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Trade deals are usually thought to increase productivity by allowing countries to benefit from comparative advantage, where each country concentrates on the areas where it is relatively more efficient. For this reason, it is striking that a study on the impact of reversing NAFTA that was cited in an NYT article found that the United States, Canada, and Mexico would all see an increase in productivity if NAFTA was reversed.
While both the article and the study highlighted the number of jobs that would be lost if NAFTA were repealed, the study actually projects that GDP would fall by a considerably smaller percentage for each of the three countries. In the case of the United States, the study projects a loss of 255,000 jobs or 0.17 percent of total employment. However, GDP is projected to fall by just 0.08 percent. This implies a gain in productivity of 0.09 percentage points.
Canada is projected to lose 125,000 jobs or 0.69 percent of total employment. However, its GDP is only projected to drop by 0.48 percent, implying a productivity gain of approximately 0.21 percent. Mexico turns out to be the big winner, with its employment falling by 951,000 or 1.82 percent, while GDP only drops by 0.87 percent, implying a productivity gain of approximately 0.95 percent.
This gain in productivity is presumably associated with higher wages, since we expect workers to be paid in accordance with their productivity. In principle, governments could tax away a portion of these wage gains and redistribute them to the unemployed to ensure that everyone gains, making the reversal of NAFTA a win-win for all involved.
No, I don’t take these projections seriously, but the NYT apparently wants us to. So, if we buy what the NYT is selling, we should believe that we could get a modest boost to productivity if we just did away with NAFTA altogether.
Trade deals are usually thought to increase productivity by allowing countries to benefit from comparative advantage, where each country concentrates on the areas where it is relatively more efficient. For this reason, it is striking that a study on the impact of reversing NAFTA that was cited in an NYT article found that the United States, Canada, and Mexico would all see an increase in productivity if NAFTA was reversed.
While both the article and the study highlighted the number of jobs that would be lost if NAFTA were repealed, the study actually projects that GDP would fall by a considerably smaller percentage for each of the three countries. In the case of the United States, the study projects a loss of 255,000 jobs or 0.17 percent of total employment. However, GDP is projected to fall by just 0.08 percent. This implies a gain in productivity of 0.09 percentage points.
Canada is projected to lose 125,000 jobs or 0.69 percent of total employment. However, its GDP is only projected to drop by 0.48 percent, implying a productivity gain of approximately 0.21 percent. Mexico turns out to be the big winner, with its employment falling by 951,000 or 1.82 percent, while GDP only drops by 0.87 percent, implying a productivity gain of approximately 0.95 percent.
This gain in productivity is presumably associated with higher wages, since we expect workers to be paid in accordance with their productivity. In principle, governments could tax away a portion of these wage gains and redistribute them to the unemployed to ensure that everyone gains, making the reversal of NAFTA a win-win for all involved.
No, I don’t take these projections seriously, but the NYT apparently wants us to. So, if we buy what the NYT is selling, we should believe that we could get a modest boost to productivity if we just did away with NAFTA altogether.
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This is a question that people should be asking, as there is a considerable effort to include digital commerce in a revised NAFTA argument, as argued in a NYT column by former Secretary of State George Schultz and Pedro Aspe a former secretary of finance in Mexico. For example, the rules on digital commerce may prevent countries from imposing punitive damages, similar to what exist for copyright infringement under the Digital Millennium Copyright Act, for spreading fake ads. This is a realistic fear since Facebook and other major social media companies are likely to have substantial input into writing digital commerce provisions, whereas groups concerned about fair elections and the rights of users are not.
This piece also contains a striking error in economic reasoning. It dismisses concerns about trade deficits, telling readers:
“We hear a lot about trade deficits, but repealing trade agreements will not fix the arithmetic. If a country consumes more than it produces, it will import more than it exports. Federal deficit spending, a huge and continuing act of dissaving, is the big culprit. Control that, and you will control trade deficits.”
It is definitional that a country with a trade deficit consumes more than it produces, sort of like it is definitional that a dead person doesn’t have a working brain. But just as we might want to know why a person died, we also have reason to want to know why a country is running a trade deficit.
