The NYT reported that the Trump administration is considering replacing the tariffs it imposed on aluminum and steel imports from Mexico and Canada with a system of quotas. There is an important economic dimension to such a shift that was left out of the piece.
If the US imposes a tariff on an import then it is effectively imposing a tax on US consumers. The government gets to keep the revenue. For example, if steel is imported at a price of $700 a ton and we impose a 10 percent tariff, then the price of steel to consumers rises to $770 a ton with the government getting $70 for each ton that is imported. (For simplicity, this assumes that the tariff does not affect the price of the steel. In reality, it will fall somewhat in response to the tariff.)
If we impose a quota that leaves imports at the same volume as with the tariff, then the price of steel will rise to the same level, or $770 a ton. However, in this case, while steel consumers are paying the same higher price, the money is not going to the government. The extra $70 a ton is going to the steel producers.
While restricting the volume of their sales, the US government is allowing foreign producers to get more profit on each ton of steel they expect to sell to the United States. For this reason, quotas are generally much more acceptable to our trading partners than tariffs.
When the United States imposed quotas on Japanese car exports in the 1980s (actually “voluntary export restraints”) Japanese manufacturers used it as an opportunity to move into more upscale cars. Originally, Toyota and Honda made large inroads into the US market by competing in the bottom segment of the market. Since they were limited in the quantities they could sell, they could make more money per car competing in the higher end of the market.
The NYT reported that the Trump administration is considering replacing the tariffs it imposed on aluminum and steel imports from Mexico and Canada with a system of quotas. There is an important economic dimension to such a shift that was left out of the piece.
If the US imposes a tariff on an import then it is effectively imposing a tax on US consumers. The government gets to keep the revenue. For example, if steel is imported at a price of $700 a ton and we impose a 10 percent tariff, then the price of steel to consumers rises to $770 a ton with the government getting $70 for each ton that is imported. (For simplicity, this assumes that the tariff does not affect the price of the steel. In reality, it will fall somewhat in response to the tariff.)
If we impose a quota that leaves imports at the same volume as with the tariff, then the price of steel will rise to the same level, or $770 a ton. However, in this case, while steel consumers are paying the same higher price, the money is not going to the government. The extra $70 a ton is going to the steel producers.
While restricting the volume of their sales, the US government is allowing foreign producers to get more profit on each ton of steel they expect to sell to the United States. For this reason, quotas are generally much more acceptable to our trading partners than tariffs.
When the United States imposed quotas on Japanese car exports in the 1980s (actually “voluntary export restraints”) Japanese manufacturers used it as an opportunity to move into more upscale cars. Originally, Toyota and Honda made large inroads into the US market by competing in the bottom segment of the market. Since they were limited in the quantities they could sell, they could make more money per car competing in the higher end of the market.
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The NYT featured a news analysis by Mark Mazzetta and Ben Hubbard that discussed Trump’s willingness to ignore the Saudi murder of reporter Jamal Khashoggi in their embassy in Turkey. The piece begins by telling readers that this decision:
“…showed the extent to which he believes that raw, mercantilist calculations should guide the United States’ decisions about the Middle East and the wider world.”
It later adds, “American jobs outweigh American values.”
The piece presents no evidence as to why we would believe that the issue of American jobs plays an especially important role in Trump’s decision. He did announce a weapons deal with Saudi Arabia, which is likely to amount to around 10,000 jobs, assuming that these weapons would not be sold elsewhere if the Saudis didn’t buy them.
The number of jobs is equal to a bit more than 0.007 percent of total employment in the economy. Or, to take another measure, it is a bit more than the number of jobs the country would create in three days at its pace of job growth over the last six years.
It doesn’t seem likely that a president would make major foreign policy decisions over such a small number of jobs. An alternative that is at least as plausible is that Trump is rewarding a good customer at his hotels. The Saudis have been major renters of rooms at Trump hotels since he took office. While Trump refuses to disclose information on the money he receives from the Saudis (in violation of past precedent and possibly the constitution), it is likely considerable.
