Roger Altman, an investment banker and deputy treasury secretary under President Clinton, warned about the effect of growing inequality on national politics in a Washington Post column. He implies that this increase in inequality has been a natural outcome of the market:
“A series of powerful, entrenched factors have brought the American Dream to an end. Economists generally cite globalization, accelerating technology, increased income inequality and the decline of unions. What’s noteworthy is that these are long-term pressures that show no signs of abating.”
The “powerful entrenched factors” are all the result of deliberate policy choices that Mr. Altman apparently doesn’t want to see altered. In the case of globalization, we have made a deliberate decision to put our manufacturing workers in direct competition with low-paid workers in the developing world, while largely protecting our most highly paid workers like doctors and dentists. This has the predicted and actual effect of shifting income upward.
“Accelerating technology” (actually it has been decelerating as productivity growth has slowed to a crawl in the last decade) does not lead to upward redistribution; laws determining ownership of technology, such as patent and copyright monopolies redistribute income upward. There is a huge amount of money at stake with these government-granted monopolies. In the case of prescription drugs alone, patents and related protections add close to $370 billion a year (almost $3,000 per household) to what we pay for drugs in the United States. Bill Gates, the world’s richest person, would probably still be working for a living without patent and copyright monopolies for Microsoft software.
And, the drop in unionization rates in the United States has also been the result of deliberate policy to make it more difficult to organize unions and to weaken the unions that do exist. Canada, which has a very similar culture and economy, has seen no comparable decline in unionization rates over the last four decades.
Someone seriously interested in reversing the upward redistribution of income would look to reverse these policies, but Altman seems to want us to believe that they are unalterable and instead focus on band-aid solutions. But, what do you expect from Jeff Bezos’ Washington Post? (Yes, this is the point of my [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.)
Roger Altman, an investment banker and deputy treasury secretary under President Clinton, warned about the effect of growing inequality on national politics in a Washington Post column. He implies that this increase in inequality has been a natural outcome of the market:
“A series of powerful, entrenched factors have brought the American Dream to an end. Economists generally cite globalization, accelerating technology, increased income inequality and the decline of unions. What’s noteworthy is that these are long-term pressures that show no signs of abating.”
The “powerful entrenched factors” are all the result of deliberate policy choices that Mr. Altman apparently doesn’t want to see altered. In the case of globalization, we have made a deliberate decision to put our manufacturing workers in direct competition with low-paid workers in the developing world, while largely protecting our most highly paid workers like doctors and dentists. This has the predicted and actual effect of shifting income upward.
“Accelerating technology” (actually it has been decelerating as productivity growth has slowed to a crawl in the last decade) does not lead to upward redistribution; laws determining ownership of technology, such as patent and copyright monopolies redistribute income upward. There is a huge amount of money at stake with these government-granted monopolies. In the case of prescription drugs alone, patents and related protections add close to $370 billion a year (almost $3,000 per household) to what we pay for drugs in the United States. Bill Gates, the world’s richest person, would probably still be working for a living without patent and copyright monopolies for Microsoft software.
And, the drop in unionization rates in the United States has also been the result of deliberate policy to make it more difficult to organize unions and to weaken the unions that do exist. Canada, which has a very similar culture and economy, has seen no comparable decline in unionization rates over the last four decades.
Someone seriously interested in reversing the upward redistribution of income would look to reverse these policies, but Altman seems to want us to believe that they are unalterable and instead focus on band-aid solutions. But, what do you expect from Jeff Bezos’ Washington Post? (Yes, this is the point of my [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.)
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I’m off on vacation. I’ll be back October 27. So remember, don’t believe anything you read in the papers until then.
I’m off on vacation. I’ll be back October 27. So remember, don’t believe anything you read in the papers until then.
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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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