The Washington Post gave high marks to Ohio Governor John Kasich after he met with the Post’s editorial board. The lead editorial noted that Mr. Kasich, “does not dismiss science.” It goes on to point out that he recognizes that climate change is human caused, although he has no plan to address the problem. (Kasich does reject President Obama’s plan, as the piece notes.) Editorial writer Charles Lane was even more effusive, asking readers, “what’s not to like?”
People who follow politics and economics would have little difficulty answering that question. For example, Mr. Kasich signed a bill prohibiting the state of Ohio from contracting for health services with Planned Parenthood or any other organization that performs abortions. Kasich also has bizarre views on economic policy.
In addition to supporting tax cuts for the rich, which the Post criticized because of the impact on the deficit, Kasich also criticized the Fed for its quantitative easing policy. According to Kasich, this only led to companies “buying up more of their stock and making the rich richer.” It is difficult to envision how Kasich thinks this process works.
Most immediately, quantitative easing leads to lower interest rates. For believers in economics, this lead to more borrowing for things like buying homes and both public and private investment. It also frees up money for homeowners who refinance their mortgages. This allows them to spend money on other things. Lower interest rates also mean a lower valued dollar, other things equal. This makes our goods and services more competitive internationally, reducing our trade deficit.
All of these things create more jobs, which also puts workers in a better position to get wage gains. It is true that lower interest rates can also make it easier for companies to borrow to buy back shares of stock, although it is pretty bizarre to find a Republican who would argue against a policy that leads to more growth and jobs, just because it can increase the wealth of the rich. (Low interest rates also help to raise house prices, which are the main source of wealth for the middle class.)
Anyhow, the Post apparently thinks great things about a candidate who seems to have zero understanding of economics and has no ideas on how to address a potentially catastrophic environmental problem. It is worth noting that he proposed tax cuts, rather than tax increases for the rich.
The Washington Post gave high marks to Ohio Governor John Kasich after he met with the Post’s editorial board. The lead editorial noted that Mr. Kasich, “does not dismiss science.” It goes on to point out that he recognizes that climate change is human caused, although he has no plan to address the problem. (Kasich does reject President Obama’s plan, as the piece notes.) Editorial writer Charles Lane was even more effusive, asking readers, “what’s not to like?”
People who follow politics and economics would have little difficulty answering that question. For example, Mr. Kasich signed a bill prohibiting the state of Ohio from contracting for health services with Planned Parenthood or any other organization that performs abortions. Kasich also has bizarre views on economic policy.
In addition to supporting tax cuts for the rich, which the Post criticized because of the impact on the deficit, Kasich also criticized the Fed for its quantitative easing policy. According to Kasich, this only led to companies “buying up more of their stock and making the rich richer.” It is difficult to envision how Kasich thinks this process works.
Most immediately, quantitative easing leads to lower interest rates. For believers in economics, this lead to more borrowing for things like buying homes and both public and private investment. It also frees up money for homeowners who refinance their mortgages. This allows them to spend money on other things. Lower interest rates also mean a lower valued dollar, other things equal. This makes our goods and services more competitive internationally, reducing our trade deficit.
All of these things create more jobs, which also puts workers in a better position to get wage gains. It is true that lower interest rates can also make it easier for companies to borrow to buy back shares of stock, although it is pretty bizarre to find a Republican who would argue against a policy that leads to more growth and jobs, just because it can increase the wealth of the rich. (Low interest rates also help to raise house prices, which are the main source of wealth for the middle class.)
Anyhow, the Post apparently thinks great things about a candidate who seems to have zero understanding of economics and has no ideas on how to address a potentially catastrophic environmental problem. It is worth noting that he proposed tax cuts, rather than tax increases for the rich.
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The Census Bureau put out some pretty bad numbers on housing yesterday. March starts were down 8.8 percent from the February level and permits were down by 7.7 percent. The drop in starts was across categories and regions. There was no obvious weather-related factors to explain this drop.
Monthly housing data are erratic, but these numbers do deserve some attention. Residential construction is one of the few bright spots in an economy seeing weak consumption growth, stagnating equipment investment, and a rising trade deficit. If this is not just a one-month blip, it would be a very bad sign for the strength of the recovery.
