Well, it is the era of Donald Trump in Washington, but this turning reality on its head pre-dated Trump. Anyhow, the Washington Post was in its full trade deal promotion mode when it announced the signing of the Trans-Pacific Partnership (TPP) by the other eleven countries who had been negotiating the pact with the United States.
The headline of the piece tells readers, “as Trump imposes tariffs, allies sign on to free-trade pact — without US” The first sentence proclaims:
“As the Trump administration took another step away from free trade on Thursday, 11 nations bordering the Pacific Ocean made an equally loud statement in favor of free trade.”
The piece reads largely like an editorial in favor of the TPP. It includes no comments from critics of the pact and ignores the fact that the TPP did little to actually reduce trade barriers since most of these were already low. The United States already had trade pacts with six of the other eleven countries in the pact.
The TPP was mostly about locking in a business-friendly structure of regulation, including special tribunals (investor–state dispute settlement tribunals) which would only be open to foreign investors. These tribunals would effectively override US or state and local laws, imposing penalties for actions that the tribunal ruled to be in violation of the TPP.
A major thrust of the deal was also longer and stronger patent and copyright protections, with higher prices for prescription drugs being a major goal. This is of course 180 degrees at odds with free trade, but apparently, the paper likes the beneficiaries of these protections, so it simply turns reality on its head to promote them.
Well, it is the era of Donald Trump in Washington, but this turning reality on its head pre-dated Trump. Anyhow, the Washington Post was in its full trade deal promotion mode when it announced the signing of the Trans-Pacific Partnership (TPP) by the other eleven countries who had been negotiating the pact with the United States.
The headline of the piece tells readers, “as Trump imposes tariffs, allies sign on to free-trade pact — without US” The first sentence proclaims:
“As the Trump administration took another step away from free trade on Thursday, 11 nations bordering the Pacific Ocean made an equally loud statement in favor of free trade.”
The piece reads largely like an editorial in favor of the TPP. It includes no comments from critics of the pact and ignores the fact that the TPP did little to actually reduce trade barriers since most of these were already low. The United States already had trade pacts with six of the other eleven countries in the pact.
The TPP was mostly about locking in a business-friendly structure of regulation, including special tribunals (investor–state dispute settlement tribunals) which would only be open to foreign investors. These tribunals would effectively override US or state and local laws, imposing penalties for actions that the tribunal ruled to be in violation of the TPP.
A major thrust of the deal was also longer and stronger patent and copyright protections, with higher prices for prescription drugs being a major goal. This is of course 180 degrees at odds with free trade, but apparently, the paper likes the beneficiaries of these protections, so it simply turns reality on its head to promote them.
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Ruchir Sharma had an NYT column warning about the risks of a trade war from the tariffs Trump is imposing on steel and aluminum imports. At one point the piece tells readers about rising protectionism across the world and says that as a result, “trade has yet to recover to its pre-crisis level.”
The measure of trade the article gives is merchandise trade as a percent of world GDP. This measure is misleading since a major factor reducing this ratio is a fall in oil and other commodity prices. Before the crisis oil prices rose sharply, peaking at $150 a barrel in 2008. Other commodity prices also were very high in the years just before the recession.
The reduction in prices for commodities is a major factor in reducing the ratio of trade to GDP. In the case of oil, with more than 40 million barrels trade daily, a drop of $50 a barrel in the price would reduce the volume of world trade by more than $750 billion a year, or roughly one percent of world GDP. There is a similar story with other commodities.
It is also worth noting that weaker and shorter patent and copyright protections would also lead to a lower ratio of trade to GDP. If drugs are traded across borders at generic prices rather than patent-protected prices, this ratio will fall even though the volume of trade can be rising.
Royalties and licensing fees are not picked up in this measure since it is explicitly merchandise trade, which would exclude payments for services. This is another factor that would tend to depress the ratio. As the world economy shifts from goods production to services, it is pretty much inevitable that the ratio of merchandise trade to GDP drops over time.