Given Trump’s continuing concern with the state of his financial empire (why else won’t he divest?), it seems very plausible that this would be the basis for his foreign policy decisions. It certainly seems more likely than three days worth of job creation.
The NYT featured a news analysis by Mark Mazzetta and Ben Hubbard that discussed Trump’s willingness to ignore the Saudi murder of reporter Jamal Khashoggi in their embassy in Turkey. The piece begins by telling readers that this decision:
“…showed the extent to which he believes that raw, mercantilist calculations should guide the United States’ decisions about the Middle East and the wider world.”
It later adds, “American jobs outweigh American values.”
The piece presents no evidence as to why we would believe that the issue of American jobs plays an especially important role in Trump’s decision. He did announce a weapons deal with Saudi Arabia, which is likely to amount to around 10,000 jobs, assuming that these weapons would not be sold elsewhere if the Saudis didn’t buy them.
The number of jobs is equal to a bit more than 0.007 percent of total employment in the economy. Or, to take another measure, it is a bit more than the number of jobs the country would create in three days at its pace of job growth over the last six years.
It doesn’t seem likely that a president would make major foreign policy decisions over such a small number of jobs. An alternative that is at least as plausible is that Trump is rewarding a good customer at his hotels. The Saudis have been major renters of rooms at Trump hotels since he took office. While Trump refuses to disclose information on the money he receives from the Saudis (in violation of past precedent and possibly the constitution), it is likely considerable.
Given Trump’s continuing concern with the state of his financial empire (why else won’t he divest?), it seems very plausible that this would be the basis for his foreign policy decisions. It certainly seems more likely than three days worth of job creation.
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In the wake of Amazon’s decision to locate its new headquarters in two prosperous metro areas, an NYT Upshot piece by Neil Irwin raised the question of what can be done to help the regions that have been left behind. He then turns to various policy proposals intended to help workers in the areas that are not doing well in the current economy.
An alternative approach is to stop pursuing policies that transfer money from the left behind regions to the rich ones. The top of this list would be patent and copyright monopolies. These government-granted monopolies are explicitly designed as tools to promote innovation. Over the last four decades, they have been made stronger and longer.
They could alternatively be made shorter and weaker. We could also look to use other, more efficient, mechanisms for financing innovation and creative work. This would mean less money going to the software industry in the Silicon Valley and Seattle, less money going to the entertainment industry in Los Angeles, and less money going to the biotech industry outside of Washington, DC. There could be as much as $1 trillion a year at stake with these monopolies, an amount that is equal to roughly 60 percent of after-tax corporate profits.
Another way to benefit the left behind sectors would be to stop doing so much to benefit the financial industry. There is a long list of ways in which the government helps the financial industry (see Rigged, chapter 4), but the most obvious was when the leadership of both parties raced to save the industry from its own incompetence in the 2008 financial crisis. If the market was allowed to work its magic, Goldman Sachs, Citigroup, Bank of America, and many other financial behemoths would have been sent to the dustbin of history. The result would have been a smaller, more efficient industry, with many fewer great fortunes being made by people living in New York City and other financial centers.
A third route is a cleaned up corporate governance structure that made it more difficult for CEOs and top management to rip off the firms they run. As it is the case now, the pay of top management is primarily determined by boards of directors who owe their jobs to the CEOs. The result is a situation where CEO pay is now often 200 to 300 times the pay of ordinary workers. This most immediately comes at the expense of shareholders who have seen much lower returns in the last two decades than in prior years, but it also means more money flowing into cities like New York and San Francisco that house many corporate headquarters.
These and other policies that restructured the market so as not to redistribute so much income upward would be a good place to start if we are concerned about the left behind regions. While transfer policies that largely accept the before-tax distribution of income seem to be more popular in policy circles, they are less likely to be effective than having so much income go to the top in the first place.
The piece also includes an assertion that may have mislead readers. It quotes Clara Hendrickson, a co-author of one of the papers cited in the article:
“What’s increasingly clear after the 2016 election is that the forces that have been really good for the economy in the aggregate, like globalization and technological change, create local shocks that are extremely powerful.”
