There is apparently a very big market for spreading the story that trade has not been a major factor behind manufacturing job loss and wage stagnation. How else to explain the massive supply of such pieces?
Robert Samuelson gave us his latest contribution is his weekly Washington Post column. The trick is to say that productivity has been the major factor costing us jobs in manufacturing therefore we shouldn’t be upset about job loss due to trade. This is one of those trivially true arguments. Yes, we have seen productivity growth in manufacturing throughout the post-war period, and that is a good thing. (It means we can see higher wages and living standards.) But the period in which we saw rapid job loss in manufacturing was the period in which the trade deficit grew rapidly from 2000–2007. (I deliberately left off the post-crash period to avoid confusion.)
Jobs in Manufacturing
Source: Bureau of Labor Statistics.
We had productivity growth all through this period, but there was relatively little change in employment in manufacturing until the trade deficit began to explode due to the over-valued dollar at the end of the Clinton presidency. It’s cute how Samuelson and so many other elite types try to tell us that trade hasn’t been a big issue, but as he says in his piece, “we are being fed a largely false narrative on globalization.” It’s too bad our elites have such an aversion to dealing with the real world.
It is also important to note that the Samuelson types are the biggest protectionists in this story. These wall builders are not bothered by rules that prevent doctors from practicing medicine in the United States unless they have completed a residency program in the United States and prevents dentists from practicing unless they have gone to a U.S. dental school (or recently, a Canadian dental school). These protectionist barriers cause us to pay twice as much for our doctors and dentists as people in other wealthy countries, adding more than $100 billion a year (@ $700 per family) to our annual medical bill.
It would be nice if the Post and the rest of the media would occasionally provide some space to free traders.
Addendum:
I should mention that if we want to replace the jobs lost to a trade deficit, we should want to see a larger budget deficit. Unfortunately, deficit hawks like Robert Samuelson, the Washington Post, and the rest of the Peter Peterson crew have prevented us from running budget deficits large enough to get the economy back to full employment.
There is apparently a very big market for spreading the story that trade has not been a major factor behind manufacturing job loss and wage stagnation. How else to explain the massive supply of such pieces?
Robert Samuelson gave us his latest contribution is his weekly Washington Post column. The trick is to say that productivity has been the major factor costing us jobs in manufacturing therefore we shouldn’t be upset about job loss due to trade. This is one of those trivially true arguments. Yes, we have seen productivity growth in manufacturing throughout the post-war period, and that is a good thing. (It means we can see higher wages and living standards.) But the period in which we saw rapid job loss in manufacturing was the period in which the trade deficit grew rapidly from 2000–2007. (I deliberately left off the post-crash period to avoid confusion.)
Jobs in Manufacturing
Source: Bureau of Labor Statistics.
We had productivity growth all through this period, but there was relatively little change in employment in manufacturing until the trade deficit began to explode due to the over-valued dollar at the end of the Clinton presidency. It’s cute how Samuelson and so many other elite types try to tell us that trade hasn’t been a big issue, but as he says in his piece, “we are being fed a largely false narrative on globalization.” It’s too bad our elites have such an aversion to dealing with the real world.
It is also important to note that the Samuelson types are the biggest protectionists in this story. These wall builders are not bothered by rules that prevent doctors from practicing medicine in the United States unless they have completed a residency program in the United States and prevents dentists from practicing unless they have gone to a U.S. dental school (or recently, a Canadian dental school). These protectionist barriers cause us to pay twice as much for our doctors and dentists as people in other wealthy countries, adding more than $100 billion a year (@ $700 per family) to our annual medical bill.
It would be nice if the Post and the rest of the media would occasionally provide some space to free traders.
Addendum:
I should mention that if we want to replace the jobs lost to a trade deficit, we should want to see a larger budget deficit. Unfortunately, deficit hawks like Robert Samuelson, the Washington Post, and the rest of the Peter Peterson crew have prevented us from running budget deficits large enough to get the economy back to full employment.