In this respect it is worth noting that the latest number for first quarter growth from the Atlanta Fed ‘s “GDPNow” estimate is just 0.3 percent. This is not a good story.
The Census Bureau put out some pretty bad numbers on housing yesterday. March starts were down 8.8 percent from the February level and permits were down by 7.7 percent. The drop in starts was across categories and regions. There was no obvious weather-related factors to explain this drop.
Monthly housing data are erratic, but these numbers do deserve some attention. Residential construction is one of the few bright spots in an economy seeing weak consumption growth, stagnating equipment investment, and a rising trade deficit. If this is not just a one-month blip, it would be a very bad sign for the strength of the recovery.
In this respect it is worth noting that the latest number for first quarter growth from the Atlanta Fed ‘s “GDPNow” estimate is just 0.3 percent. This is not a good story.
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The Washington Post had a major article telling readers, “why populist uprisings could end a half-century of greater economic ties.” The piece notes the rise of populist sentiment in both Europe and the United States. In the former case it is turning against immigration and also the European Union. In the case of the United States, populist sentiment is directed against trade agreements and immigration (also efforts to cut Social Security and Medicare.)
The piece doesn’t give elites the credit they deserve for this backlash to their efforts to construct a system that serves their interest. In both Europe and the United States, elites have pushed policies of fiscal austerity that have the effect of keeping millions of people out of work and depressing the wages of tens of millions more by reducing their bargaining power. Overwhelmingly, the people who are victims of this austerity policy are less educated workers. There are few doctors and dentists thrown out of work by policies to reduce budget deficits. (It is worth noting that in the United States the Federal Reserve Board seems prepared to raise interest rates to throw workers out of work, if they start to get enough bargaining power to make up the ground they lost in the downturn.)
The elites have also structured economic integration to redistribute income upward. This is especially notable in the United States, where protections for doctors, dentists, and other highly paid professionals have been largely left in place, while trade agreements have sought to put U.S. manufacturing workers in direct competition with their low-paid counterparts in the developing world. The predicted and actual effect of this pattern of trade is to increase inequality.
Both Europe and the United States have used trade deals to make patent and copyright protection longer and stronger. The intent of this policy is also to redistribute income upward. They have also put in place extra-judicial mechanisms to provide special protection to businesses that they do not enjoy under national law.
In other words, populists are revolting against policies that are designed to redistribute income from the bulk of the population to the elites. The elites have tried to imply that such policies are necessary for integration. This is not true. It is just as easy to design policies that promote integration that benefit people equally, but elites in Europe and the United States have little interest in integration on these terms.
The Washington Post had a major article telling readers, “why populist uprisings could end a half-century of greater economic ties.” The piece notes the rise of populist sentiment in both Europe and the United States. In the former case it is turning against immigration and also the European Union. In the case of the United States, populist sentiment is directed against trade agreements and immigration (also efforts to cut Social Security and Medicare.)
The piece doesn’t give elites the credit they deserve for this backlash to their efforts to construct a system that serves their interest. In both Europe and the United States, elites have pushed policies of fiscal austerity that have the effect of keeping millions of people out of work and depressing the wages of tens of millions more by reducing their bargaining power. Overwhelmingly, the people who are victims of this austerity policy are less educated workers. There are few doctors and dentists thrown out of work by policies to reduce budget deficits. (It is worth noting that in the United States the Federal Reserve Board seems prepared to raise interest rates to throw workers out of work, if they start to get enough bargaining power to make up the ground they lost in the downturn.)
The elites have also structured economic integration to redistribute income upward. This is especially notable in the United States, where protections for doctors, dentists, and other highly paid professionals have been largely left in place, while trade agreements have sought to put U.S. manufacturing workers in direct competition with their low-paid counterparts in the developing world. The predicted and actual effect of this pattern of trade is to increase inequality.
Both Europe and the United States have used trade deals to make patent and copyright protection longer and stronger. The intent of this policy is also to redistribute income upward. They have also put in place extra-judicial mechanisms to provide special protection to businesses that they do not enjoy under national law.
