The NYT printed a column by Arthur Brooks which beautifully displayed how political elites misunderstand the appeal of Donald Trump. The piece, which is titled “those who don’t understand Trump are doomed to repeat them,” complained that many people see Trump’s rise as meaning, “that mainstream positions on issues such as trade and immigration must be fundamentally rethought.”
Brooks goes on to assert:
“The real issue is weak, unevenly shared growth. If we addressed this issue, and if people felt their lives improving, the appetite for invective on secondary issues such as trade and immigration would dissipate. So walking away from free enterprise principles on trade and immigration is not the solution.”
While the real issue is in fact unevenly shared growth, the fact is that we have not been following “free enterprise” principles on trade and immigration. Longer and stronger patent and copyright protections, which are the equivalent of tariffs of several thousand percent, are not “free enterprise.” Nor is a licensing system which prevents foreign trained doctors from practicing in the United States unless they complete a residency program in the United States part of most definitions of “free enterprise.” (Dentists have to complete a dental school in the U.S., although recently graduates of Canadian schools were also allowed to practice here.)
As a result of patent and related protections for prescription drugs we will pay more than $440 billion for drugs that would likely sell for around 10 percent of this price in a free market. The difference of close to $400 billion a year is more than five times the amount that we spend on food stamps and twenty times the amount that we spend on TANF. The “doctor tax” that we pay as a result of protectionism is close $100 billion annually. This is the difference between what we pay for doctors in the U.S. and what we would spend if our doctors were paid the same as doctors in Germany, Canada, or other wealthy countries.
These and other forms of protectionism are responsible for “unevenly shared growth.” The Trumpites will thrive both as long as such protections persist and even more so as long as our elites pretend that they are just the free market. This is of course the point of my new book, Rigged: How Globalization and the Rules of the Market Economy Were Structured to Make the Rich Richer.
The NYT printed a column by Arthur Brooks which beautifully displayed how political elites misunderstand the appeal of Donald Trump. The piece, which is titled “those who don’t understand Trump are doomed to repeat them,” complained that many people see Trump’s rise as meaning, “that mainstream positions on issues such as trade and immigration must be fundamentally rethought.”
Brooks goes on to assert:
“The real issue is weak, unevenly shared growth. If we addressed this issue, and if people felt their lives improving, the appetite for invective on secondary issues such as trade and immigration would dissipate. So walking away from free enterprise principles on trade and immigration is not the solution.”
While the real issue is in fact unevenly shared growth, the fact is that we have not been following “free enterprise” principles on trade and immigration. Longer and stronger patent and copyright protections, which are the equivalent of tariffs of several thousand percent, are not “free enterprise.” Nor is a licensing system which prevents foreign trained doctors from practicing in the United States unless they complete a residency program in the United States part of most definitions of “free enterprise.” (Dentists have to complete a dental school in the U.S., although recently graduates of Canadian schools were also allowed to practice here.)
As a result of patent and related protections for prescription drugs we will pay more than $440 billion for drugs that would likely sell for around 10 percent of this price in a free market. The difference of close to $400 billion a year is more than five times the amount that we spend on food stamps and twenty times the amount that we spend on TANF. The “doctor tax” that we pay as a result of protectionism is close $100 billion annually. This is the difference between what we pay for doctors in the U.S. and what we would spend if our doctors were paid the same as doctors in Germany, Canada, or other wealthy countries.
These and other forms of protectionism are responsible for “unevenly shared growth.” The Trumpites will thrive both as long as such protections persist and even more so as long as our elites pretend that they are just the free market. This is of course the point of my new book, Rigged: How Globalization and the Rules of the Market Economy Were Structured to Make the Rich Richer.
Read More Leer más Join the discussion Participa en la discusión
The Brexit vote was a case where the elites were clearly aligned against the U.K. leaving the European Union. While they had many good arguments on their side, and much of what the pro-Brexit crew was saying was nonsense, some of the elite gloating now also falls into the nonsense category.
In particular, the fall in the British pound is being taken as evidence that Brexit was a mistake. Actually, this is not really evidence of anything. The pound had become seriously over-valued in recent years causing the U.K. to run a current account deficit that is projected to be almost 6.0 percent of GDP for 2016. This is almost certainly not sustainable. The current account deficit also leads to a large gap in demand, which at the moment appears to be filled primarily by demand generated by a housing bubble.
Note that this is an economic quagmire created by the British elite: the establishment folks running the Bank of England and the Treasury Department. The Brexiters had nothing to do with it.
The correction for an excessive current account deficit is a fall in the value of the currency, which the U.K. is seeing now. Rather than being a negative for the economy, this is a positive development. It is the only plausible mechanism through which the U.K. can get closer to balanced trade. While the decline has undoubtedly been hastened by fears over Brexit, the bigger problem was letting the pound get so over-valued in the first place.
