By Josh Bivens, Research Director, Economic Policy Institute
Dean Baker, Co-Director, Center for Economic and Policy Research
Michael Madowitz, Economist, Center for American Progress
A consistent drumbeat in Donald Trump’s campaign for the presidency was a promise that he would stand up for the American working class against financial elites who had rigged policy to enrich themselves, a message that clearly resonated with some voters. He has reneged on this commitment in virtually every area of public policy, including providing better health care coverage than Obamacare, crafting better trade agreements, making sure tax cuts go to the middle class, and standing up for workers’ rights at work.
This month, workers who supported Trump may see another betrayal. It has been reported that Trump may pick Kevin Warsh, who married into a billionaire family, to replace Janet Yellen as the next Chair of the Federal Reserve Board of Governors (BOG). Decisions made by the Fed’s BOG are extraordinarily important for American workers. In recent years, pressure has built for the Fed to begin applying the brake to America’s economic recovery by raising interest rates. The rationale for this is that the Fed must slow growth to tamp down inflationary pressures. Warsh has consistently been on the side advocating for slowing growth to fight inflation. But these inflationary pressures appear nowhere in either wage or price data. And if the Fed hits the brake prematurely, millions of Americans could lose opportunities to work, and tens of millions could see smaller wage increases.
One underappreciated aspect of raising interest rates is that they will put upward pressure on the value of the U.S. dollar, and this stronger dollar will make U.S. exports less competitive on world markets while making foreign imports cheaper to American consumers. This will in turn lead to rising trade deficits which stunt growth in manufacturing employment. Warsh knows about this argument, but he just doesn’t really care.
“I would say that the academy’s view, the broad view of folks at the IMF and economics departments at elite universities, is that if only the dollar were weaker, then somehow we’d be getting this improvement in GDP arithmetic, we’d have an improvement in exports and we’d be getting much closer to trend. That’s not a view I share. My own views are that having a stable currency, now more than ever, provides huge advantages to the U.S. The U.S. with the world’s reserve currency is a privilege, but it is a privilege that we can’t just look to history to remind us of; it’s a privilege we have to earn and continually re-earn. And so it does strike me that those that think that dollar weakness, made possible by QE as one channel for QE, is the way to achieve these vaunted objectives are going to be sorely disappointed.”
The effect of a high dollar in worsening the trade deficit is not just something that people at the IMF and in elite universities say; it is well-established in the data. Warsh doesn’t offer any evidence to counter the widely accepted view that a high dollar leads to a larger trade deficit, he just says that he doesn’t like it.
This blithe waving-away of clear evidence that a rising dollar will lead to larger trade deficits and displace American manufacturing jobs is par for the course when it comes to Warsh’s views of globalization. He is an ardent proponent of trade agreements that expose American workers to fierce global competition but provide even greater protection for corporate profits, protections that come at the expense of policymaking autonomy and democratic accountability in the poorer trading partners of the United States. As a Fed governor, he proclaimed fhat the Fed had a role in weighing in to support trade deals like NAFTA and the Trans-Pacific Partnership, departing from the general view that the Fed should restrict its scope to issues directly related to the conduct of monetary policy.
A Warsh nomination for Fed chair would be a perfect example of how the financial sector capture of the Federal Reserve has hamstrung the economic leverage and bargaining power of low- and middle-wage workers. Finance hates inflation and doesn’t especially care if the unemployment rate is unnecessarily high. As a result, the Fed has for decades greatly overweighted its mandate to avoid above-target inflation while underweighting its mandate to pursue maximum employment. Part of the fallout of this frequently too-tight stance of monetary policy has been chronic trade deficits which have cost the country millions of manufacturing jobs. And while growing evidence shows that America’s stance towards globalization in recent decades has privileged the interests of corporations over typical workers, Warsh wants the Fed to be an advocate for doubling-down on this failed approach.
If Trump was serious about unrigging the rules of the American economy and globalization to help American workers, Warsh would not be in the running to be Fed chair. He both lacks the stature and the competence for the position. The clear choice is to re-appoint Janet Yellen, a chair with a solid track record as Trump himself has repeatedly acknowledged.
By Josh Bivens, Research Director, Economic Policy Institute
Dean Baker, Co-Director, Center for Economic and Policy Research
Michael Madowitz, Economist, Center for American Progress
A consistent drumbeat in Donald Trump’s campaign for the presidency was a promise that he would stand up for the American working class against financial elites who had rigged policy to enrich themselves, a message that clearly resonated with some voters. He has reneged on this commitment in virtually every area of public policy, including providing better health care coverage than Obamacare, crafting better trade agreements, making sure tax cuts go to the middle class, and standing up for workers’ rights at work.