This doesn’t mean that Sharma is necessarily wrong about a rise in trade barriers over the last decade (certainly patent and copyright protections are getting stronger), only that the measure he uses to back up this assertion is not very useful.
Ruchir Sharma had an NYT column warning about the risks of a trade war from the tariffs Trump is imposing on steel and aluminum imports. At one point the piece tells readers about rising protectionism across the world and says that as a result, “trade has yet to recover to its pre-crisis level.”
The measure of trade the article gives is merchandise trade as a percent of world GDP. This measure is misleading since a major factor reducing this ratio is a fall in oil and other commodity prices. Before the crisis oil prices rose sharply, peaking at $150 a barrel in 2008. Other commodity prices also were very high in the years just before the recession.
The reduction in prices for commodities is a major factor in reducing the ratio of trade to GDP. In the case of oil, with more than 40 million barrels trade daily, a drop of $50 a barrel in the price would reduce the volume of world trade by more than $750 billion a year, or roughly one percent of world GDP. There is a similar story with other commodities.
It is also worth noting that weaker and shorter patent and copyright protections would also lead to a lower ratio of trade to GDP. If drugs are traded across borders at generic prices rather than patent-protected prices, this ratio will fall even though the volume of trade can be rising.
Royalties and licensing fees are not picked up in this measure since it is explicitly merchandise trade, which would exclude payments for services. This is another factor that would tend to depress the ratio. As the world economy shifts from goods production to services, it is pretty much inevitable that the ratio of merchandise trade to GDP drops over time.
This doesn’t mean that Sharma is necessarily wrong about a rise in trade barriers over the last decade (certainly patent and copyright protections are getting stronger), only that the measure he uses to back up this assertion is not very useful.
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That’s the question NYT readers are asking after reading the lead sentence of an article on the signing of an agreement by the other eleven countries that had been part of the Trans-Pacific Partnership (TPP). The sentence tells readers:
“A trade pact originally conceived by the United States to counter China’s growing economic might in Asia now has a new target: President Trump’s embrace of protectionism.”
If the point of the trade pact was to counter China’s influence then it may not have been wise to turn over the structuring of the deal to corporate interests who dominated the working groups that crafted the individual chapters of the TPP. As a result of turning the crafting of the deal to industry groups, provisions such as longer and stronger patent and copyright protections will raise the prices of drugs and other items for the countries in the TPP.
It is not clear how making it more difficult for countries to pay for health care would be expected to counter China’s growing economic might. The provisions on e-commerce could make it more difficult for countries to regulate Facebook and other social media companies so that they would have a harder time preventing the sort of fake postings that have been an important factor in U.S. politics. It is also not clear how such rules would help counter China’s growing economic might.
The piece also includes projections from the Peterson Institute, a strong proponent of the TPP, that might mislead readers. It tells readers:
“Once it goes into effect, the agreement should generate an additional $147 billion in global income, according to an analysis by the Peterson Institute for International Economics. Its backers say it also will bolster protections for intellectual property and include language that could prod members to improve labor conditions.”
This projection for growth, which is more than twice the projection issued by the United States International Trade Commission, will be equal to roughly 0.08 percent of GDP in 2032, the point where these gains are expected to be realized. This is roughly equal to one week of growth.
The projection from the Peterson Institute also does not take account of any losses from the longer and stronger patent and copyright-related protections in the pact. These protections, which can raise the price of drugs and other protected items by more than a hundred-fold, are equivalent to tariffs of many thousand percent. It is entirely possible that the distortions from these protections more than offset any gains from reducing already low trade barriers.
That’s the question NYT readers are asking after reading the lead sentence of an article on the signing of an agreement by the other eleven countries that had been part of the Trans-Pacific Partnership (TPP). The sentence tells readers:
“A trade pact originally conceived by the United States to counter China’s growing economic might in Asia now has a new target: President Trump’s embrace of protectionism.”
If the point of the trade pact was to counter China’s influence then it may not have been wise to turn over the structuring of the deal to corporate interests who dominated the working groups that crafted the individual chapters of the TPP. As a result of turning the crafting of the deal to industry groups, provisions such as longer and stronger patent and copyright protections will raise the prices of drugs and other items for the countries in the TPP.
