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A new study from the European Central Bank (not official bank policy) estimated the size of the output gap in the euro area at 6.0 percent of GDP. Most analyses put the cost to the UK’s from its exit from the European Union at around 2.0 percent of GDP. If the ECB’s estimate of the output gap is correct, then austerity is imposing three times as much harm on the euro zone countries as Brexit is projected to impose on the UK.
A new study from the European Central Bank (not official bank policy) estimated the size of the output gap in the euro area at 6.0 percent of GDP. Most analyses put the cost to the UK’s from its exit from the European Union at around 2.0 percent of GDP. If the ECB’s estimate of the output gap is correct, then austerity is imposing three times as much harm on the euro zone countries as Brexit is projected to impose on the UK.
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It is possible to make serious arguments against Donald Trump’s views on trade, but apparently the Washington Post can’t find anyone with sufficient knowledge and skills. Instead they assigned Fareed Zakaria the task and he failed badly.
Zakaria tells readers:
“The appeal of both Trump and Sanders has many politicians mouthing cliches about the deep problems with globalization. It is true that two gifted populists have been able to give voice to people’s fears about a fast-changing world. But this does not alter the truth. Their central charge is false. Free trade has not caused the hollowing out of U.S. manufacturing.
“Manufacturing as a share of all U.S. jobs has been declining for 70 years, as part of a transition experienced by every advanced industrial economy.”
If Zakaria had access to data from the Bureau of Labor Statistics he would have better knowledge of trends in employment in U.S. manufacturing.
Jobs in Manufacturing Industries
Source: Bureau of Labor Statistics.
As can be seen, employment in manufacturing hovered near 17.5 million from the late 1960s until 2000. At that point, the explosion in the size of the U.S. trade deficit sent employment in manufacturing plummeting. We lost roughly over 3 million manufacturing jobs in this period, almost 20 percent of total employment, before the onset of the recession. It is difficult to believe that a Washington Post columnist could be so ignorant of these data and still be writing a column on the topic.
It is also important to note that Zakaria insists on saying the United States has been pursuing a policy of free trade even though this is clearly not the case. Under U.S. law, it is necessary to go through a residency program in the United States to practice as a doctor. It is necessary to go to a U.S dental school (or recently a Canadian school) to be a dentist. Does anyone seriously believe that the only way to be a competent doctor is to go through a U.S. residency program or to be a competent dentist is to go to a U.S. dental school?
These protectionist barriers inflate the pay of both doctors and dentists and add over $100 billion a year to our health care bill. Are we supposed to believe columnists at the Post are too stupid (to use Trump’s word) to notice this fact?
What about patent and copyright protection? We will spend over $430 billion this year for prescription drugs that would likely cost around one-tenth this price in a free market. This is massive protectionism that imposes enormous costs on people’s health. Did this also escape Zakaria’s attention? (There are more efficient ways to finance drug research.)
Trump is obviously a blowhard without a coherent trade or economic policy, but in this battle he beats Zakaria hands down.
It is possible to make serious arguments against Donald Trump’s views on trade, but apparently the Washington Post can’t find anyone with sufficient knowledge and skills. Instead they assigned Fareed Zakaria the task and he failed badly.
Zakaria tells readers:
“The appeal of both Trump and Sanders has many politicians mouthing cliches about the deep problems with globalization. It is true that two gifted populists have been able to give voice to people’s fears about a fast-changing world. But this does not alter the truth. Their central charge is false. Free trade has not caused the hollowing out of U.S. manufacturing.
“Manufacturing as a share of all U.S. jobs has been declining for 70 years, as part of a transition experienced by every advanced industrial economy.”
If Zakaria had access to data from the Bureau of Labor Statistics he would have better knowledge of trends in employment in U.S. manufacturing.
Jobs in Manufacturing Industries
Source: Bureau of Labor Statistics.
As can be seen, employment in manufacturing hovered near 17.5 million from the late 1960s until 2000. At that point, the explosion in the size of the U.S. trade deficit sent employment in manufacturing plummeting. We lost roughly over 3 million manufacturing jobs in this period, almost 20 percent of total employment, before the onset of the recession. It is difficult to believe that a Washington Post columnist could be so ignorant of these data and still be writing a column on the topic.
It is also important to note that Zakaria insists on saying the United States has been pursuing a policy of free trade even though this is clearly not the case. Under U.S. law, it is necessary to go through a residency program in the United States to practice as a doctor. It is necessary to go to a U.S dental school (or recently a Canadian school) to be a dentist. Does anyone seriously believe that the only way to be a competent doctor is to go through a U.S. residency program or to be a competent dentist is to go to a U.S. dental school?
These protectionist barriers inflate the pay of both doctors and dentists and add over $100 billion a year to our health care bill. Are we supposed to believe columnists at the Post are too stupid (to use Trump’s word) to notice this fact?
What about patent and copyright protection? We will spend over $430 billion this year for prescription drugs that would likely cost around one-tenth this price in a free market. This is massive protectionism that imposes enormous costs on people’s health. Did this also escape Zakaria’s attention? (There are more efficient ways to finance drug research.)
