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It is unfortunate that it now acceptable in polite circles to connect a view with Donald Trump and then dismiss it. The result is that many fallacious arguments can now be accepted without being seriously questioned. (Hey folks, I hear Donald Trump believes in evolution.)
The Post plays this game in noting that the U.S. trade deficit with Germany is now larger than its deficit with Mexico, putting Germany second only to China. It then asks why people aren’t upset about the trade deficit with Germany.
It partly answers this story itself. Germany’s huge trade surplus stems in large part from the fact that it is in the euro zone. The euro might be properly valued against the dollar, but because Germany is the most competitive country in the euro zone, it effectively has an under-valued currency relative to the dollar.
The answer to this problem would be to get Germany to have more inflationary policies to allow other countries to regain competitiveness — just as the other euro zone countries were generous enough to run inflationary policies in the first half of the last decade to allow Germany to regain competitiveness. However, the Germans refuse to return this favor because their great, great, great, great grandparents lived through the hyper-inflation in Weimar Germany. (Yes, they say this.)
Anyhow, this issue has actually gotten considerable attention from economists and other policy types. Unfortunately, it is very difficult to force a country in the euro zone — especially the largest country — to run more expansionary policies. As a result, Germany is forcing depression conditions on the countries of southern Europe and running a large trade surplus with the United States.
The other part of the difference between Germany and China and Mexico is that Germany is a rich country, while China and Mexico are developing countries. Folks that took intro econ courses know that rich countries are expected to run trade surpluses.
The story is that rich countries are slow growing with a large amount of capital. By contrast, developing countries are supposed to be fast growing (okay, that doesn’t apply to post-NAFTA Mexico), with relatively little capital. Capital then flows from where it is relatively plentiful and getting a low return to developing countries where it is scarce and can get a high return.
The outflow of capital from rich countries implies a trade surplus with developing countries. Developing countries are in turn supposed to be borrowing capital to finance trade deficits. These trade deficits allow them to build up their capital stocks even as they maintain the consumption standards of their populations.
In the case of the large trade surpluses run by China and other developing countries, we are seeing the opposite of the textbook story. We are seeing fast growing developing countries with outflows of capital. This is largely because they have had a policy of deliberately depressing the value of their currencies by buying up large amounts of foreign reserves (mostly dollars.)
So the economics textbooks explain clearly why we should see the trade deficits that the U.S. runs with China and Mexico as being different than the one it runs with Germany. And that happens to be true regardless of what Donald Trump may or may not say.
By the way, this piece also asserts that “Germany on average has lower wages than Belgium or Ireland.” This is not true according to our friends at the Bureau of Labor Statistics.
It is unfortunate that it now acceptable in polite circles to connect a view with Donald Trump and then dismiss it. The result is that many fallacious arguments can now be accepted without being seriously questioned. (Hey folks, I hear Donald Trump believes in evolution.)
The Post plays this game in noting that the U.S. trade deficit with Germany is now larger than its deficit with Mexico, putting Germany second only to China. It then asks why people aren’t upset about the trade deficit with Germany.
It partly answers this story itself. Germany’s huge trade surplus stems in large part from the fact that it is in the euro zone. The euro might be properly valued against the dollar, but because Germany is the most competitive country in the euro zone, it effectively has an under-valued currency relative to the dollar.
The answer to this problem would be to get Germany to have more inflationary policies to allow other countries to regain competitiveness — just as the other euro zone countries were generous enough to run inflationary policies in the first half of the last decade to allow Germany to regain competitiveness. However, the Germans refuse to return this favor because their great, great, great, great grandparents lived through the hyper-inflation in Weimar Germany. (Yes, they say this.)
Anyhow, this issue has actually gotten considerable attention from economists and other policy types. Unfortunately, it is very difficult to force a country in the euro zone — especially the largest country — to run more expansionary policies. As a result, Germany is forcing depression conditions on the countries of southern Europe and running a large trade surplus with the United States.
The other part of the difference between Germany and China and Mexico is that Germany is a rich country, while China and Mexico are developing countries. Folks that took intro econ courses know that rich countries are expected to run trade surpluses.
