Of course the NYT would never do this sort of mind reading on the intentions of the French president. Instead it told readers about changes to the labor code that were “intended to stoke hiring.” It would be nice if the NYT could limit itself to reporting what politicians say and do instead of telling us what their intentions are.
The piece also refers to tax breaks of 6 billion euros targeted to workers and and 18.8 billion euro reduction in payroll and other business taxes. It is unlikely that many NYT have much idea how large these cuts are for the French people or economy. If the cuts are for one year (this is not clear from the piece), the reduction in taxes for workers comes to roughly $100 per worker. The business tax cuts are equal to a bit less than 0.9 percent of GDP.
Of course the NYT would never do this sort of mind reading on the intentions of the French president. Instead it told readers about changes to the labor code that were “intended to stoke hiring.” It would be nice if the NYT could limit itself to reporting what politicians say and do instead of telling us what their intentions are.
The piece also refers to tax breaks of 6 billion euros targeted to workers and and 18.8 billion euro reduction in payroll and other business taxes. It is unlikely that many NYT have much idea how large these cuts are for the French people or economy. If the cuts are for one year (this is not clear from the piece), the reduction in taxes for workers comes to roughly $100 per worker. The business tax cuts are equal to a bit less than 0.9 percent of GDP.
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Yeah, you know, that big boom in investment that was supposed to lead to a surge in productivity growth. Higher productivity was then going to give us all a big pay increase — 10 percent above baseline after four years.
Anyhow, for those keeping score, the investment boom seems to still be hiding. The Commerce Department’s latest report shows that new orders for capital goods (excluding aircraft) are up just 6.3 percent in August from the year-ago level. Comparing the first eight months of 2018 with the first eight months of 2017, the gain is 7.6 percent. It is 6.9 percent if we include aircraft.
Those are respectable increases, but not very different from anyone’s pre-tax cut baseline. They certainly are not the sort of figures that will generate the promised productivity boom and wage growth.
Yeah, you know, that big boom in investment that was supposed to lead to a surge in productivity growth. Higher productivity was then going to give us all a big pay increase — 10 percent above baseline after four years.
Anyhow, for those keeping score, the investment boom seems to still be hiding. The Commerce Department’s latest report shows that new orders for capital goods (excluding aircraft) are up just 6.3 percent in August from the year-ago level. Comparing the first eight months of 2018 with the first eight months of 2017, the gain is 7.6 percent. It is 6.9 percent if we include aircraft.
Those are respectable increases, but not very different from anyone’s pre-tax cut baseline. They certainly are not the sort of figures that will generate the promised productivity boom and wage growth.
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Just thought people may be interested since Trump has made the trade deficit such a central issue in his campaign and his presidency. The deficit for the first seven months of 2018 was $337.9 billion, that is an increase of 17.1 percent from the trade deficit of $288.5 billion in the same months of 2016. The trade deficit has been running at an annual rate of $579.3 billion so far this year, or just under 2.9 percent of GDP.
There are many factors that affect the deficit, including more rapid growth and the increase in the value of the dollar. But the followers of Donald Trump who see this as the main measure of the success of the country’s trade policy may be interested in this number.
Just thought people may be interested since Trump has made the trade deficit such a central issue in his campaign and his presidency. The deficit for the first seven months of 2018 was $337.9 billion, that is an increase of 17.1 percent from the trade deficit of $288.5 billion in the same months of 2016. The trade deficit has been running at an annual rate of $579.3 billion so far this year, or just under 2.9 percent of GDP.
There are many factors that affect the deficit, including more rapid growth and the increase in the value of the dollar. But the followers of Donald Trump who see this as the main measure of the success of the country’s trade policy may be interested in this number.
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I’m just asking. It seems more than a bit bizarre that a news article would be declaring winners and losers from a major trade pact, the details of which have not yet been made public. Usually, news articles focus on reporting the news.
I’m just asking. It seems more than a bit bizarre that a news article would be declaring winners and losers from a major trade pact, the details of which have not yet been made public. Usually, news articles focus on reporting the news.
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The new trade agreement with Canada that the Trump administration announced yesterday has rules on drugs patents and related protections which are likely to cost the jobs of US manufacturing workers. The deal includes a number of provisions that are explicitly designed to raise drug prices in Canada.
These provisions include a requirement of a period of ten years of marketing exclusivity for biotech drugs before a biosimilar is allowed to enter the market. The deal also requires Canada to grant a period of exclusivity for existing drugs when new uses are developed. In addition, it requires that the period of patent monopoly be extended beyond 20 years when there have been “unreasonable” delays in the granting of the patent.
