The NYT had yet another piece about the potential political fallout if China retaliates for Trump’s tariffs by imposing tariffs of its own on US agricultural exports. It noted that farmers in some states could turn against the Republicans, highlighting the Senate race in North Dakota in today’s paper.
It is striking that it seems no one is mentioning the benefit to US consumers from lower food prices that would be implied by lower farm prices. While the actual savings may not be very large, the higher prices that consumers would likely see as a result of Trump’s tariffs on steel and aluminum also are not very large. Nonetheless, there have been many news articles on the costs of these tariffs, it is peculiar that the NYT and other papers have no interest in discussing the flip side of the coin when it might show a positive side to the tariffs.
As I have noted elsewhere, the actual impact on farm prices is likely exaggerated. If China reduces its purchases of a particular crop from the US, then it presumably increases purchases from another country. If this third country shifts its exports from somewhere else to China, then there is a market opening up to our farmers in somewhere else. The net effect is still likely to be negative for US farmers (the trade story in a world without tariffs is almost certainly more efficient than the world with tariffs), but it is just not true that if China doesn’t buy the stuff, they have to throw it in the garbage.
None of this to say that I think Trump’s tariffs are a good idea (I don’t), it just would be best if we could try to keep the discussion of them serious.
The NYT had yet another piece about the potential political fallout if China retaliates for Trump’s tariffs by imposing tariffs of its own on US agricultural exports. It noted that farmers in some states could turn against the Republicans, highlighting the Senate race in North Dakota in today’s paper.
It is striking that it seems no one is mentioning the benefit to US consumers from lower food prices that would be implied by lower farm prices. While the actual savings may not be very large, the higher prices that consumers would likely see as a result of Trump’s tariffs on steel and aluminum also are not very large. Nonetheless, there have been many news articles on the costs of these tariffs, it is peculiar that the NYT and other papers have no interest in discussing the flip side of the coin when it might show a positive side to the tariffs.
As I have noted elsewhere, the actual impact on farm prices is likely exaggerated. If China reduces its purchases of a particular crop from the US, then it presumably increases purchases from another country. If this third country shifts its exports from somewhere else to China, then there is a market opening up to our farmers in somewhere else. The net effect is still likely to be negative for US farmers (the trade story in a world without tariffs is almost certainly more efficient than the world with tariffs), but it is just not true that if China doesn’t buy the stuff, they have to throw it in the garbage.
None of this to say that I think Trump’s tariffs are a good idea (I don’t), it just would be best if we could try to keep the discussion of them serious.
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The Washington Post decided to give us “Finance 202” to tell us that tax cuts at this point in the business cycle are a bad idea. The gist of the argument is that the economy is approaching full employment, so there is little room left for further stimulus. The piece also tells us that because of increase indebtedness, the government will be less will positioned to provide stimulus to the economy in the next recession.
There are several points worth noting on this one. First, the Washington Post has no clue whether we are close to full employment right now. We know this because no one has a clue. The experts at places like the Congressional Budget Office (CBO) have been repeatedly proven wrong. Just four years ago, CBO put the non-accelerating rate of inflation rate of unemployment (NAIRU), the effective measure of full employment in conventional terms, at 5.4 percent.
The unemployment rate is now 4.1 percent with no evidence of rising inflation. As a result of the unemployment rate falling below CBO’s estimate of the NAIRU, millions of more workers have jobs, with the main beneficiaries being blacks, Hispanics, and less-educated workers. The tighter labor market has also allowed tens of millions of workers to get pay increases.
Given this history (we can tell the same story about the late 1990s boom and the mis-measurement of the NAIRU), how does the Post know that the unemployment rate cannot get down to 3.5 percent or even 3.0 percent? If this is possible, and we pursue policies that prevent the unemployment rate from falling (e.g. higher interest rates from the Fed or fiscal tightening by Congress) we will needlessly be keeping millions of the most disadvantaged from getting jobs and pay increases. Instead of the government fighting poverty and inequality, it will be causing it.
It is also important to note that we have already paid an enormous price for having deficits that are too small. We have needlessly kept the unemployment rate higher than necessary, with a cost to our children of a permanently smaller economy, to the tune of $1 trillion to $2 trillion annually. For some reason, the deficit hawks are never forced to acknowledge the enormous damage they have inflicted on the country.