In other words, populists are revolting against policies that are designed to redistribute income from the bulk of the population to the elites. The elites have tried to imply that such policies are necessary for integration. This is not true. It is just as easy to design policies that promote integration that benefit people equally, but elites in Europe and the United States have little interest in integration on these terms.
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Okay, he does it against Donald Trump as well, but the theme of his column is to denounce both of them for pushing a “single story” for the difficulties confronting working people. While Sanders blames an economy rigged to favor the rich and Trump blames immigrants and the unfair trading practices of foreign countries, Brooks tells us that the real issue behind wage stagnation is “intricate structural problems.”
Get it? Brooks used the words “intricate” and “structural,” that means that he is a complex guy not wedded to a single story because these are big words.
Does Brooks happen to have any clue what these intricate structural problems might be? He doesn’t give any hint in his piece. Perhaps he was referring to the now disproven story promoted by M.I.T. economist David Autor about the “hollowing out of the middle,” which meant the loss of middle class jobs. More recent research shows that the only occupations seeing substantial growth in relative shares since 2000 were at the bottom end of the wage distribution, yet that didn’t stop more income from going to the top. In other words, there is no obvious story linking the growth of income inequality and wage stagnation for those at the middle to technology.
The remaining villains are items like trade, restrictive fiscal policy that keeps the unemployment rate unnecessarily high, anti-union policies that undermine workers’ bargaining power, and stronger and longer patent and copyright protection that increases the price that ordinary workers must pay for many items.
But Brooks isn’t interested in looking at these topics, that could make you a single story sort of person. He’d rather just stick with his intricate structural problems even if there is no coherence to the argument that he might make. This way you can call the people you don’t like names in The New York Times.
Okay, he does it against Donald Trump as well, but the theme of his column is to denounce both of them for pushing a “single story” for the difficulties confronting working people. While Sanders blames an economy rigged to favor the rich and Trump blames immigrants and the unfair trading practices of foreign countries, Brooks tells us that the real issue behind wage stagnation is “intricate structural problems.”
Get it? Brooks used the words “intricate” and “structural,” that means that he is a complex guy not wedded to a single story because these are big words.
Does Brooks happen to have any clue what these intricate structural problems might be? He doesn’t give any hint in his piece. Perhaps he was referring to the now disproven story promoted by M.I.T. economist David Autor about the “hollowing out of the middle,” which meant the loss of middle class jobs. More recent research shows that the only occupations seeing substantial growth in relative shares since 2000 were at the bottom end of the wage distribution, yet that didn’t stop more income from going to the top. In other words, there is no obvious story linking the growth of income inequality and wage stagnation for those at the middle to technology.
The remaining villains are items like trade, restrictive fiscal policy that keeps the unemployment rate unnecessarily high, anti-union policies that undermine workers’ bargaining power, and stronger and longer patent and copyright protection that increases the price that ordinary workers must pay for many items.
But Brooks isn’t interested in looking at these topics, that could make you a single story sort of person. He’d rather just stick with his intricate structural problems even if there is no coherence to the argument that he might make. This way you can call the people you don’t like names in The New York Times.
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Paul Krugman had a good column this morning pointing to a lack of competition as an explanation for relatively weak investment in spite of low interest rates and high corporate profits. His immediate target is Verizon, where workers are now striking, which shows little interest in expanding its Fios high-speed Internet network in spite of soaring profits. Krugman points out that with little competition, Verizon sees little need to invest more to improve the quality of its service. He then argues that this weak investment is a major cause of secular stagnation, the ongoing weakness of demand that prevents the economy from reaching full employment.
I’d agree with virtually everything in the piece (Krugman may be a bit overly optimistic about the interest in the Obama administration in pursuing a serious competition policy), but there is an aspect to the argument that bothers me. While we should perhaps expect investment to be booming in a context of high profits and very low interest rates, investment actually is not low measured as a share of GDP.
At 12.7 percent of GDP in the 4th quarter, it’s comparable to its pre-recession peaks. Given the weak growth of demand (yes, this is partly circular — stronger investment would mean stronger demand — but companies make their investment decisions individually, not collectively), investment is certainly not low by historical measures.
On the other hand, we continue to run a trade deficit that is close to 3.0 percent of GDP, or more than $500 billion a year. Suppose that our trade deficits were still in the neighborhood of 1.0 percent of GDP, which was the case before the East Asian financial crisis in 1997.
