The NYT had a strange column today carrying the headline, “The orphans of China’s economic miracle.” The piece talks about the tens of millions of children who were left behind in the countryside when their parents left to find better-paying jobs elsewhere in the country.
The reason why the column is strange is that it might leave readers with the impression that China is an exception among developing countries in having large numbers of migrant workers who leave their children behind in the care of friends or relatives. In fact, China is actually quite typical this way.
For decades, millions of people have left Mexico, El Salvador, and other Latin American countries to come to the United States in search of better job opportunities. Often these people left family members behind.
What distinguishes the situation in China from the situation in these countries is that the rapid improvement in living standards in China makes it less likely the next generation of Chinese workers will find themselves in the same situation. While there were already large numbers of immigrants from Mexico in the 1940s, there would still be large numbers today, if the US government were not taking strong measures to block immigration. By contrast, the flow of workers from the countryside to the cities in China is likely to slow markedly in the next two decades.
The NYT had a strange column today carrying the headline, “The orphans of China’s economic miracle.” The piece talks about the tens of millions of children who were left behind in the countryside when their parents left to find better-paying jobs elsewhere in the country.
The reason why the column is strange is that it might leave readers with the impression that China is an exception among developing countries in having large numbers of migrant workers who leave their children behind in the care of friends or relatives. In fact, China is actually quite typical this way.
For decades, millions of people have left Mexico, El Salvador, and other Latin American countries to come to the United States in search of better job opportunities. Often these people left family members behind.
What distinguishes the situation in China from the situation in these countries is that the rapid improvement in living standards in China makes it less likely the next generation of Chinese workers will find themselves in the same situation. While there were already large numbers of immigrants from Mexico in the 1940s, there would still be large numbers today, if the US government were not taking strong measures to block immigration. By contrast, the flow of workers from the countryside to the cities in China is likely to slow markedly in the next two decades.
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That was not a typo. The Justice Department and Federal Trade Commission intervened on Uber’s side in a case involving a regulation passed by Seattle’s city council which would allow Uber drivers to negotiate collectively. The issue is that Uber insists its drivers are independent contractors, not employees. This means that they don’t have the rights guaranteed by employees under the National Labor Relations Act to bargain collectively with their employer.
Seattle’s city council sought to work around this problem by effectively acting as an intermediary between Uber and its “independent contractors” in the city. The city argued that as a municipal government, it would be exempt from the anti-trust laws that prevent businesses from coordinating prices.
The position of the Trump administration is very interesting in this case because it is arguing that Seattle is in fact illegally coordinating prices among independent contractors. Uber quite explicitly coordinates the prices charged by its “independent contractors,” not just setting overall fee schedules, but adjusting fares by the minute in response to changes in collective demand.
This seems like a yet another instance where the government has felt it necessary to intervene in the market to defend the rich. As we all know, the rich can’t be expected to survive in a free market without help from the government.
That was not a typo. The Justice Department and Federal Trade Commission intervened on Uber’s side in a case involving a regulation passed by Seattle’s city council which would allow Uber drivers to negotiate collectively. The issue is that Uber insists its drivers are independent contractors, not employees. This means that they don’t have the rights guaranteed by employees under the National Labor Relations Act to bargain collectively with their employer.
Seattle’s city council sought to work around this problem by effectively acting as an intermediary between Uber and its “independent contractors” in the city. The city argued that as a municipal government, it would be exempt from the anti-trust laws that prevent businesses from coordinating prices.
The position of the Trump administration is very interesting in this case because it is arguing that Seattle is in fact illegally coordinating prices among independent contractors. Uber quite explicitly coordinates the prices charged by its “independent contractors,” not just setting overall fee schedules, but adjusting fares by the minute in response to changes in collective demand.
This seems like a yet another instance where the government has felt it necessary to intervene in the market to defend the rich. As we all know, the rich can’t be expected to survive in a free market without help from the government.
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This theme appears endlessly in news articles and columns criticizing Donald Trump’s tariffs. It really makes zero sense. It is easy to see that Pfizer and Microsoft benefit from having China honor their patents and copyrights, but how exactly are the rest of us supposed to benefit from paying more money for prescription drugs and software?