The intended purpose of these provisions is clearly to make Canada pay more money to US drug companies. Insofar as it achieves this result, it will mean that the United States has a larger surplus on intellectual products. That would imply a larger trade deficit in manufactured goods and therefore less employment in US manufacturing.
A basic accounting identity in economics is that the overall US trade deficit is equal to the gap between domestic savings and domestic investment. This identity means that if this domestic balance is not changed, the overall trade deficit is not changed.
When the US economy is below its potential level of output, a lower trade deficit can lead to more employment and income, which typically also leads to more domestic savings. However, economists typically analyze trade as though the economy is always at or near its potential level of output. If this is the case, the trade deficit is fixed by the balance of domestic investment and savings. In that case, if the trade surplus rises in one area, like intellectual products, then the trade deficit must rise to offset this increase in other areas, like manufactured goods.
The mechanism through which this would occur is, other things equal, more licensing payments to Pfizer, Merck, and other US companies for their drugs will mean a rise in the value of the US dollar against the Canadian dollar. If the US dollar increases in price relative to Canada’s dollar, it makes goods and services produced in the United States relatively less competitive, leading to a larger trade deficit in areas other than prescription drugs.
The new trade agreement with Canada that the Trump administration announced yesterday has rules on drugs patents and related protections which are likely to cost the jobs of US manufacturing workers. The deal includes a number of provisions that are explicitly designed to raise drug prices in Canada.
These provisions include a requirement of a period of ten years of marketing exclusivity for biotech drugs before a biosimilar is allowed to enter the market. The deal also requires Canada to grant a period of exclusivity for existing drugs when new uses are developed. In addition, it requires that the period of patent monopoly be extended beyond 20 years when there have been “unreasonable” delays in the granting of the patent.
The intended purpose of these provisions is clearly to make Canada pay more money to US drug companies. Insofar as it achieves this result, it will mean that the United States has a larger surplus on intellectual products. That would imply a larger trade deficit in manufactured goods and therefore less employment in US manufacturing.
A basic accounting identity in economics is that the overall US trade deficit is equal to the gap between domestic savings and domestic investment. This identity means that if this domestic balance is not changed, the overall trade deficit is not changed.
When the US economy is below its potential level of output, a lower trade deficit can lead to more employment and income, which typically also leads to more domestic savings. However, economists typically analyze trade as though the economy is always at or near its potential level of output. If this is the case, the trade deficit is fixed by the balance of domestic investment and savings. In that case, if the trade surplus rises in one area, like intellectual products, then the trade deficit must rise to offset this increase in other areas, like manufactured goods.
The mechanism through which this would occur is, other things equal, more licensing payments to Pfizer, Merck, and other US companies for their drugs will mean a rise in the value of the US dollar against the Canadian dollar. If the US dollar increases in price relative to Canada’s dollar, it makes goods and services produced in the United States relatively less competitive, leading to a larger trade deficit in areas other than prescription drugs.
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Neil Irwin had a nice piece picking up an issue that I have raised repeatedly (e.g. here, here, and here). The slowdown in investment in 2015 and 2016 was primarily driven by a plunge in world energy prices. The more recent pick-up is mostly a result of the partial reversal of this plunge, not excitement over Donald Trump’s election.
The aspect of the issue that Irwin neglects to mention in this piece is that the plunge in energy prices in 2015, and its partial reversal the last two years explain most of the variation in real wage growth in the recovery, as shown below.
12-Month Change in Average Hourly Wage
Source: Bureau of Labor Statistics.
This flip side is important since it explains both why consumption was relatively strong in 2015 and 2016 and why real wage growth has fallen to near zero in the last year and a half.
Neil Irwin had a nice piece picking up an issue that I have raised repeatedly (e.g. here, here, and here). The slowdown in investment in 2015 and 2016 was primarily driven by a plunge in world energy prices. The more recent pick-up is mostly a result of the partial reversal of this plunge, not excitement over Donald Trump’s election.
The aspect of the issue that Irwin neglects to mention in this piece is that the plunge in energy prices in 2015, and its partial reversal the last two years explain most of the variation in real wage growth in the recovery, as shown below.
12-Month Change in Average Hourly Wage
Source: Bureau of Labor Statistics.
This flip side is important since it explains both why consumption was relatively strong in 2015 and 2016 and why real wage growth has fallen to near zero in the last year and a half.
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The NYT ran a piece saying that the Federal Reserve Board is raising interest rates, in spite of weak wage growth, because of the more rapid growth in non-wage compensation. If this is true, then its policy is badly mistaken.