The story is that rich countries are slow growing with a large amount of capital. By contrast, developing countries are supposed to be fast growing (okay, that doesn’t apply to post-NAFTA Mexico), with relatively little capital. Capital then flows from where it is relatively plentiful and getting a low return to developing countries where it is scarce and can get a high return.
The outflow of capital from rich countries implies a trade surplus with developing countries. Developing countries are in turn supposed to be borrowing capital to finance trade deficits. These trade deficits allow them to build up their capital stocks even as they maintain the consumption standards of their populations.
In the case of the large trade surpluses run by China and other developing countries, we are seeing the opposite of the textbook story. We are seeing fast growing developing countries with outflows of capital. This is largely because they have had a policy of deliberately depressing the value of their currencies by buying up large amounts of foreign reserves (mostly dollars.)
So the economics textbooks explain clearly why we should see the trade deficits that the U.S. runs with China and Mexico as being different than the one it runs with Germany. And that happens to be true regardless of what Donald Trump may or may not say.
By the way, this piece also asserts that “Germany on average has lower wages than Belgium or Ireland.” This is not true according to our friends at the Bureau of Labor Statistics.
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A few days ago I argued that one way to get around the tax games that Apple and other corporations play is to require them to turn over a proportion of their stock in the form of non-voting shares. These shares would get the same benefits that any voting shares would receive in the form of dividends and share buybacks, but would give the government no say in the running of the company. This should get rid of most of the opportunities for gaming the tax system and assure the government its targeted percentage of corporate profits.
Bruce Bartlett, who was an economist in the Reagan and Bush I administrations, reminded me of his even simpler approach. Bruce suggests that the government tax corporations at some percentage of their market capitalization on a randomly selected date in the prior calendar quarter.
Suppose that the goal is to get an amount of tax revenue equal to 25 percent of corporate profits (a bit more than we now take in). If the ratio of stock prices to after-tax profits is 24 to 1 (roughly current levels), then the ratio of stock prices to before-tax profit is 18 to 1, implying that profits are 5.6 percent of the share price. If we want to collect 25 percent of the profits in taxes, then we would require companies to pay 1.9 percent of their share price on a randomly selected date from the prior quarter. (Actually, since we are looking at four quarterly payments, each would be one-fourth of this amount, or 0.475 percent of the share price.)
It’s difficult to see how corporations can game this one. We also need to have a mechanism for taxing privately held companies. (My addendum would be to have an annual assessment of the company to determine its market value. This would be less precise than actually having a market value to directly rely upon, but there is no reason to assume an obvious bias in the mechanism. Also, if a company felt that the auditors were consistently giving it an excessive valuation, it would provide a strong incentive to go public.)
Anyhow, progressives should be looking for these sort of simple mechanisms for getting the money out of the Apples and other tax schemers in the world. We need the revenue and we also should want to put the tax gaming industry out of business. There are a lot of people getting very rich because of their cleverness in finding ways to get around the tax code. This is a major source of inequality and a waste from an economic standpoint.
Note: Bruce directs me to a 2007 Tax Notes article by Calvin Johnson as the basis for this idea.
A few days ago I argued that one way to get around the tax games that Apple and other corporations play is to require them to turn over a proportion of their stock in the form of non-voting shares. These shares would get the same benefits that any voting shares would receive in the form of dividends and share buybacks, but would give the government no say in the running of the company. This should get rid of most of the opportunities for gaming the tax system and assure the government its targeted percentage of corporate profits.
Bruce Bartlett, who was an economist in the Reagan and Bush I administrations, reminded me of his even simpler approach. Bruce suggests that the government tax corporations at some percentage of their market capitalization on a randomly selected date in the prior calendar quarter.
Suppose that the goal is to get an amount of tax revenue equal to 25 percent of corporate profits (a bit more than we now take in). If the ratio of stock prices to after-tax profits is 24 to 1 (roughly current levels), then the ratio of stock prices to before-tax profit is 18 to 1, implying that profits are 5.6 percent of the share price. If we want to collect 25 percent of the profits in taxes, then we would require companies to pay 1.9 percent of their share price on a randomly selected date from the prior quarter. (Actually, since we are looking at four quarterly payments, each would be one-fourth of this amount, or 0.475 percent of the share price.)