It would be nice if the people writing this stuff could take a moment to think about what they are writing. Some of us don’t think it is a good idea for all the money to go to Bill Gates and the people that Bill Gates and others like him pay to worry about inequality.
This theme appears endlessly in news articles and columns criticizing Donald Trump’s tariffs. It really makes zero sense. It is easy to see that Pfizer and Microsoft benefit from having China honor their patents and copyrights, but how exactly are the rest of us supposed to benefit from paying more money for prescription drugs and software?
It would be nice if the people writing this stuff could take a moment to think about what they are writing. Some of us don’t think it is a good idea for all the money to go to Bill Gates and the people that Bill Gates and others like him pay to worry about inequality.
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That is in effect what Steven Hill argues in his NYT column today. While the column makes many useful points about Uber’s impact on the environment and its treatment of its drivers, the underlying issue is that Uber is hugely subsidizing its rides, causing it to lose $4.5 billion in 2017. Hill proposes that the government either require Uber to raise its fees or that it impose a tax to offset the loss.
While the idea of leveling the playing field is appealing, it is worth asking why a company has a business model that involves losing massive amounts of money. The logic is presumably that Uber expects to drive out competition so that at some point in the future it can jack up its prices and make large profits. Back in the old days, we had something called “anti-trust” policy which would prevent something like this.
If the government treated the anti-trust laws seriously (they are still there), instead of seeking campaign contributions from the biggest violators (e.g. Facebook and Google), Uber’s strategy would make zero sense. The company would be losing large amounts of money today, with the prospect of losing even more in the future as its money-losing business model continued to expand. As we know, investors aren’t always too sharp, but most aren’t willing to throw their money down the toilet forever. (There is a similar story with Amazon, which is barely profitable on the whole and loses money in most of its lines of business.)
The Uber huge loss model only makes sense in a context where people don’t think anti-trust law will be enforced. If we had an administration in Washington that made it very clear that it would not tolerate Uber taking advantage of its market position to jack up prices, the company would likely have to change its practices very quickly or end up in bankruptcy.
That is in effect what Steven Hill argues in his NYT column today. While the column makes many useful points about Uber’s impact on the environment and its treatment of its drivers, the underlying issue is that Uber is hugely subsidizing its rides, causing it to lose $4.5 billion in 2017. Hill proposes that the government either require Uber to raise its fees or that it impose a tax to offset the loss.
While the idea of leveling the playing field is appealing, it is worth asking why a company has a business model that involves losing massive amounts of money. The logic is presumably that Uber expects to drive out competition so that at some point in the future it can jack up its prices and make large profits. Back in the old days, we had something called “anti-trust” policy which would prevent something like this.
If the government treated the anti-trust laws seriously (they are still there), instead of seeking campaign contributions from the biggest violators (e.g. Facebook and Google), Uber’s strategy would make zero sense. The company would be losing large amounts of money today, with the prospect of losing even more in the future as its money-losing business model continued to expand. As we know, investors aren’t always too sharp, but most aren’t willing to throw their money down the toilet forever. (There is a similar story with Amazon, which is barely profitable on the whole and loses money in most of its lines of business.)
The Uber huge loss model only makes sense in a context where people don’t think anti-trust law will be enforced. If we had an administration in Washington that made it very clear that it would not tolerate Uber taking advantage of its market position to jack up prices, the company would likely have to change its practices very quickly or end up in bankruptcy.
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It said this clearly in a front page article. The piece tells readers how Republicans are falling in line behind Trump’s agenda. After noting that the new budget passed by Congress will lead to a deficit of more than $1 trillion in 2019, the article comments:
“It was another example of how Trump seems to have overtaken his party’s previously understood values, from a willingness to flout free-trade principles and fiscal austerity to a seeming abdication of America’s role as a global voice for democratic values.”
Since this is an economics blog, I’ll leave it to others to speculate how anyone might have understood a party that led the invasion of Iraq under a false pretext to be a global voice for democratic values. I’ll instead focus on the Republican Party’s alleged commitment to “free trade and fiscal austerity.”