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That’s what folks who saw his letter to the editor in the Washington Post must be asking. The letter derided the idea of funding free college tuition with a modest tax on trades of stocks, bonds, and derivatives. Chilton tells readers:
“A tax on financial trading activity has been tried in other nations, where it failed miserably. Trading (and the jobs and economic activity associated with it) moves to nations without such a tax. Trading these days takes place on computers, not on physical trading floors. When market migration inevitably occurs, anticipated revenue to fund programs (free college or anything else) evaporates. That’s not conjecture. That’s what has transpired in Germany, Japan, Switzerland, Sweden and Italy. Why would we jeopardize what are the most coveted markets on the planet?”
That sounds pretty authoritative — guess a financial transactions tax (FTT) is a bad idea. Except, it doesn’t have any basis in reality. Many countries, including the United States, long raised substantial revenue from taxing financial transactions. Even now, the United States has a tax of 0.00218 percent on stock trades which raises $500 million a year to fund the Securities and Exchange Commission.
There are many other countries that still have FTTs in place and raise a substantial sum of money as a result. One notable financial backwater on this list is the United Kingdom, where the tax consistently raises a bit more than 0.2 percent of GDP (more than $40 billion a year in the U.S.). The markets in China, Hong Kong, and India also have FTTs, so it’s not clear where Mr. Chilton expects our trades will go. (A partial list of the money raised by FTTs in different countries can be found in Table 1.)
It’s true that a FTT will downsize our financial markets by eliminating excessive trading, but for fans of economics this is good news. We wouldn’t want five million truckers moving goods back and forth across the country if one million could do the job. The same story applies to financial markets. If we can effectively allocate capital with half as many trades as we have today, why wouldn’t we want to see the gain in efficiency?
Correction: The Securities and Exchange Commission fee was originally listed as 0.0042 percent.
That’s what folks who saw his letter to the editor in the Washington Post must be asking. The letter derided the idea of funding free college tuition with a modest tax on trades of stocks, bonds, and derivatives. Chilton tells readers:
“A tax on financial trading activity has been tried in other nations, where it failed miserably. Trading (and the jobs and economic activity associated with it) moves to nations without such a tax. Trading these days takes place on computers, not on physical trading floors. When market migration inevitably occurs, anticipated revenue to fund programs (free college or anything else) evaporates. That’s not conjecture. That’s what has transpired in Germany, Japan, Switzerland, Sweden and Italy. Why would we jeopardize what are the most coveted markets on the planet?”
That sounds pretty authoritative — guess a financial transactions tax (FTT) is a bad idea. Except, it doesn’t have any basis in reality. Many countries, including the United States, long raised substantial revenue from taxing financial transactions. Even now, the United States has a tax of 0.00218 percent on stock trades which raises $500 million a year to fund the Securities and Exchange Commission.
There are many other countries that still have FTTs in place and raise a substantial sum of money as a result. One notable financial backwater on this list is the United Kingdom, where the tax consistently raises a bit more than 0.2 percent of GDP (more than $40 billion a year in the U.S.). The markets in China, Hong Kong, and India also have FTTs, so it’s not clear where Mr. Chilton expects our trades will go. (A partial list of the money raised by FTTs in different countries can be found in Table 1.)
It’s true that a FTT will downsize our financial markets by eliminating excessive trading, but for fans of economics this is good news. We wouldn’t want five million truckers moving goods back and forth across the country if one million could do the job. The same story applies to financial markets. If we can effectively allocate capital with half as many trades as we have today, why wouldn’t we want to see the gain in efficiency?
Correction: The Securities and Exchange Commission fee was originally listed as 0.0042 percent.
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The Washington Post had a good column on the soaring prices of orphan drugs. Orphan drugs are drugs to treat conditions that affect less than 200,000 people. To encourage drug companies to research these drugs, the government picks up the half the cost of the clinical testing, pays the fees to bring it through the FDA approval process and then gives the drug companies seven years of marketing exclusivity.