It’s difficult to see how corporations can game this one. We also need to have a mechanism for taxing privately held companies. (My addendum would be to have an annual assessment of the company to determine its market value. This would be less precise than actually having a market value to directly rely upon, but there is no reason to assume an obvious bias in the mechanism. Also, if a company felt that the auditors were consistently giving it an excessive valuation, it would provide a strong incentive to go public.)
Anyhow, progressives should be looking for these sort of simple mechanisms for getting the money out of the Apples and other tax schemers in the world. We need the revenue and we also should want to put the tax gaming industry out of business. There are a lot of people getting very rich because of their cleverness in finding ways to get around the tax code. This is a major source of inequality and a waste from an economic standpoint.
Note: Bruce directs me to a 2007 Tax Notes article by Calvin Johnson as the basis for this idea.
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The efforts by many elite types to deny basic statistics and to tout the new technologies transforming the workplace are truly Trumpian in their nature. According to the OECD, productivity growth in the UK was essentially zero between 2007 and 2014 (the most recent year for which it has data). So we would naturally expect that the Guardian would run a column telling us that globalization and new technologies are making old workplace relations obsolete.
As John Harris tells readers:
“In a world in which businesses can survey their order books on an hourly basis and temporarily hire staff at the touch of a button, why would they base their arrangements on agreements that last for years?”
Well, a big part of the story is that the UK (like the U.S.) has a very weak labor market. This was a result of conscious policy decisions. The Conservative government put in a policy of austerity that had the effect of reducing demand in the UK and slowing the rate of job creation. In this context, of course employers get to call the shots.
Serious people would address the context which has denied workers bargaining power. It is not “technology” as Harris and his elite Trumpians would like to pretend, it is macroeconomic policy. But Harris has no time for talking about macroeconomic policy. He dismisses a plan put forward by Labor Party Leader Jeremy Corbyn to produce full employment as, “either naive or dishonest” adding “but they reflect delusions that run throughout Labour and the left.”
There we have it, in elite Trumpland we don’t have to deal with data or arguments; we can just dismiss people and ideas with ad hominem arguments.
If the Guardian allowed a serious person to address the set of questions raised in this piece they would look not only at the macroeconomic policies that have denied ordinary workers bargaining power, but also the government policies that allow the winners to win.
At the top of the list would be the policies that have favored the financial sector. Even the I.M.F. has noted that the financial sector is undertaxed relative to other industries. A modest financial transactions tax applied to the non-equity UK market would do wonders for increasing the efficiency of the sector. (The U.K. already taxes equity trades at a rate of 0.5 percent.)
We should also ask about the extent to which government granted patent and copyright monopolies are redistributing income upward. Patent monopolies are created by governments, they don’t grow out of the technology. And we should also ask whether the corporate governance structure is effectively allowing shareholders to control the pay of CEOs and other top executives. The structure clearly does not work in the case of the U.S., I suspect the problems are similar in the U.K., if not as bad.[1]
Not everything in Harris’ piece is wrong. It would be great to see the left more focused on shorter workweeks and longer vacations. (Many on the left already are.) And certainly there needs to be more focus on non work aspects of life. But the diagnosis of the basic problem in this piece has more to do with Donald Trumpland than the real world.
[1] These and other topics are discussed in my forthcoming book, “Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.” Coming soon to a website near you.
Note: An earlier version identified Labor’s leader as “Jerry Corbin.” Thanks to several people for pointing out this error.
The efforts by many elite types to deny basic statistics and to tout the new technologies transforming the workplace are truly Trumpian in their nature. According to the OECD, productivity growth in the UK was essentially zero between 2007 and 2014 (the most recent year for which it has data). So we would naturally expect that the Guardian would run a column telling us that globalization and new technologies are making old workplace relations obsolete.
As John Harris tells readers:
“In a world in which businesses can survey their order books on an hourly basis and temporarily hire staff at the touch of a button, why would they base their arrangements on agreements that last for years?”
Well, a big part of the story is that the UK (like the U.S.) has a very weak labor market. This was a result of conscious policy decisions. The Conservative government put in a policy of austerity that had the effect of reducing demand in the UK and slowing the rate of job creation. In this context, of course employers get to call the shots.
