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A couple of weeks ago, I joked that it seemed as though Washington Post reporters are not allowed to mention the importance of the value of the dollar in trade. This was after reading a lengthy article on how low farm prices are hurting farmers which never once mentioned the rise in the value of the dollar over the last four years.
The basic story is that, other things equal, the higher the value of the dollar against the euro, yen, and other major currencies, the lower the dollar price of wheat, corn, and other farm commodities. The relatively high dollar has been an important factor depressing prices received by US farmers in recent years, but for some reason, the Post never mentioned this fact.
Steven Mufson gives perhaps an even more egregious example of not talking about currency in his discussion of US trade relations with China over the last three decades. Incredibly, the piece never once mentions the explicit decision by China to keep down the value of its currency against the dollar in order to maintain and expand its trade surplus. This practice, sometimes called “currency manipulation” led China to run a trade surplus that peaked at just under 10 percent of GDP in 2007. This is especially striking since economists would ordinarily expect a rapidly growing developing country like China to be running a large trade deficit, since it would be an importer of capital.
While China’s currency is probably less under-valued today than a decade ago (which explains the large decline in its trade surplus), it is still deliberately held down by the government which is holding more than $4 trillion either as direct central bank reserves or in its sovereign wealth fund. As the CIA World Factbook notes:
“note: because China’s exchange rate is determined by fiat rather than by market forces, the official exchange rate measure of GDP is not an accurate measure of China’s output; GDP at the official exchange rate substantially understates the actual level of China’s output vis-a-vis the rest of the world; in China’s situation, GDP at purchasing power parity provides the best measure for comparing output across countries.”
The continued under-valuation of China’s currency is a major factor in the US trade deficit. A president who was committed to more balanced trade would have currency values at the top of their agenda.
A couple of weeks ago, I joked that it seemed as though Washington Post reporters are not allowed to mention the importance of the value of the dollar in trade. This was after reading a lengthy article on how low farm prices are hurting farmers which never once mentioned the rise in the value of the dollar over the last four years.
The basic story is that, other things equal, the higher the value of the dollar against the euro, yen, and other major currencies, the lower the dollar price of wheat, corn, and other farm commodities. The relatively high dollar has been an important factor depressing prices received by US farmers in recent years, but for some reason, the Post never mentioned this fact.
Steven Mufson gives perhaps an even more egregious example of not talking about currency in his discussion of US trade relations with China over the last three decades. Incredibly, the piece never once mentions the explicit decision by China to keep down the value of its currency against the dollar in order to maintain and expand its trade surplus. This practice, sometimes called “currency manipulation” led China to run a trade surplus that peaked at just under 10 percent of GDP in 2007. This is especially striking since economists would ordinarily expect a rapidly growing developing country like China to be running a large trade deficit, since it would be an importer of capital.
While China’s currency is probably less under-valued today than a decade ago (which explains the large decline in its trade surplus), it is still deliberately held down by the government which is holding more than $4 trillion either as direct central bank reserves or in its sovereign wealth fund. As the CIA World Factbook notes:
“note: because China’s exchange rate is determined by fiat rather than by market forces, the official exchange rate measure of GDP is not an accurate measure of China’s output; GDP at the official exchange rate substantially understates the actual level of China’s output vis-a-vis the rest of the world; in China’s situation, GDP at purchasing power parity provides the best measure for comparing output across countries.”
The continued under-valuation of China’s currency is a major factor in the US trade deficit. A president who was committed to more balanced trade would have currency values at the top of their agenda.
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We all know about the problem of people who expect handouts from the government because they are too lazy or incompetent to make it on their own. The Washington Post wrote about a cattle rancher in Oregon who fits this bill, but so badly represented the facts most readers probably did not understand what is at stake.
The piece is about two ranchers in Southeastern Oregon, Dwight Hammond Jr. and his son, Steven, who were convicted of committing arson on federal property. According to the article, they also threatened federal employees. Donald Trump is apparently considering granting the two men pardons.
The article asserts that the Hammonds “advocating public use of federal lands — especially for grazing of livestock.” This statement is self-contradictory. The Hammonds are advocating that they be able to use federal land for their private purpose — grazing of livestock — they are not arguing that it should be open to the public for general use.
Their use of the land for grazing will limit its use for other purposes and, of course everyone cannot use the land for grazing. This is a case where the Hammonds apparently feel the government owes them a handout in the form of free access to public land. The value of this handout almost certainly swamps the value of the benefits that a family might receive from food stamps, TANF, or other anti-poverty programs that set many people into a frenzy.
Addendum
BillB in the comments section informs us that these two ranchers have a history of making violent threats against federal employees and their families. They would seem to fit the definition of “terrorists,” the sort of characters conservatives usually talk about locking up for very long periods of time. It is striking that Donald Trump seems interested in pardoning them.