It is also worth noting that if the value of the pound is measured relative to the euro rather than the dollar, which is arguably the more appropriate yardstick, the pound has not fallen that sharply. It is still well above the lows it hit relative to the euro in 2008 and 2009.
As the U.K. loses part of its financial industry in the fallout from Brexit, it will need increased output in other areas to fill the gap created. A lower-valued pound would be an important part of this story. A lower-valued pound will make a wide range of U.K. produced goods and services more competitive internationally, reducing the size of the country’s trade deficit.
The long and short is that anyone who thinks the falling pound is the best evidence of the foolishness of Brexit doesn’t have a very good argument for their position.
The Brexit vote was a case where the elites were clearly aligned against the U.K. leaving the European Union. While they had many good arguments on their side, and much of what the pro-Brexit crew was saying was nonsense, some of the elite gloating now also falls into the nonsense category.
In particular, the fall in the British pound is being taken as evidence that Brexit was a mistake. Actually, this is not really evidence of anything. The pound had become seriously over-valued in recent years causing the U.K. to run a current account deficit that is projected to be almost 6.0 percent of GDP for 2016. This is almost certainly not sustainable. The current account deficit also leads to a large gap in demand, which at the moment appears to be filled primarily by demand generated by a housing bubble.
Note that this is an economic quagmire created by the British elite: the establishment folks running the Bank of England and the Treasury Department. The Brexiters had nothing to do with it.
The correction for an excessive current account deficit is a fall in the value of the currency, which the U.K. is seeing now. Rather than being a negative for the economy, this is a positive development. It is the only plausible mechanism through which the U.K. can get closer to balanced trade. While the decline has undoubtedly been hastened by fears over Brexit, the bigger problem was letting the pound get so over-valued in the first place.
It is also worth noting that if the value of the pound is measured relative to the euro rather than the dollar, which is arguably the more appropriate yardstick, the pound has not fallen that sharply. It is still well above the lows it hit relative to the euro in 2008 and 2009.
As the U.K. loses part of its financial industry in the fallout from Brexit, it will need increased output in other areas to fill the gap created. A lower-valued pound would be an important part of this story. A lower-valued pound will make a wide range of U.K. produced goods and services more competitive internationally, reducing the size of the country’s trade deficit.
The long and short is that anyone who thinks the falling pound is the best evidence of the foolishness of Brexit doesn’t have a very good argument for their position.
Read More Leer más Join the discussion Participa en la discusión
Okay, that’s not exactly what this piece on trade as a way to promote world peace said, but it is a logical implication. The piece was presenting the argument that free trade is a way to promote world peace since countries that trade with each other don’t want war to get in the way of their prosperity.
Of course if we accept this argument, then it can’t possibly make sense to claim that protectionist measures that some groups like are okay. So the protectionist measure that prohibits foreign doctors from practicing in the United States unless they complete a U.S. residency program is an obstacle to world peace. The same applies to the ban on foreign dentists who have not completed a dental program in the U.S., or in recent years, Canada as well. In the same vein, patent and copyright protections, which can be equivalent to tariffs of many thousand percent, should also be seen as major barriers to world peace.
After all, no one has made the argument that a protectionist barrier does not threaten world peace if rich people like it, although a Nobel prize in economics probably awaits anyone who does make this case.
Okay, that’s not exactly what this piece on trade as a way to promote world peace said, but it is a logical implication. The piece was presenting the argument that free trade is a way to promote world peace since countries that trade with each other don’t want war to get in the way of their prosperity.
Of course if we accept this argument, then it can’t possibly make sense to claim that protectionist measures that some groups like are okay. So the protectionist measure that prohibits foreign doctors from practicing in the United States unless they complete a U.S. residency program is an obstacle to world peace. The same applies to the ban on foreign dentists who have not completed a dental program in the U.S., or in recent years, Canada as well. In the same vein, patent and copyright protections, which can be equivalent to tariffs of many thousand percent, should also be seen as major barriers to world peace.
After all, no one has made the argument that a protectionist barrier does not threaten world peace if rich people like it, although a Nobel prize in economics probably awaits anyone who does make this case.
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
The Washington Post gave a column to Robert Rubin, the man best known for setting the U.S. economy on a path of bubble-driven growth in the late 1990s, the opportunity to share his wisdom on the economy. Unsurprisingly, Rubin proposes to cut Social Security and Medicare, as he has in times past. Of course, Rubin is not likely to need these programs since he earned over $100 million in his stint at Citigroup in the housing bubble years. The Financial Crisis Inquiry Commission recommended that the Justice Department investigate Rubin’s conduct at Citigroup during this period but for some reason it seems the Justice Department did not follow through.