Serious people would address the context which has denied workers bargaining power. It is not “technology” as Harris and his elite Trumpians would like to pretend, it is macroeconomic policy. But Harris has no time for talking about macroeconomic policy. He dismisses a plan put forward by Labor Party Leader Jeremy Corbyn to produce full employment as, “either naive or dishonest” adding “but they reflect delusions that run throughout Labour and the left.”
There we have it, in elite Trumpland we don’t have to deal with data or arguments; we can just dismiss people and ideas with ad hominem arguments.
If the Guardian allowed a serious person to address the set of questions raised in this piece they would look not only at the macroeconomic policies that have denied ordinary workers bargaining power, but also the government policies that allow the winners to win.
At the top of the list would be the policies that have favored the financial sector. Even the I.M.F. has noted that the financial sector is undertaxed relative to other industries. A modest financial transactions tax applied to the non-equity UK market would do wonders for increasing the efficiency of the sector. (The U.K. already taxes equity trades at a rate of 0.5 percent.)
We should also ask about the extent to which government granted patent and copyright monopolies are redistributing income upward. Patent monopolies are created by governments, they don’t grow out of the technology. And we should also ask whether the corporate governance structure is effectively allowing shareholders to control the pay of CEOs and other top executives. The structure clearly does not work in the case of the U.S., I suspect the problems are similar in the U.K., if not as bad.[1]
Not everything in Harris’ piece is wrong. It would be great to see the left more focused on shorter workweeks and longer vacations. (Many on the left already are.) And certainly there needs to be more focus on non work aspects of life. But the diagnosis of the basic problem in this piece has more to do with Donald Trumpland than the real world.
[1] These and other topics are discussed in my forthcoming book, “Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.” Coming soon to a website near you.
Note: An earlier version identified Labor’s leader as “Jerry Corbin.” Thanks to several people for pointing out this error.
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While Elizabeth Warren is praising the European Union’s crackdown on Apple’s Ireland tax scheme, Jack Lew and the Obama Treasury Department are going to bat for corporate tax cheating. Warren is far too optimistic about the prospect of a successful crackdown. These folks are prepared to spend a lot of money to hide their profits from tax authorities and they are likely to find accomplices in many Irelands around the world.
It would be good to look in a different direction. I remain a big fan of my proposal for companies to turn over non-voting shares of stock to the government. In that case, what goes to the shareholders also goes to the government. Unless you cheat your shareholders, you can’t cheat the government.
I know this is probably too simple to be taken seriously in policy circles, but those who care about an efficient and effective way to collect corporate taxes should be thinking about it.
While Elizabeth Warren is praising the European Union’s crackdown on Apple’s Ireland tax scheme, Jack Lew and the Obama Treasury Department are going to bat for corporate tax cheating. Warren is far too optimistic about the prospect of a successful crackdown. These folks are prepared to spend a lot of money to hide their profits from tax authorities and they are likely to find accomplices in many Irelands around the world.
It would be good to look in a different direction. I remain a big fan of my proposal for companies to turn over non-voting shares of stock to the government. In that case, what goes to the shareholders also goes to the government. Unless you cheat your shareholders, you can’t cheat the government.
I know this is probably too simple to be taken seriously in policy circles, but those who care about an efficient and effective way to collect corporate taxes should be thinking about it.
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No one expects NYT columnists to have any knowledge of the topics on which they write, which is a very good thing for David Brooks. In his column belittling the impact of the Affordable Care Act (ACA), he never once mentioned the requirement that insurers charge everyone the same premium, regardless of their health.
Brooks focuses on the health care exchanges, which do in fact have fewer participants than expected. The main reason for the shortfall is not that fewer people are being insured, as Brooks implies, it is rather that fewer employers dropped coverage than expected. (Brooks also repeats the silly “young invincible” story, that the problem is too few young healthy people signing up. The exchanges need healthy people, and it is actually better if they are older healthy people, since older people pay higher premiums.)
Brooks argues that the exchanges are disproportionately drawing lower-income people, which makes them another low-income program, like Medicaid, rather than a universal program like Medicare. Apparently Brooks did not realize that the ACA also requires that all insurers charge patients the same premium regardless of their health condition. This was a huge change in the insurance market since it means that even people with serious health problems, like cancer survivors and people with heart conditions, can get insurance at the same price as anyone else of the same age.