We all know about the problem of people who expect handouts from the government because they are too lazy or incompetent to make it on their own. The Washington Post wrote about a cattle rancher in Oregon who fits this bill, but so badly represented the facts most readers probably did not understand what is at stake.
The piece is about two ranchers in Southeastern Oregon, Dwight Hammond Jr. and his son, Steven, who were convicted of committing arson on federal property. According to the article, they also threatened federal employees. Donald Trump is apparently considering granting the two men pardons.
The article asserts that the Hammonds “advocating public use of federal lands — especially for grazing of livestock.” This statement is self-contradictory. The Hammonds are advocating that they be able to use federal land for their private purpose — grazing of livestock — they are not arguing that it should be open to the public for general use.
Their use of the land for grazing will limit its use for other purposes and, of course everyone cannot use the land for grazing. This is a case where the Hammonds apparently feel the government owes them a handout in the form of free access to public land. The value of this handout almost certainly swamps the value of the benefits that a family might receive from food stamps, TANF, or other anti-poverty programs that set many people into a frenzy.
Addendum
BillB in the comments section informs us that these two ranchers have a history of making violent threats against federal employees and their families. They would seem to fit the definition of “terrorists,” the sort of characters conservatives usually talk about locking up for very long periods of time. It is striking that Donald Trump seems interested in pardoning them.
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The Federal Reserve Board’s monthly reports on industrial production used to get a fair bit of attention in the business press, but May’s 0.7 percent decline in manufacturing activity seems to have passed largely unnoticed. These data are erratic and subject to large revisions, so this is hardly an end of the world kind of number, but it certainly is not a figure consistent with the investment boom promised by proponents of the tax cut.
It is also consistent with the reported fall in the length of the average workweek in manufacturing reported in the May employment report from the Bureau of Labor Statistics. This decline in hours led to a 0.3 percent decline in the index of aggregate hours for the month.
These are the sort of drops that are expected when there is an unusual weather event like a big snowstorm or a hurricane hitting a major population center. However, there were no obvious events in this category in May, which does raise the possibility that we may be seeing a turning point in manufacturing with the brief upturn over the last couple of years petering out.
The Federal Reserve Board’s monthly reports on industrial production used to get a fair bit of attention in the business press, but May’s 0.7 percent decline in manufacturing activity seems to have passed largely unnoticed. These data are erratic and subject to large revisions, so this is hardly an end of the world kind of number, but it certainly is not a figure consistent with the investment boom promised by proponents of the tax cut.
It is also consistent with the reported fall in the length of the average workweek in manufacturing reported in the May employment report from the Bureau of Labor Statistics. This decline in hours led to a 0.3 percent decline in the index of aggregate hours for the month.
These are the sort of drops that are expected when there is an unusual weather event like a big snowstorm or a hurricane hitting a major population center. However, there were no obvious events in this category in May, which does raise the possibility that we may be seeing a turning point in manufacturing with the brief upturn over the last couple of years petering out.
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In a Washington Post analysis, Philip Bump assessed the evidence as to whether the Republican tax cuts passed last year are leading to the promised wage growth. He notes promises from Donald Trump about how the tax cut would lead to more hiring, which would push up wages.
While this is in fact what Trump promised on many occasions, this is likely due to the fact he didn’t understand the logic of his own tax cut. His economists justified the promised wage gains not by any immediate hiring effect, but rather by the effect the tax cut would have on investment. The tax cut was supposed to induce a flood of new investment. This would, in turn, lead to more rapid productivity growth. The big wage dividend would come from the workers’ share of this increased productivity.
For this reason, the key factor to watch at this point is investment, not month-to-month wage movements. By this measure, the tax cut is striking out badly. There is zero evidence of any uptick in investment, or investment plans, over the pre-tax cut pace.
In a Washington Post analysis, Philip Bump assessed the evidence as to whether the Republican tax cuts passed last year are leading to the promised wage growth. He notes promises from Donald Trump about how the tax cut would lead to more hiring, which would push up wages.
While this is in fact what Trump promised on many occasions, this is likely due to the fact he didn’t understand the logic of his own tax cut. His economists justified the promised wage gains not by any immediate hiring effect, but rather by the effect the tax cut would have on investment. The tax cut was supposed to induce a flood of new investment. This would, in turn, lead to more rapid productivity growth. The big wage dividend would come from the workers’ share of this increased productivity.
For this reason, the key factor to watch at this point is investment, not month-to-month wage movements. By this measure, the tax cut is striking out badly. There is zero evidence of any uptick in investment, or investment plans, over the pre-tax cut pace.