It is not clear how making it more difficult for countries to pay for health care would be expected to counter China’s growing economic might. The provisions on e-commerce could make it more difficult for countries to regulate Facebook and other social media companies so that they would have a harder time preventing the sort of fake postings that have been an important factor in U.S. politics. It is also not clear how such rules would help counter China’s growing economic might.
The piece also includes projections from the Peterson Institute, a strong proponent of the TPP, that might mislead readers. It tells readers:
“Once it goes into effect, the agreement should generate an additional $147 billion in global income, according to an analysis by the Peterson Institute for International Economics. Its backers say it also will bolster protections for intellectual property and include language that could prod members to improve labor conditions.”
This projection for growth, which is more than twice the projection issued by the United States International Trade Commission, will be equal to roughly 0.08 percent of GDP in 2032, the point where these gains are expected to be realized. This is roughly equal to one week of growth.
The projection from the Peterson Institute also does not take account of any losses from the longer and stronger patent and copyright-related protections in the pact. These protections, which can raise the price of drugs and other protected items by more than a hundred-fold, are equivalent to tariffs of many thousand percent. It is entirely possible that the distortions from these protections more than offset any gains from reducing already low trade barriers.
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Yes, I am on vacation, but I had to take a break from my vacation to call attention to the amazing act of mind reading in a Washington Post article on the Trump administration’s effort to nix federal funding for a new transit tunnel between New York City and New Jersey. While the piece notes the possibility that Trump’s opposition to the project may be an act of political vengeance directed at Senate Minority Leader Charles E. Schumer, it tells readers:
“But Trump and his aides have come to take a different view of the project, seeing it as a potential boondoggle that should be funded by New York and New Jersey taxpayers.”
Wow, isn’t it fantastic that we have Washington Post reporters who can tell us how Trump and his aides actually “see” the project? After all, it might otherwise be hard to believe that anyone who wants to spend $25 billion on a wall along the Mexican border could see anything as a boondoggle.
Yes, I am on vacation, but I had to take a break from my vacation to call attention to the amazing act of mind reading in a Washington Post article on the Trump administration’s effort to nix federal funding for a new transit tunnel between New York City and New Jersey. While the piece notes the possibility that Trump’s opposition to the project may be an act of political vengeance directed at Senate Minority Leader Charles E. Schumer, it tells readers:
“But Trump and his aides have come to take a different view of the project, seeing it as a potential boondoggle that should be funded by New York and New Jersey taxpayers.”
Wow, isn’t it fantastic that we have Washington Post reporters who can tell us how Trump and his aides actually “see” the project? After all, it might otherwise be hard to believe that anyone who wants to spend $25 billion on a wall along the Mexican border could see anything as a boondoggle.
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The Commerce Department released data on capital goods orders for January yesterday. As I noted, this is a hugely important early measure of the success of the Trump tax cuts. The ostensible rationale for the big cut in the corporate tax rate that was at the center of the tax cut is that it will lead to a flood of new investment.
Since the outlines of the tax cut had been known since September, businesses had plenty of time to plan how they would respond to lower tax rates. If lower rates really produce a flood of investment we should at least begin to see some sign in new orders once the tax cut was certain to pass.
The January report showed orders actually fell modestly for the second consecutive month. The drop occurs both including and excluding volatile aircraft orders. While this is far from conclusive, it is hard to reconcile with the view that lower taxes would lead to a flood of new investment.
Remarkably, these new data have gotten almost no attention from the media. Both the NYT and the Washington Post ran an AP story that just noted the drop in passing. Doesn’t anyone care if the tax cut works?
The Commerce Department released data on capital goods orders for January yesterday. As I noted, this is a hugely important early measure of the success of the Trump tax cuts. The ostensible rationale for the big cut in the corporate tax rate that was at the center of the tax cut is that it will lead to a flood of new investment.