This month, workers who supported Trump may see another betrayal. It has been reported that Trump may pick Kevin Warsh, who married into a billionaire family, to replace Janet Yellen as the next Chair of the Federal Reserve Board of Governors (BOG). Decisions made by the Fed’s BOG are extraordinarily important for American workers. In recent years, pressure has built for the Fed to begin applying the brake to America’s economic recovery by raising interest rates. The rationale for this is that the Fed must slow growth to tamp down inflationary pressures. Warsh has consistently been on the side advocating for slowing growth to fight inflation. But these inflationary pressures appear nowhere in either wage or price data. And if the Fed hits the brake prematurely, millions of Americans could lose opportunities to work, and tens of millions could see smaller wage increases.
One underappreciated aspect of raising interest rates is that they will put upward pressure on the value of the U.S. dollar, and this stronger dollar will make U.S. exports less competitive on world markets while making foreign imports cheaper to American consumers. This will in turn lead to rising trade deficits which stunt growth in manufacturing employment. Warsh knows about this argument, but he just doesn’t really care.
“I would say that the academy’s view, the broad view of folks at the IMF and economics departments at elite universities, is that if only the dollar were weaker, then somehow we’d be getting this improvement in GDP arithmetic, we’d have an improvement in exports and we’d be getting much closer to trend. That’s not a view I share. My own views are that having a stable currency, now more than ever, provides huge advantages to the U.S. The U.S. with the world’s reserve currency is a privilege, but it is a privilege that we can’t just look to history to remind us of; it’s a privilege we have to earn and continually re-earn. And so it does strike me that those that think that dollar weakness, made possible by QE as one channel for QE, is the way to achieve these vaunted objectives are going to be sorely disappointed.”
The effect of a high dollar in worsening the trade deficit is not just something that people at the IMF and in elite universities say; it is well-established in the data. Warsh doesn’t offer any evidence to counter the widely accepted view that a high dollar leads to a larger trade deficit, he just says that he doesn’t like it.
This blithe waving-away of clear evidence that a rising dollar will lead to larger trade deficits and displace American manufacturing jobs is par for the course when it comes to Warsh’s views of globalization. He is an ardent proponent of trade agreements that expose American workers to fierce global competition but provide even greater protection for corporate profits, protections that come at the expense of policymaking autonomy and democratic accountability in the poorer trading partners of the United States. As a Fed governor, he proclaimed fhat the Fed had a role in weighing in to support trade deals like NAFTA and the Trans-Pacific Partnership, departing from the general view that the Fed should restrict its scope to issues directly related to the conduct of monetary policy.
A Warsh nomination for Fed chair would be a perfect example of how the financial sector capture of the Federal Reserve has hamstrung the economic leverage and bargaining power of low- and middle-wage workers. Finance hates inflation and doesn’t especially care if the unemployment rate is unnecessarily high. As a result, the Fed has for decades greatly overweighted its mandate to avoid above-target inflation while underweighting its mandate to pursue maximum employment. Part of the fallout of this frequently too-tight stance of monetary policy has been chronic trade deficits which have cost the country millions of manufacturing jobs. And while growing evidence shows that America’s stance towards globalization in recent decades has privileged the interests of corporations over typical workers, Warsh wants the Fed to be an advocate for doubling-down on this failed approach.
If Trump was serious about unrigging the rules of the American economy and globalization to help American workers, Warsh would not be in the running to be Fed chair. He both lacks the stature and the competence for the position. The clear choice is to re-appoint Janet Yellen, a chair with a solid track record as Trump himself has repeatedly acknowledged.
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A Washington Post article on government subsidies for oil and gas production might have misled readers on the importance of these subsidies for global warming. The article focuses on the finding of a new report that almost half of projected new production in the U.S. would not be profitable without various tax and other subsidies. This finding has less importance for global warming that the piece implies.
First, it applies to future, not current production. Once a well has been dug, it is generally reasonably cheap to keep it in production. Output will decline as the oil or gas becomes depleted. But the immediate impact of removing subsidies would be minimal.
The second point is that it assumes the price of oil remains at its current level of $50 a barrel. As the piece notes, if oil prices rise to $70 a barrel (they had recently been over $100), then the subsidies would have far less impact on profitability. I have no crystal ball, so I’m not projecting higher prices. My guess is they are more likely to go lower than higher, given the many areas with substantial potential to increase production and the rapid growth of electric car production, but certainly no one can rule out substantially higher oil prices in the future, in which case the subsidies will not be of much consequence.