The Washington Post gave a column to Robert Rubin, the man best known for setting the U.S. economy on a path of bubble-driven growth in the late 1990s, the opportunity to share his wisdom on the economy. Unsurprisingly, Rubin proposes to cut Social Security and Medicare, as he has in times past. Of course, Rubin is not likely to need these programs since he earned over $100 million in his stint at Citigroup in the housing bubble years. The Financial Crisis Inquiry Commission recommended that the Justice Department investigate Rubin’s conduct at Citigroup during this period but for some reason it seems the Justice Department did not follow through.
Read More Leer más Join the discussion Participa en la discusión
The desire to beat up on Donald Trump is understandable, but it is important to realize that not everything he says is wrong. For example, according to press accounts he adheres to the belief that the world is round.
Anyhow, Greg Ip goes a bit overboard in a Wall Street Journal piece where he argues that Trump’s claim that a trade deficit can be reduced or eliminated with tariffs is wrong. Referring to Trump’s approach to the trade deficit, Ip tells readers:
“But that is out of step with standard economics, which predicts that a country’s trade balance is determined by the gap between what it invests and saves, not by tariffs.”
As an accounting identity a country’s trade balance is always equal to the gap between what it invests and what it saves. This means that if the U.S. invests $200 billion a year more than it saves, then it will by definition be true that it has a trade deficit of $200 billion.
However, this accounting identity tells us nothing about causation. If we are below the full employment level of output, and Donald Trump’s tariffs or threats of tariffs, reduce our annual trade deficit by $200 billion (@ 1.1 percent of GDP), then this would lead to additional employment, output, and savings in the United States. A standard multiplier would suggest that a $200 billion reduction in the size of the trade deficit would lead to a $300 billion increase in GDP. This higher GDP would lead to more corporate and individual savings, as well as more tax revenue, which also count as savings. (The growth in GDP would also led to more imports, partially offsetting the initial improvement in the trade deficit.)
In other words, it is totally possible to reduce the size of the trade deficit as long as the economy is below its full employment-level of output. This is basic economic theory. Folks should be clear on this point, even if it suggests that Trump might be partly right on something.
The desire to beat up on Donald Trump is understandable, but it is important to realize that not everything he says is wrong. For example, according to press accounts he adheres to the belief that the world is round.
Anyhow, Greg Ip goes a bit overboard in a Wall Street Journal piece where he argues that Trump’s claim that a trade deficit can be reduced or eliminated with tariffs is wrong. Referring to Trump’s approach to the trade deficit, Ip tells readers:
“But that is out of step with standard economics, which predicts that a country’s trade balance is determined by the gap between what it invests and saves, not by tariffs.”
As an accounting identity a country’s trade balance is always equal to the gap between what it invests and what it saves. This means that if the U.S. invests $200 billion a year more than it saves, then it will by definition be true that it has a trade deficit of $200 billion.
However, this accounting identity tells us nothing about causation. If we are below the full employment level of output, and Donald Trump’s tariffs or threats of tariffs, reduce our annual trade deficit by $200 billion (@ 1.1 percent of GDP), then this would lead to additional employment, output, and savings in the United States. A standard multiplier would suggest that a $200 billion reduction in the size of the trade deficit would lead to a $300 billion increase in GDP. This higher GDP would lead to more corporate and individual savings, as well as more tax revenue, which also count as savings. (The growth in GDP would also led to more imports, partially offsetting the initial improvement in the trade deficit.)
In other words, it is totally possible to reduce the size of the trade deficit as long as the economy is below its full employment-level of output. This is basic economic theory. Folks should be clear on this point, even if it suggests that Trump might be partly right on something.
Read More Leer más Join the discussion Participa en la discusión
There aren’t many people who still regard former Treasury Secretary Robert Rubin with much respect. After all, his high-dollar policy was what caused the U.S. trade deficit to explode beginning in the late 1990s. It went from just over 1.0 percent of GDP in 1996 to almost 4.0 percent by the time President Clinton left office in 2000, and eventually peaked at almost 6.0 percent of GDP ($1.1 trillion in today’s economy) in 2005. These trade deficits created enormous holes in demand which were filled by the stock bubble in the late 1990s and the housing bubble in the last decade.
In both cases, the collapse of the bubbles were really bad news for the country. The labor force didn’t get back the jobs lost from the recession following the collapse of the stock bubble until January of 2005. At the time it was the longest period without net job growth since the Great Depression. Of course, the impact of the recession following the collapse of the housing bubble was even more severe.
Given this history, most folks don’t hold Robert Rubin in high regard today, with the exception of the Washington Post. Yesterday, the paper gave Rubin the opportunity to share his wisdom in his own column. Today, it gave a column to two of the leaders of the Wall Street-funded group Third Way. The column was a warning to Hillary Clinton not to fill her cabinet with progressives. It instead argued for the importance of people who understand capital markets, with Robert Rubin topping its list as an example of the sort of person that Secretary Clinton should be looking for.
