In his NYT column on whether the turmoil of Trump’s presidency is slowing economic growth, Neil Gross refers to concerns about “secular stagnation” raised by former Treasury Secretary Larry Summers. Secular stagnation just means insufficient demand in the U.S. economy. While the column sees the major cause as weak investment demand, the more obvious cause of secular stagnation is the U.S. trade deficit.
The trade deficit is running at annual rate of more than $540 billion a year, close to 2.8 percent of GDP. This is money that is creating demand in other countries, not the United States. If the trade deficit were suddenly brought to zero it would have the same effect on demand as an increase in annual investment of $540 billion. That is far larger than any shortfall that could be explained by factors Summers cited.
It is bizarre that the trade deficit never features in discussions of secular stagnation since it is obviously a major drain on demand in the U.S. economy. It also runs contrary to textbook economics which holds that rich countries like the United States should be capital exporters to the developing world, which means that we should be running large trade surpluses, not deficits.
But, as the saying goes, economists are not very good at economics.
In his NYT column on whether the turmoil of Trump’s presidency is slowing economic growth, Neil Gross refers to concerns about “secular stagnation” raised by former Treasury Secretary Larry Summers. Secular stagnation just means insufficient demand in the U.S. economy. While the column sees the major cause as weak investment demand, the more obvious cause of secular stagnation is the U.S. trade deficit.
The trade deficit is running at annual rate of more than $540 billion a year, close to 2.8 percent of GDP. This is money that is creating demand in other countries, not the United States. If the trade deficit were suddenly brought to zero it would have the same effect on demand as an increase in annual investment of $540 billion. That is far larger than any shortfall that could be explained by factors Summers cited.
It is bizarre that the trade deficit never features in discussions of secular stagnation since it is obviously a major drain on demand in the U.S. economy. It also runs contrary to textbook economics which holds that rich countries like the United States should be capital exporters to the developing world, which means that we should be running large trade surpluses, not deficits.
But, as the saying goes, economists are not very good at economics.
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According to the Bureau of Labor Statistics, productivity growth, especially in manufacturing, has slowed to a record slow pace. In light of this fact, the Washington Post naturally decided to run a major front page article, jumping to two full inside pages, on automation.
It would be good if we were seeing more rapid productivity growth. It would mean that we could enjoy higher wages and/or shorter hours. The Fed could also stop raising interest rates since it wouldn’t have to worry so much about having too many jobs. But that is not the world we are seeing — or at least not the world that we are seeing outside of the pages of the Washington Post.
According to the Bureau of Labor Statistics, productivity growth, especially in manufacturing, has slowed to a record slow pace. In light of this fact, the Washington Post naturally decided to run a major front page article, jumping to two full inside pages, on automation.
It would be good if we were seeing more rapid productivity growth. It would mean that we could enjoy higher wages and/or shorter hours. The Fed could also stop raising interest rates since it wouldn’t have to worry so much about having too many jobs. But that is not the world we are seeing — or at least not the world that we are seeing outside of the pages of the Washington Post.
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The big difference between outsourcing and robots is that the former is happening and the latter isn’t. Productivity growth (a.k.a. robots) has been very slow in recent years. It has averaged less than 1.0 percent over the last seven years and has sometimes been negative.
By contrast, many firms are looking to outsource jobs, both domestically and internationally, on an ongoing basis. For this reason, when the NYT told readers in a story on the jobs report and the economy:
“Perhaps even more than outsourcing, the real threat to job growth for Mr. Trump’s blue-collar base comes from automation and other efforts to improve productivity on the factory floor.”
It had the picture backward. At least for the immediate future, it does not seem rapid productivity growth will be a major source of job loss.
The big difference between outsourcing and robots is that the former is happening and the latter isn’t. Productivity growth (a.k.a. robots) has been very slow in recent years. It has averaged less than 1.0 percent over the last seven years and has sometimes been negative.