The third point is that the impact of U.S. production on global warming will be very limited. The story here is that, without the subsidies, cheaper foreign oil and gas will displace more expensive U.S. produced oil and gas. Increased U.S. consumption of foreign fossil fuels will lead to somewhat higher world prices. This will both provide incentives for more production elsewhere and also lead to somewhat reduced consumption worldwide as people conserve energy and switch to cleaner sources.
In this way, reduced U.S. production can be thought of as equivalent to imposing a modest carbon tax. That’s a good thing, but it will not have a large impact on the future course of global warming. And just to be clear, subsidizing the fossil fuel industry is really stupid policy.
A Washington Post article on government subsidies for oil and gas production might have misled readers on the importance of these subsidies for global warming. The article focuses on the finding of a new report that almost half of projected new production in the U.S. would not be profitable without various tax and other subsidies. This finding has less importance for global warming that the piece implies.
First, it applies to future, not current production. Once a well has been dug, it is generally reasonably cheap to keep it in production. Output will decline as the oil or gas becomes depleted. But the immediate impact of removing subsidies would be minimal.
The second point is that it assumes the price of oil remains at its current level of $50 a barrel. As the piece notes, if oil prices rise to $70 a barrel (they had recently been over $100), then the subsidies would have far less impact on profitability. I have no crystal ball, so I’m not projecting higher prices. My guess is they are more likely to go lower than higher, given the many areas with substantial potential to increase production and the rapid growth of electric car production, but certainly no one can rule out substantially higher oil prices in the future, in which case the subsidies will not be of much consequence.
The third point is that the impact of U.S. production on global warming will be very limited. The story here is that, without the subsidies, cheaper foreign oil and gas will displace more expensive U.S. produced oil and gas. Increased U.S. consumption of foreign fossil fuels will lead to somewhat higher world prices. This will both provide incentives for more production elsewhere and also lead to somewhat reduced consumption worldwide as people conserve energy and switch to cleaner sources.
In this way, reduced U.S. production can be thought of as equivalent to imposing a modest carbon tax. That’s a good thing, but it will not have a large impact on the future course of global warming. And just to be clear, subsidizing the fossil fuel industry is really stupid policy.
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Paul Krugman again went after Paul Ryan for the lack of specifics in his proposals for eliminating the national debt. As he reminds us, centrist commentators widely praised these proposals at the time as serious budget plans.
While Krugman is absolutely right on the tax side (Ryan says that he will offset lower tax rates by eliminating unspecified tax loopholes), he should give Ryan credit for what he actually proposes on the spending side. As I have pointed out elsewhere, Ryan has essentially proposed eliminating the federal government other than Social Security, Medicare and other health programs, and the military.
“This fact can be found in the Congressional Budget Office’s (CBO) analysis of Ryan’s budget (page 16, Table 2). The analysis shows Ryan’s budget shrinking everything other than Social Security and Medicare and other health care programs to 3.5 percent of GDP by 2050. This is roughly the current size of the military budget, which Ryan has indicated he wants to increase. That leaves zero for everything else.
“Included in everything else is the Justice Department, the National Park System, the State Department, the Department of Education, the Food and Drug Administration, Food Stamps, the National Institutes of Health, and just about everything else that the government does. Just to be clear, CBO did this analysis under Ryan’s supervision. He never indicated any displeasure with its assessment. In fact he boasted about the fact that CBO showed his budget paying off the national debt.”
So the Washington press corps favorite thoughtful conservative wants to get rid of almost the entire federal government. Let’s give Mr. Ryan credit for what he is proposing. It is specific, it just happens to be crazy.
Paul Krugman again went after Paul Ryan for the lack of specifics in his proposals for eliminating the national debt. As he reminds us, centrist commentators widely praised these proposals at the time as serious budget plans.
While Krugman is absolutely right on the tax side (Ryan says that he will offset lower tax rates by eliminating unspecified tax loopholes), he should give Ryan credit for what he actually proposes on the spending side. As I have pointed out elsewhere, Ryan has essentially proposed eliminating the federal government other than Social Security, Medicare and other health programs, and the military.
“This fact can be found in the Congressional Budget Office’s (CBO) analysis of Ryan’s budget (page 16, Table 2). The analysis shows Ryan’s budget shrinking everything other than Social Security and Medicare and other health care programs to 3.5 percent of GDP by 2050. This is roughly the current size of the military budget, which Ryan has indicated he wants to increase. That leaves zero for everything else.
