peak in 2006 by August of 2007, but there was enormous dispersion around this figure. House prices in Phoenix had fallen by almost 10.0 percent from their peak the prior year. Prices were down 7 percent in Los Angeles, 11 percent in San Diego, and 10 percent in Washington. And the momentum was clearly downward, with prices in many of these cities falling at the rate of more than 1.0 percent a month.

But wait, it gets better. If we turn to Case Shiller tiered indexes, we find that prices for homes in the bottom third of the San Diego had fallen by more than 13 percent, in San Francisco they were down 12 percent, and in Seattle, they were down 10 percent. 

In short, prices had already fallen sharply in many areas and there was every reason to think they would drop further. This is before we got to the official beginning of the financial crisis.

This is not a trivial point. The reversal of ordering matters because the key problem was an over-valued housing market. All of the fraudulent mortgages and exotic financing would not have given us a worldwide financial crisis if they had not been based on a hugely over-valued housing market. The key problem was the bubble. If we don't recognize this fact, then we have learned nothing.

Since 2014, 14 million workers have gained access to paid sick days. Breakdowns of this finding, part of the latest National Compensation Survey conducted by the Bureau of Labor Statistics (BLS), show across-the-board increases in workers' ability to take

I understand people can have reasonable differences of opinion on trade deals like the Trans-Pacific Partnership (TPP), but why is it that the proponents have to insist, with zero evidence, that not doing the deal was an economic disaster? Yes, I know the political argument, which seemed to arise late in the game, that U.S. standing in the world has collapsed because we didn't folllow through on the TPP. But, let's just stick with the economics.

Yesterday, Politico ran a lengthy piece saying that the U.S. pullout from the TPP undermined the hopes for a revival of rural America. It cited as evidence a report from the United States International Trade Commission that projected the deal would increase agricultural output by 0.5 percent when fully phased in 15 years from now. Seriously folks, a 0.5 percent increase in output is going to save rural America? That's 3 months of normal growth, who are you trying to fool?

The NYT joins the act this morning with a news article that starts out by pointing to the costs from the Trump adminstration's ambiguities on trade policy. While the piece makes many reasonable points, it then turns to the losses from pulling out from the TPP. It tells readers:

"One accomplishment that Mr. Trump has notched on trade has been an agreement with China that opened its market to American beef exports. For the beef industry, however, the benefits of that deal pale in comparison with the cost of abandoning the Trans-Pacific Partnership, which had been spearheaded by President Barack Obama. It would have provided access to the enormous Japanese market.

"Instead, Japanese tariffs on American frozen beef, which would have declined under Mr. Obama’s deal, are on the rise. Last week, they increased to 50 percent from 38 percent, making America’s meat even more vulnerable to competition from countries such as Australia.

"'TPP was fantastic,' said Kent Bacus director of international trade for the National Cattlemen’s Beef Association. 'When you walk away from it without a meaningful alternative, that causes a lot of alarm in the beef industry.'"

While the piece tells us how important the Japanese beef market is, it would have been useful to get some sense of proportion. According to the piece, Japan's entire market is $1.5 billion annually. U.S. beef production is currently $60 billion. This means that if U.S. producers were able to secure half of Japan's market, a very impressive accomplishment for a country halfway across the world, it would raise the demand for U.S. beef by 1.3 percent.

The piece also misleads readers on the nature of global markets. If Australia gets preferred access to Japan's beef market, then some of the beef that Australia used to export to other countries will be diverted to Japan. This will open up new export markets for U.S. beef. It is worth noting that, while the piece includes the exuberant praise of the TPP from Mr. Bacus, it does not quote or cite any critics of the deal.

Dean Baker
Truthout, August 7, 2017

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