By contrast, many firms are looking to outsource jobs, both domestically and internationally, on an ongoing basis. For this reason, when the NYT told readers in a story on the jobs report and the economy:
“Perhaps even more than outsourcing, the real threat to job growth for Mr. Trump’s blue-collar base comes from automation and other efforts to improve productivity on the factory floor.”
It had the picture backward. At least for the immediate future, it does not seem rapid productivity growth will be a major source of job loss.
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Okay, this is getting beyond ridiculous. Productivity growth, especially in manufacturing, is at a record slow (as in not fast) pace. This is not secret information. The data are published every quarter by the Bureau of Labor Statistics. You can even find a nice graph in my previous post. Yet, in spite of the fact that all the evidence shows that workers are not losing jobs due to automation, or at least at a much slower pace than in prior decades, the Washington Post still tells us:
“Yet manufacturing hit a new low in July as a share of all U.S. jobs, said Kolko. While manufacturing has been a focus of the Trump administration, the sector continues to shed jobs, due largely to automation.”
Apart from the fact that manufacturing has actually been adding jobs for last eight months, how does the Post get off blaming non-existent job loss on automation? This seems like a knee jerk response.
No, job loss can’t be due to a trade deficit. The idea that importing things rather than producing them here, couldn’t possibly mean that we hire fewer people to produce things here. The papers can’t have people believe this. So we get outright lies. (Sorry, it is a lie — it is reasonable to expect reporters/editors at a major news outlet to be able to look up data that is readily accessible from a government agency. At the least, there is a deliberate decision to remain ignorant at work here.)
Let me also point out another aspect to this issue. Even if automation was the factor costing jobs, it would not be technology that was responsible for any increase in inequality. The ownership of technology is determined by government policy on patent and copyrights. The government can (and has) made these forms of protection longer and stronger. It could make them shorter and weaker.
Without patent and copyright protection, Bill Gates, the richest person in the world, probably would not have much more money than your average successful doctor or lawyer. It is possible to argue that these are good policies and that we have all benefited from making them stronger and longer, but to deny that the resulting upward redistribution was just technology is just flat-out dishonest.
Incredibly, I have never seen any discussion of this simple and obvious point in any major outlet. I haven’t seen in the NYT, WaPo, WSJ, heard it on NPR or PBS Newshour. I haven’t even seen it mentioned in ostensibly liberal and progressive magazines like the New Republic and the Nation.
It is worth noting that the technology view does have the implication that upward redistribution is something that happened, as opposed to upward redistribution being something that was done through deliberate policy. The implication that the rich getting richer is just the natural state of things is convenient for the winners in this story.
Okay, this is getting beyond ridiculous. Productivity growth, especially in manufacturing, is at a record slow (as in not fast) pace. This is not secret information. The data are published every quarter by the Bureau of Labor Statistics. You can even find a nice graph in my previous post. Yet, in spite of the fact that all the evidence shows that workers are not losing jobs due to automation, or at least at a much slower pace than in prior decades, the Washington Post still tells us:
“Yet manufacturing hit a new low in July as a share of all U.S. jobs, said Kolko. While manufacturing has been a focus of the Trump administration, the sector continues to shed jobs, due largely to automation.”
Apart from the fact that manufacturing has actually been adding jobs for last eight months, how does the Post get off blaming non-existent job loss on automation? This seems like a knee jerk response.
No, job loss can’t be due to a trade deficit. The idea that importing things rather than producing them here, couldn’t possibly mean that we hire fewer people to produce things here. The papers can’t have people believe this. So we get outright lies. (Sorry, it is a lie — it is reasonable to expect reporters/editors at a major news outlet to be able to look up data that is readily accessible from a government agency. At the least, there is a deliberate decision to remain ignorant at work here.)
Let me also point out another aspect to this issue. Even if automation was the factor costing jobs, it would not be technology that was responsible for any increase in inequality. The ownership of technology is determined by government policy on patent and copyrights. The government can (and has) made these forms of protection longer and stronger. It could make them shorter and weaker.