Before the ACA, these people could expect to pay tens of thousands of dollars a year for insurance, if they could get it at all. As a practical matter, this meant that before the ACA most people really didn’t have insurance against serious health conditions. Often these conditions would force a worker to leave their job, which was generally the source of their insurance. Once they left their job, they would then be forced to buy insurance in the individual market where insurers could charge them a premium based on their health condition. The ACA fundamentally changed this situation, but apparently Brooks never noticed.
Note: I wanted to get folks the actual data (bonus points to anyone who can get this info to Brooks before he writes his next column on the topic). In 2012, before the key provisions of the ACA took effect, the Congressional Budget Office (CBO) projected that the uninsured population would fall to 32 million by 2015. In fact, it fell to 32 million by 2014, a year in which it was projected there would still be 38 million uninsured people. According to data from Gallup, the number of uninsured non-elderly fell to less than 28 million by the fourth quarter of 2015.
No one expects NYT columnists to have any knowledge of the topics on which they write, which is a very good thing for David Brooks. In his column belittling the impact of the Affordable Care Act (ACA), he never once mentioned the requirement that insurers charge everyone the same premium, regardless of their health.
Brooks focuses on the health care exchanges, which do in fact have fewer participants than expected. The main reason for the shortfall is not that fewer people are being insured, as Brooks implies, it is rather that fewer employers dropped coverage than expected. (Brooks also repeats the silly “young invincible” story, that the problem is too few young healthy people signing up. The exchanges need healthy people, and it is actually better if they are older healthy people, since older people pay higher premiums.)
Brooks argues that the exchanges are disproportionately drawing lower-income people, which makes them another low-income program, like Medicaid, rather than a universal program like Medicare. Apparently Brooks did not realize that the ACA also requires that all insurers charge patients the same premium regardless of their health condition. This was a huge change in the insurance market since it means that even people with serious health problems, like cancer survivors and people with heart conditions, can get insurance at the same price as anyone else of the same age.
Before the ACA, these people could expect to pay tens of thousands of dollars a year for insurance, if they could get it at all. As a practical matter, this meant that before the ACA most people really didn’t have insurance against serious health conditions. Often these conditions would force a worker to leave their job, which was generally the source of their insurance. Once they left their job, they would then be forced to buy insurance in the individual market where insurers could charge them a premium based on their health condition. The ACA fundamentally changed this situation, but apparently Brooks never noticed.
Note: I wanted to get folks the actual data (bonus points to anyone who can get this info to Brooks before he writes his next column on the topic). In 2012, before the key provisions of the ACA took effect, the Congressional Budget Office (CBO) projected that the uninsured population would fall to 32 million by 2015. In fact, it fell to 32 million by 2014, a year in which it was projected there would still be 38 million uninsured people. According to data from Gallup, the number of uninsured non-elderly fell to less than 28 million by the fourth quarter of 2015.
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Seriously, the Post ran a major front page article in its Sunday business section telling us that “big business lost Washington.” The piece does acknowledge that business lobbies are still very effective in getting special deals for their industry, like favorable tax treatment for offshore profits and low-cost access to public lands for fossil fuel extraction, but it complains that business leaders are not openly setting the national agenda.
It’s not clear where exactly business leaders are seeing their needs go unmet. One of the most fundamental items on the national agenda is returning to full employment. Here the business community, lead by groups like the Peter Peterson funded organization “Fix the Debt,” along with the Washington Post, played a large role in pushing the government towards austerity in 2011. The result was sharply slower growth and much less job creation than would otherwise be the case.
This has been good news for many businesses, since the weak labor market led to an extraordinary leap in the profit share of national income. The cost to the rest of the country has been enormous, with millions of people needlessly being kept from working and tens of millions forced to accept much lower pay than would have been the case in a healthy labor market.
It’s more than a bit bizarre to complain that the business interests who were able to impose such enormous costs on the rest of society in order to advance their agenda have no power in Washington. Of course it is understandable that they would prefer the public not recognize their power.