The piece reported on how drug companies are increasingly getting orphan status for their drugs, even for drugs that have long been on the market (new uses), and how the prices for these drugs is going through the roof. According to the piece, the average annual cost for newly approved orphan drugs is $112,000.
Remarkably, the piece never mentioned one obvious solution to this problem: the government could also pay for the other half of the cost of the clinical tests. In this case, the drug would be available at generic prices, which would likely be less than one percent of the cost of the average new orphan drugs. The marketing monopolies now given to drug companies create equivalent distortions and incentives for corruption as 10,000 percent tariffs. (The market doesn’t care whether the price is raised due to a tariff or a patent monopoly, the impact is the same.)
It is difficult to believe that the piece never mentioned the public funding option. The tests could still be performed by private companies, the difference is that all the results would be in the public domain for other researchers and doctors to see, and that the drug would likely sell for hundreds of dollars rather than more than a hundred thousand dollars. (It is probably worth mentioning in this context that the Washington Post gets considerable revenue from drug company ads.)
The Washington Post had a good column on the soaring prices of orphan drugs. Orphan drugs are drugs to treat conditions that affect less than 200,000 people. To encourage drug companies to research these drugs, the government picks up the half the cost of the clinical testing, pays the fees to bring it through the FDA approval process and then gives the drug companies seven years of marketing exclusivity.
The piece reported on how drug companies are increasingly getting orphan status for their drugs, even for drugs that have long been on the market (new uses), and how the prices for these drugs is going through the roof. According to the piece, the average annual cost for newly approved orphan drugs is $112,000.
Remarkably, the piece never mentioned one obvious solution to this problem: the government could also pay for the other half of the cost of the clinical tests. In this case, the drug would be available at generic prices, which would likely be less than one percent of the cost of the average new orphan drugs. The marketing monopolies now given to drug companies create equivalent distortions and incentives for corruption as 10,000 percent tariffs. (The market doesn’t care whether the price is raised due to a tariff or a patent monopoly, the impact is the same.)
It is difficult to believe that the piece never mentioned the public funding option. The tests could still be performed by private companies, the difference is that all the results would be in the public domain for other researchers and doctors to see, and that the drug would likely sell for hundreds of dollars rather than more than a hundred thousand dollars. (It is probably worth mentioning in this context that the Washington Post gets considerable revenue from drug company ads.)
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Charles Lane gets the story on homeownership at least partly right in his Washington Post column today. It is not necessarily bad that fewer people are homeowners, if the drop is due to people with very little equity in serious danger of losing their home. It is also worth adding that in an economy where few people can count on stable employment, homeownership is not necessarily a plus, since it can make it more difficult for unemployed workers to move to areas with more jobs.
However Lane gets a few other things badly wrong. He gives readers the happy news on home equity:
“Contrary to entrenched conventional wisdom, however, the ongoing decline of the homeownership rate is actually good news.
“Here’s why: Thanks to recovering real estate values, today’s homeowners as a group have the same equity in their property — roughly 58 percent — that the record-size cohort did back in late 2004, according to the Federal Reserve. Ergo, there’s now more equity, on a per- household basis; current homeowners’ tenure is that much more sustainable and secure.”
This is misleading both because it relies on averages, thereby ignoring distribution, and also 2004 was in fact a really bad year for home equity. If we look at medians, and adjust for age (an important factor in an aging population), the situation does not look so happy.
According to the Federal Reserve Board’s 2013 Survey of Consumer Finance, the most recent one available, the median homeowner between the age of 55 to 64 had an equity stake equal to $54,600. That’s down from $71,000 in 2001 and $81,000 in 1989 (all numbers in 2013 dollars). For those between the ages of 45–54, median equity stake was just $35,900, compares to $52,100 in 2001 and $72,200 in 1989. In the 35–44 age group median equity was $23,200 in 2013, $43,800 in 2001, and $63,500 in 1989.