Without patent and copyright protection, Bill Gates, the richest person in the world, probably would not have much more money than your average successful doctor or lawyer. It is possible to argue that these are good policies and that we have all benefited from making them stronger and longer, but to deny that the resulting upward redistribution was just technology is just flat-out dishonest.
Incredibly, I have never seen any discussion of this simple and obvious point in any major outlet. I haven’t seen in the NYT, WaPo, WSJ, heard it on NPR or PBS Newshour. I haven’t even seen it mentioned in ostensibly liberal and progressive magazines like the New Republic and the Nation.
It is worth noting that the technology view does have the implication that upward redistribution is something that happened, as opposed to upward redistribution being something that was done through deliberate policy. The implication that the rich getting richer is just the natural state of things is convenient for the winners in this story.
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It’s standard practice in news stories to refer to France’s economy as a basket case. The NYT went this route in an article on President Emmanuel Macron’s efforts to rewrite the country’s labor laws.
The article refers to Macron’s efforts to “revitalize” the French economy and then tells readers:
“The code is regarded by many as the wellspring of the country’s malaise and the chief obstacle to generating jobs, leaving the country with an unemployment rate that hovers persistently around 10 percent.”
Of course, many economists regard the German government’s insistence on austerity in spite of low interest rates and low inflation as “the wellspring of the country’s malaise,” but apparently there was no room to mention this fact. Anyhow, it is worth noting that while France has a considerably higher unemployment rate than the United States a larger portion of its prime-age population (ages 25 to 54) have jobs than in the United States.
According to the OECD, the employment-to-population ratio for this age group is 79.6 percent in France, compared to 78.2 percent in the United States. For this age group, the French economy is doing better producing jobs than the U.S. economy, in spite of its malaise.
It does have lower employment rates for younger and older workers, but this is largely the result of deliberate policy. A college education is largely free in France, and as a result, few students work. France also has a more generous social security system than the United States, which discourages older workers from staying in the labor force. It’s arguable whether these are good policies but it is these policies, rather than the state of the economy, that explain differences in employment rates between the U.S. and France for these age groups.
The piece also includes this interesting paragraph:
“The Macron changes would help employers set the rules on hiring and firing, ignore the crippling restraints in the code that discourage taking on new workers, and limit unions’ ability to get in the way. Instead, individual agreements would be negotiated at the company or industry level between bosses and workers.”
It is interesting that NYT thinks that unions “get in the way” between workers and employers. This is, of course, true just as when we allow defendants to have lawyers, the lawyer “gets in the way” of discussions between police and prosecutors and the accused.
It’s standard practice in news stories to refer to France’s economy as a basket case. The NYT went this route in an article on President Emmanuel Macron’s efforts to rewrite the country’s labor laws.
The article refers to Macron’s efforts to “revitalize” the French economy and then tells readers:
“The code is regarded by many as the wellspring of the country’s malaise and the chief obstacle to generating jobs, leaving the country with an unemployment rate that hovers persistently around 10 percent.”
Of course, many economists regard the German government’s insistence on austerity in spite of low interest rates and low inflation as “the wellspring of the country’s malaise,” but apparently there was no room to mention this fact. Anyhow, it is worth noting that while France has a considerably higher unemployment rate than the United States a larger portion of its prime-age population (ages 25 to 54) have jobs than in the United States.
According to the OECD, the employment-to-population ratio for this age group is 79.6 percent in France, compared to 78.2 percent in the United States. For this age group, the French economy is doing better producing jobs than the U.S. economy, in spite of its malaise.
It does have lower employment rates for younger and older workers, but this is largely the result of deliberate policy. A college education is largely free in France, and as a result, few students work. France also has a more generous social security system than the United States, which discourages older workers from staying in the labor force. It’s arguable whether these are good policies but it is these policies, rather than the state of the economy, that explain differences in employment rates between the U.S. and France for these age groups.