Trump is obviously a blowhard without a coherent trade or economic policy, but in this battle he beats Zakaria hands down.
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Sure, it’s tough to get a job in reporting that pays a decent wage. But now you can get on the fast track to a successful career in journalism by writing pieces that make fun of opponents of U.S. trade policy.
No knowledge of the economic theory of trade or actual trade practices is required. You just have to be able to trivialize any argument against a current or future trade deal by saying that opponents want to end trade and close borders. Apply at the Atlantic or other major news outlets.
Sure, it’s tough to get a job in reporting that pays a decent wage. But now you can get on the fast track to a successful career in journalism by writing pieces that make fun of opponents of U.S. trade policy.
No knowledge of the economic theory of trade or actual trade practices is required. You just have to be able to trivialize any argument against a current or future trade deal by saying that opponents want to end trade and close borders. Apply at the Atlantic or other major news outlets.
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The NYT ran an article on how France’s far-right sees the vote in the UK for leaving the European Union as a boost to its own efforts. After outlining the state of anti-EU sentiment in France, the piece tells readers:
“Given the array of other issues facing France, including a near-stagnant economy and high unemployment, it remains to be seen how central an issue membership in the bloc might be in the presidential race.”
Actually, since France is in the euro (unlike the UK), its stagnant economy is very directly linked to its membership in the EU. The rules imposed on it by the EU leadership have prevented it from adopting the sort of stimulus that would be needed to boost its growth and reduce unemployment. It would be very surprising if this issue were not front and center in France’s presidential race since it is so important in people’s lives. The EU is forcing both a deterioration in the quality of France’s public services and higher unemployment with its pointless austerity policies.
The NYT ran an article on how France’s far-right sees the vote in the UK for leaving the European Union as a boost to its own efforts. After outlining the state of anti-EU sentiment in France, the piece tells readers:
“Given the array of other issues facing France, including a near-stagnant economy and high unemployment, it remains to be seen how central an issue membership in the bloc might be in the presidential race.”
Actually, since France is in the euro (unlike the UK), its stagnant economy is very directly linked to its membership in the EU. The rules imposed on it by the EU leadership have prevented it from adopting the sort of stimulus that would be needed to boost its growth and reduce unemployment. It would be very surprising if this issue were not front and center in France’s presidential race since it is so important in people’s lives. The EU is forcing both a deterioration in the quality of France’s public services and higher unemployment with its pointless austerity policies.
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This is a serious question. BBC told readers that Fitch and Moody’s both lowered their outlooks for debt issued by the British government following the Brexit vote. The question is, what do these bond-rating agencies mean when they lower the rating of a country that issues debt denominated in a currency it prints.
This issue came up back in 2011 when S&P downgraded the debt of the United States following a long standoff on a budget agreement between President Obama and the Republican Congress. While U.S. debt is also denominated in a currency we print, there was at least a not 100 percent absurd story where another standoff could lead to the government not paying its debt. (It’s only 99.99999999 percent absurd.)
But in the UK there is no possible issue of a division of power blocking normal debt payments since the country has a parliamentary government. So what are the bond rating agencies telling us when they lower its debt rating? For private companies or governments that issue debt in a currency they do not issue, the meaning is clear. There is a possibility they won’t have enough money to pay their debts. In the case of companies, this means a risk of bankruptcy. In the case of governments that can’t go bankrupt, there is still a risk of a write-down in which creditors will have to accept less than full payment on their bonds.
But the UK will always be able to print the pounds needed to pay the bonds it has issued. So what are the credit rating agencies saying when they downgrade them. This could be seen as an inflation risk projection, except the rating agencies don’t have special expertise in inflation projections and furthermore have not historically tied their ratings to inflation. For example, they did not downgrade the debt of the United States and other countries in the seventies even as inflation increased to double-digit rates. (FWIW, inflation in the UK has been close to zero in the last year.)
So what do the bond-rating agencies think they are telling us about the UK? Inquiring minds want to know.
This is a serious question. BBC told readers that Fitch and Moody’s both lowered their outlooks for debt issued by the British government following the Brexit vote. The question is, what do these bond-rating agencies mean when they lower the rating of a country that issues debt denominated in a currency it prints.
This issue came up back in 2011 when S&P downgraded the debt of the United States following a long standoff on a budget agreement between President Obama and the Republican Congress. While U.S. debt is also denominated in a currency we print, there was at least a not 100 percent absurd story where another standoff could lead to the government not paying its debt. (It’s only 99.99999999 percent absurd.)
But in the UK there is no possible issue of a division of power blocking normal debt payments since the country has a parliamentary government. So what are the bond rating agencies telling us when they lower its debt rating? For private companies or governments that issue debt in a currency they do not issue, the meaning is clear. There is a possibility they won’t have enough money to pay their debts. In the case of companies, this means a risk of bankruptcy. In the case of governments that can’t go bankrupt, there is still a risk of a write-down in which creditors will have to accept less than full payment on their bonds.