I may have missed it, but I never heard a single prominent Republican propose any measure that would reduce the protectionist rules that limit the number of foreign doctors, allowing our doctors to earn twice as much on average as their counterparts in other wealthy countries. This difference in doctors pay costs us $100 billion annually or approximately $800 per household. There is ten times as much money at stake with doctors alone as with the steel tariffs that have gotten so much attention. Protection for other professionals could easily double this number.
No one committed to free trade could find this protectionism acceptable. The “free trade” Republicans have generally supported has been about removing barriers that protect less highly educated workers, putting downward pressure on their pay. That implies a commitment to redistributing income upward (one shared by the Washington Post), not free trade.
The Republican trade agenda also involves making patent and copyright monopolies longer and stronger and spreading these rules internationally. These are incredibly costly forms of protectionism. In the case of prescription drugs alone, patents and related protections add more than $370 billion (almost 2.0 percent of GDP) to what we pay for prescription drugs each year.
The commitment to fiscal austerity is equally absurd. The deficit exploded in the Reagan years due to his tax cuts and increases in military spending. It also exploded under George W. Bush due to his tax cuts and wars. Why on earth would anyone think that the Republican Party had a commitment to fiscal austerity?
So, the take away from this piece is the Washington Post wants its readers to believe that the Republicans had been committed to free trade and fiscal austerity before Trump. That might be true in Washington Postland, where NAFTA caused Mexico’s GDP to quadruple, but not in the real world.
Addendum:
An earlier version had an incorrect number for the per household cost of excess payments to doctors. Thanks to Robert Salzberg for calling my attention to the error.
It said this clearly in a front page article. The piece tells readers how Republicans are falling in line behind Trump’s agenda. After noting that the new budget passed by Congress will lead to a deficit of more than $1 trillion in 2019, the article comments:
“It was another example of how Trump seems to have overtaken his party’s previously understood values, from a willingness to flout free-trade principles and fiscal austerity to a seeming abdication of America’s role as a global voice for democratic values.”
Since this is an economics blog, I’ll leave it to others to speculate how anyone might have understood a party that led the invasion of Iraq under a false pretext to be a global voice for democratic values. I’ll instead focus on the Republican Party’s alleged commitment to “free trade and fiscal austerity.”
I may have missed it, but I never heard a single prominent Republican propose any measure that would reduce the protectionist rules that limit the number of foreign doctors, allowing our doctors to earn twice as much on average as their counterparts in other wealthy countries. This difference in doctors pay costs us $100 billion annually or approximately $800 per household. There is ten times as much money at stake with doctors alone as with the steel tariffs that have gotten so much attention. Protection for other professionals could easily double this number.
No one committed to free trade could find this protectionism acceptable. The “free trade” Republicans have generally supported has been about removing barriers that protect less highly educated workers, putting downward pressure on their pay. That implies a commitment to redistributing income upward (one shared by the Washington Post), not free trade.
The Republican trade agenda also involves making patent and copyright monopolies longer and stronger and spreading these rules internationally. These are incredibly costly forms of protectionism. In the case of prescription drugs alone, patents and related protections add more than $370 billion (almost 2.0 percent of GDP) to what we pay for prescription drugs each year.
The commitment to fiscal austerity is equally absurd. The deficit exploded in the Reagan years due to his tax cuts and increases in military spending. It also exploded under George W. Bush due to his tax cuts and wars. Why on earth would anyone think that the Republican Party had a commitment to fiscal austerity?
So, the take away from this piece is the Washington Post wants its readers to believe that the Republicans had been committed to free trade and fiscal austerity before Trump. That might be true in Washington Postland, where NAFTA caused Mexico’s GDP to quadruple, but not in the real world.
Addendum:
An earlier version had an incorrect number for the per household cost of excess payments to doctors. Thanks to Robert Salzberg for calling my attention to the error.
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The Washington Post might have confused some readers in a piece on how many highly paid professionals are looking to form new S corporations to game the new tax law. Most people who own S corporations will get a 20 percent tax savings on the income they get from these corporations.
At one point the piece told readers:
“Millions of American businesses pay taxes through the individual tax code, known in tax parlance as ‘pass-through’ businesses. [These are S corporations.] They’ve historically done that so they could pay taxes below the 35 percent corporate tax rate, which was reduced to 21 percent in the December tax law.”