While the rest of us may not think too well of Rubin at this point, there is a sense in which it is possible to think highly of the guy. Rubin managed to walk away with over $100 million from his stint at Citigroup, a bank which was at the epicenter of the financial crisis and perhaps the bank that most directly benefitted from the deregulation that Rubin engineered as Treasury Secretary.
In this sense, just as Rudy Giuliani argued that Donald Trump was a genius for managing to avoid paying taxes for 18 years, perhaps our Third Wayers think of Rubin as a genius for being able to personally profit from an economic catastrophe. It’s good to know that we have such geniuses in both political parties.
There aren’t many people who still regard former Treasury Secretary Robert Rubin with much respect. After all, his high-dollar policy was what caused the U.S. trade deficit to explode beginning in the late 1990s. It went from just over 1.0 percent of GDP in 1996 to almost 4.0 percent by the time President Clinton left office in 2000, and eventually peaked at almost 6.0 percent of GDP ($1.1 trillion in today’s economy) in 2005. These trade deficits created enormous holes in demand which were filled by the stock bubble in the late 1990s and the housing bubble in the last decade.
In both cases, the collapse of the bubbles were really bad news for the country. The labor force didn’t get back the jobs lost from the recession following the collapse of the stock bubble until January of 2005. At the time it was the longest period without net job growth since the Great Depression. Of course, the impact of the recession following the collapse of the housing bubble was even more severe.
Given this history, most folks don’t hold Robert Rubin in high regard today, with the exception of the Washington Post. Yesterday, the paper gave Rubin the opportunity to share his wisdom in his own column. Today, it gave a column to two of the leaders of the Wall Street-funded group Third Way. The column was a warning to Hillary Clinton not to fill her cabinet with progressives. It instead argued for the importance of people who understand capital markets, with Robert Rubin topping its list as an example of the sort of person that Secretary Clinton should be looking for.
While the rest of us may not think too well of Rubin at this point, there is a sense in which it is possible to think highly of the guy. Rubin managed to walk away with over $100 million from his stint at Citigroup, a bank which was at the epicenter of the financial crisis and perhaps the bank that most directly benefitted from the deregulation that Rubin engineered as Treasury Secretary.
In this sense, just as Rudy Giuliani argued that Donald Trump was a genius for managing to avoid paying taxes for 18 years, perhaps our Third Wayers think of Rubin as a genius for being able to personally profit from an economic catastrophe. It’s good to know that we have such geniuses in both political parties.
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
A NYT piece discussing the tax rules surrounding business losses like the $916 million loss taken by Donald Trump on his 1995 tax return left out an important aspect of the law. The piece points out that many small businesses are organized as “pass-through” corporations, which means that the profits, or losses in this case, are directly passed through to the owners to declare on their tax returns.
However, these corporations also have the important benefit of limited liability. This means that if Donald Trump’s business dumps hazardous waste in a poor neighborhood, leading to an increase in birth defects and cancer, the victims can only sue Donald Trump’s corporation, not Donald Trump. If the corporation goes bankrupt, then the victims would be out of luck, even if Donald Trump still was a very rich person. They would not be able to go after his personal assets.
The rationale for the corporate income tax is that the corporation is an artificial individual. (This is also the basis under which the Supreme Court has bestowed it with free speech rights.) The income tax is a quid pro quo for the benefits of corporate status. A pass-through corporation gets to enjoy the benefits of corporate status without having to pay the corresponding taxes.
It may not take a “genius” like Donald Trump to take advantage of this loophole, but it was a pretty good sleight of hand to slip it into the tax code. It’s yet another way to redistribute income upward.
A NYT piece discussing the tax rules surrounding business losses like the $916 million loss taken by Donald Trump on his 1995 tax return left out an important aspect of the law. The piece points out that many small businesses are organized as “pass-through” corporations, which means that the profits, or losses in this case, are directly passed through to the owners to declare on their tax returns.
However, these corporations also have the important benefit of limited liability. This means that if Donald Trump’s business dumps hazardous waste in a poor neighborhood, leading to an increase in birth defects and cancer, the victims can only sue Donald Trump’s corporation, not Donald Trump. If the corporation goes bankrupt, then the victims would be out of luck, even if Donald Trump still was a very rich person. They would not be able to go after his personal assets.
The rationale for the corporate income tax is that the corporation is an artificial individual. (This is also the basis under which the Supreme Court has bestowed it with free speech rights.) The income tax is a quid pro quo for the benefits of corporate status. A pass-through corporation gets to enjoy the benefits of corporate status without having to pay the corresponding taxes.
It may not take a “genius” like Donald Trump to take advantage of this loophole, but it was a pretty good sleight of hand to slip it into the tax code. It’s yet another way to redistribute income upward.
Read More Leer más Join the discussion Participa en la discusión