This difference of 2 percentage points of GDP would have the same impact on demand as increasing investment by 2 percentage points of GDP. That would be a huge increase in investment. If better competition policy could increase demand by even half of this amount everyone would view it as an enormous success.
So the question is, why do Krugman and others highlight the lack of competition in many areas as a cause of secular stagnation, but largely ignore the trade deficit? This question is further aggravating since the trade deficit has featured very prominently in the upward redistribution of income in the last two decades.
Note that contrary to the latest thinking in elite circles, it is not normal for rich countries to run large trade deficits with poor countries. The textbook economics say that capital is supposed to flow in the opposite direction. It is an incredible failure of the international financial system, traceable to the botched bailout from the East Asian financial crisis, that poor countries have been forced to grow by lending capital to rich countries. It certainly is not a necessary path for development and it has had horrible consequences for the working class in the United States and other rich countries.
Paul Krugman had a good column this morning pointing to a lack of competition as an explanation for relatively weak investment in spite of low interest rates and high corporate profits. His immediate target is Verizon, where workers are now striking, which shows little interest in expanding its Fios high-speed Internet network in spite of soaring profits. Krugman points out that with little competition, Verizon sees little need to invest more to improve the quality of its service. He then argues that this weak investment is a major cause of secular stagnation, the ongoing weakness of demand that prevents the economy from reaching full employment.
I’d agree with virtually everything in the piece (Krugman may be a bit overly optimistic about the interest in the Obama administration in pursuing a serious competition policy), but there is an aspect to the argument that bothers me. While we should perhaps expect investment to be booming in a context of high profits and very low interest rates, investment actually is not low measured as a share of GDP.
At 12.7 percent of GDP in the 4th quarter, it’s comparable to its pre-recession peaks. Given the weak growth of demand (yes, this is partly circular — stronger investment would mean stronger demand — but companies make their investment decisions individually, not collectively), investment is certainly not low by historical measures.
On the other hand, we continue to run a trade deficit that is close to 3.0 percent of GDP, or more than $500 billion a year. Suppose that our trade deficits were still in the neighborhood of 1.0 percent of GDP, which was the case before the East Asian financial crisis in 1997.
This difference of 2 percentage points of GDP would have the same impact on demand as increasing investment by 2 percentage points of GDP. That would be a huge increase in investment. If better competition policy could increase demand by even half of this amount everyone would view it as an enormous success.
So the question is, why do Krugman and others highlight the lack of competition in many areas as a cause of secular stagnation, but largely ignore the trade deficit? This question is further aggravating since the trade deficit has featured very prominently in the upward redistribution of income in the last two decades.
Note that contrary to the latest thinking in elite circles, it is not normal for rich countries to run large trade deficits with poor countries. The textbook economics say that capital is supposed to flow in the opposite direction. It is an incredible failure of the international financial system, traceable to the botched bailout from the East Asian financial crisis, that poor countries have been forced to grow by lending capital to rich countries. It certainly is not a necessary path for development and it has had horrible consequences for the working class in the United States and other rich countries.
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The New York Times had an article on the downsizing of Citigroup in the wake of the passage of Dodd-Frank. The piece twice refers to the “vise of regulation” in discussing the pressures created by the law to downsize. While one use of the expression appears in a quote from an industry friendly source, the other use is the paper’s own characterization of the law.
It seems unlikely that the NYT would say that a vise of regulation is preventing Pfizer from marketing unsafe drugs. This is clearly an expression of disapproval implying that the regulations are excessive and unnecessary. That is the sort of thing that belongs in an opinion piece, not a news article.
The New York Times had an article on the downsizing of Citigroup in the wake of the passage of Dodd-Frank. The piece twice refers to the “vise of regulation” in discussing the pressures created by the law to downsize. While one use of the expression appears in a quote from an industry friendly source, the other use is the paper’s own characterization of the law.
It seems unlikely that the NYT would say that a vise of regulation is preventing Pfizer from marketing unsafe drugs. This is clearly an expression of disapproval implying that the regulations are excessive and unnecessary. That is the sort of thing that belongs in an opinion piece, not a news article.