The piece also includes this interesting paragraph:
“The Macron changes would help employers set the rules on hiring and firing, ignore the crippling restraints in the code that discourage taking on new workers, and limit unions’ ability to get in the way. Instead, individual agreements would be negotiated at the company or industry level between bosses and workers.”
It is interesting that NYT thinks that unions “get in the way” between workers and employers. This is, of course, true just as when we allow defendants to have lawyers, the lawyer “gets in the way” of discussions between police and prosecutors and the accused.
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The NYT had an article on Amazon’s job fairs which were set up to recruit workers for 50,000 new jobs nationwide. At the end of the piece, the article discusses concerns that robots may soon replace the jobs that Amazon is now hiring for in its warehouses:
“Amazon is more aggressively using robots to help make the operations inside its warehouses more efficient. For now, the company said machines are not replacing people. Instead, they mostly move large shelves of merchandise to stations where orders are manually picked.
“Many academic researchers and start-ups are working on robots that have the dexterity to pick orders automatically. Amazon sponsors a competition to encourage engineers to build more advanced warehouse robots.
“When those technologies are perfected, the employment picture inside Amazon’s warehouses could look very different. That day could be a decade or more away, though.”
It is important to remember that productivity growth has been at record low levels in the last five years, meaning that we are seeing very few workers displaced by robots. Furthermore, the Federal Reserve Board has been raising interest rates over the last year and a half because it is concerned the economy is creating too many jobs. The concern about budget deficits is also a concern about inadequate productivity growth (too much demand and not enough supply).
In other words, in almost every other economic debate our concern is the opposite of having robots replacing workers. The concern is that we won’t have enough goods and services to go around.
If robots create a distributional issue, that is because of policies like patent monopolies that give all the money to owners of robots. These policies can be changed, but not if the media has a policy of never talking about them.
The NYT had an article on Amazon’s job fairs which were set up to recruit workers for 50,000 new jobs nationwide. At the end of the piece, the article discusses concerns that robots may soon replace the jobs that Amazon is now hiring for in its warehouses:
“Amazon is more aggressively using robots to help make the operations inside its warehouses more efficient. For now, the company said machines are not replacing people. Instead, they mostly move large shelves of merchandise to stations where orders are manually picked.
“Many academic researchers and start-ups are working on robots that have the dexterity to pick orders automatically. Amazon sponsors a competition to encourage engineers to build more advanced warehouse robots.
“When those technologies are perfected, the employment picture inside Amazon’s warehouses could look very different. That day could be a decade or more away, though.”
It is important to remember that productivity growth has been at record low levels in the last five years, meaning that we are seeing very few workers displaced by robots. Furthermore, the Federal Reserve Board has been raising interest rates over the last year and a half because it is concerned the economy is creating too many jobs. The concern about budget deficits is also a concern about inadequate productivity growth (too much demand and not enough supply).
In other words, in almost every other economic debate our concern is the opposite of having robots replacing workers. The concern is that we won’t have enough goods and services to go around.
If robots create a distributional issue, that is because of policies like patent monopolies that give all the money to owners of robots. These policies can be changed, but not if the media has a policy of never talking about them.
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It’s popular among economists and policy types to wisely note that technology is leading the rich to get richer. Many of them consider this unfortunate, but hey, should we be Luddites and try to stop technology?
This is, of course, silly propaganda, but it passed for sophisticated thinking in policy circles. It is not technology, but our policy around it, like patent and copyright protection, that redistributes income upward. We got yet another lesson along these lines in an NYT article reporting that the Trump administration is beginning a major investigation on China’s trade practices which will focus on its treatment of U.S. patents, copyrights, and other forms of intellectual property (IP). The implication is that we would impose retaliatory measures because China was hurting Bill Gates, Elon Musk, and other major beneficiaries of these government-granted monopolies in the United States.
The decision to focus on IP is striking since there is little dispute at this point that China’s decision to deliberately keep down the value of its currency in the last decade badly hurt U.S. manufacturing. The result was the loss of millions of manufacturing jobs. This ruined the lives of many of these workers and devastated communities in places like Ohio and Pennsylvania. It also put downward pressure on the wages of non-college educated workers throughout the economy.