This is incorrect. If the businesses were chartered as normal corporations, they would pay the 35 percent corporate tax rate. Then the money paid out to their owner or owners as dividends or as realized capital gains would be taxed as individual income, with a top rate of 20 percent.
Until the change in the tax law, many owners of S corporations were in the top 39.6 percent bracket, so they actually faced a tax rate on their income from S corporations that was higher than the 35 percent corporate tax rate. The advantage of the S-corporation was that it allowed the owners of corporations to escape the corporate income tax, not the lower tax rate.
The separate corporate tax rate was justified by the fact that the government gives corporations special benefits, most importantly limited liability. It was always a voluntary tax in the sense that anyone who did not feel the benefits of corporate status were worth the tax could just form a partnership instead of a corporation. However, the tax law has been changed over the years so that people can now form an S-corporation to get the benefits of corporate status, without having to pay the corporate income tax.
The Washington Post might have confused some readers in a piece on how many highly paid professionals are looking to form new S corporations to game the new tax law. Most people who own S corporations will get a 20 percent tax savings on the income they get from these corporations.
At one point the piece told readers:
“Millions of American businesses pay taxes through the individual tax code, known in tax parlance as ‘pass-through’ businesses. [These are S corporations.] They’ve historically done that so they could pay taxes below the 35 percent corporate tax rate, which was reduced to 21 percent in the December tax law.”
This is incorrect. If the businesses were chartered as normal corporations, they would pay the 35 percent corporate tax rate. Then the money paid out to their owner or owners as dividends or as realized capital gains would be taxed as individual income, with a top rate of 20 percent.
Until the change in the tax law, many owners of S corporations were in the top 39.6 percent bracket, so they actually faced a tax rate on their income from S corporations that was higher than the 35 percent corporate tax rate. The advantage of the S-corporation was that it allowed the owners of corporations to escape the corporate income tax, not the lower tax rate.
The separate corporate tax rate was justified by the fact that the government gives corporations special benefits, most importantly limited liability. It was always a voluntary tax in the sense that anyone who did not feel the benefits of corporate status were worth the tax could just form a partnership instead of a corporation. However, the tax law has been changed over the years so that people can now form an S-corporation to get the benefits of corporate status, without having to pay the corporate income tax.
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If anyone took the rationale for the Republican tax cuts seriously, the key measure is investment. The promise was that lower corporate tax rates would provide a huge incentive for investment, causing the capital stock to increase by roughly one-third over its baseline growth path within a decade.
As I have pointed out, the early numbers were not good. Capital goods orders fell in both December and January. The National Federation of Independent Businesses reports no notable uptick in the investment plans of its members.
The new numbers from the Commerce Department today look a bit better. Overall capital goods orders were up 4.5 percent in February from January levels. If we pull out erratic aircraft orders there was still an increase of 1.8 percent. That’s a pretty good one month jump, but it follows declines in the last two months that totaled 0.9 percent. That leaves growth of 0.9 percent in the last three months or 0.3 percent a month.
The increase over the last year is 7.4 percent. That is roughly the same as the rate of growth before the tax cut. In other words, we’re pretty much on the baseline path, with no obvious tax cut induced jump.
This may not be a great story for tax cut proponents, but at least investment is now moving in the right direction.
If anyone took the rationale for the Republican tax cuts seriously, the key measure is investment. The promise was that lower corporate tax rates would provide a huge incentive for investment, causing the capital stock to increase by roughly one-third over its baseline growth path within a decade.
As I have pointed out, the early numbers were not good. Capital goods orders fell in both December and January. The National Federation of Independent Businesses reports no notable uptick in the investment plans of its members.
The new numbers from the Commerce Department today look a bit better. Overall capital goods orders were up 4.5 percent in February from January levels. If we pull out erratic aircraft orders there was still an increase of 1.8 percent. That’s a pretty good one month jump, but it follows declines in the last two months that totaled 0.9 percent. That leaves growth of 0.9 percent in the last three months or 0.3 percent a month.
The increase over the last year is 7.4 percent. That is roughly the same as the rate of growth before the tax cut. In other words, we’re pretty much on the baseline path, with no obvious tax cut induced jump.
This may not be a great story for tax cut proponents, but at least investment is now moving in the right direction.
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