The piece tells readers:
“The average worker received 32 percent of total compensation in benefits including bonuses, paid leave and company contributions to insurance and retirement plans in the second quarter of 2018. That was up from 27 percent in 2000, federal data show.”
While there has been a substantial rise in the non-wage share of compensation over this period, that is not true in the last three years. The Bureau of Labor Statistics reports the non-wage share of compensation was on average 31.7 percent in the second quarter of 2018. That is the same as it was in the first quarter of 2017 and in fact the first quarter of 2015. There has been no clear upward movement in this measure in the last three years. This means that if the Fed is claiming that growing non-wage compensation is making up for a lack of wage growth, then it is not relying on the data.
The piece also tells readers:
“The White House Council of Economic Advisers calculates that increasingly generous paid leave benefits mean that the average American worker is getting an additional half-day of paid leave each year, compared with five years ago.”
Assuming this calculation is correct, if we start with a 250 day work year (50 weeks at five days a week), an extra half day of paid leave would be equivalent to a 0.2 percent increase in pay. Since this rise in paid leave took place over five years, it would mean that the move to more paid time off would add 0.04 percentage points to reported wage growth.
The NYT ran a piece saying that the Federal Reserve Board is raising interest rates, in spite of weak wage growth, because of the more rapid growth in non-wage compensation. If this is true, then its policy is badly mistaken.
The piece tells readers:
“The average worker received 32 percent of total compensation in benefits including bonuses, paid leave and company contributions to insurance and retirement plans in the second quarter of 2018. That was up from 27 percent in 2000, federal data show.”
While there has been a substantial rise in the non-wage share of compensation over this period, that is not true in the last three years. The Bureau of Labor Statistics reports the non-wage share of compensation was on average 31.7 percent in the second quarter of 2018. That is the same as it was in the first quarter of 2017 and in fact the first quarter of 2015. There has been no clear upward movement in this measure in the last three years. This means that if the Fed is claiming that growing non-wage compensation is making up for a lack of wage growth, then it is not relying on the data.
The piece also tells readers:
“The White House Council of Economic Advisers calculates that increasingly generous paid leave benefits mean that the average American worker is getting an additional half-day of paid leave each year, compared with five years ago.”
Assuming this calculation is correct, if we start with a 250 day work year (50 weeks at five days a week), an extra half day of paid leave would be equivalent to a 0.2 percent increase in pay. Since this rise in paid leave took place over five years, it would mean that the move to more paid time off would add 0.04 percentage points to reported wage growth.
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The Washington Post ran a very confused piece on how China perceives Donald Trump’s trade war. First of all, it hugely exaggerated how much is at stake for China. It implied that China’s economy could take a serious hit if Trump’s trade war substantially reduces U.S. imports from China.
At the moment, Trump is putting tariffs on $300 billion of exports from China. If this lead to a 50 percent reduction of China’s exports of these items to the U.S. (a huge reduction) that would be $150 billion. This is approximately 1.5 percent of China’s GDP measured in U.S. dollars. Since a substantial portion of China’s exports to the U.S. have value-added from other countries (e.g. the Apple iPhone), perhaps two-thirds of this loss would be value-added in China.
That means that the loss of exports to the U.S. would be equal to 1.0 percent of GDP. By comparison, China’s trade surplus fell by 8.0 percentage points of GDP between 2007 and 2011, a period in which China sustained double-digit economic growth.
This reduction in China’s trade surplus also directly contradicts the piece’s claim that:
“But it [China] has made precious little progress on any of these goals [towards liberalizing trade].”
In fact, the huge reduction in China’s trade surplus (equivalent to $1.6 trillion in the U.S. economy today) indicates it has made enormous progress.
The piece also wrongly tells readers:
“Although China’s once-booming growth rates have slowed markedly in recent years, it is still on track to overtake the United States as the world’s largest economy some time around 2030, according to a raft of respected researchers.”
Actually, by the measure most widely used by economists, purchasing power parity GDP, China’s economy is already 20 percent larger than the U.S. economy.
The Washington Post ran a very confused piece on how China perceives Donald Trump’s trade war. First of all, it hugely exaggerated how much is at stake for China. It implied that China’s economy could take a serious hit if Trump’s trade war substantially reduces U.S. imports from China.
At the moment, Trump is putting tariffs on $300 billion of exports from China. If this lead to a 50 percent reduction of China’s exports of these items to the U.S. (a huge reduction) that would be $150 billion. This is approximately 1.5 percent of China’s GDP measured in U.S. dollars. Since a substantial portion of China’s exports to the U.S. have value-added from other countries (e.g. the Apple iPhone), perhaps two-thirds of this loss would be value-added in China.