Actually, it is not clear that these forces, at least as they have been directed over the last four decades, have been really good for the economy in aggregate. This has been a period of slow overall growth, in addition to rising inequality.
In the wake of Amazon’s decision to locate its new headquarters in two prosperous metro areas, an NYT Upshot piece by Neil Irwin raised the question of what can be done to help the regions that have been left behind. He then turns to various policy proposals intended to help workers in the areas that are not doing well in the current economy.
An alternative approach is to stop pursuing policies that transfer money from the left behind regions to the rich ones. The top of this list would be patent and copyright monopolies. These government-granted monopolies are explicitly designed as tools to promote innovation. Over the last four decades, they have been made stronger and longer.
They could alternatively be made shorter and weaker. We could also look to use other, more efficient, mechanisms for financing innovation and creative work. This would mean less money going to the software industry in the Silicon Valley and Seattle, less money going to the entertainment industry in Los Angeles, and less money going to the biotech industry outside of Washington, DC. There could be as much as $1 trillion a year at stake with these monopolies, an amount that is equal to roughly 60 percent of after-tax corporate profits.
Another way to benefit the left behind sectors would be to stop doing so much to benefit the financial industry. There is a long list of ways in which the government helps the financial industry (see Rigged, chapter 4), but the most obvious was when the leadership of both parties raced to save the industry from its own incompetence in the 2008 financial crisis. If the market was allowed to work its magic, Goldman Sachs, Citigroup, Bank of America, and many other financial behemoths would have been sent to the dustbin of history. The result would have been a smaller, more efficient industry, with many fewer great fortunes being made by people living in New York City and other financial centers.
A third route is a cleaned up corporate governance structure that made it more difficult for CEOs and top management to rip off the firms they run. As it is the case now, the pay of top management is primarily determined by boards of directors who owe their jobs to the CEOs. The result is a situation where CEO pay is now often 200 to 300 times the pay of ordinary workers. This most immediately comes at the expense of shareholders who have seen much lower returns in the last two decades than in prior years, but it also means more money flowing into cities like New York and San Francisco that house many corporate headquarters.
These and other policies that restructured the market so as not to redistribute so much income upward would be a good place to start if we are concerned about the left behind regions. While transfer policies that largely accept the before-tax distribution of income seem to be more popular in policy circles, they are less likely to be effective than having so much income go to the top in the first place.
The piece also includes an assertion that may have mislead readers. It quotes Clara Hendrickson, a co-author of one of the papers cited in the article:
“What’s increasingly clear after the 2016 election is that the forces that have been really good for the economy in the aggregate, like globalization and technological change, create local shocks that are extremely powerful.”
Actually, it is not clear that these forces, at least as they have been directed over the last four decades, have been really good for the economy in aggregate. This has been a period of slow overall growth, in addition to rising inequality.
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In an article pointing out that China has more income mobility than the United States, The New York Times seriously understated China’s per capita income. The article told readers:
“Today, the economic output per capita in China is $12,000, compared with $3,500 a decade ago. The number is far higher in the United States, $53,000.”
Actually, using a purchasing power parity measure of income (which applies a common set of prices to all goods and services, regardless of the country), China has a per capita GDP of $16,100 in 2018, according to the I.M.F. This is still less than a third of $55,500 measure for the US, but getting close to the richest countries in Latin America and the poorest countries in Europe. Mexico’s per capita GDP for 2018 is $18,300 and Bulgaria’s is $20,600. The I.M.F’s projections show per capita GDP in China passing Mexico’s by 2022.
In an article pointing out that China has more income mobility than the United States, The New York Times seriously understated China’s per capita income. The article told readers:
“Today, the economic output per capita in China is $12,000, compared with $3,500 a decade ago. The number is far higher in the United States, $53,000.”
Actually, using a purchasing power parity measure of income (which applies a common set of prices to all goods and services, regardless of the country), China has a per capita GDP of $16,100 in 2018, according to the I.M.F. This is still less than a third of $55,500 measure for the US, but getting close to the richest countries in Latin America and the poorest countries in Europe. Mexico’s per capita GDP for 2018 is $18,300 and Bulgaria’s is $20,600. The I.M.F’s projections show per capita GDP in China passing Mexico’s by 2022.