Seriously, the Post ran a major front page article in its Sunday business section telling us that “big business lost Washington.” The piece does acknowledge that business lobbies are still very effective in getting special deals for their industry, like favorable tax treatment for offshore profits and low-cost access to public lands for fossil fuel extraction, but it complains that business leaders are not openly setting the national agenda.
It’s not clear where exactly business leaders are seeing their needs go unmet. One of the most fundamental items on the national agenda is returning to full employment. Here the business community, lead by groups like the Peter Peterson funded organization “Fix the Debt,” along with the Washington Post, played a large role in pushing the government towards austerity in 2011. The result was sharply slower growth and much less job creation than would otherwise be the case.
This has been good news for many businesses, since the weak labor market led to an extraordinary leap in the profit share of national income. The cost to the rest of the country has been enormous, with millions of people needlessly being kept from working and tens of millions forced to accept much lower pay than would have been the case in a healthy labor market.
It’s more than a bit bizarre to complain that the business interests who were able to impose such enormous costs on the rest of society in order to advance their agenda have no power in Washington. Of course it is understandable that they would prefer the public not recognize their power.
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In pushing trade agreements it is fair to say anything, even if it has no relationship to the truth. Therefore it is not surprising to see Fareed Zakaria pushing the Trans-Pacific Partnership (TPP) by claiming that it will boost growth and attacking Bernie Sanders for opposing “trade policies that have lifted hundreds of millions of the world’s poorest people out of poverty.”
First, the impact on growth will be trivial. According to the International Trade Commission’s assessment, the TPP will boost the annual growth rate over the next fifteen years by less than 0.02 percentage points. And, this projection does not take account of the negative impact of the protectionist measures in the TPP, such as stronger and longer copyright and patent protection. These measures have the same impact on the protected items as tariffs of several thousand percent.
Zakaria then gets into straight out confusion when he tells readers that the TPP is a good deal for the United States because:
“Asian countries have made most of the concessions. And because their markets are more closed than the United States’, the deal’s net result will be to open them more.”
Actually in standard trade theory, most of the benefits from lowering tariffs accrue to the countries that lower them. In trade theory, it benefits their consumers. Overall, trade balances are not affected. This is why the very pro-TPP Peterson Institute shows that by far the largest gains to TPP accrue to Vietnam. It lowers its tariffs by the most under the terms of the deal.
In terms of the attack on Bernie Sanders for opposing the world’s poor, Zakaria is again confused. In the standard trade story, capital is supposed to flow from rich countries like the United States to poor countries in the developing world. That would mean rich countries run trade surpluses and poor countries run trade deficits. This allows poor countries to sustain consumption levels even as they build up their capital stock.
The world actually looked like this in the early and mid-1990s, especially for the fast-growing countries of East Asia. Malaysia, Vietnam, South Korea, and Thailand all had very large trade deficits even as their economies grew very rapidly. This reversed following the East Asian financial crisis in 1997. The terms imposed by the Clinton Treasury department through the I.M.F. forced these countries to start running large trade surpluses. As a result, the countries in the region had considerably slower growth in the subsequent two decades than they did from 1990 to 1997.
There is no reason, in principle, that these countries could have not continued to grow rapidly along the standard path of running trade deficits. It was a policy decision to force them to run trade surpluses. In other words, this is yet another gratuitous swipe at Bernie Sanders of the sort that readers have come to expect from the Washington Post.
At the end of the day, the TPP is about increasing the power of large corporations, who contribute heavily to political campaigns and offer former politicians high-paying lobbyist jobs, at the expense of the people of the region. Its proponents will say whatever they think is necessary to sell the pact, even if it has nothing to do with reality.
In pushing trade agreements it is fair to say anything, even if it has no relationship to the truth. Therefore it is not surprising to see Fareed Zakaria pushing the Trans-Pacific Partnership (TPP) by claiming that it will boost growth and attacking Bernie Sanders for opposing “trade policies that have lifted hundreds of millions of the world’s poorest people out of poverty.”
First, the impact on growth will be trivial. According to the International Trade Commission’s assessment, the TPP will boost the annual growth rate over the next fifteen years by less than 0.02 percentage points. And, this projection does not take account of the negative impact of the protectionist measures in the TPP, such as stronger and longer copyright and patent protection. These measures have the same impact on the protected items as tariffs of several thousand percent.
