Dean Baker
The Guardian Unlimited, January 28, 2013

January 2013, Mark Weisbrot and Helene Jorgensen

The World Bank has joined the “doom and gloom” chorus on Venezuela’s economy. And in Haiti, the Washington-based institution again appears overly optimistic.

On Tuesday, January 15, the World Bank released its latest global economic forecast, which projects 2013 global GDP growth at 3.4%, up 0.4% from its preliminary estimate for 2012 and down a half a percentage point from its previous forecast in June. The Bank emphasized that the low rates were largely a result of sluggish growth in the U.S. and Europe. As for Latin America and the Caribbean, the regional predicted growth for 2013 is listed at 3.6%, up more than half a point from the estimated figure for 2012.

As with many media commentators over the past few years, the World Bank predicts that Venezuela’s economic recovery from the global recession cannot hold up. The Bank forecasts 1.8% growth in 2013, a sharp drop from an estimated 5.2% last year. Since the Venezuelan economy is not slowing, there is no obvious reason to predict a collapse in economic growth.

Furthermore, we can see that the projection numbers follow a trend. Both the World Bank and the IMF have been consistently underestimating growth projections in Venezuela.

 

Dean Baker
Truthout, January 28, 2013

It's always entertaining to read Robert Samuelson's columns on Monday mornings. They are so deliciously orthogonal to reality. Today's column, asking whether America is in decline, is another gem.

He starts with a set of "good news" items from a paper issued by Goldman Sachs:

"For starters, the U.S. economy is still the world’s largest by a long shot. Gross domestic product (GDP) is almost $16 trillion, “nearly double the second largest (China), 2.5 times the third largest (Japan).” Per capita GDP is about $50,000; although 10 other countries have higher figures, most of the countries are small — say, Luxembourg."

That sounds good, except that having double the GDP of China depends on looking at exchange rate measures of GDP. This figure is inflated by the over-valued dollar and under-valued yuan. Using the purchasing power parity measure of GDP, the gap is much smaller, with the IMF projecting it will go the other way by 2017. According to some estimates China's GDP is already larger than ours, so it's probably best to keep this celebration short.

It is true that the U.S. has a higher per capita income than Germany, France, and most other wealthy countries. But by far the main reason for this gap is that we work about 25 percent more on average than workers in Western Europe who all get 4-6 weeks a year vacation, paid parental leave, and paid sick days. This is far more an issue of a different trade-off between work and leisure than a question of people in the United States being richer.

Next we get the good news about our massive energy resources:

"In turn, the oil and gas boom bolsters employment. A study by IHS , a consulting firm, estimates that it has already created 1.7 million direct and indirect jobs. By 2020, there should be 1.3 million more, reckons IHS."

Senator John Kerry, President Obama’s nominee for Secretary of State, spoke for close to four hours at his Senate confirmation hearing on Thursday.  He discussed U.S. policy in the Middle East and Asia at length, mentioning Afghanistan thirty-five times,

Knowledge of arithmetic is a skill in short supply for people involved in economic policy debates. This is especially the case for the Washington Post (Wonkblog excepted).

Neil Irwin gives us an example of the problem when he expresses the hope that increasing house prices will provide a large boost to consumption and thereby spur growth. Irwin cites a recent academic paper on the size of the housing wealth effect:

"In a paper last year, Charles Calomiris, Stanley Longhofer, and William Miles found that the wealth effects from housing vary significantly depending on whether the homeowner is old or young, poor or rich—but their overall estimate is that a dollar of extra housing wealth triggers five to eight cents in additional spending."

He then notes that with house prices rising by roughly $1 trillion this year, this would imply an increase in consumption of between $50 and $80 billion (0.3 to 0.5 percent of GDP).

So far, so good. The Calomiris, Longhofer, and Miles estimate of the wealth effect is certainly within the range of other estimates, although it is worth noting that about 40 percent of the gain in house prices last year could be attributable to inflation. In other words, if house prices had not risen by at least 2.0 percent last year, the real wealth effect on consumption would be lower in 2013 than in 2012. The gains in terms of consumption have to be adjusted accordingly.

But the real problem is when Irwin tells us:

"In the Great Recession, spending fell by even more than could be attributed solely to the wealth effects caused by falling home prices. A vicious cycle set in through which falling home prices contributed to people being underwater on their mortgages, which had an outsized impact on their spending. Research by Atif Mian, Kamalesh Rao, and Amir Sufi last year found that in counties with high degrees of household debt and home price declines, retail sales fell much more than elsewhere."

Hmm, spending fell by even more than could be attributed to the wealth effect. Let's check that one.

January 23, 2013, Joint Session of the Labor and Education Committees New Mexico State Legislature

Much of the concerns about the budget deficit often relates to the fact that we owe a substantial portion of the debt to China. Linking the debt to China with the budget deficit reflects a mistaken understanding of the economy. In a post for the Roosevelt Institute's Econobytes, economist Dean Baker, co-director of the Center for Economic and Policy Research argues there is no direct tie between the size of the budget deficit and our debt to China.
 
The debt to China is in fact far more dependent on the trade deficit, which should be the main concern for those troubled by this debt.

• The basic logic is straightforward, the trade deficit with China is the mechanism through which China obtains the dollars it needs to buy U.S. government bonds or any other dollar denominated asset.
• China is in a position to buy large amounts of U.S. government bonds while most other countries are not, because most other countries are not running large trade surpluses. By definition, the fact that China has a trade surplus means that it is selling more goods and services abroad than it is buying.
• This means that it is accumulating dollars which can then be used to buy government bonds or other U.S. assets.

 There is no special importance to the fact that China’s government is buying government bonds, as opposed to any other asset.

• If China holds $2 trillion in U.S. government bonds then the interest on these bonds is paid out to China rather than people in the United States. In that sense it can be seen as a drain on the U.S. economy.
• However if China were to sell its $2 trillion in bonds,  and instead buy $2 trillion of stock in U.S. companies then the dividends and capital gains from this stock would go to China instead of to people in the United States. This would also be a drain on the U.S. economy.
• There is no obvious reason that we should be less concerned about China or any nation or foreign individuals owning shares in U.S. corporations than we are about them owning U.S. government bonds. In both cases there will be an outflow of payments in future years as a result of the foreign ownership of U.S. assets.
• If the concern is that a foreign power could disrupt our financial markets by suddenly dumping government bonds, the same concern would arise with a sudden dumping of large amounts of stock of private companies. Both would have a substantial impact on the affected markets and the value of the dollar.

January 25, 2013

On January 23, the Bureau of Labor Statistics (BLS) released its estimates for union membership in the United States in 2012. This post focuses on the union membership numbers by state. In addition to presenting the BLS estimates for overall union members

January 2013, John Schmitt, Janelle Jones and Milla Sanes

January 2013, Nicole Woo, Janelle Jones and John Schmitt