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The NYT featured yet another piece on a country, in this case Japan, facing a future with a lower population. The piece warns that it will be difficult to maintain economic growth with a declining population and that Japan’s labor shortage would get more severe.
This doesn’t sound like too bad of a story to people familiar with economics. Thus far the labor shortage has not been serious enough to cause wages to rise in Japan. If it eventually does get more severe and wages do rise then it just would mean that some of the least productive jobs would go unfilled. For example, perhaps Tokyo would no longer pay workers to shove people into overcrowded subway cars.
As far as GDP growth, economists usually care about GDP per capita as a measure of living standards, not total GDP. This is why Denmark is a richer country than India, even though India has a much larger GDP. (The piece does note this point in passing in the second to the last paragraph.)
It is worth reminding readers that growth in productivity swamps the impact of demographics. If Japan can sustain a 1.5 percent pace of productivity growth, then output per worker hour would be 80 percent higher in forty years. Even in a very extreme demographic change, say going from three workers per retiree to 1.8 workers per retiree, this would still allow for a 17 percent rise in average living standards over this period. (This assumes retirees consume 80 percent as much as workers on average.) And this does not account for the benefits from less strain on the infrastructure and the natural environment. Nor does it take account of the lower ratio of dependent children to workers.
If Japan can sustain productivity growth of 2.0 percent annually (well below the 3.0 percent Golden Age pace in the United States from 1947 to 1973 and again from 1995 to 2005), then the living standards of workers and retirees could rise by 42 percent over this period, in spite of the rising ratio of retirees to workers. Presumably the folks who are concerned about the job-killing robots expect that productivity growth will be considerably more rapid.
The NYT featured yet another piece on a country, in this case Japan, facing a future with a lower population. The piece warns that it will be difficult to maintain economic growth with a declining population and that Japan’s labor shortage would get more severe.
This doesn’t sound like too bad of a story to people familiar with economics. Thus far the labor shortage has not been serious enough to cause wages to rise in Japan. If it eventually does get more severe and wages do rise then it just would mean that some of the least productive jobs would go unfilled. For example, perhaps Tokyo would no longer pay workers to shove people into overcrowded subway cars.
As far as GDP growth, economists usually care about GDP per capita as a measure of living standards, not total GDP. This is why Denmark is a richer country than India, even though India has a much larger GDP. (The piece does note this point in passing in the second to the last paragraph.)
It is worth reminding readers that growth in productivity swamps the impact of demographics. If Japan can sustain a 1.5 percent pace of productivity growth, then output per worker hour would be 80 percent higher in forty years. Even in a very extreme demographic change, say going from three workers per retiree to 1.8 workers per retiree, this would still allow for a 17 percent rise in average living standards over this period. (This assumes retirees consume 80 percent as much as workers on average.) And this does not account for the benefits from less strain on the infrastructure and the natural environment. Nor does it take account of the lower ratio of dependent children to workers.
If Japan can sustain productivity growth of 2.0 percent annually (well below the 3.0 percent Golden Age pace in the United States from 1947 to 1973 and again from 1995 to 2005), then the living standards of workers and retirees could rise by 42 percent over this period, in spite of the rising ratio of retirees to workers. Presumably the folks who are concerned about the job-killing robots expect that productivity growth will be considerably more rapid.
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The NYT had a very good article on how the fossil fuel industry and other rich donors got the Republican party to be committed to denying the reality of global warming, Unfortunately, the article carried a headline that asserted the Republicans “view” climate change as fake science.
There is nothing in the article to indicate what Republicans actually believe about climate change. There is no reason not to assume that the Republican leadership believes anything different about climate change than the vast majority of educated people in the United States. The article explains how in order to advance their careers in politics they have an interest in denying the reality of climate change. It says nothing about what they believe to be true.
The NYT had a very good article on how the fossil fuel industry and other rich donors got the Republican party to be committed to denying the reality of global warming, Unfortunately, the article carried a headline that asserted the Republicans “view” climate change as fake science.
There is nothing in the article to indicate what Republicans actually believe about climate change. There is no reason not to assume that the Republican leadership believes anything different about climate change than the vast majority of educated people in the United States. The article explains how in order to advance their careers in politics they have an interest in denying the reality of climate change. It says nothing about what they believe to be true.
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Yes folks, your friend on the Washington Post opinion page, George Will, wants to reduce your tax burden. He argues that the Corporation for Public Broadcasting (CPB) is a waste of taxpayer dollars. It is forcing average taxpayers to foot the bill for radio and TV shows that members of Congress value.