If a country is below its potential level of output, which means that it has higher than necessary levels of unemployment, then the trade deficit has been a factor reducing demand in the economy and increasing unemployment, as was undoubtedly the case in the United States since the collapse of the housing bubble until at least the very recent past. In this context, a lower budget deficit would reduce the trade deficit only by shrinking the economy further and in that way reducing imports. (When the economy is smaller, we buy less of everything, including imports.)
The lost output due to the trade deficit since the crash runs into the trillions of dollars. If we had more balanced trade, millions of additional workers would have had jobs and people would have been able to keep homes. This is a big deal, it is amazing that these distinguished figures don’t seem to understand the issue.
It is also striking that they tout the competitiveness of U.S. manufacturing relative to European and Asian competitors. This must be their own subjective definition of competitiveness, since by the market test (the trade balance) the United States’ manufacturing sector is losing badly.
This is a question that people should be asking, as there is a considerable effort to include digital commerce in a revised NAFTA argument, as argued in a NYT column by former Secretary of State George Schultz and Pedro Aspe a former secretary of finance in Mexico. For example, the rules on digital commerce may prevent countries from imposing punitive damages, similar to what exist for copyright infringement under the Digital Millennium Copyright Act, for spreading fake ads. This is a realistic fear since Facebook and other major social media companies are likely to have substantial input into writing digital commerce provisions, whereas groups concerned about fair elections and the rights of users are not.
This piece also contains a striking error in economic reasoning. It dismisses concerns about trade deficits, telling readers:
“We hear a lot about trade deficits, but repealing trade agreements will not fix the arithmetic. If a country consumes more than it produces, it will import more than it exports. Federal deficit spending, a huge and continuing act of dissaving, is the big culprit. Control that, and you will control trade deficits.”
It is definitional that a country with a trade deficit consumes more than it produces, sort of like it is definitional that a dead person doesn’t have a working brain. But just as we might want to know why a person died, we also have reason to want to know why a country is running a trade deficit.
If a country is below its potential level of output, which means that it has higher than necessary levels of unemployment, then the trade deficit has been a factor reducing demand in the economy and increasing unemployment, as was undoubtedly the case in the United States since the collapse of the housing bubble until at least the very recent past. In this context, a lower budget deficit would reduce the trade deficit only by shrinking the economy further and in that way reducing imports. (When the economy is smaller, we buy less of everything, including imports.)
The lost output due to the trade deficit since the crash runs into the trillions of dollars. If we had more balanced trade, millions of additional workers would have had jobs and people would have been able to keep homes. This is a big deal, it is amazing that these distinguished figures don’t seem to understand the issue.
It is also striking that they tout the competitiveness of U.S. manufacturing relative to European and Asian competitors. This must be their own subjective definition of competitiveness, since by the market test (the trade balance) the United States’ manufacturing sector is losing badly.
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Robert Samuelson used his column to relate concerns expressed by former Fed chair Ben Bernanke that the Fed would lack the ability to fuel a recovery when the United States next falls into a recession. Although Samuelson doesn’t go into detail, the background here is that the country has faced a persistent shortfall of demand at least since the collapse of the housing bubble.
One way this shortfall can be filled is with larger budget deficits. Unfortunately, there is intense political opposition to budget deficits fueled by people like Wall Street billionaire Peter Peterson and the Washington Post. The failure to have larger deficits have cost the country trillions of dollars in lost output and made the economy permanently weaker, in effect imposing a huge tax on our children and grandchildren in the form of lower wages.
The other obvious way that the shortfall could be filled is with a smaller trade deficit. If our trade deficits were, for example, 1.0 percent of GDP instead of the current 3.0 percent of GDP, we would not be facing a shortfall of demand and Bernanke’s problem would disappear. Unfortunately, people in policy circles largely cling to an absurd trade deficit denialism under which the size of the deficit cannot affect demand and employment, an argument which is made explicitly in an NYT column this morning by former Secretary of State George Schultz and Pedro Aspe, a former secretary of finance in Mexico.
Robert Samuelson used his column to relate concerns expressed by former Fed chair Ben Bernanke that the Fed would lack the ability to fuel a recovery when the United States next falls into a recession. Although Samuelson doesn’t go into detail, the background here is that the country has faced a persistent shortfall of demand at least since the collapse of the housing bubble.