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Some readers may have been misled by a statement in a NYT article on the Verizon strike that the union members at Verizon receive an average of $130,000 a year in wages and benefits. This is what the company pays in labor costs per worker. This includes not only straight pay, but also overtime pay, employer-side Social Security and Medicare taxes, health insurance, and pension benefits. The pension payments are everything that Verizon pays into its pension, including payments to cover costs of retired employees, averaged over the size of its current unionized workforce.
While the $130,000 number would imply an average hourly wage of $65. The average non-overtime pay of Verizon’s workers is probably in the range of $35 to $40 an hourly. While this is still a relatively good wage in the U.S. economy, it is considerably lower than the $65 an hour that readers may have inferred from too quickly reading the article.
Some readers may have been misled by a statement in a NYT article on the Verizon strike that the union members at Verizon receive an average of $130,000 a year in wages and benefits. This is what the company pays in labor costs per worker. This includes not only straight pay, but also overtime pay, employer-side Social Security and Medicare taxes, health insurance, and pension benefits. The pension payments are everything that Verizon pays into its pension, including payments to cover costs of retired employees, averaged over the size of its current unionized workforce.
While the $130,000 number would imply an average hourly wage of $65. The average non-overtime pay of Verizon’s workers is probably in the range of $35 to $40 an hourly. While this is still a relatively good wage in the U.S. economy, it is considerably lower than the $65 an hour that readers may have inferred from too quickly reading the article.
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Charles Lane used his op-ed column in the Washington Post to repeat the line that is now quite popular in elite circles: the stagnating wages and worsening living standards of large segments of the U.S. working class were a necessary price for lifting hundreds of millions of people in the developing world out of poverty. Oh yeah, and also the richest one percent happened to get unbelievably rich in the process as well. So people like Bernie Sanders, who want trade policies that will help U.S. workers, are actually being selfish. It’s the one percent who are really serving the poor.
This argument is incredibly wrongheaded for many reasons, but let’s just focus on its basic structure. The story goes that in the last three and a half decades we have seen substantial growth in the incomes of the poor in the developing world. (Actually the bulk of this story is in East Asia, but we’ll leave that aside for the moment.) During this period incomes of ordinary workers in the United States, and to a lesser extent Europe and Japan, have stagnated. Therefore, stagnating wages for rich country workers was a necessary condition for hundreds of millions of people to escape poverty.
Obviously there was a link between these events, but the serious question (okay, that leaves the WaPo folks out) is whether it was a necessary link. Suppose that a natural disaster, like a flood or earthquake, devastates a major city. In response the federal government throws in tens of billions in assistance to rebuild the city. Ten years later, the city has a thriving economy.
In Charles Lane Eliteland the disaster was a good thing, because otherwise the city never would have been revitalized. But that is not the real question. The question is whether we could have had a path that allowed developing countries to prosper without impoverishing U.S. workers.
The simple answer is we certainly could have gone a different route and most of the story is textbook economics. I lay this out more fully in a piece that was solicited for the Post Outlook/Post Everything section, but never run there because they lost the ability to reply to e-mails.
The basic story is that there is no reason that we had to run large trade deficits with developing countries like China. In the economics textbooks, capital is supposed to flow from rich countries to poor countries to finance their development. That would mean we run trade surpluses with developing countries. Furthermore, the reason that our autoworkers compete with low-paid autoworkers in the developing world, but our doctors don’t compete with their much lower paid counterparts (trained to U.S. standards), is that doctors have much more power than autoworkers. And, we enriched our one percent, while making developing countries poorer, by making patent and copyright monopolies stronger and longer.
Anyhow the story that U.S. workers had to suffer to help the world’s poor is very comforting for the country’s elite, and let’s face it, they own the media outlets. This means that we can look forward to hearing it repeated endlessly, no matter how little sense it makes.
Charles Lane used his op-ed column in the Washington Post to repeat the line that is now quite popular in elite circles: the stagnating wages and worsening living standards of large segments of the U.S. working class were a necessary price for lifting hundreds of millions of people in the developing world out of poverty. Oh yeah, and also the richest one percent happened to get unbelievably rich in the process as well. So people like Bernie Sanders, who want trade policies that will help U.S. workers, are actually being selfish. It’s the one percent who are really serving the poor.