Naturally, Mr. Will is concerned about the burden that CPB is putting on the pocketbook of Joe and Jill Sixpack. He tells us that it has cost the country $12 billion. Most people may not offhand have a good sense of how much $12 billion is. Unlike Post owner Jeff Bezos (who got rich from his company’s exemption from having to collect sales taxes), they don’t have that sort of money. They may also not realize that Will was referring to cumulative spending on CPB over 50 years.
If Will was interested in more honest discussion of the burden imposed by the appropriation for CPB, he could have told readers that the annual spending of $445 million (0.013 percent of total spending), comes to roughly $1.40 per person per year. This means that if we zero out the appropriation, Joe and Jill Sixpack can get themselves another third of a six pack with the savings.
It might have also been worth mentioning in this context the tax deduction for charitable contributions. If someone like the Koch brothers decide to donate $1 billion to their favorite think tank producing nonsense denying global warming, Joe and Jill Sixpack will have to pick up the tab for 40 cents on the dollar, or $400 million, since the Koch brothers will have reduced their tax liability by this amount. Post readers are looking forward to the Will column highlighting the unfairness of a system that makes average taxpayers pick up the tab for whatever it is that the Koch brothers and other billionaires want us to watch.
Yes folks, your friend on the Washington Post opinion page, George Will, wants to reduce your tax burden. He argues that the Corporation for Public Broadcasting (CPB) is a waste of taxpayer dollars. It is forcing average taxpayers to foot the bill for radio and TV shows that members of Congress value.
Naturally, Mr. Will is concerned about the burden that CPB is putting on the pocketbook of Joe and Jill Sixpack. He tells us that it has cost the country $12 billion. Most people may not offhand have a good sense of how much $12 billion is. Unlike Post owner Jeff Bezos (who got rich from his company’s exemption from having to collect sales taxes), they don’t have that sort of money. They may also not realize that Will was referring to cumulative spending on CPB over 50 years.
If Will was interested in more honest discussion of the burden imposed by the appropriation for CPB, he could have told readers that the annual spending of $445 million (0.013 percent of total spending), comes to roughly $1.40 per person per year. This means that if we zero out the appropriation, Joe and Jill Sixpack can get themselves another third of a six pack with the savings.
It might have also been worth mentioning in this context the tax deduction for charitable contributions. If someone like the Koch brothers decide to donate $1 billion to their favorite think tank producing nonsense denying global warming, Joe and Jill Sixpack will have to pick up the tab for 40 cents on the dollar, or $400 million, since the Koch brothers will have reduced their tax liability by this amount. Post readers are looking forward to the Will column highlighting the unfairness of a system that makes average taxpayers pick up the tab for whatever it is that the Koch brothers and other billionaires want us to watch.
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One of the largely overlooked implications of Friday’s weak job report is that it likely means that we will see a strong rebound in productivity growth for the second quarter. GDP growth is likely to bounce back from the first quarter’s weak 1.2 percent number, most likely coming in between 3.0 percent to 4.0 percent. With the rate of growth of hours worked likely less than 1.0 percent, we will be looking at productivity growth in the 2.0 percent to 3.0 percent range for the quarter.
Here are three quick thoughts:
1) Quarterly productivity data are hugely erratic, so most likely a rebound in a single quarter means nothing. It is entirely possible that the third quarter will put us back on our weak 1.0 percent productivity growth path.
2) I am betting that productivity growth will pick up as the labor market tightens further (or perhaps I should say “if” the labor market tightens further), as workers move from low-paying, low-productivity jobs (e.g. greeters at Walmart and the midnight shift at a convenience store) into higher paying, high-productivity jobs.
3) If productivity growth does pick up, it will be good for workers. We had 3.0 percent annual productivity growth from 1947 to 1973 and again from 1995 to 2005. In the first period, we had low unemployment and broadly shared wage gains. The same was true in the years from 1996 to 2001, until the collapse of the stock bubble threw us into a recession.
Strong productivity growth coupled with sound economic policy (e.g. the Fed not raising interest rates to keep people from getting jobs) creates the basis for rapidly improving standards of living. We need not worry about it leading to mass unemployment if the folks in charge of economic policy have a clue.
One of the largely overlooked implications of Friday’s weak job report is that it likely means that we will see a strong rebound in productivity growth for the second quarter. GDP growth is likely to bounce back from the first quarter’s weak 1.2 percent number, most likely coming in between 3.0 percent to 4.0 percent. With the rate of growth of hours worked likely less than 1.0 percent, we will be looking at productivity growth in the 2.0 percent to 3.0 percent range for the quarter.