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Yes, there is an insatiable market for writings claiming there has been no rise in inequality in the United States, with Robert Samuelson being one of the main actors in this group. His latest column reports on new data on income distribution from the Congressional Budget Office (CBO).
Samuelson gives us the good news:
“The poorest fifth of Americans (a fifth is known as a “quintile”) enjoyed a roughly 80 percent post-tax income increase since 1979. The richest quintile — those just below the top 1 percent — had a similar gain of nearly 80 percent. The middle three quintiles achieved less, about a 50 percent rise in post-tax incomes. …”
He then gives us a table showing a rise in income between 2000 and 2015 of 32 percent for the bottom quintile, and 17, 15, and 16 percent for the next three quintiles respectively. Should we all be happy?
Let’s take a look at another table in the CBO report (Supplemental data, Table 5). This table gives market income before tax and transfers.
Here’s what I get:
|
|
|
|
|
|
||
|
Quintile |
|
Income in thousands |
Percent change |
|||
|
|
(2015 dollars) |
’79–’15 |
’00–’15 |
|||
|
Bottom |
|
9.9 |
14.2 |
15.7 |
58.6% |
10.6% |
|
Second |
|
30.5 |
34.5 |
32.2 |
5.6% |
-6.7% |
|
Third |
|
52.1 |
58.4 |
58.5 |
12.3% |
0.2% |
|
Fourth |
|
73 |
90.5 |
95.5 |
30.8% |
5.5% |
|
Fifth |
|
141.7 |
250.7 |
281.2 |
98.4% |
12.2% |
|
Top 1% |
|
551.7 |
1669.4 |
1844.7 |
234.4% |
10.5% |
Source: Congressional Budget Office.
Before noting the difference between the income gains that Samuelson presents and this table, it is worth making a couple of points on the income gains shown here.
First, much of the income gain reported for the longer period is due to more work per household, primarily due to more women working. Some of the deniers jump on those of us who make this point by saying that we don’t think women should work. In fact, what we think is that when women work, they should get paid. If a household has two earners rather than one, it should have a higher income to reflect this fact. The gains for the second and third quintiles don’t show much. It is of course also the case that a household with two earners has higher work-related expenses, like transportation and child care.
The other point is that the bulk of the income gain is prior to 2000. From 2000 to 2015, income for the fourth quintile rose by just 5.5 percent, for the third quintile 0.2 percent, and for the second quintile, it fell by 6.7 percent. This is the bad story of stagnating income that the non-Samuelson world has been talking about.
So how can Samuelson show a much better picture for both the longer period and the period since 2000? The answer is that the value of transfers from the government has risen, most importantly from the increased availability and cost of health care provided through Medicaid, subsidies on the health care exchanges, and CHIP.
The government’s increased responsibility for health care is a good thing in my book, but people can be forgiven for not recognizing this as an increase in their income. First, much of the increased expenditure is due to the higher fees charged by providers. Most people probably don’t feel richer because Medicaid is now paying more money to drug companies and surgeons.
The other point is that most people actually don’t have high health care expenses. The government’s payments are mostly for the 5–10 percent of the population that does have large health care expenses. The rest of us now have better insurance that our expenses will be covered if we fall into this group, which is good and valuable, but if we are reasonably healthy, then we are not seeing a direct benefit from this government expenditure.
So, if we want to accurately describe the story for the last fifteen years, we can say incomes have stagnated and the government has substantially increased its share of health care spending. That’s the reality, but the Washington Post probably is not interested in running that story.
Yes, there is an insatiable market for writings claiming there has been no rise in inequality in the United States, with Robert Samuelson being one of the main actors in this group. His latest column reports on new data on income distribution from the Congressional Budget Office (CBO).