“Included in everything else is the Justice Department, the National Park System, the State Department, the Department of Education, the Food and Drug Administration, Food Stamps, the National Institutes of Health, and just about everything else that the government does. Just to be clear, CBO did this analysis under Ryan’s supervision. He never indicated any displeasure with its assessment. In fact he boasted about the fact that CBO showed his budget paying off the national debt.”
So the Washington press corps favorite thoughtful conservative wants to get rid of almost the entire federal government. Let’s give Mr. Ryan credit for what he is proposing. It is specific, it just happens to be crazy.
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The NYT had an interesting piece by Sheri Berman on the decline of the center-left in Europe. It points to the sharp drop in the support for social democratic parties across the continent, with many parties that used to lead government barely getting above 20 percent of the vote. Voters apparently see little reason to support these parties. A similar story could be told about the center-left in the United States, although the money they command may allow them to still control the Democratic Party.
To carry her observations a bit further, these center-left parties have been largely complicit in the policies that have redistributed income upward over the last four decades. Tony Blair in the U.K., Gerhard Schroeder, and Bill Clinton were all associated with policies that benefited the financial industry at the expense of the rest of society.
The center-left parties have all been supportive of longer and stronger patent and copyright monopolies, which give money to Bill Gates and other incredibly rich people, as well as more educated workers generally, at the expense of workers with less education who would provide the traditional base for center-left parties. These parties, especially the Democrats under Clinton, supported trade deals which were designed to redistribute income from less-educated workers to capital and the most highly educated workers.
And, these parties have generally supported fiscal and monetary policies that have had the effect of keeping unemployment high in order to minimize the risk of inflation. By reducing workers’ bargaining power, these policies have put downward pressure on the wages of the bulk of the workforce. (Yes, these points and more are covered in my [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.)
Anyhow, it is not surprising that workers will not support political parties that are committed to taking money out of their pockets and giving it to the rich. If this continues to be the agenda of center-left parties, they are not likely to have much of a future.
The NYT had an interesting piece by Sheri Berman on the decline of the center-left in Europe. It points to the sharp drop in the support for social democratic parties across the continent, with many parties that used to lead government barely getting above 20 percent of the vote. Voters apparently see little reason to support these parties. A similar story could be told about the center-left in the United States, although the money they command may allow them to still control the Democratic Party.
To carry her observations a bit further, these center-left parties have been largely complicit in the policies that have redistributed income upward over the last four decades. Tony Blair in the U.K., Gerhard Schroeder, and Bill Clinton were all associated with policies that benefited the financial industry at the expense of the rest of society.
The center-left parties have all been supportive of longer and stronger patent and copyright monopolies, which give money to Bill Gates and other incredibly rich people, as well as more educated workers generally, at the expense of workers with less education who would provide the traditional base for center-left parties. These parties, especially the Democrats under Clinton, supported trade deals which were designed to redistribute income from less-educated workers to capital and the most highly educated workers.
And, these parties have generally supported fiscal and monetary policies that have had the effect of keeping unemployment high in order to minimize the risk of inflation. By reducing workers’ bargaining power, these policies have put downward pressure on the wages of the bulk of the workforce. (Yes, these points and more are covered in my [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.)
Anyhow, it is not surprising that workers will not support political parties that are committed to taking money out of their pockets and giving it to the rich. If this continues to be the agenda of center-left parties, they are not likely to have much of a future.
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A NYT article on the debate in Europe over regulating Uber and other “gig economy” companies raised the possibility that Uber may stop doing business in the United Kingdom if it was required to treat its workers as employees:
“If the ruling is upheld [that Uber workers are employees], it could hit the business model on which Uber, Deliveroo and similar online platforms rely. That may mean a major recalibration of the gig economy, or it may drive companies out of those countries which choose to impose stiffer regulation.
“Outside Europe, there have been signs of that happening: Uber threatened to leave Quebec this month if the government there pressed ahead with tougher standards for drivers.”
While the article implies that the departure of Uber would be a bad outcome for the people of the United Kingdom and Quebec there is no reason to think this is the case unless they happen to be large holders of Uber stock. There are plenty of other companies that apparently are better able to deal with regulations than Uber. They would presumably fill any gap created by Uber’s departure.
We saw this last year when Austin imposed a law requiring that drivers for services like Uber and Lyft be finger-printed, just like other taxi drivers. The two companies sponsored a ballot initiative in the city and spend a huge amount of money pushing their opposition to fingerprinting. They also threatened to leave if the initiative failed.
The initiative was defeated and both companies stopped serving the city. The gap created was quickly filled by a number of start-ups that apparently were able to deal with the fingerprinting requirement. (Uber then lobbied the Texas legislature to have the Austin rule overturned.) Anyhow, the prospect of Uber ending its operations in an area should be seen an opportunity for local start-ups, not a threat.