Here are three quick thoughts:
1) Quarterly productivity data are hugely erratic, so most likely a rebound in a single quarter means nothing. It is entirely possible that the third quarter will put us back on our weak 1.0 percent productivity growth path.
2) I am betting that productivity growth will pick up as the labor market tightens further (or perhaps I should say “if” the labor market tightens further), as workers move from low-paying, low-productivity jobs (e.g. greeters at Walmart and the midnight shift at a convenience store) into higher paying, high-productivity jobs.
3) If productivity growth does pick up, it will be good for workers. We had 3.0 percent annual productivity growth from 1947 to 1973 and again from 1995 to 2005. In the first period, we had low unemployment and broadly shared wage gains. The same was true in the years from 1996 to 2001, until the collapse of the stock bubble threw us into a recession.
Strong productivity growth coupled with sound economic policy (e.g. the Fed not raising interest rates to keep people from getting jobs) creates the basis for rapidly improving standards of living. We need not worry about it leading to mass unemployment if the folks in charge of economic policy have a clue.
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Many folks might have thought Donald Trump had abandoned his pledge about “draining the swamp” when he began filling his administration with Goldman Sachs alums and other Wall Street-types and reversed all the ethics rules put in place for the last five decades to prevent corruption. But the Washington Post tells us this is not true.
According to the Washington Post “draining the swamp” just meant firing government workers. So apparently if Wall Streeters and rich folks (including Trump family and friends) rip the taxpayers off for millions and billions in corrupt deals, it is okay as long as he fires government employees making five-figure salaries or maybe in a few cases, six-figure salaries.
So, Trump voters are apparently cool with being ripped off to put more money in the pockets of really rich people. They only get upset when their tax dollars are used to provide middle-income jobs for people doing things like cleaning up the environment or keeping our national parks in good shape. It’s good we have the Washington Post to tell us this.
Many folks might have thought Donald Trump had abandoned his pledge about “draining the swamp” when he began filling his administration with Goldman Sachs alums and other Wall Street-types and reversed all the ethics rules put in place for the last five decades to prevent corruption. But the Washington Post tells us this is not true.
According to the Washington Post “draining the swamp” just meant firing government workers. So apparently if Wall Streeters and rich folks (including Trump family and friends) rip the taxpayers off for millions and billions in corrupt deals, it is okay as long as he fires government employees making five-figure salaries or maybe in a few cases, six-figure salaries.
So, Trump voters are apparently cool with being ripped off to put more money in the pockets of really rich people. They only get upset when their tax dollars are used to provide middle-income jobs for people doing things like cleaning up the environment or keeping our national parks in good shape. It’s good we have the Washington Post to tell us this.
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The NYT had an article on Yahoo CEO’s $239 million payout for her five years as CEO of Yahoo. The article says that from the standpoint of shareholders, since the value of the company’s stock tripled, she earned her pay. This assessment is extremely misleading. It would be like saying that a firefighter getting paid $10 million earned her pay, because she got three people out of a burning house.
The question is not just the return to the shareholders, but the return compared to what they would have gotten had the next person in line been CEO. As the piece points out, the vast majority (perhaps all) of the gains to shareholders were due to the increase in the value of its stock holdings in Alibaba Group and Yahoo Japan. Ms. Mayer had virtually nothing to do with the rise in value of these holdings, although there were some legal issues that needed to be resolved to allow Yahoo shareholders to reap these gains.
While the resolution of these issues was important to shareholders, lawyers usually are not paid $48 million a year. And of course, Yahoo did actually have to pay lawyers to resolve these issues in any case.
As far as turning around Yahoo’s core business, the piece concludes that Mayer failed, but it was likely impossible in any case. While this assessment may be accurate, it doesn’t make sense from the shareholder’s standpoint to pay someone $239 million to do something that is impossible.
It actually would have been possible to structure a contract for a CEO that based their pay on the rise in Yahoo’s stock value net of its holdings in Alibaba Group and Yahoo Japan. (The contract could have even included a performance bonus of $5 to $10 million for overseeing the resolution of the legal issues with these holdings — pretty good pay for very part-time work.) Such a contract would almost certainly have left Ms. Mayer with a much smaller paycheck and Yahoo shareholders with more money.
As it is, shareholders effectively gave up roughly 0.4 percent of the value of the company to cover her pay over the last five years. This can be thought of as the CEO tax.