But the UK will always be able to print the pounds needed to pay the bonds it has issued. So what are the credit rating agencies saying when they downgrade them. This could be seen as an inflation risk projection, except the rating agencies don’t have special expertise in inflation projections and furthermore have not historically tied their ratings to inflation. For example, they did not downgrade the debt of the United States and other countries in the seventies even as inflation increased to double-digit rates. (FWIW, inflation in the UK has been close to zero in the last year.)
So what do the bond-rating agencies think they are telling us about the UK? Inquiring minds want to know.
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Back in 2011 the Bank of International Settlements (BIS) began warning of the risks of run away inflation associated with the expansionary monetary policy being pursued by the Fed, the European Central Bank and other central banks. It is still making these warnings. Unfortunately, the NYT presented the warnings as being somehow new information that should interest them, rather than old predictions that had been proven wrong repeatedly.
Even better, the piece tells us that one of the main credentials of Jaime Caruana, the managing director of the BIS, is that he missed the massive housing bubble in Spain:
“It is worth noting that Mr. Caruana is familiar with asset bubbles: He was the head of Spain’s central bank a decade ago when reckless lending among the country’s financial institutions resulted in a boom and eventual bust of Spanish property prices.”
Incredibly the piece only presents the views of people who are opposed to expansionary monetary policy. The views of Stephen Jen, a former official at the International Monetary Fund who now manages a hedge fund in London, figure prominently. Jen insists that we have lots of inflation, it’s just in asset markets. Actually, most economists would make a clear distinction between inflation in the markets for goods and services and asset markets. The former tend to feed into inflation and can lead to a wage price spiral. The latter cannot unless Mr. Jen has developed a new theory on inflation dynamics.
The piece also misleadingly implies that rising asset prices are an important factor in wage stagnation in the UK telling readers:
“Thanks to aggressive central bank policies, house prices in London are among the most expensive in the world, yet the inflation-adjusted weekly average wage of 470 pounds, or about $632, is still £20 lower than it was before the financial crisis, according to the Resolution Foundation, a British research organization.”
Actually, house sale prices don’t factor into the inflation index, even if people like Mr. Jen and the reporter writing this piece want them to. The housing component that is used to measure inflation and therefore provides the basis for the real wage calculation cited here is a rental index. This will not be directly affected by house prices. In fact, the low interest rate policies of central banks are likely to go the other direction by making it easier to build more housing and thereby driving down prices.
Also, while there is a strong case that the UK again has a housing bubble (which may now burst in response to Brexit — a good thing), asset prices in most of the world are not out of line with fundamentals. The U.S. stock market has risen roughly in line with GDP from its 2007 peaks, which almost no one considered to be a bubble at the time. Most real estate prices in the U.S. are still far below bubble peaks and only modestly above trends, with the exception of some California cities.
In short, this piece is effectively an opinion piece calling for higher interest rates and an end to expansionary monetary policy. It’s just a lot more confused than the typical NYT column.
Back in 2011 the Bank of International Settlements (BIS) began warning of the risks of run away inflation associated with the expansionary monetary policy being pursued by the Fed, the European Central Bank and other central banks. It is still making these warnings. Unfortunately, the NYT presented the warnings as being somehow new information that should interest them, rather than old predictions that had been proven wrong repeatedly.
Even better, the piece tells us that one of the main credentials of Jaime Caruana, the managing director of the BIS, is that he missed the massive housing bubble in Spain:
“It is worth noting that Mr. Caruana is familiar with asset bubbles: He was the head of Spain’s central bank a decade ago when reckless lending among the country’s financial institutions resulted in a boom and eventual bust of Spanish property prices.”
Incredibly the piece only presents the views of people who are opposed to expansionary monetary policy. The views of Stephen Jen, a former official at the International Monetary Fund who now manages a hedge fund in London, figure prominently. Jen insists that we have lots of inflation, it’s just in asset markets. Actually, most economists would make a clear distinction between inflation in the markets for goods and services and asset markets. The former tend to feed into inflation and can lead to a wage price spiral. The latter cannot unless Mr. Jen has developed a new theory on inflation dynamics.
The piece also misleadingly implies that rising asset prices are an important factor in wage stagnation in the UK telling readers:
“Thanks to aggressive central bank policies, house prices in London are among the most expensive in the world, yet the inflation-adjusted weekly average wage of 470 pounds, or about $632, is still £20 lower than it was before the financial crisis, according to the Resolution Foundation, a British research organization.”
Actually, house sale prices don’t factor into the inflation index, even if people like Mr. Jen and the reporter writing this piece want them to. The housing component that is used to measure inflation and therefore provides the basis for the real wage calculation cited here is a rental index. This will not be directly affected by house prices. In fact, the low interest rate policies of central banks are likely to go the other direction by making it easier to build more housing and thereby driving down prices.
Also, while there is a strong case that the UK again has a housing bubble (which may now burst in response to Brexit — a good thing), asset prices in most of the world are not out of line with fundamentals. The U.S. stock market has risen roughly in line with GDP from its 2007 peaks, which almost no one considered to be a bubble at the time. Most real estate prices in the U.S. are still far below bubble peaks and only modestly above trends, with the exception of some California cities.
In short, this piece is effectively an opinion piece calling for higher interest rates and an end to expansionary monetary policy. It’s just a lot more confused than the typical NYT column.
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