July 14, 2017

July 14, 2017 (Prices Byte)

Dean Baker
The Los Angeles Times, July 13, 2017

Dean Baker
Democracy, Summer 2017, No. 45

Dan BeetonAlterNet, July 11, 2017

July 7, 2017, Dean Baker

Mark WeisbrotÚltimas Noticias, 11 de julio, 2017

While business cycles vary in their length and growth rates, there are some consistent patterns. Most obviously, the labor market tightens as the business cycle advances with unemployment falling and the percentage employed rising. This tightening of the labor market increases the bargaining power of workers since they are more likely to have a choice of jobs than they did during the downturn or during the early phase of the recovery. As a result, workers are likely to move to more desirable and better-paying jobs. Better paying jobs are also likely to be more productive jobs, which mean that the shift in employment patterns as a result of a tightening labor market could provide some boost to productivity growth. (This is offset in part by the fact that large numbers of people shifting jobs will reduce productivity.)

This pattern is likely to be especially strong among less-educated workers since they are the ones most likely to lose their jobs in the downturn. An employer is far more likely to lay off a retail clerk or assembly line worker than a store manager or a shift supervisor. This means that the improved labor market situation during the upturn is likely to disproportionately benefit workers at the bottom end of the wage distribution.

Regular readers of the NYT and other leading outlets might well get that impression. The one-sided nature of the discussion of these deals (invariably dubbed "free" trade agreements, because no one can be opposed to freedom) is hard for careful readers to miss.

We got yet another example with a column warning that Donald Trump may kill the bourbon boom with his trade policy. The piece uses the example of bourbon to tell us all the ways in which Trump's decision to pull back from the Trans-Pacific Partnership and other trade deals can harm people in the United States and be bad for the world generally.

Starting at the basics, it tells us:

"Take Vietnam, a TPP member that increased American spirits imports by 173.9 percent between 2015 and 2016, to $45.9 million, making it the category’s fastest-growing importer. Under the trade deal, the country is expected to drastically increase its American whiskey consumption.

"Without American membership in the TPP, a 12-nation pact that created zero tariffs for American products, Vietnam’s 45 percent duty on bourbon and other distilled spirits will no longer be phased out, putting those expectations on ice."

There are several points worth noting here. First, apparently, our whiskey exports to Vietnam appear to be doing just fine even with the 45 percent tariff. Perhaps U.S. whiskey is considered a luxury in Vietnam and the people who buy it are not that concerned about the price. I have no idea whether that is the case, but is possible that the reduction or elimination of the tariff may not affect sales very much.

The second point is that the implicit assumption in this story is that the people in Vietnam have no interest in getting cheaper whiskey. The piece assumes that they will continue to impose a 45 percent tax on the whiskey they buy from the United States for the indefinite future. This is, of course, possible, but it's also possible that Vietnamese with access to textbooks on public finance, or who like U.S. whiskey, will push their government to reduce the 45 percent tax with or without a trade deal.

Finally, we should be asking how people in the United States feel about paying more for their whiskey. After all, there is a limited amount of whiskey that U.S. distilleries can produce, at least in the short-term. If Vietnam and other countries will buy more, then there is less left for us whiskey drinkers back in the United States.

July 2017, Dean Baker, Sarah Rawlins and David Stein

As discussed in a recent Federal Reserve staff working paper, “recessions may impact different groups at different phases of the aggregate business cycle”. The paper finds that in an economic downturn jobs losses disproportionately hit black and Hispanic workers relative to white workers, while periods of unemployment likewise last longer for black and Hispanic Americans. As a result, in the later stages of an economic recovery new jobs are added at a more rapid rate for black and Hispanic workers.

An important monetary policy implication of this finding is that the gap in labor market outcomes for different groups is affected by how quickly the Fed raises interest rates in an economic recovery. Put another way, if the Fed moves too quickly to raise interest rates, it will disproportionately leave black and Hispanic Americans out of the labor market, and particularly black and Hispanic women and youth.

Dean Baker
Truthout, July 10, 2017