This argument is incredibly wrongheaded for many reasons, but let’s just focus on its basic structure. The story goes that in the last three and a half decades we have seen substantial growth in the incomes of the poor in the developing world. (Actually the bulk of this story is in East Asia, but we’ll leave that aside for the moment.) During this period incomes of ordinary workers in the United States, and to a lesser extent Europe and Japan, have stagnated. Therefore, stagnating wages for rich country workers was a necessary condition for hundreds of millions of people to escape poverty.
Obviously there was a link between these events, but the serious question (okay, that leaves the WaPo folks out) is whether it was a necessary link. Suppose that a natural disaster, like a flood or earthquake, devastates a major city. In response the federal government throws in tens of billions in assistance to rebuild the city. Ten years later, the city has a thriving economy.
In Charles Lane Eliteland the disaster was a good thing, because otherwise the city never would have been revitalized. But that is not the real question. The question is whether we could have had a path that allowed developing countries to prosper without impoverishing U.S. workers.
The simple answer is we certainly could have gone a different route and most of the story is textbook economics. I lay this out more fully in a piece that was solicited for the Post Outlook/Post Everything section, but never run there because they lost the ability to reply to e-mails.
The basic story is that there is no reason that we had to run large trade deficits with developing countries like China. In the economics textbooks, capital is supposed to flow from rich countries to poor countries to finance their development. That would mean we run trade surpluses with developing countries. Furthermore, the reason that our autoworkers compete with low-paid autoworkers in the developing world, but our doctors don’t compete with their much lower paid counterparts (trained to U.S. standards), is that doctors have much more power than autoworkers. And, we enriched our one percent, while making developing countries poorer, by making patent and copyright monopolies stronger and longer.
Anyhow the story that U.S. workers had to suffer to help the world’s poor is very comforting for the country’s elite, and let’s face it, they own the media outlets. This means that we can look forward to hearing it repeated endlessly, no matter how little sense it makes.
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Eduardo Porter had an interesting piece discussing the extent to which patents can pose an obstacle to the diffusion of technology, especially in the case of drugs and clean energy. The piece points out that some folks have suggested alternatives to patent financing for drug research, generously linking to a CEPR paper. However, the piece only mentions the routes of buying up patents and placing them in the public domain and paying drug makers based on how much their drugs increased quality adjusted life-years.
There is another route preferred by some of us, which would just pay for the research upfront. The United States already does this to a substantial extent with the National Institutes of Health, which funds over $30 billion annually in biomedical research. The advantage of paying for the research upfront is that the results can be fully public and available to other researchers from the beginning. Also, there is no need for complex calculations to determine how important a specific contribution was to the end product.
An obvious point of entry would be to finance clinical trials, which account for more than 60 percent of research costs. The trial results would be fully public with detailed data (consistent with anonymity) on individual outcomes. Also, the drugs themselves would be available as generics from the day they are approved. The trials would be paid for on a contract basis, similar to the way the Department of Defense pays contractors to develop new technologies, with the difference that everything is placed in the public domain.
Eduardo Porter had an interesting piece discussing the extent to which patents can pose an obstacle to the diffusion of technology, especially in the case of drugs and clean energy. The piece points out that some folks have suggested alternatives to patent financing for drug research, generously linking to a CEPR paper. However, the piece only mentions the routes of buying up patents and placing them in the public domain and paying drug makers based on how much their drugs increased quality adjusted life-years.
There is another route preferred by some of us, which would just pay for the research upfront. The United States already does this to a substantial extent with the National Institutes of Health, which funds over $30 billion annually in biomedical research. The advantage of paying for the research upfront is that the results can be fully public and available to other researchers from the beginning. Also, there is no need for complex calculations to determine how important a specific contribution was to the end product.
An obvious point of entry would be to finance clinical trials, which account for more than 60 percent of research costs. The trial results would be fully public with detailed data (consistent with anonymity) on individual outcomes. Also, the drugs themselves would be available as generics from the day they are approved. The trials would be paid for on a contract basis, similar to the way the Department of Defense pays contractors to develop new technologies, with the difference that everything is placed in the public domain.
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