Zakaria then gets into straight out confusion when he tells readers that the TPP is a good deal for the United States because:
“Asian countries have made most of the concessions. And because their markets are more closed than the United States’, the deal’s net result will be to open them more.”
Actually in standard trade theory, most of the benefits from lowering tariffs accrue to the countries that lower them. In trade theory, it benefits their consumers. Overall, trade balances are not affected. This is why the very pro-TPP Peterson Institute shows that by far the largest gains to TPP accrue to Vietnam. It lowers its tariffs by the most under the terms of the deal.
In terms of the attack on Bernie Sanders for opposing the world’s poor, Zakaria is again confused. In the standard trade story, capital is supposed to flow from rich countries like the United States to poor countries in the developing world. That would mean rich countries run trade surpluses and poor countries run trade deficits. This allows poor countries to sustain consumption levels even as they build up their capital stock.
The world actually looked like this in the early and mid-1990s, especially for the fast-growing countries of East Asia. Malaysia, Vietnam, South Korea, and Thailand all had very large trade deficits even as their economies grew very rapidly. This reversed following the East Asian financial crisis in 1997. The terms imposed by the Clinton Treasury department through the I.M.F. forced these countries to start running large trade surpluses. As a result, the countries in the region had considerably slower growth in the subsequent two decades than they did from 1990 to 1997.
There is no reason, in principle, that these countries could have not continued to grow rapidly along the standard path of running trade deficits. It was a policy decision to force them to run trade surpluses. In other words, this is yet another gratuitous swipe at Bernie Sanders of the sort that readers have come to expect from the Washington Post.
At the end of the day, the TPP is about increasing the power of large corporations, who contribute heavily to political campaigns and offer former politicians high-paying lobbyist jobs, at the expense of the people of the region. Its proponents will say whatever they think is necessary to sell the pact, even if it has nothing to do with reality.
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The NYT had a piece headlined “economists discuss differences that divide them,” which contrasted the views on the economy of Michael Gapen, chief United States economist at Barclays, and Stephanie Pomboy, founder of MacroMavens, an independent economics consulting firm. The first item where they presented contrasting views was on consumption patterns.
While Gapen thinks consumption will be strong the rest of the year and beyond, Pomboy is quoted as saying:
“After the bursting of the housing bubble and the Great Recession, there has been a generational shift away from spending toward saving among consumers. The great consumer credit boom of the 1980s, 1990s and 2000s is over. The savings rate has moved higher and this new impulse to save leads to a sluggish pace for growth.”
Actually, this is an area where we have data, so we don’t just have to speculate about the future. Consumption has actually been quite high in recent years as shown below.
Consumption is almost 69 percent of GDP. The only time it has been a higher share of GDP was 2011 and 2012 when the payroll tax holiday was in effect, raising disposable income. So Ms. Pomboy is clearly mistaken on this point. Consumers obviously are quite willing to spend, and in fact are spending a considerably larger share of their income than in the 1980s, 1990s, or 2000s, the exact opposite of what she claims in this piece.
The NYT had a piece headlined “economists discuss differences that divide them,” which contrasted the views on the economy of Michael Gapen, chief United States economist at Barclays, and Stephanie Pomboy, founder of MacroMavens, an independent economics consulting firm. The first item where they presented contrasting views was on consumption patterns.
While Gapen thinks consumption will be strong the rest of the year and beyond, Pomboy is quoted as saying:
“After the bursting of the housing bubble and the Great Recession, there has been a generational shift away from spending toward saving among consumers. The great consumer credit boom of the 1980s, 1990s and 2000s is over. The savings rate has moved higher and this new impulse to save leads to a sluggish pace for growth.”
Actually, this is an area where we have data, so we don’t just have to speculate about the future. Consumption has actually been quite high in recent years as shown below.
Consumption is almost 69 percent of GDP. The only time it has been a higher share of GDP was 2011 and 2012 when the payroll tax holiday was in effect, raising disposable income. So Ms. Pomboy is clearly mistaken on this point. Consumers obviously are quite willing to spend, and in fact are spending a considerably larger share of their income than in the 1980s, 1990s, or 2000s, the exact opposite of what she claims in this piece.
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