The NYT had an article on Yahoo CEO’s $239 million payout for her five years as CEO of Yahoo. The article says that from the standpoint of shareholders, since the value of the company’s stock tripled, she earned her pay. This assessment is extremely misleading. It would be like saying that a firefighter getting paid $10 million earned her pay, because she got three people out of a burning house.
The question is not just the return to the shareholders, but the return compared to what they would have gotten had the next person in line been CEO. As the piece points out, the vast majority (perhaps all) of the gains to shareholders were due to the increase in the value of its stock holdings in Alibaba Group and Yahoo Japan. Ms. Mayer had virtually nothing to do with the rise in value of these holdings, although there were some legal issues that needed to be resolved to allow Yahoo shareholders to reap these gains.
While the resolution of these issues was important to shareholders, lawyers usually are not paid $48 million a year. And of course, Yahoo did actually have to pay lawyers to resolve these issues in any case.
As far as turning around Yahoo’s core business, the piece concludes that Mayer failed, but it was likely impossible in any case. While this assessment may be accurate, it doesn’t make sense from the shareholder’s standpoint to pay someone $239 million to do something that is impossible.
It actually would have been possible to structure a contract for a CEO that based their pay on the rise in Yahoo’s stock value net of its holdings in Alibaba Group and Yahoo Japan. (The contract could have even included a performance bonus of $5 to $10 million for overseeing the resolution of the legal issues with these holdings — pretty good pay for very part-time work.) Such a contract would almost certainly have left Ms. Mayer with a much smaller paycheck and Yahoo shareholders with more money.
As it is, shareholders effectively gave up roughly 0.4 percent of the value of the company to cover her pay over the last five years. This can be thought of as the CEO tax.
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The NYT rightly criticized Donald Trump’s decision to pull the U.S. out of the Paris climate agreement, but part of its criticism is not right. It dismissed the idea that reducing greenhouse gas emissions would lead to job loss as “nonsense” that comes from “industry-friendly sources.” While the claim that reducing greenhouse gas emissions will lead to job loss may be nonsense, it is, in fact, the result that comes from standard economic models that are used all the time to project the impact of regulation policy, tax policy, health care, and trade policy.
These models are all full employment models, which means that everyone who wants to work at the market wage for their skills has a job. The way that reducing greenhouse gases reduces employment is by reducing the real wage. For example, if gas and electricity cost more, and wages have not risen to account for this increase, the real wage will be less. In these models, at a lower real wage fewer people will decide to work.
So, if complying with our Paris commitments causes the real wage to be 1.0 percent lower, then this may lead 0.5 percent fewer people to want to work, which translates into roughly 800,000 fewer people working. (These numbers are hypothetical, not taken from actual models.) So when Trump is citing models showing job loss associated with reducing greenhouse gas emissions, he is actually relying on mainstream economics (there is still a considerable range in this modeling, as some is almost deliberately dishonest).
There is one other point worth making on this topic. The military spending that Trump is so fond of also kills jobs in these models. Pre-Iraq War, we were on a path to be spending around 2.0 percent of GDP on the military. Instead, we’re looking at 3.3 percent now. A decade ago, CEPR contracted with Global Insight, one of the main econometric consulting firms, to project the impact of a sustained increase of 1.0 percentage point of GDP increase in military spending. It cost 700,000 jobs after two decades, mostly in construction and manufacturing.
In short, people may well want to reject the projections from these models — their track records have been pretty bad — but Trump is not just making this stuff up. And, the same sorts of models are widely used in other contexts (can you say “Trans-Pacific Partnership?”).
The NYT rightly criticized Donald Trump’s decision to pull the U.S. out of the Paris climate agreement, but part of its criticism is not right. It dismissed the idea that reducing greenhouse gas emissions would lead to job loss as “nonsense” that comes from “industry-friendly sources.” While the claim that reducing greenhouse gas emissions will lead to job loss may be nonsense, it is, in fact, the result that comes from standard economic models that are used all the time to project the impact of regulation policy, tax policy, health care, and trade policy.
These models are all full employment models, which means that everyone who wants to work at the market wage for their skills has a job. The way that reducing greenhouse gases reduces employment is by reducing the real wage. For example, if gas and electricity cost more, and wages have not risen to account for this increase, the real wage will be less. In these models, at a lower real wage fewer people will decide to work.