Since the outlines of the tax cut had been known since September, businesses had plenty of time to plan how they would respond to lower tax rates. If lower rates really produce a flood of investment we should at least begin to see some sign in new orders once the tax cut was certain to pass.
The January report showed orders actually fell modestly for the second consecutive month. The drop occurs both including and excluding volatile aircraft orders. While this is far from conclusive, it is hard to reconcile with the view that lower taxes would lead to a flood of new investment.
Remarkably, these new data have gotten almost no attention from the media. Both the NYT and the Washington Post ran an AP story that just noted the drop in passing. Doesn’t anyone care if the tax cut works?
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Neil Irwin wrote the piece I have been waiting for pretty much forever. He points out that economists estimates of the “non-accelerating inflation rate of unemployment (NAIRU)” have been repeatedly shown to be hugely wrong. In the 1990s, the accepted wisdom was that this number was close to 6.0 percent, with estimates falling on both sides of this number. Yet, the unemployment rate fell to 4.0 percent as a year-round average in 2000 without any noticeable uptick in the inflation rate.
More recently, most economists had put the NAIRU between 5.0 and 5.5 percent. With the unemployment rate now at 4.1 percent, we still see little evidence of any inflationary pressures in the economy and the inflation rate remains below the Fed’s 2.0 percent target. The unemployment rates in Japan and Germany are also both well below estimates of their NAIRUs from just a few years ago.
In short, economists have this hugely important number wrong. It is hugely important because the Fed and other central banks use it as a metric to tell them when they should start raising interest rates to slow the economy.
As the piece points out, in the 1990s, prominent economists (including Janet Yellen) pushed for the Fed to raise interest rates to keep the unemployment rate from falling much below 6.0 percent. It was only because Fed Chair Alan Greenspan was not an orthodox economist that the Fed didn’t raise rates and we saw the low unemployment of the late 1990s. This was the only period of sustained broad-based real wage growth since the early 1970s.
The failure of the economics profession to get this one right would be like sports analysts picking the Cleveland Browns as Superbowl winners at the start of 2017 season or music critics in the mid-70s pronouncing Bruce Springsteen as a no-talent bum who will never go anywhere.
Great to see the piece by Irwin. He was much more polite than I would have been.
Neil Irwin wrote the piece I have been waiting for pretty much forever. He points out that economists estimates of the “non-accelerating inflation rate of unemployment (NAIRU)” have been repeatedly shown to be hugely wrong. In the 1990s, the accepted wisdom was that this number was close to 6.0 percent, with estimates falling on both sides of this number. Yet, the unemployment rate fell to 4.0 percent as a year-round average in 2000 without any noticeable uptick in the inflation rate.
More recently, most economists had put the NAIRU between 5.0 and 5.5 percent. With the unemployment rate now at 4.1 percent, we still see little evidence of any inflationary pressures in the economy and the inflation rate remains below the Fed’s 2.0 percent target. The unemployment rates in Japan and Germany are also both well below estimates of their NAIRUs from just a few years ago.
In short, economists have this hugely important number wrong. It is hugely important because the Fed and other central banks use it as a metric to tell them when they should start raising interest rates to slow the economy.
As the piece points out, in the 1990s, prominent economists (including Janet Yellen) pushed for the Fed to raise interest rates to keep the unemployment rate from falling much below 6.0 percent. It was only because Fed Chair Alan Greenspan was not an orthodox economist that the Fed didn’t raise rates and we saw the low unemployment of the late 1990s. This was the only period of sustained broad-based real wage growth since the early 1970s.
The failure of the economics profession to get this one right would be like sports analysts picking the Cleveland Browns as Superbowl winners at the start of 2017 season or music critics in the mid-70s pronouncing Bruce Springsteen as a no-talent bum who will never go anywhere.
Great to see the piece by Irwin. He was much more polite than I would have been.
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I’m on vacation until Thursday, March 8. Remember, don’t believe anything you read in the newspaper until then.
I’m on vacation until Thursday, March 8. Remember, don’t believe anything you read in the newspaper until then.