One way this shortfall can be filled is with larger budget deficits. Unfortunately, there is intense political opposition to budget deficits fueled by people like Wall Street billionaire Peter Peterson and the Washington Post. The failure to have larger deficits have cost the country trillions of dollars in lost output and made the economy permanently weaker, in effect imposing a huge tax on our children and grandchildren in the form of lower wages.
The other obvious way that the shortfall could be filled is with a smaller trade deficit. If our trade deficits were, for example, 1.0 percent of GDP instead of the current 3.0 percent of GDP, we would not be facing a shortfall of demand and Bernanke’s problem would disappear. Unfortunately, people in policy circles largely cling to an absurd trade deficit denialism under which the size of the deficit cannot affect demand and employment, an argument which is made explicitly in an NYT column this morning by former Secretary of State George Schultz and Pedro Aspe, a former secretary of finance in Mexico.
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The Washington Post had a lengthy piece on the intense lobbying efforts by the pharmaceutical industry, along with retail drug store chains, to block legislation that would have imposed stronger penalties for improperly prescribing and distributing opioids. While the piece provides considerable detail on the efforts of specific actors to intervene with members of Congress to weaken legislation, it neglects to mention the importance of patent monopolies in this picture.
As everyone who has taken Econ 101 knows, when the government imposes a tariff in a market that raises the price of an item by 10 or 20 percent, it encourages corruption. The beneficiaries of this tariff have the incentive to lobby to try to extend and enlarge this protection. Lobbying and bribing politicians can be a more effective way to increase profits than cutting production costs or developing a better product.
In the case of patent monopolies, the price can increase by a factor of ten or even a hundred, equivalent to a tariff of 1,000 or 10,000 percent. The implied mark-ups provide an enormous incentive for companies to lobby to protect and enhance their markets. As the piece tells readers, “each 30-pill vial of oxycodone was worth $900.” If a 30-pill vial was selling for $30, there would have been much less incentive to lobby against legislation that would limit sales.
For some reason, patent monopolies and their role in maintaining high prices for opioids are never mentioned in this piece. It is probably worth mentioning that the Washington Post gets a substantial amount of advertising revenue from the pharmaceutical industry.
The Washington Post had a lengthy piece on the intense lobbying efforts by the pharmaceutical industry, along with retail drug store chains, to block legislation that would have imposed stronger penalties for improperly prescribing and distributing opioids. While the piece provides considerable detail on the efforts of specific actors to intervene with members of Congress to weaken legislation, it neglects to mention the importance of patent monopolies in this picture.
As everyone who has taken Econ 101 knows, when the government imposes a tariff in a market that raises the price of an item by 10 or 20 percent, it encourages corruption. The beneficiaries of this tariff have the incentive to lobby to try to extend and enlarge this protection. Lobbying and bribing politicians can be a more effective way to increase profits than cutting production costs or developing a better product.
In the case of patent monopolies, the price can increase by a factor of ten or even a hundred, equivalent to a tariff of 1,000 or 10,000 percent. The implied mark-ups provide an enormous incentive for companies to lobby to protect and enhance their markets. As the piece tells readers, “each 30-pill vial of oxycodone was worth $900.” If a 30-pill vial was selling for $30, there would have been much less incentive to lobby against legislation that would limit sales.
For some reason, patent monopolies and their role in maintaining high prices for opioids are never mentioned in this piece. It is probably worth mentioning that the Washington Post gets a substantial amount of advertising revenue from the pharmaceutical industry.
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Donald Trump has justified his decision to ending a subsidy for insurers providing improved coverage for moderate-income households by saying that he wanted to end subsidies for insurers. Actually, because insurers are required under the Affordable Care Act to provide these subsidies to moderate-income households whether or not they receive the government subsidies, Trump’s decision will likely lead to higher premiums. And, since the subsidy provided to moderate-income households depends on the size of the premium, the subsidies provided to these households will rise in step with the premiums.
As a result, while Trump is cutting off the direct subsidy to insurers from the government, the indirect subsidy through the government’s assistance to households buying insurance will increase by an even larger amount. As a result, the Congressional Budget Office projects that the amount the government will pay out in insurance subsidies over the next decade will increase by almost $250 billion (roughly 0.5 percent of federal spending), with the bulk of this money ending up in the pockets of insurers.
It is not clear that Trump understood that his action would increase the money going to insurers, but it would have been helpful to note this outcome.