The argument that the government won’t be able to have stimulus in the next recession because of the debt, ignores what is taking place in the world. Japan has a debt-to-GDP ratio of more than 200 percent, over twice the US ratio. Until recently, investors were paying the Japanese government to lend it money, as its long-term interest rate was negative in nominal terms. Japan’s inflation rate has consistently been near zero, although it recently has been inching up to its 2.0 percent target. In other words, there is little economic reason to believe that the US will not be able to finance stimulus in the next recession.
The Post piece does point to the political obstacles to stimulus, noting that only two Republicans voted for the 2009 stimulus. But the Republican opposition had little to do with debt levels. The big problem was there was a Democrat in the White House, as many Republicans, including Senate Minority Leader Mitch McConnell said explicitly.
This is not an argument for giving more tax cuts to rich people. However, the objection is that the money could be better used, not that the deficit is too large. Although there is one possible benefit to giving still more money to the rich after the massive upward redistribution of the last four decades; maybe they will explode.
The Washington Post decided to give us “Finance 202” to tell us that tax cuts at this point in the business cycle are a bad idea. The gist of the argument is that the economy is approaching full employment, so there is little room left for further stimulus. The piece also tells us that because of increase indebtedness, the government will be less will positioned to provide stimulus to the economy in the next recession.
There are several points worth noting on this one. First, the Washington Post has no clue whether we are close to full employment right now. We know this because no one has a clue. The experts at places like the Congressional Budget Office (CBO) have been repeatedly proven wrong. Just four years ago, CBO put the non-accelerating rate of inflation rate of unemployment (NAIRU), the effective measure of full employment in conventional terms, at 5.4 percent.
The unemployment rate is now 4.1 percent with no evidence of rising inflation. As a result of the unemployment rate falling below CBO’s estimate of the NAIRU, millions of more workers have jobs, with the main beneficiaries being blacks, Hispanics, and less-educated workers. The tighter labor market has also allowed tens of millions of workers to get pay increases.
Given this history (we can tell the same story about the late 1990s boom and the mis-measurement of the NAIRU), how does the Post know that the unemployment rate cannot get down to 3.5 percent or even 3.0 percent? If this is possible, and we pursue policies that prevent the unemployment rate from falling (e.g. higher interest rates from the Fed or fiscal tightening by Congress) we will needlessly be keeping millions of the most disadvantaged from getting jobs and pay increases. Instead of the government fighting poverty and inequality, it will be causing it.
It is also important to note that we have already paid an enormous price for having deficits that are too small. We have needlessly kept the unemployment rate higher than necessary, with a cost to our children of a permanently smaller economy, to the tune of $1 trillion to $2 trillion annually. For some reason, the deficit hawks are never forced to acknowledge the enormous damage they have inflicted on the country.
The argument that the government won’t be able to have stimulus in the next recession because of the debt, ignores what is taking place in the world. Japan has a debt-to-GDP ratio of more than 200 percent, over twice the US ratio. Until recently, investors were paying the Japanese government to lend it money, as its long-term interest rate was negative in nominal terms. Japan’s inflation rate has consistently been near zero, although it recently has been inching up to its 2.0 percent target. In other words, there is little economic reason to believe that the US will not be able to finance stimulus in the next recession.
The Post piece does point to the political obstacles to stimulus, noting that only two Republicans voted for the 2009 stimulus. But the Republican opposition had little to do with debt levels. The big problem was there was a Democrat in the White House, as many Republicans, including Senate Minority Leader Mitch McConnell said explicitly.
This is not an argument for giving more tax cuts to rich people. However, the objection is that the money could be better used, not that the deficit is too large. Although there is one possible benefit to giving still more money to the rich after the massive upward redistribution of the last four decades; maybe they will explode.
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The Associated Press had a fact check on Donald Trump’s promise of a simplified tax form. The piece noted that the IRS has had a simplified “1040EZ” form for decades and it is not clear that the form will be any shorter or simpler with the new tax law. It did correctly point out that many fewer people will itemize their deductions, which will make filing simpler for them.
It would have been worth pointing out that the Trump administration could have made the filing process much simpler but chose not to. It could have had the IRS fill out people’s tax forms for them. For the vast majority of people who take the standard deduction, the IRS already has the information necessary to determine their tax liability.
This means the IRS could fill out their forms and then send them to taxpayers for their review. If the person feels the IRS made a mistake, they correct the form with the necessary documentation. Otherwise, they accept the refund calculated by the IRS or pay the additional tax being assessed. This has been the practice in several European countries for decades.
The likely reason that Trump and the Republicans in Congress chose not to go this route is that it would wipe out H&R Block and other tax services and software companies who get tens of billions of dollars in revenue each year from people for doing their taxes. This seems the only plausible explanation since Trump and his team couldn’t be that much more incompetent than the folks running tax agencies in other countries.
