Dean Baker
The Hankyoreh (South Korea), July 3, 2013

Dean Baker
Real World Economics Review, July 2, 2013

One of the simple facts of the economy that troubles many economists is the absence of any relationship between profits and investment. Economists like to tell people that if we make investment more profitable, we will have more investment. It turns out the world doesn't work that way.

Here's one of my favorite graphs of the economy going back to the early years right after World War II. It's about as simple as it gets. It shows the investment share of GDP. Then it shows the profit share of net value added in the corporate sector. The measure of profit here is the broad measure of business operating surplus. Using net takes away the downward bias in recent years that would result from a rising depreciation share of output. The last line is the after-tax profit share.

The first item worth noting here is that investment doesn't fluctuate all that much. It peaks at 13.4 percent of GDP in 1981. The closest it ever comes to this share again is in the looniness of the stock bubble when the ability to raise money on Wall Street for every crazy idea pushed the investment share up to 12.7 percent of GDP. Even this number is overstated by 0.3-0.4 percentage points because of the growth of car leasing in the 1990s. (A leased car is owned by the leasing company and therefore counts as investment. By contrast, when a consumer buys a car it is treated as consumption.)

The takeaway is that anyone who expects a huge uptick in investment to provide a major boost to demand is either smoking something serious or simply has never looked at the data. It hasn't happen in the last 65 years and it's not about to happen now.

Despite having “not constructed a port anywhere in the world since the 1970s”, USAID allocated $72 million dollars to build one, according to a Government Accountability Office (GAO) report released last week.  The port is meant to help support the Caracol Industrial Park (CIP) which was constructed with funding from the Inter-American Development Bank (IDB) and $170 million in funding from the U.S. for related infrastructure.  The CIP has been held up as the flagship reconstruction project undertaken by the international community in Haiti. Even after putting aside criticisms of the location, types of jobs and the environmental impact of the CIP, the “success” of the entire project hinges on the new port. A prior study found that, “the CIP will only succeed if expanded, efficient port facilities are developed nearby.”

Despite a lack of experience in building ports, USAID decided to take on this critical project. However, over two years since it began the project is delayed, is over budget and its sustainability has been thrown into doubt. The GAO found that USAID “lacks staff with technical expertise in planning, construction, and oversight of a port,” and a ports engineer and advisor position has been empty for over two years. Additionally, the feasibility study for the port, contracted out by USAID, was delayed and “did not require the contractor to obtain all the information necessary to help select a port site.” As a result, while construction was set to begin in the spring of 2013, USAID “has no current projection for when construction of the port may begin or how long it will take because more studies are needed before the port site can be selected and the port designed,” reports the GAO.

Without any in-house expertise in port construction at USAID, the mission turned to private contractors. HRRW reported in January 2012 that MWH Americas was awarded a “$2.8 million contract to conduct a feasibility study for port infrastructure in northern Haiti.” The expected completion date was May 2012. MWH Americas had previously been criticized for their work in New Orleans, with the Times-Picayune reporting that MWH had “been operating for more than two years under a dubiously awarded contract that has allowed it to overbill the city repeatedly even as the bricks-and-mortar recovery work it oversees has lagged.”

In Haiti, MWH quickly subcontracted out much of the work on the feasibility study. As HRRW reported in February, “[w]ithin two weeks of receiving the $2.8 million contract, MWH Americas turned around and gave out $1.45 million in subcontracts to four different firms, all headquartered in Washington DC or Virginia.” USAID staff told the GAO that the study was completed as required in May 2012, but that “multiple environmental issues not adequately addressed in the initial study needed additional examination.” MWH was awarded another $1 million and the completion date was extended.  Overall, the GAO reports that “the feasibility study was amended six times and extended by 9 months.”

The study was finally completed in February of 2013, after USAID consulted with other government agencies with experience in port construction. In the end, the amount awarded to MWH increased by $1.5 million. Yet even after all of this, the GAO found that “other studies strongly recommended” by other agencies “still need to be performed.” Without any expertise to oversee the contractors, the work done was inadequate, expensive and took far longer than anticipated, revealing the pitfalls of being “more of a contracting agency than an operational agency with the ability to deliver,” as Hillary Clinton described USAID during her Senate confirmation hearing in 2009. 

Dean Baker
The Exchange (Yahoo! Finance), 26 de junio, 2013
El Mono Político, 29 de junio, 2013
En Inglés

As we have previously noted, the Obama administration has reversed course, seeking to lower the profile of the Snowden case after its threats against Russia, Ecuador, and Hong Kong backfired and after apparently realizing that public support for Snowden remains high despite a U.S. government-led effort to demonize him in the media. This has resulted in a litany of mixed messages from senior administration officials.

The Guardian and AP reported on Saturday that when asked about Snowden, Ambassador Susan Rice, who yesterday began her new position as National Security Adviser, had responded that “I don't think the diplomatic consequences, at least as they are foreseeable now, are that significant.” But, the AP reported, “U.S. Defense Secretary Chuck Hagel and Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, have called Snowden's leaks a serious breach that damaged national security. Hagel said Thursday an assessment of the damage is being done now.”

AP also noted that Rice attempted to do damage control, responding to “commentators who say Snowden's disclosures have made Obama a lame duck, damaged his political base, and hurt U.S. foreign policy.”

Rice’s statements on Snowden – which were made before revelations in Der Spiegel regarding U.S. spying on the E.U. – also contrast with rhetoric from top legislators, both Democrats and Republicans. Senator Dianne Feinstein has accused Snowden of “treason,” and House Speaker John Boehner called him a “traitor.”

The change in the White House’s tone came last week as Obama told reporters during his visit to Senegal, “I'm not going to be scrambling jets to get a 29-year-old hacker,” and “I get you that it’s a fascinating story for the press,” …but “in terms of U.S. interests, the damage was done with respect to the initial leaks.”

Mark WeisbrotThe Guardian Unlimited, 1 de julio, 2013En Inglés

Following up on last Wednesday’s item regarding downward revisions to gross domestic product (GDP) it is worth pointing out again that gross domestic income (GDI) is not a better measure of the economy.  Though the two measures are in theory equal, each r

Mark WeisbrotThe Guardian Unlimited, July 1, 2013En Español

Dean Baker
Truthout, July 1, 2013