Samuelson gives us the good news:
“The poorest fifth of Americans (a fifth is known as a “quintile”) enjoyed a roughly 80 percent post-tax income increase since 1979. The richest quintile — those just below the top 1 percent — had a similar gain of nearly 80 percent. The middle three quintiles achieved less, about a 50 percent rise in post-tax incomes. …”
He then gives us a table showing a rise in income between 2000 and 2015 of 32 percent for the bottom quintile, and 17, 15, and 16 percent for the next three quintiles respectively. Should we all be happy?
Let’s take a look at another table in the CBO report (Supplemental data, Table 5). This table gives market income before tax and transfers.
Here’s what I get:
|
|
|
|
|
|
||
|
Quintile |
|
Income in thousands |
Percent change |
|||
|
|
(2015 dollars) |
’79–’15 |
’00–’15 |
|||
|
Bottom |
|
9.9 |
14.2 |
15.7 |
58.6% |
10.6% |
|
Second |
|
30.5 |
34.5 |
32.2 |
5.6% |
-6.7% |
|
Third |
|
52.1 |
58.4 |
58.5 |
12.3% |
0.2% |
|
Fourth |
|
73 |
90.5 |
95.5 |
30.8% |
5.5% |
|
Fifth |
|
141.7 |
250.7 |
281.2 |
98.4% |
12.2% |
|
Top 1% |
|
551.7 |
1669.4 |
1844.7 |
234.4% |
10.5% |
Source: Congressional Budget Office.
Before noting the difference between the income gains that Samuelson presents and this table, it is worth making a couple of points on the income gains shown here.
First, much of the income gain reported for the longer period is due to more work per household, primarily due to more women working. Some of the deniers jump on those of us who make this point by saying that we don’t think women should work. In fact, what we think is that when women work, they should get paid. If a household has two earners rather than one, it should have a higher income to reflect this fact. The gains for the second and third quintiles don’t show much. It is of course also the case that a household with two earners has higher work-related expenses, like transportation and child care.
The other point is that the bulk of the income gain is prior to 2000. From 2000 to 2015, income for the fourth quintile rose by just 5.5 percent, for the third quintile 0.2 percent, and for the second quintile, it fell by 6.7 percent. This is the bad story of stagnating income that the non-Samuelson world has been talking about.
So how can Samuelson show a much better picture for both the longer period and the period since 2000? The answer is that the value of transfers from the government has risen, most importantly from the increased availability and cost of health care provided through Medicaid, subsidies on the health care exchanges, and CHIP.
The government’s increased responsibility for health care is a good thing in my book, but people can be forgiven for not recognizing this as an increase in their income. First, much of the increased expenditure is due to the higher fees charged by providers. Most people probably don’t feel richer because Medicaid is now paying more money to drug companies and surgeons.
The other point is that most people actually don’t have high health care expenses. The government’s payments are mostly for the 5–10 percent of the population that does have large health care expenses. The rest of us now have better insurance that our expenses will be covered if we fall into this group, which is good and valuable, but if we are reasonably healthy, then we are not seeing a direct benefit from this government expenditure.
So, if we want to accurately describe the story for the last fifteen years, we can say incomes have stagnated and the government has substantially increased its share of health care spending. That’s the reality, but the Washington Post probably is not interested in running that story.
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You really have to wonder if there is a ban on columnists and reporters mentioning wanton violation of the copyrights and patents of US companies as a potential weapon for China in its trade war with the United States. Incredibly, as aspects of the trade war get highlighted and debated, wholesale violations of copyrights and patents held by US companies never gets mentioned.
The latest conspicuous ignorer is Nicholas Kristof. In a column that warns Trump of all the non-trade measures China could pursue, he never once mentions patents and copyrights.
If this sounds obscure, let me be as specific as possible. Suppose China announces that it is working with a large domestic computer manufacturer to make tens or even hundreds of millions of computers, using Windows and other Microsoft software, which will be sold not only in China but exported to any country interested in getting low-cost computers. Microsoft will not get a dime in royalty payments.