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The Federal Reserve Board yesterday raised interest rates. According to comments from Chair Jerome Powell and other Fed board members, they believe that the unemployment rate is approaching, if not below, levels where it could trigger inflation. The hike yesterday, along with prior hikes and projected future hikes, was done with the intention of keeping the unemployment rate from getting so low that inflation would start to spiral upward.
This is not the same as “express[ing] confidence that raising borrowing costs now won’t hurt growth,” which is the view attributed to Fed officials in the NYT’s “Thursday Briefing” section. The point of raising interest rates is to slow growth, so they absolutely believe that higher interest rates will hurt growth. The point is that the Fed wants to slow growth because it is worried that more rapid growth, and the resulting further decline in unemployment, will trigger inflation.
Chair Powell did say that he didn’t expect higher borrowing costs to choke off growth, but that is not the same as saying that he doesn’t believe it will slow growth.
Thanks to Robert Salzberg for calling this to my attention.
The Federal Reserve Board yesterday raised interest rates. According to comments from Chair Jerome Powell and other Fed board members, they believe that the unemployment rate is approaching, if not below, levels where it could trigger inflation. The hike yesterday, along with prior hikes and projected future hikes, was done with the intention of keeping the unemployment rate from getting so low that inflation would start to spiral upward.
This is not the same as “express[ing] confidence that raising borrowing costs now won’t hurt growth,” which is the view attributed to Fed officials in the NYT’s “Thursday Briefing” section. The point of raising interest rates is to slow growth, so they absolutely believe that higher interest rates will hurt growth. The point is that the Fed wants to slow growth because it is worried that more rapid growth, and the resulting further decline in unemployment, will trigger inflation.
Chair Powell did say that he didn’t expect higher borrowing costs to choke off growth, but that is not the same as saying that he doesn’t believe it will slow growth.
Thanks to Robert Salzberg for calling this to my attention.
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Neil Irwin had an interesting piece discussing various proposals that would ensure that workers share in productivity gains if we start to see massive job displacement due to robots (not much to date). At one point, he says this list would imply more activist government. This is not true. Most of the proposals (which can be found in my 2016 [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer ) involve different ways in which the government would structure the market, not necessarily more intervention.
For example, weaker and shorter patents and copyrights actually imply less government intervention in the market. Patents and copyrights are of course government granted monopolies that raise the prices of protected items by several thousand percent, sometimes tens of thousands of percent. Reducing this protection is a move towards a freer market.
Monetary policy that targets full employment is no more “activist” than monetary policy that focuses on keeping inflation down, it is simply a question of priorities. The question is whether the government is working towards ensuring that workers can get jobs or whether it is focused on protecting the wealth of the wealthy.
Work sharing is an alternative to unemployment insurance. With standard unemployment insurance, the government is effectively paying workers half their salary to be completely unemployed. By contrast, work sharing involves half of the wages lost from being partially unemployed due to a cutback in hours. While this is arguably better for workers and employers, since it keeps workers attached to the labor force, this arrangement does not in any obvious way imply more activist government.
It is striking that the rules that set in place the current market structure and the resulting upward redistribution are somehow regarded as natural and that efforts to alter them are regarded as “activist.” In fact, the upward redistribution of the last four decades was engineered by a series of policy shifts, not any natural process of market evolution.
Neil Irwin had an interesting piece discussing various proposals that would ensure that workers share in productivity gains if we start to see massive job displacement due to robots (not much to date). At one point, he says this list would imply more activist government. This is not true. Most of the proposals (which can be found in my 2016 [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer ) involve different ways in which the government would structure the market, not necessarily more intervention.
For example, weaker and shorter patents and copyrights actually imply less government intervention in the market. Patents and copyrights are of course government granted monopolies that raise the prices of protected items by several thousand percent, sometimes tens of thousands of percent. Reducing this protection is a move towards a freer market.
Monetary policy that targets full employment is no more “activist” than monetary policy that focuses on keeping inflation down, it is simply a question of priorities. The question is whether the government is working towards ensuring that workers can get jobs or whether it is focused on protecting the wealth of the wealthy.
Work sharing is an alternative to unemployment insurance. With standard unemployment insurance, the government is effectively paying workers half their salary to be completely unemployed. By contrast, work sharing involves half of the wages lost from being partially unemployed due to a cutback in hours. While this is arguably better for workers and employers, since it keeps workers attached to the labor force, this arrangement does not in any obvious way imply more activist government.
It is striking that the rules that set in place the current market structure and the resulting upward redistribution are somehow regarded as natural and that efforts to alter them are regarded as “activist.” In fact, the upward redistribution of the last four decades was engineered by a series of policy shifts, not any natural process of market evolution.
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