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Article Artículo

Trade Deficits and Secular Stagnation

Alan Blinder is a very good economist. For this reason, I am quite certain that he is familiar with the concept of "secular stagnation," which means a persistent shortfall in aggregate demand. In fact, I suspect I could probably quickly find a few pieces he has written on the topic.

This is why it is surprising to see him assert boldly in the Wall Street Journal:

"The U.S. multilateral trade balance — its balance with all of its trading partners — has been in deficit for decades. Does that mean that our country is in some sort of trouble? Probably not. For example, people who claim that our trade deficit kills jobs need to explain how the U.S. managed to achieve 4 percent unemployment in 2000, when our trade deficit was larger, as a share of GDP, than it is today."

If Blinder accepted the problem of secular stagnation, then as a matter of accounting identities he would have to accept that a trade deficit makes the problem worse. The whole point of secular stagnation is that the economy is not bouncing back to its full employment level of output. The standard story that economists liked to tell prior to the Great Recession was that we didn't have to worry about unemployment created by trade deficits because the Fed would just lower interest rates and that would boost the economy back to full employment.

But if we believe that the Fed can't lower interest rates enough to lift the economy back to full employment, in part because it is difficult to push nominal rates much below zero, then the loss of demand resulting from a trade deficit is not made up by an increase in demand from other sectors. (Actually, Blinder has elsewhere written this risk of demand loss was a very big deal, when he justified the Wall Street bailout.)

Dean Baker / April 22, 2016

Article Artículo

Argentina

Latin America and the Caribbean

World

TIME Lets Billionaire Vulture Fund Head Praise New Argentine President…Who Just Agreed to Pay Him Billions of Dollars

TIME magazine has sunk to new lows, soliciting a billionaire Republican donor, Paul Singer, to write its blurb for recently elected Argentine president Mauricio Macri’s entry in the 2016 edition of “100 Leaders.” It’s not ridiculous because he’s either a billionaire or a Republican though, it’s that for the better part of the last decade the man has funded a multi-million dollar campaign against the previous Argentine government. Oh, and he stands to make a pretty penny from the decisions of the new president too.

First, the backstory. In 2001, Argentina had the largest ever sovereign debt default in history, some $100 billion that the country, in the midst of a disastrous recession, simply could not continue to service. Over the following years, Argentina negotiated and reached a settlement with 93 percent of its bondholders. They agreed to take a significant haircut on their holdings and were given new bonds that were linked to the country’s economic growth. Since Argentina did quite well after its default (more on that here), the bondholders recouped their investment and a tidy profit as well.

But that wasn’t enough for everyone. A group of vulture funds, many of whom bought the distressed debt on the secondary market for cents on the dollar, took Argentina to court in New York demanding full repayment. The previous Argentine government refused to comply with court orders demanding billions be paid to these vulture funds, including Singer’s. The Argentine legislature also passed laws preventing the government from dealing with the vultures.

CEPR / April 21, 2016

Article Artículo

United States

Workers

The Cause of Low Employment

One of the primary explanations we’ve heard for today’s low employment rate is that workers don’t have the right skills to land jobs in today’s economy. This line of thinking is often employed by people who argue that monetary and fiscal stimulus are unnecessary since the problem can’t really be lack of demand.

There are a host of reasons to suspect that this explanation is wrong. One such reason is the decline in prime-age (25 to 54) employment for both men and women since 2000.

CEPR and Nicolas Buffie / April 18, 2016

Article Artículo

Summing Up the Clinton-Sanders Policy Debate in One Line

I like Jonathan Cohn personally and have great respect for his work as a reporter and writer on health care issues. However, I think he actually told readers the opposite of what he intended in his Huffington Post piece headlined, "this one line sums up the big Clinton-Sanders policy argument."

The big line in Cohn's piece is that Senator Sanders' proposal for a single-payer system would cause a single mother with two children, earning $26,813 a year, to pay $2,314 in payroll taxes rather than getting health insurance for her family free through Medicaid, as would be the case now. Cohn sees this as a major hit to this family, which is a serious problem with Sanders' proposal.

There are several points here worth noting. First, as Cohn points out, Sanders is also proposing a $15 an hour minimum wage. This means that if this single mother were working a full-time job, she would see her pay increase by almost $3,200 a year, even if her pay was only at the new minimum. Of course, since she is earning substantially more than the minimum wage now, it is likely that her pay would increase enough to leave her still well above the minimum. This means that she would be substantially better off with Sanders's agenda. (There are serious questions about whether we can have a $15 an hour minimum wage without a considerable impact on employment, but we'll ignore those for the moment.)

The second point is that Cohn has to be very selective in finding his victim here. Let's suppose that this single mother was getting health care insurance through her employer, as most workers do. If we say the employer was paying $5,000 a year for health care insurance, under standard economics assumptions, this money will find its way into the worker's paycheck. This means that she will be paying an additional $2,314 in payroll taxes, but this will be deducted from the $5,000 a year that her employer used to pay in premiums that now going into her paycheck. (No, this will not happen immediately and not be the story with all workers, but this is what all good economists believe will eventually be the case.) This means that this worker will be $2,686 better off as a result of the Sanders plan.

Dean Baker / April 18, 2016