All these numbers are made worse by the fact that the homeownership rate within each age group was considerably lower in 2013 than in prior years. This means that the median homeowner was considerably higher up in the overall distribution of income in 2013 than in the comparison years. It is also worth noting that people have less wealth outside of their home as well, indicating that they have not opted to invest elsewhere as an alternative to homeownership.
The other item on which Lane misleads readers is the comparison to European countries where the homeownership rate is considerably lower. These countries have much stronger rules protecting renters from eviction and excessive rent increases. This makes their renters much more secure relative to renters in the United States. Given the lack of protection for renters in most areas in the United States, it is understandable that many would see homeownership as the only way to have secure housing.
In any case, Lane is right that it is not necessarily a bad thing that fewer people are shelling out large amounts of money in realtor fees and closing costs on homes that they are unable to keep. Unfortunately, this does not appear to be because people have decided that renting is a better option.
Charles Lane gets the story on homeownership at least partly right in his Washington Post column today. It is not necessarily bad that fewer people are homeowners, if the drop is due to people with very little equity in serious danger of losing their home. It is also worth adding that in an economy where few people can count on stable employment, homeownership is not necessarily a plus, since it can make it more difficult for unemployed workers to move to areas with more jobs.
However Lane gets a few other things badly wrong. He gives readers the happy news on home equity:
“Contrary to entrenched conventional wisdom, however, the ongoing decline of the homeownership rate is actually good news.
“Here’s why: Thanks to recovering real estate values, today’s homeowners as a group have the same equity in their property — roughly 58 percent — that the record-size cohort did back in late 2004, according to the Federal Reserve. Ergo, there’s now more equity, on a per- household basis; current homeowners’ tenure is that much more sustainable and secure.”
This is misleading both because it relies on averages, thereby ignoring distribution, and also 2004 was in fact a really bad year for home equity. If we look at medians, and adjust for age (an important factor in an aging population), the situation does not look so happy.
According to the Federal Reserve Board’s 2013 Survey of Consumer Finance, the most recent one available, the median homeowner between the age of 55 to 64 had an equity stake equal to $54,600. That’s down from $71,000 in 2001 and $81,000 in 1989 (all numbers in 2013 dollars). For those between the ages of 45–54, median equity stake was just $35,900, compares to $52,100 in 2001 and $72,200 in 1989. In the 35–44 age group median equity was $23,200 in 2013, $43,800 in 2001, and $63,500 in 1989.
All these numbers are made worse by the fact that the homeownership rate within each age group was considerably lower in 2013 than in prior years. This means that the median homeowner was considerably higher up in the overall distribution of income in 2013 than in the comparison years. It is also worth noting that people have less wealth outside of their home as well, indicating that they have not opted to invest elsewhere as an alternative to homeownership.
The other item on which Lane misleads readers is the comparison to European countries where the homeownership rate is considerably lower. These countries have much stronger rules protecting renters from eviction and excessive rent increases. This makes their renters much more secure relative to renters in the United States. Given the lack of protection for renters in most areas in the United States, it is understandable that many would see homeownership as the only way to have secure housing.
In any case, Lane is right that it is not necessarily a bad thing that fewer people are shelling out large amounts of money in realtor fees and closing costs on homes that they are unable to keep. Unfortunately, this does not appear to be because people have decided that renting is a better option.
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I probably shouldn’t make too much of a deal about the edging lower part, after all, we’re just talking a few hundredths of a percentage point, but the real issue is that the inflation rate is not edging higher. The Fed has a target of a 2.0 percent average inflation rate for the core personal consumption expenditure deflator. This measure on inflation rate has been well below 2.0 percent ever since the recession began. There had been some evidence that it was rising as the unemployment rate and the labor market tightened.