So, if complying with our Paris commitments causes the real wage to be 1.0 percent lower, then this may lead 0.5 percent fewer people to want to work, which translates into roughly 800,000 fewer people working. (These numbers are hypothetical, not taken from actual models.) So when Trump is citing models showing job loss associated with reducing greenhouse gas emissions, he is actually relying on mainstream economics (there is still a considerable range in this modeling, as some is almost deliberately dishonest).
There is one other point worth making on this topic. The military spending that Trump is so fond of also kills jobs in these models. Pre-Iraq War, we were on a path to be spending around 2.0 percent of GDP on the military. Instead, we’re looking at 3.3 percent now. A decade ago, CEPR contracted with Global Insight, one of the main econometric consulting firms, to project the impact of a sustained increase of 1.0 percentage point of GDP increase in military spending. It cost 700,000 jobs after two decades, mostly in construction and manufacturing.
In short, people may well want to reject the projections from these models — their track records have been pretty bad — but Trump is not just making this stuff up. And, the same sorts of models are widely used in other contexts (can you say “Trans-Pacific Partnership?”).
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That’s the question that Neil Irwin poses in his Upshot piece. He points to the drop in the unemployment rate to 4.3 percent, coupled with a drop in the labor force participation rate, and the weak job growth of the last three months. The argument is that these factors taken together could mean that there just are not that many more people interested in working.
This is a possibility, but there are some important data points pointing in the opposite direction. First, it is worth noting that the biggest drop in the employment-to-population ratio (EPOP) occurred among women between the ages of 25 to 34. Their EPOP fell by 0.9 percentage points in May, from 72.3 percent to 71.4 percent. This is not a group that anyone expects to be dropping out of the labor force in large numbers. This looks like a fluke, which indicates the decline in EPOP reported for May may just be due to measurement error rather than something that actually exists in the world. (These data are erratic, so a movement like this is not uncommon.)
In terms of factors pointing the other way, wage growth actually appears to be slowing, with the year-over-year rate of increase in the hourly wage dropping to 2.5 percent compared with 2.7 percent earlier in the year. If we take the average of the last three months compared with the average of the prior three months, the annual rate is just 2.2 percent. We don’t expect wage growth to be slowing as the labor market gets tighter.
Similarly, the percentage of unemployment due to people voluntarily quitting their jobs is relatively low at 11.7 percent. This is below the pre-recession levels, which often exceeded 12.0 percent and far below the peaks hit in 2000, which got above 15 percent. Workers still seem reluctant to leave a job if they don’t have a new job lined up.
There also is no increase in the length of the workweek. At 34.4 hours the average workweek is 0.1 hour shorter than its duration two years ago. We would expect employers to try to be getting more hours out of each worker if they were having trouble finding new workers.
In short, while 4.3 percent is a relatively low unemployment rate (and below most economists’ estimates of full employment) there are important ways in which the labor market does not look like one at full employment. Hopefully, the Federal Reserve Board will give us the opportunity to learn the answer to this question.
That’s the question that Neil Irwin poses in his Upshot piece. He points to the drop in the unemployment rate to 4.3 percent, coupled with a drop in the labor force participation rate, and the weak job growth of the last three months. The argument is that these factors taken together could mean that there just are not that many more people interested in working.
This is a possibility, but there are some important data points pointing in the opposite direction. First, it is worth noting that the biggest drop in the employment-to-population ratio (EPOP) occurred among women between the ages of 25 to 34. Their EPOP fell by 0.9 percentage points in May, from 72.3 percent to 71.4 percent. This is not a group that anyone expects to be dropping out of the labor force in large numbers. This looks like a fluke, which indicates the decline in EPOP reported for May may just be due to measurement error rather than something that actually exists in the world. (These data are erratic, so a movement like this is not uncommon.)
In terms of factors pointing the other way, wage growth actually appears to be slowing, with the year-over-year rate of increase in the hourly wage dropping to 2.5 percent compared with 2.7 percent earlier in the year. If we take the average of the last three months compared with the average of the prior three months, the annual rate is just 2.2 percent. We don’t expect wage growth to be slowing as the labor market gets tighter.
Similarly, the percentage of unemployment due to people voluntarily quitting their jobs is relatively low at 11.7 percent. This is below the pre-recession levels, which often exceeded 12.0 percent and far below the peaks hit in 2000, which got above 15 percent. Workers still seem reluctant to leave a job if they don’t have a new job lined up.
There also is no increase in the length of the workweek. At 34.4 hours the average workweek is 0.1 hour shorter than its duration two years ago. We would expect employers to try to be getting more hours out of each worker if they were having trouble finding new workers.