Note: An earlier version of this post said that Uber CEO Dara Koshrowshahi was on the board of the NYT. He resigned this position on September 7th.
A NYT article on the debate in Europe over regulating Uber and other “gig economy” companies raised the possibility that Uber may stop doing business in the United Kingdom if it was required to treat its workers as employees:
“If the ruling is upheld [that Uber workers are employees], it could hit the business model on which Uber, Deliveroo and similar online platforms rely. That may mean a major recalibration of the gig economy, or it may drive companies out of those countries which choose to impose stiffer regulation.
“Outside Europe, there have been signs of that happening: Uber threatened to leave Quebec this month if the government there pressed ahead with tougher standards for drivers.”
While the article implies that the departure of Uber would be a bad outcome for the people of the United Kingdom and Quebec there is no reason to think this is the case unless they happen to be large holders of Uber stock. There are plenty of other companies that apparently are better able to deal with regulations than Uber. They would presumably fill any gap created by Uber’s departure.
We saw this last year when Austin imposed a law requiring that drivers for services like Uber and Lyft be finger-printed, just like other taxi drivers. The two companies sponsored a ballot initiative in the city and spend a huge amount of money pushing their opposition to fingerprinting. They also threatened to leave if the initiative failed.
The initiative was defeated and both companies stopped serving the city. The gap created was quickly filled by a number of start-ups that apparently were able to deal with the fingerprinting requirement. (Uber then lobbied the Texas legislature to have the Austin rule overturned.) Anyhow, the prospect of Uber ending its operations in an area should be seen an opportunity for local start-ups, not a threat.
Note: An earlier version of this post said that Uber CEO Dara Koshrowshahi was on the board of the NYT. He resigned this position on September 7th.
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This is in effect what they did when they criticized an analysis of the proposal by the non-partisan Tax Policy Center. An NYT article on the analysis, which showed the plan would lead to massive tax breaks for the wealthy and a large increase in the deficit, referred to the Republican response:
“Republicans quickly dismissed the analysis, saying the tax cut framework needs detail before it can be accurately assessed. A nine-page proposal for a tax overhaul, announced by Mr. Trump and Republican leaders in Congress on Wednesday, did not include income levels for its three personal income brackets. It left the door open to a fourth level of taxation for high-income taxpayers, and it did not specify the size of an enhanced child tax credit.
“‘This analysis is based on guesswork and biased assumptions designed to promote the authors’ point of view — rather actual detail from a bill that has not yet been written by the committees,’ said Antonia Ferrier, a spokeswoman for Senator Mitch McConnell of Kentucky, the majority leader.”
The claim that there is not yet enough information available to evaluate the plan is incredibly damning to the Republican leadership who crafted it. They spent months working on the plan. As their comment indicates, there are still important aspects of the plan that need to be filled in.
This should warrant a separate article telling readers what the Republicans were doing when they were supposed to be working on their tax plan. If the idea is that they will just decide major aspects of the tax plan in the last days before Congress votes (they plan to vote this fall) then it means they intend to put in place major changes in the U.S. tax code in a way that doesn’t allow for serious public debate. This fact deserves attention.
This is in effect what they did when they criticized an analysis of the proposal by the non-partisan Tax Policy Center. An NYT article on the analysis, which showed the plan would lead to massive tax breaks for the wealthy and a large increase in the deficit, referred to the Republican response:
“Republicans quickly dismissed the analysis, saying the tax cut framework needs detail before it can be accurately assessed. A nine-page proposal for a tax overhaul, announced by Mr. Trump and Republican leaders in Congress on Wednesday, did not include income levels for its three personal income brackets. It left the door open to a fourth level of taxation for high-income taxpayers, and it did not specify the size of an enhanced child tax credit.
“‘This analysis is based on guesswork and biased assumptions designed to promote the authors’ point of view — rather actual detail from a bill that has not yet been written by the committees,’ said Antonia Ferrier, a spokeswoman for Senator Mitch McConnell of Kentucky, the majority leader.”
The claim that there is not yet enough information available to evaluate the plan is incredibly damning to the Republican leadership who crafted it. They spent months working on the plan. As their comment indicates, there are still important aspects of the plan that need to be filled in.
This should warrant a separate article telling readers what the Republicans were doing when they were supposed to be working on their tax plan. If the idea is that they will just decide major aspects of the tax plan in the last days before Congress votes (they plan to vote this fall) then it means they intend to put in place major changes in the U.S. tax code in a way that doesn’t allow for serious public debate. This fact deserves attention.
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