It also announces that all the latest Hollywood movies will be available on websites hosted in China for instant downloads at zero cost. Like Bill Gates, the boys and girls in Hollywood get zero. China also announces plans to get in the generic drug business in a huge way, mass producing versions of Pfizer, Merck, and other big US drug companies drugs without regard to patents and related intellectual property claims. As with computers, these generic drugs will be sold not in only in China, but to any country in the world that would prefer low-cost drugs.
Perhaps this form of retaliation has never occurred to Mr. Kristof and other folks who write on trade in US news outlets, but I can guarantee the leadership in China is not so stupid. I’m sure they recognize this step would be the equivalent of going nuclear, but if they feel the need to take stronger measures in response to Trump, it is inconceivable that this one is not on the list.
And, as a sidebar, it would be a great thing for both China and the world. And at the end of the day, it would also be a great thing for the United States.
You really have to wonder if there is a ban on columnists and reporters mentioning wanton violation of the copyrights and patents of US companies as a potential weapon for China in its trade war with the United States. Incredibly, as aspects of the trade war get highlighted and debated, wholesale violations of copyrights and patents held by US companies never gets mentioned.
The latest conspicuous ignorer is Nicholas Kristof. In a column that warns Trump of all the non-trade measures China could pursue, he never once mentions patents and copyrights.
If this sounds obscure, let me be as specific as possible. Suppose China announces that it is working with a large domestic computer manufacturer to make tens or even hundreds of millions of computers, using Windows and other Microsoft software, which will be sold not only in China but exported to any country interested in getting low-cost computers. Microsoft will not get a dime in royalty payments.
It also announces that all the latest Hollywood movies will be available on websites hosted in China for instant downloads at zero cost. Like Bill Gates, the boys and girls in Hollywood get zero. China also announces plans to get in the generic drug business in a huge way, mass producing versions of Pfizer, Merck, and other big US drug companies drugs without regard to patents and related intellectual property claims. As with computers, these generic drugs will be sold not in only in China, but to any country in the world that would prefer low-cost drugs.
Perhaps this form of retaliation has never occurred to Mr. Kristof and other folks who write on trade in US news outlets, but I can guarantee the leadership in China is not so stupid. I’m sure they recognize this step would be the equivalent of going nuclear, but if they feel the need to take stronger measures in response to Trump, it is inconceivable that this one is not on the list.
And, as a sidebar, it would be a great thing for both China and the world. And at the end of the day, it would also be a great thing for the United States.
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Jeff Stein’s Wonkblog piece told Post readers the good news that the vast majority of Senator Kamala Harris’ proposed $2.8 trillion tax cut would go to the non-rich, according to an analysis from the Tax Policy Center. What the piece did not do is give readers any sense of how much money is involved.
I will go out on a limb here and suggest that the vast majority of Post readers really don’t have much idea of how much money $2.8 trillion is over the decade from 2019 to 2028. It is not that difficult to give readers some context. For example, the piece could have told readers that is a bit less than 1.2 percent of the projected $255.4 trillion in GDP projected for this period. Or, it could have indicated that it is 6.3 percent of the projected $44.2 trillion in total federal spending over the decade.
There are other, and possibly better, comparisons that could have been used, but it would be worth trying to use some reference point for the 99 plus percent of readers who don’t have their head buried in budget projections.
Jeff Stein’s Wonkblog piece told Post readers the good news that the vast majority of Senator Kamala Harris’ proposed $2.8 trillion tax cut would go to the non-rich, according to an analysis from the Tax Policy Center. What the piece did not do is give readers any sense of how much money is involved.
I will go out on a limb here and suggest that the vast majority of Post readers really don’t have much idea of how much money $2.8 trillion is over the decade from 2019 to 2028. It is not that difficult to give readers some context. For example, the piece could have told readers that is a bit less than 1.2 percent of the projected $255.4 trillion in GDP projected for this period. Or, it could have indicated that it is 6.3 percent of the projected $44.2 trillion in total federal spending over the decade.
There are other, and possibly better, comparisons that could have been used, but it would be worth trying to use some reference point for the 99 plus percent of readers who don’t have their head buried in budget projections.
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