In short, while 4.3 percent is a relatively low unemployment rate (and below most economists’ estimates of full employment) there are important ways in which the labor market does not look like one at full employment. Hopefully, the Federal Reserve Board will give us the opportunity to learn the answer to this question.
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The Washington Post shamelessly uses both its news and opinion pages to push trade agreements. It famously even lied about Mexico’s GDP growth to tout the benefits of NAFTA, absurdly claiming it had quadrupled between 1987 and 2007 (the actual figure was 83 percent, according to the International Monetary Fund).
Given this background, it’s not surprising to see a piece that bemoaned the fact that Vietnam will not be able to get the large gains from the Trans-Pacific Partnership (TPP) projected for it in several models:
“Economists say Vietnam would have been one of the biggest winners of the deal. A 2016 study by the Peterson Institute of International Economics found that the Obama-era trade deal would have increased Vietnam’s gross domestic product by 8.1 percent by 2030, the most of any country in the deal, and expanded its exports by nearly a third. Economists expected the deal to expand access to foreign markets for Vietnamese producers of apparel, footwear and seafood, as well as stimulate economic reforms within the country.”
While many readers may see the rejection of the TPP by Trump (and likely Congress as well) as a serious misfortune for Vietnam, the good news is that the vast majority of the projected gains for Vietnam came from the reduction or removal of its own tariffs. This is something that the country can, in principle, do tomorrow if it wants those big 8.1 percent gains promised by the model cited.
Furthermore, Vietnam will not have to pay the higher prices for drugs and other items subject to longer and stronger patent and related protections as a result of the TPP. The model cited by the Post forgot to include the impact of the increase in these protections on economic growth. While most of the tariffs being reduced as a result of the TPP were already low, patent and copyright protections often raise the price of the protected items by several thousand percent above the free market price.
The other point worth mentioning is that the computable general equilibrium (CGE) models, like the one used to give this projection of gains for Vietnam from the TPP, have a horrible track record. In the case of the U.S. trade deal with Korea, the version of this model used by the United States International Trade Commission not only failed to predict the explosion in the U.S. trade deficit with Korea which followed the implementation of the deal, its prediction of the industries that would gain or lose from the pact had basically zero correlation with what actually happened.
In other words, there is little reason for Vietnam to spend time worrying about the projections from the CGE models showing it suffered as a result of the TPP’s demise. Of course, the models can be useful for advancing a political agenda.
The Washington Post shamelessly uses both its news and opinion pages to push trade agreements. It famously even lied about Mexico’s GDP growth to tout the benefits of NAFTA, absurdly claiming it had quadrupled between 1987 and 2007 (the actual figure was 83 percent, according to the International Monetary Fund).
Given this background, it’s not surprising to see a piece that bemoaned the fact that Vietnam will not be able to get the large gains from the Trans-Pacific Partnership (TPP) projected for it in several models:
“Economists say Vietnam would have been one of the biggest winners of the deal. A 2016 study by the Peterson Institute of International Economics found that the Obama-era trade deal would have increased Vietnam’s gross domestic product by 8.1 percent by 2030, the most of any country in the deal, and expanded its exports by nearly a third. Economists expected the deal to expand access to foreign markets for Vietnamese producers of apparel, footwear and seafood, as well as stimulate economic reforms within the country.”
While many readers may see the rejection of the TPP by Trump (and likely Congress as well) as a serious misfortune for Vietnam, the good news is that the vast majority of the projected gains for Vietnam came from the reduction or removal of its own tariffs. This is something that the country can, in principle, do tomorrow if it wants those big 8.1 percent gains promised by the model cited.
Furthermore, Vietnam will not have to pay the higher prices for drugs and other items subject to longer and stronger patent and related protections as a result of the TPP. The model cited by the Post forgot to include the impact of the increase in these protections on economic growth. While most of the tariffs being reduced as a result of the TPP were already low, patent and copyright protections often raise the price of the protected items by several thousand percent above the free market price.
The other point worth mentioning is that the computable general equilibrium (CGE) models, like the one used to give this projection of gains for Vietnam from the TPP, have a horrible track record. In the case of the U.S. trade deal with Korea, the version of this model used by the United States International Trade Commission not only failed to predict the explosion in the U.S. trade deficit with Korea which followed the implementation of the deal, its prediction of the industries that would gain or lose from the pact had basically zero correlation with what actually happened.
In other words, there is little reason for Vietnam to spend time worrying about the projections from the CGE models showing it suffered as a result of the TPP’s demise. Of course, the models can be useful for advancing a political agenda.
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