The Associated Press had a fact check on Donald Trump’s promise of a simplified tax form. The piece noted that the IRS has had a simplified “1040EZ” form for decades and it is not clear that the form will be any shorter or simpler with the new tax law. It did correctly point out that many fewer people will itemize their deductions, which will make filing simpler for them.
It would have been worth pointing out that the Trump administration could have made the filing process much simpler but chose not to. It could have had the IRS fill out people’s tax forms for them. For the vast majority of people who take the standard deduction, the IRS already has the information necessary to determine their tax liability.
This means the IRS could fill out their forms and then send them to taxpayers for their review. If the person feels the IRS made a mistake, they correct the form with the necessary documentation. Otherwise, they accept the refund calculated by the IRS or pay the additional tax being assessed. This has been the practice in several European countries for decades.
The likely reason that Trump and the Republicans in Congress chose not to go this route is that it would wipe out H&R Block and other tax services and software companies who get tens of billions of dollars in revenue each year from people for doing their taxes. This seems the only plausible explanation since Trump and his team couldn’t be that much more incompetent than the folks running tax agencies in other countries.
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Donald Trump was apparently angry about the value of the Russian ruble and the Chinese yuan against the dollar. He complained in a tweet that both are playing the “Currency Devaluation game” in a tweet yesterday.
Neil Irwin rightly points out that the complaint against Russia is bizarre, both because we don’t have much trade with Russia, but also because the most obvious reason its currency is falling is sanctions pushed by the United States and other western countries. The story with China is a bit more complicated.
China’s currency has actually been rising against the dollar over the last year, with the yuan going from 14.5 cents to 15.9 cents. So the claim that China is devaluing its currency is pretty obviously wrong.
There is, however, an issue of whether China is still deliberately depressing its currency against the dollar. As Irwin notes, China is no longer buying large amounts of dollars and other reserves, as it did in the last decade. This buying raised the value of the dollar and kept down the value of the yuan.
However, China still holds a massive stock of foreign reserves, with its central bank holding more than $3 trillion in reserves and its sovereign wealth fund holding another $1.5 trillion in foreign assets. These huge stocks of assets have the effect of holding down the value of the yuan in the same way that the Fed’s holdings of assets keep down interest rates.
The vast majority of economists accept that the Fed’s holdings of more than $4 trillion in assets have lowered long-term rates. It is inconsistent to argue that the Fed’s holdings of assets keep interest rates down, but China’s holdings of excessive amounts of foreign exchange don’t have a comparable effect on the value of the yuan.
In short, Trump is clearly wrong in claiming that China is currently devaluing its currency. However, he does have a case that China is still keeping down the value of its currency. Interestingly, he never made this complaint in the context of his threatened tariffs. This is the sort of well-specified policy goal that might warrant the threat of tariffs.
Donald Trump was apparently angry about the value of the Russian ruble and the Chinese yuan against the dollar. He complained in a tweet that both are playing the “Currency Devaluation game” in a tweet yesterday.
Neil Irwin rightly points out that the complaint against Russia is bizarre, both because we don’t have much trade with Russia, but also because the most obvious reason its currency is falling is sanctions pushed by the United States and other western countries. The story with China is a bit more complicated.
China’s currency has actually been rising against the dollar over the last year, with the yuan going from 14.5 cents to 15.9 cents. So the claim that China is devaluing its currency is pretty obviously wrong.
There is, however, an issue of whether China is still deliberately depressing its currency against the dollar. As Irwin notes, China is no longer buying large amounts of dollars and other reserves, as it did in the last decade. This buying raised the value of the dollar and kept down the value of the yuan.
However, China still holds a massive stock of foreign reserves, with its central bank holding more than $3 trillion in reserves and its sovereign wealth fund holding another $1.5 trillion in foreign assets. These huge stocks of assets have the effect of holding down the value of the yuan in the same way that the Fed’s holdings of assets keep down interest rates.
The vast majority of economists accept that the Fed’s holdings of more than $4 trillion in assets have lowered long-term rates. It is inconsistent to argue that the Fed’s holdings of assets keep interest rates down, but China’s holdings of excessive amounts of foreign exchange don’t have a comparable effect on the value of the yuan.
In short, Trump is clearly wrong in claiming that China is currently devaluing its currency. However, he does have a case that China is still keeping down the value of its currency. Interestingly, he never made this complaint in the context of his threatened tariffs. This is the sort of well-specified policy goal that might warrant the threat of tariffs.