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For those following such things, the strike by West Virginia school teachers, with an average annual pay of $45,700, is rather impressive. Yes, they want decent pay for themselves, but this is also about the quality of education for students in West Virginia.
We know that rich people think that teachers should be willing to educate children for nothing, but that is not the way the world works, at least in an economy where the government has not acted to ensure that unemployment is very high. Good teachers will look to the better-paying jobs in other states, or leave the profession altogether.
Even someone very committed to teaching would like to be able to have a decent home, be able to pay for their own kids upbringing, and also have some money for retirement. If the pay in West Virginia is not enough to allow for this, they won’t stay. This will leave the state with high turnover and teachers who don’t care much about educating children.
It is also worth noting that this strike is taking place at the same time the Supreme Court is hearing the Janus case, which is a right-wing effort to deny public employees’ freedom of contract. (If Janus wins, they will not be able to have contracts that require everyone who is represented by a union share in the cost of representation.) This is yet another effort to tilt the playing field so that workers have less power, and presumably, will have to accept lower pay and benefits.
For those who like to make such comparisons, the average West Virginia teacher makes less than 20 percent of the average doctor, less than 10 percent of what many highly paid specialists earn, and probably around 1 percent of the salary of the hedge fund and private equity crew that get paid to lose money for university endowments. There’s nothing like a system where people are rewarded on merit.
For those following such things, the strike by West Virginia school teachers, with an average annual pay of $45,700, is rather impressive. Yes, they want decent pay for themselves, but this is also about the quality of education for students in West Virginia.
We know that rich people think that teachers should be willing to educate children for nothing, but that is not the way the world works, at least in an economy where the government has not acted to ensure that unemployment is very high. Good teachers will look to the better-paying jobs in other states, or leave the profession altogether.
Even someone very committed to teaching would like to be able to have a decent home, be able to pay for their own kids upbringing, and also have some money for retirement. If the pay in West Virginia is not enough to allow for this, they won’t stay. This will leave the state with high turnover and teachers who don’t care much about educating children.
It is also worth noting that this strike is taking place at the same time the Supreme Court is hearing the Janus case, which is a right-wing effort to deny public employees’ freedom of contract. (If Janus wins, they will not be able to have contracts that require everyone who is represented by a union share in the cost of representation.) This is yet another effort to tilt the playing field so that workers have less power, and presumably, will have to accept lower pay and benefits.
For those who like to make such comparisons, the average West Virginia teacher makes less than 20 percent of the average doctor, less than 10 percent of what many highly paid specialists earn, and probably around 1 percent of the salary of the hedge fund and private equity crew that get paid to lose money for university endowments. There’s nothing like a system where people are rewarded on merit.
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News must travel slowly to corporate headquarters these days. How else can we explain the fact that corporate America isn’t rushing out to invest in response to the big tax cut Congress voted them last year?
According to data released by the Commerce Department, orders for non-defense capital goods fell by 1.5 percent in January after dropping 0.4 percent in December. We get the same story even if we pull out volatile orders for aircraft: a drop of 0.2 percent in January after a fall of 0.6 percent in December.
While these declines would not be a big story in normal times (the economic impact is very limited), they are huge in the context of the tax cuts. The main rationale for the cut in corporate tax rates was that it was supposed to lead to a surge in investment.
While investment takes time to put in place, these data are showing us orders. Orders can be made over the Internet or an old-fashioned landline telephone. They don’t take a lot of time.
And keep in mind, while the bill just passed in late December, the basic outlines had been known since early September. Fast-moving companies will begin to make plans from the day the bill seemed likely to pass, they aren’t going to wait until Donald Trump puts his pen to it and then start asking what they should do.
The businesses in Pyeongchang didn’t just start making plans for the Olympics the week the games opened, the hotels and restaurants began their expansion plans as soon as they knew Korea had landed the Olympics. We should expect the same story with corporate investment.
If the tax cuts matter for investment, then companies like GE, Microsoft, and Amazon were making plans as soon as it became clear that the Republican majority in Congress was serious about passing a tax bill. The fact that we are seeing zero evidence of an uptick in investment suggests that tax cuts don’t have much impact on investment.