Furthermore, the trade deficit that resulted from China’s currency practices is the main reason that the United States suffers from secular stagnation (a.k.a. inadequate demand). This is the reason growth was slow following the collapse of the housing bubble and even today, almost ten years after the start of the recession, we are still not back to full employment.
Anyhow, the plight of the bulk of the country’s workers was apparently not a sufficient reason to get upset over China’s trade policy. But not honoring Bill Gates’ copyrights? That’s serious stuff. And the folks who write and talk about economics will tell us it is just technology.
It’s popular among economists and policy types to wisely note that technology is leading the rich to get richer. Many of them consider this unfortunate, but hey, should we be Luddites and try to stop technology?
This is, of course, silly propaganda, but it passed for sophisticated thinking in policy circles. It is not technology, but our policy around it, like patent and copyright protection, that redistributes income upward. We got yet another lesson along these lines in an NYT article reporting that the Trump administration is beginning a major investigation on China’s trade practices which will focus on its treatment of U.S. patents, copyrights, and other forms of intellectual property (IP). The implication is that we would impose retaliatory measures because China was hurting Bill Gates, Elon Musk, and other major beneficiaries of these government-granted monopolies in the United States.
The decision to focus on IP is striking since there is little dispute at this point that China’s decision to deliberately keep down the value of its currency in the last decade badly hurt U.S. manufacturing. The result was the loss of millions of manufacturing jobs. This ruined the lives of many of these workers and devastated communities in places like Ohio and Pennsylvania. It also put downward pressure on the wages of non-college educated workers throughout the economy.
Furthermore, the trade deficit that resulted from China’s currency practices is the main reason that the United States suffers from secular stagnation (a.k.a. inadequate demand). This is the reason growth was slow following the collapse of the housing bubble and even today, almost ten years after the start of the recession, we are still not back to full employment.
Anyhow, the plight of the bulk of the country’s workers was apparently not a sufficient reason to get upset over China’s trade policy. But not honoring Bill Gates’ copyrights? That’s serious stuff. And the folks who write and talk about economics will tell us it is just technology.
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Greg Mankiw had a short NYT piece outlining the problems in providing health care. While some of what he said was reasonable, he ended with the tired cliche:
“The best way to navigate the problems of the health care marketplace is hotly debated. The political left wants a stronger government role, and the political right wants regulation to be less heavy-handed.”
This is not at all true. The right tends to want stronger and longer patent and related protections for prescription drugs and medical equipment. These government-granted monopolies can raise prices by several thousand percent above the free market price. As any economist would expect, these monopolies create enormous problems of enforcement and lead to a wide variety of rent-seeking behavior, such as drug companies lying about the safety and effectiveness of their drugs in order to sell more of them.
While longer and stronger patent protection does redistribute income upward, it can hardly be described as “less heavy-handed” in a world where the government pays for research upfront and then allows drugs and medical devices to be sold in a free market. (Discussion of alternatives are here and here.)
Greg Mankiw had a short NYT piece outlining the problems in providing health care. While some of what he said was reasonable, he ended with the tired cliche:
“The best way to navigate the problems of the health care marketplace is hotly debated. The political left wants a stronger government role, and the political right wants regulation to be less heavy-handed.”
This is not at all true. The right tends to want stronger and longer patent and related protections for prescription drugs and medical equipment. These government-granted monopolies can raise prices by several thousand percent above the free market price. As any economist would expect, these monopolies create enormous problems of enforcement and lead to a wide variety of rent-seeking behavior, such as drug companies lying about the safety and effectiveness of their drugs in order to sell more of them.
While longer and stronger patent protection does redistribute income upward, it can hardly be described as “less heavy-handed” in a world where the government pays for research upfront and then allows drugs and medical devices to be sold in a free market. (Discussion of alternatives are here and here.)
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