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Dalton Cooney argues in a Washington Post column that capping the deduction for state and local income taxes (SALT) is a good thing in a Washington Post column today. He makes the valid point that if wealthy suburbs want to tax themselves to have better schools than lower income inner city areas, there is no reason the federal government should subsidize this decision with a deduction on federal income taxes.
However, this misses the fact that the tax that is most likely to be affected by the loss of deductibility is the state income tax. In more liberal states like New York and California, this tax runs to more than 8 percent for high-end earners. (California has a top bracket of 13.3 percent.) These taxes are not paying for better schools for the children of the wealthy, but for redistributive policies that benefit lower-income people.
With the near-term prospect for federal measures in areas like extending health care coverage, quality child care, or free college very poor, if such measures are to advance anywhere it will be at the state level. By capping the deduction for SALT, the new tax bill will make it more difficult politically to pay for such initiatives. For this reason, the workarounds recently passed by New York, including replacing a portion of the income tax with a full deductible employer-side payroll tax, are a good thing.
Dalton Cooney argues in a Washington Post column that capping the deduction for state and local income taxes (SALT) is a good thing in a Washington Post column today. He makes the valid point that if wealthy suburbs want to tax themselves to have better schools than lower income inner city areas, there is no reason the federal government should subsidize this decision with a deduction on federal income taxes.
However, this misses the fact that the tax that is most likely to be affected by the loss of deductibility is the state income tax. In more liberal states like New York and California, this tax runs to more than 8 percent for high-end earners. (California has a top bracket of 13.3 percent.) These taxes are not paying for better schools for the children of the wealthy, but for redistributive policies that benefit lower-income people.
With the near-term prospect for federal measures in areas like extending health care coverage, quality child care, or free college very poor, if such measures are to advance anywhere it will be at the state level. By capping the deduction for SALT, the new tax bill will make it more difficult politically to pay for such initiatives. For this reason, the workarounds recently passed by New York, including replacing a portion of the income tax with a full deductible employer-side payroll tax, are a good thing.
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Yes, we know how hard it is for rich people like Jeff Bezos to get by in a free market. That is why George Will argues that taxpayers must subsidize Internet sellers by exempting them from having to collect sales taxes on out of state sales.
While Will argues that the market should decide which retailers win or lose, in fact, he is pushing a position that is 180 degrees opposite the free market one he claims. He is arguing that the state should require brick and mortar stores to collect taxes, but allow Internet sellers to avoid taxes — apparently, because George Will likes Internet sellers. So family-owned book and clothing stores have to collect taxes, but Internet retailers that could be one thousand times their size, do not.
Will seems to think that the prospect of collecting taxes that differ across 12,000 state and local jurisdictions pose an insurmountable problem. Actually, since we have had spreadsheets for four decades, most sellers should be able to easily deal with this issue, and if they can’t, they probably should not be in business. (As a practical matter, no one gives a damn if a seller occasionally makes a mistake in assessing taxes. Getting 99-plus percent right should be easily doable.)
Will also wrongly claims that Amazon collects sales taxes in all 45 states which have them. While Amazon collects taxes on its direct sales, it does not collect taxes on the sales of its “affiliates,” which account for more than 40 percent of its total sales.
As is noted in this piece, Amazon’s founder Jeff Bezos owns the Washington Post. It would be interesting to see if a similarly misleading statement that reflected badly on Amazon would be allowed to stand uncorrected in the paper.
Yes, we know how hard it is for rich people like Jeff Bezos to get by in a free market. That is why George Will argues that taxpayers must subsidize Internet sellers by exempting them from having to collect sales taxes on out of state sales.
While Will argues that the market should decide which retailers win or lose, in fact, he is pushing a position that is 180 degrees opposite the free market one he claims. He is arguing that the state should require brick and mortar stores to collect taxes, but allow Internet sellers to avoid taxes — apparently, because George Will likes Internet sellers. So family-owned book and clothing stores have to collect taxes, but Internet retailers that could be one thousand times their size, do not.
Will seems to think that the prospect of collecting taxes that differ across 12,000 state and local jurisdictions pose an insurmountable problem. Actually, since we have had spreadsheets for four decades, most sellers should be able to easily deal with this issue, and if they can’t, they probably should not be in business. (As a practical matter, no one gives a damn if a seller occasionally makes a mistake in assessing taxes. Getting 99-plus percent right should be easily doable.)