Donald Trump has justified his decision to ending a subsidy for insurers providing improved coverage for moderate-income households by saying that he wanted to end subsidies for insurers. Actually, because insurers are required under the Affordable Care Act to provide these subsidies to moderate-income households whether or not they receive the government subsidies, Trump’s decision will likely lead to higher premiums. And, since the subsidy provided to moderate-income households depends on the size of the premium, the subsidies provided to these households will rise in step with the premiums.
As a result, while Trump is cutting off the direct subsidy to insurers from the government, the indirect subsidy through the government’s assistance to households buying insurance will increase by an even larger amount. As a result, the Congressional Budget Office projects that the amount the government will pay out in insurance subsidies over the next decade will increase by almost $250 billion (roughly 0.5 percent of federal spending), with the bulk of this money ending up in the pockets of insurers.
It is not clear that Trump understood that his action would increase the money going to insurers, but it would have been helpful to note this outcome.
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For four decades the United States has actively pursued a trade policy designed to put manufacturing workers directly in competition with low-paid workers in the developing world, while largely protecting doctors and other highly paid professionals. It has also sought to impose longer and stronger patent, copyright, and related protections on our trading partners, as it strengthened these protections at home also.
The predicted and actual effect of these policies is to redistribute income from the less-educated (those without college degrees) to more educated workers and owners of capital. Not surprisingly, many of the losers from this pattern of trade are unhappy about it and have sought paths to change it. This was one reason many less-educated workers voted for Donald Trump for president.
While the basic facts in this story are pretty clear, the NYT seems confused about them. It told readers:
“People here embraced Mr. Trump’s anti-trade message, including his vow to withdraw from the North American Free Trade Agreement and punish China, even though Canada, Mexico and China are Iowa’s three largest foreign trading partners. They did not mind if Mr. Trump opposed increasing the minimum wage and expanding access to health care.”
It is not clear what is supposed to be meant by “even though” in this context. People in Iowa would not be hurt by trade with countries if its economy was not actually involved in trade with the countries. If a manufacturer in Iowa gets many of its parts from Canada, Mexico, or China then it could be displacing workers who might otherwise be employed in Iowa. If manufacturers located in Iowa had no trade with these countries, this would not be the case. It is precisely because Iowa’s economy has been exposed to trade with these countries that its workers could end up as losers.
It is also worth noting that Trump promised to offer a better health care plan in his campaign, with lower deductibles, premiums, and co-pays. Iowa’s voters might have been more aware of the fact that he was lying if the NYT and other news outlets had spent a bit more time talking about health care and less time on Hillary Clinton’s e-mails.
For four decades the United States has actively pursued a trade policy designed to put manufacturing workers directly in competition with low-paid workers in the developing world, while largely protecting doctors and other highly paid professionals. It has also sought to impose longer and stronger patent, copyright, and related protections on our trading partners, as it strengthened these protections at home also.
The predicted and actual effect of these policies is to redistribute income from the less-educated (those without college degrees) to more educated workers and owners of capital. Not surprisingly, many of the losers from this pattern of trade are unhappy about it and have sought paths to change it. This was one reason many less-educated workers voted for Donald Trump for president.
While the basic facts in this story are pretty clear, the NYT seems confused about them. It told readers:
“People here embraced Mr. Trump’s anti-trade message, including his vow to withdraw from the North American Free Trade Agreement and punish China, even though Canada, Mexico and China are Iowa’s three largest foreign trading partners. They did not mind if Mr. Trump opposed increasing the minimum wage and expanding access to health care.”
It is not clear what is supposed to be meant by “even though” in this context. People in Iowa would not be hurt by trade with countries if its economy was not actually involved in trade with the countries. If a manufacturer in Iowa gets many of its parts from Canada, Mexico, or China then it could be displacing workers who might otherwise be employed in Iowa. If manufacturers located in Iowa had no trade with these countries, this would not be the case. It is precisely because Iowa’s economy has been exposed to trade with these countries that its workers could end up as losers.
It is also worth noting that Trump promised to offer a better health care plan in his campaign, with lower deductibles, premiums, and co-pays. Iowa’s voters might have been more aware of the fact that he was lying if the NYT and other news outlets had spent a bit more time talking about health care and less time on Hillary Clinton’s e-mails.
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