However, the June data show the core inflation rate at just 1.57 percent over the last year, that is slightly below its reading in prior months. It is very hard to see any story where inflation is about to rise substantially and go above the 2.0 percent target. (And remember, the target is an average, so some period above 2.0 percent is consistent with the target, making up for the years of below 2.0 percent inflation.)
Anyhow, with the inflation rate below the target and showing no signs of accelerating, why would the Fed look to raise rates and slow the economy? If there was a plausible story where inflation could soon pose a serious problem, then a rate hike would be a debatable proposition. But we are in an economy where the labor market continues to show weakness by many measures (low employment rate for prime age workers, high numbers of people involuntarily working part-time, low quit rate, long durations of unemployment spells, and slow wage growth). So what possible basis would the Fed have for raising rates?
I probably shouldn’t make too much of a deal about the edging lower part, after all, we’re just talking a few hundredths of a percentage point, but the real issue is that the inflation rate is not edging higher. The Fed has a target of a 2.0 percent average inflation rate for the core personal consumption expenditure deflator. This measure on inflation rate has been well below 2.0 percent ever since the recession began. There had been some evidence that it was rising as the unemployment rate and the labor market tightened.
However, the June data show the core inflation rate at just 1.57 percent over the last year, that is slightly below its reading in prior months. It is very hard to see any story where inflation is about to rise substantially and go above the 2.0 percent target. (And remember, the target is an average, so some period above 2.0 percent is consistent with the target, making up for the years of below 2.0 percent inflation.)
Anyhow, with the inflation rate below the target and showing no signs of accelerating, why would the Fed look to raise rates and slow the economy? If there was a plausible story where inflation could soon pose a serious problem, then a rate hike would be a debatable proposition. But we are in an economy where the labor market continues to show weakness by many measures (low employment rate for prime age workers, high numbers of people involuntarily working part-time, low quit rate, long durations of unemployment spells, and slow wage growth). So what possible basis would the Fed have for raising rates?
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A NYT article on the prospects for the federal budget deficit under the next president told readers:
“Even without new spending, the federal budget deficit is expected to rise. By 2020, the Congressional Budget Office estimates, the deficit will hit nearly $800 billion, or about 3.7 percent of expected economic output, as increasing entitlement costs for retiring baby boomers take their toll on federal coffers.”
Actually, the main reason the deficit is projected to rise is the Congressional Budget Office’s (CBO) projection that interest rates will rise. As a result if higher interest rates, the net interest burden is projected to rise by 1.4 percentage points of GDP between 2016 and 2020 (Summary Table 1). This increase is divided into a 0.9 percentage point rise in interest payments and a 0.5 percentage point drop in revenue that the Fed refunds to the Treasury from the interest it receives on the bonds it holds.
The implication is that if the Fed doesn’t raise interest rates and sell off its assets then we would not see this rise in the interest burden or the size of the budget deficit. On this point, it is worth noting that CBO has consistently overstated the rise in interest rates since 2010. It appears to have done so again in its 2016 projections.
A NYT article on the prospects for the federal budget deficit under the next president told readers:
“Even without new spending, the federal budget deficit is expected to rise. By 2020, the Congressional Budget Office estimates, the deficit will hit nearly $800 billion, or about 3.7 percent of expected economic output, as increasing entitlement costs for retiring baby boomers take their toll on federal coffers.”
Actually, the main reason the deficit is projected to rise is the Congressional Budget Office’s (CBO) projection that interest rates will rise. As a result if higher interest rates, the net interest burden is projected to rise by 1.4 percentage points of GDP between 2016 and 2020 (Summary Table 1). This increase is divided into a 0.9 percentage point rise in interest payments and a 0.5 percentage point drop in revenue that the Fed refunds to the Treasury from the interest it receives on the bonds it holds.
The implication is that if the Fed doesn’t raise interest rates and sell off its assets then we would not see this rise in the interest burden or the size of the budget deficit. On this point, it is worth noting that CBO has consistently overstated the rise in interest rates since 2010. It appears to have done so again in its 2016 projections.
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