Rather than being about promoting economic growth that would lead to productivity gains and higher wages for ordinary workers, the tax cuts were actually just another way to redistribute more money upward. As Speaker Ryan always says: #RichPeopleNeedTaxCuts.
News must travel slowly to corporate headquarters these days. How else can we explain the fact that corporate America isn’t rushing out to invest in response to the big tax cut Congress voted them last year?
According to data released by the Commerce Department, orders for non-defense capital goods fell by 1.5 percent in January after dropping 0.4 percent in December. We get the same story even if we pull out volatile orders for aircraft: a drop of 0.2 percent in January after a fall of 0.6 percent in December.
While these declines would not be a big story in normal times (the economic impact is very limited), they are huge in the context of the tax cuts. The main rationale for the cut in corporate tax rates was that it was supposed to lead to a surge in investment.
While investment takes time to put in place, these data are showing us orders. Orders can be made over the Internet or an old-fashioned landline telephone. They don’t take a lot of time.
And keep in mind, while the bill just passed in late December, the basic outlines had been known since early September. Fast-moving companies will begin to make plans from the day the bill seemed likely to pass, they aren’t going to wait until Donald Trump puts his pen to it and then start asking what they should do.
The businesses in Pyeongchang didn’t just start making plans for the Olympics the week the games opened, the hotels and restaurants began their expansion plans as soon as they knew Korea had landed the Olympics. We should expect the same story with corporate investment.
If the tax cuts matter for investment, then companies like GE, Microsoft, and Amazon were making plans as soon as it became clear that the Republican majority in Congress was serious about passing a tax bill. The fact that we are seeing zero evidence of an uptick in investment suggests that tax cuts don’t have much impact on investment.
Rather than being about promoting economic growth that would lead to productivity gains and higher wages for ordinary workers, the tax cuts were actually just another way to redistribute more money upward. As Speaker Ryan always says: #RichPeopleNeedTaxCuts.
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That is the implication of an NYT article reporting on the fact that the returns on university endowments trailed a simple index mix of either 60 percent stock and 40 percent bonds or 70 percent stock and 30 percent bonds. According to the article, university endowments had an average nominal return over the last decade of 4.6 percent. This compares to a return of 5.3 percent for a 60–40 stock/bond index mix and 5.4 percent for a 70–30 stock/bond index fund.
This means that universities were throwing billions of dollars in the toilet in order to invest with hedge funds and private equity funds rather than going with a simple index. It is worth noting that the managers of these funds routinely earn salaries of millions of dollars a year. Paychecks in the tens of millions and even hundreds of millions are not uncommon.
It will be interesting to see if universities will continue with an investment strategy that has the effect of losing them money while making a tiny group of people incredibly rich, especially in a context where so many have refused demands to divest holdings in fossil fuel corporations, claiming the need to maximize returns. This article implies there is less concern about maximizing returns when it comes to investing with hedge funds and private equity.
That is the implication of an NYT article reporting on the fact that the returns on university endowments trailed a simple index mix of either 60 percent stock and 40 percent bonds or 70 percent stock and 30 percent bonds. According to the article, university endowments had an average nominal return over the last decade of 4.6 percent. This compares to a return of 5.3 percent for a 60–40 stock/bond index mix and 5.4 percent for a 70–30 stock/bond index fund.
This means that universities were throwing billions of dollars in the toilet in order to invest with hedge funds and private equity funds rather than going with a simple index. It is worth noting that the managers of these funds routinely earn salaries of millions of dollars a year. Paychecks in the tens of millions and even hundreds of millions are not uncommon.
It will be interesting to see if universities will continue with an investment strategy that has the effect of losing them money while making a tiny group of people incredibly rich, especially in a context where so many have refused demands to divest holdings in fossil fuel corporations, claiming the need to maximize returns. This article implies there is less concern about maximizing returns when it comes to investing with hedge funds and private equity.
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