That means that the loss of exports to the U.S. would be equal to 1.0 percent of GDP. By comparison, China’s trade surplus fell by 8.0 percentage points of GDP between 2007 and 2011, a period in which China sustained double-digit economic growth.
This reduction in China’s trade surplus also directly contradicts the piece’s claim that:
“But it [China] has made precious little progress on any of these goals [towards liberalizing trade].”
In fact, the huge reduction in China’s trade surplus (equivalent to $1.6 trillion in the U.S. economy today) indicates it has made enormous progress.
The piece also wrongly tells readers:
“Although China’s once-booming growth rates have slowed markedly in recent years, it is still on track to overtake the United States as the world’s largest economy some time around 2030, according to a raft of respected researchers.”
Actually, by the measure most widely used by economists, purchasing power parity GDP, China’s economy is already 20 percent larger than the U.S. economy.
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I have repeatedly said over the last few weeks (and ten years) that bailing out the banks was not necessary to prevent a second Great Depression. While I think this is absolutely true for reasons I have laid out many times, let me make a couple of additional points.
I think a bailout that imposed stringent conditions on the financial industry, essentially requiring a downsizing and restructuring, would have been better than just letting the banks fail. That would have been the best possible outcome. But given that this sort of bailout was not on the table, I think no bailout would have been a better option than the one we got, which largely left the structure of the industry intact.
Also, I have no doubt that the downturn in 2008–-09 would have been worse if the banks had been allowed to fail. But I think the short-term pain would have been more than compensated for by eliminating the albatross of a bloated financial sector. A downsized financial sector would have freed up tens of billions annually (perhaps more than a hundred billion) for productive uses like education and health care. It also would have eliminated a major driver of inequality in the economy, since many of the highest incomes in the economy are generated by the financial industry.
Of course, the idea of having more short-term pain, which I would likely not experience, is not an argument to be made lightly. If the unemployment rate had risen by another half or full percentage point due to the failure of the banks, that means millions more people would be suffering as a result.
That is a very bad story, but one that economists often advocate under other circumstances. Specifically, any economist who has ever advocated that the Federal Reserve Board raise interest rates is effectively making the short-term pain for long-term gain argument. Usually, the case for higher rates would be that preventing spiraling inflation and the associated costs are worth the job loss (or slower job growth) that will be associated with the Fed’s rate hike.
In both the case of letting banks collapse and a Fed rate hike, people can have reasonable differences on the terms of the tradeoffs and therefore come to different conclusions on the best policy. But any economist who argues that we had to bail out the banks because any additional short-term pain was unacceptable, does not deserve to be taken seriously.
I have repeatedly said over the last few weeks (and ten years) that bailing out the banks was not necessary to prevent a second Great Depression. While I think this is absolutely true for reasons I have laid out many times, let me make a couple of additional points.
I think a bailout that imposed stringent conditions on the financial industry, essentially requiring a downsizing and restructuring, would have been better than just letting the banks fail. That would have been the best possible outcome. But given that this sort of bailout was not on the table, I think no bailout would have been a better option than the one we got, which largely left the structure of the industry intact.
Also, I have no doubt that the downturn in 2008–-09 would have been worse if the banks had been allowed to fail. But I think the short-term pain would have been more than compensated for by eliminating the albatross of a bloated financial sector. A downsized financial sector would have freed up tens of billions annually (perhaps more than a hundred billion) for productive uses like education and health care. It also would have eliminated a major driver of inequality in the economy, since many of the highest incomes in the economy are generated by the financial industry.
Of course, the idea of having more short-term pain, which I would likely not experience, is not an argument to be made lightly. If the unemployment rate had risen by another half or full percentage point due to the failure of the banks, that means millions more people would be suffering as a result.
That is a very bad story, but one that economists often advocate under other circumstances. Specifically, any economist who has ever advocated that the Federal Reserve Board raise interest rates is effectively making the short-term pain for long-term gain argument. Usually, the case for higher rates would be that preventing spiraling inflation and the associated costs are worth the job loss (or slower job growth) that will be associated with the Fed’s rate hike.
In both the case of letting banks collapse and a Fed rate hike, people can have reasonable differences on the terms of the tradeoffs and therefore come to different conclusions on the best policy. But any economist who argues that we had to bail out the banks because any additional short-term pain was unacceptable, does not deserve to be taken seriously.
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