Will also wrongly claims that Amazon collects sales taxes in all 45 states which have them. While Amazon collects taxes on its direct sales, it does not collect taxes on the sales of its “affiliates,” which account for more than 40 percent of its total sales.
As is noted in this piece, Amazon’s founder Jeff Bezos owns the Washington Post. It would be interesting to see if a similarly misleading statement that reflected badly on Amazon would be allowed to stand uncorrected in the paper.
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We get that the Washington Post likes policies that redistribute income upward, but they should be able to argue the case for making the rich richer without turning logic on its head. Apparently, the paper lacks confidence in its position.
This piece also tells readers about a new initiative to promote women’s businesses in Latin America:
“Among the members of the US delegation was Trump’s daughter and adviser, Ivanka, who on Friday morning announced a new $150 million US initiative to help women in Latin America access credit for businesses.”
It would be useful if the piece explained something about this initiative. For example, is this $150 million (0.004 percent of annual federal spending) a grant that will have to be appropriated by Congress? Is it a loan fund, which would also require legislation? Is it a commitment from the Trump Foundation?
If the paper was not prepared to provide any information about this initiative, it should have explained why.
We get that the Washington Post likes policies that redistribute income upward, but they should be able to argue the case for making the rich richer without turning logic on its head. Apparently, the paper lacks confidence in its position.
This piece also tells readers about a new initiative to promote women’s businesses in Latin America:
“Among the members of the US delegation was Trump’s daughter and adviser, Ivanka, who on Friday morning announced a new $150 million US initiative to help women in Latin America access credit for businesses.”
It would be useful if the piece explained something about this initiative. For example, is this $150 million (0.004 percent of annual federal spending) a grant that will have to be appropriated by Congress? Is it a loan fund, which would also require legislation? Is it a commitment from the Trump Foundation?
If the paper was not prepared to provide any information about this initiative, it should have explained why.
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We all know about the skills shortage where Harvard has to pay investment managers millions to lose the school a fortune on its endowment, Facebook can’t find a CEO who can avoid compromising its customers’ privacy, and restaurant managers apparently don’t understand that the way to get more workers is to offer higher pay. The NYT gives us yet another article complaining about labor shortages.
The complaint is that restaurants have small profit margins and therefore can’t afford to offer higher pay to their workers. The way markets are supposed to work is that businesses that can’t afford to pay the market wage go out of business. This is why we don’t still have half of our workforce employed in agriculture. Factories and other urban businesses offered workers better paying opportunities. Most farms could not afford to match the pay and therefore folded often with the farm owner themselves moving to new employment.
This is the story that we should expect to see with restaurants if there really is a labor shortage. We should start to see more rapidly rising wages. The restaurants that can’t pay the market wage go under. That may not be pretty, but that’s capitalism. We tell that to unemployed and low paid workers all the time.
For the record, we aren’t seeing too much by way of rapidly rising wages to date. Over the last year, the pay of production and non-supervisory workers rose 3.2 percent. That’s a bit better than the average of all workers of 2.7 percent, but not the sort of increase that we would expect if there is a serious shortage of labor. It is also worth mentioning that profit margins in business as a whole are near post-war highs as a result of the weak labor market created by the Great Recession, so we should expect some shift back to labor as the labor market tightens.
We all know about the skills shortage where Harvard has to pay investment managers millions to lose the school a fortune on its endowment, Facebook can’t find a CEO who can avoid compromising its customers’ privacy, and restaurant managers apparently don’t understand that the way to get more workers is to offer higher pay. The NYT gives us yet another article complaining about labor shortages.
The complaint is that restaurants have small profit margins and therefore can’t afford to offer higher pay to their workers. The way markets are supposed to work is that businesses that can’t afford to pay the market wage go out of business. This is why we don’t still have half of our workforce employed in agriculture. Factories and other urban businesses offered workers better paying opportunities. Most farms could not afford to match the pay and therefore folded often with the farm owner themselves moving to new employment.
This is the story that we should expect to see with restaurants if there really is a labor shortage. We should start to see more rapidly rising wages. The restaurants that can’t pay the market wage go under. That may not be pretty, but that’s capitalism. We tell that to unemployed and low paid workers all the time.
For the record, we aren’t seeing too much by way of rapidly rising wages to date. Over the last year, the pay of production and non-supervisory workers rose 3.2 percent. That’s a bit better than the average of all workers of 2.7 percent, but not the sort of increase that we would expect if there is a serious shortage of labor. It is also worth mentioning that profit margins in business as a whole are near post-war highs as a result of the weak labor market created by the Great Recession, so we should expect some shift back to labor as the labor market tightens.
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