Beat the Press

Beat the press por Dean Baker

Beat the Press is Dean Baker's commentary on economic reporting. He is a Senior Economist at the Center for Economic and Policy Research (CEPR). To never miss a post, subscribe to a weekly email roundup of Beat the Press. Please also consider supporting the blog on Patreon.

This assertion appeared in the middle of an article about how the Trump administration plans to reduce the number of days that federal employees can telework rather than show up in their office. Of course seeking more accountability is a legitimate reason to change a policy, however there is absolutely zero evidence presented in the piece that reducing telework will actually increase accountability.

In fact, the very end of the piece reports on the impact of a decision to sharply reduce telework in the Education Department:

“The results were universally negative, according to a copy of the survey obtained by The Washington Post.

“Sick leave and vacation requests grew. A majority of employees reported no increased productivity, collaboration or communication with colleagues when they returned to the office — the stated reason telework was cut. And two-thirds of employees said they were considering leaving.”

The piece concluded with a statement from the Education Department, that it will:

“continue the agency’s ‘efforts to achieve the intended outcomes of improved collaboration and productivity’ and limit working from home.”

This strongly implies that efforts to limit telework have little to do with increasing accountability as earlier asserted. An alternative is that they are about harassing federal employees, who have been a frequent target of the Trump administration.The open hostility of the Trump adminsitration to federal employees should have been a reason for questioning any reasons given for making their jobs less pleasant, instead of passing them on to readers as though they are true.

This assertion appeared in the middle of an article about how the Trump administration plans to reduce the number of days that federal employees can telework rather than show up in their office. Of course seeking more accountability is a legitimate reason to change a policy, however there is absolutely zero evidence presented in the piece that reducing telework will actually increase accountability.

In fact, the very end of the piece reports on the impact of a decision to sharply reduce telework in the Education Department:

“The results were universally negative, according to a copy of the survey obtained by The Washington Post.

“Sick leave and vacation requests grew. A majority of employees reported no increased productivity, collaboration or communication with colleagues when they returned to the office — the stated reason telework was cut. And two-thirds of employees said they were considering leaving.”

The piece concluded with a statement from the Education Department, that it will:

“continue the agency’s ‘efforts to achieve the intended outcomes of improved collaboration and productivity’ and limit working from home.”

This strongly implies that efforts to limit telework have little to do with increasing accountability as earlier asserted. An alternative is that they are about harassing federal employees, who have been a frequent target of the Trump administration.The open hostility of the Trump adminsitration to federal employees should have been a reason for questioning any reasons given for making their jobs less pleasant, instead of passing them on to readers as though they are true.

David Leonhardt argues in his column that Democrats have to make the benefits of government more visible to people and criticizes them for failing to do so. While he does have a very good point, he ignores all the ways that conservatives (defined as people who want to redistribute money upward) use the government to structure the market to give more money to those on top.

This includes items like longer and stronger patent and copyright protection and trade deals which are designed to subject manufacturing workers to competition with low-paid workers in the developing world, while protecting the most highly paid professionals, like doctors and lawyers. This stealth effort has led to enormous upward redistribution over the last four decades, which economists and reporters at elite news outlets like the New York Times then attribute to the blind forces of technology and globalization.

But apart from this more general point, Leonhardt seriously misrepresents one of the major policy decisions he criticizes. Leonhardt tells readers;

“Out of a well-intended desire to get Americans to spend more of their stimulus tax cut, the administration snuck the money into people’s paychecks, rather than sending one-time checks (as George W. Bush had done in 2001) that families might have saved.

“Economically, it worked. Spending rose, helping to end the financial crisis. Politically, it was a dud. Many Americans gave Obama little credit and voted for Republicans in the 2010 midterms, virtually killing his larger legislative agenda.”

The issue was not a zero/one question of spending versus no spending. The issue was the percentage of the tax cut which would be spent. At most, the decision to have the tax cut slipped into people’s paychecks, rather than a one-time check from the government, increased the share that would be spent by 10 percentage points.

The tax cut was roughly $60 billion a year in both 2009 and 2010. This means that a high-end estimate of the addition to spending would be $6 billion a year. If we add in a multiplier of 50 percent, this would imply an increase in GDP of $9 billion a year as a result of this method paying out the tax cut. In a $15 trillion economy, this implies a boost to growth equal to 0.06 percent of GDP, an increment that is far too small to be noticed by the public.

This point is important, because the plausible impact on growth from hiding the tax cut in people’s paychecks was trivial. On the other hand, the lost in political goodwill from not sending out a check, as George W. Bush had done, was substantial.

The Obama people did not sacrifice politics for the good of the economy, they sacrificed politics to be able to conduct an experiment in economic policy. It proved to be a very costly experiment.

David Leonhardt argues in his column that Democrats have to make the benefits of government more visible to people and criticizes them for failing to do so. While he does have a very good point, he ignores all the ways that conservatives (defined as people who want to redistribute money upward) use the government to structure the market to give more money to those on top.

This includes items like longer and stronger patent and copyright protection and trade deals which are designed to subject manufacturing workers to competition with low-paid workers in the developing world, while protecting the most highly paid professionals, like doctors and lawyers. This stealth effort has led to enormous upward redistribution over the last four decades, which economists and reporters at elite news outlets like the New York Times then attribute to the blind forces of technology and globalization.

But apart from this more general point, Leonhardt seriously misrepresents one of the major policy decisions he criticizes. Leonhardt tells readers;

“Out of a well-intended desire to get Americans to spend more of their stimulus tax cut, the administration snuck the money into people’s paychecks, rather than sending one-time checks (as George W. Bush had done in 2001) that families might have saved.

“Economically, it worked. Spending rose, helping to end the financial crisis. Politically, it was a dud. Many Americans gave Obama little credit and voted for Republicans in the 2010 midterms, virtually killing his larger legislative agenda.”

The issue was not a zero/one question of spending versus no spending. The issue was the percentage of the tax cut which would be spent. At most, the decision to have the tax cut slipped into people’s paychecks, rather than a one-time check from the government, increased the share that would be spent by 10 percentage points.

The tax cut was roughly $60 billion a year in both 2009 and 2010. This means that a high-end estimate of the addition to spending would be $6 billion a year. If we add in a multiplier of 50 percent, this would imply an increase in GDP of $9 billion a year as a result of this method paying out the tax cut. In a $15 trillion economy, this implies a boost to growth equal to 0.06 percent of GDP, an increment that is far too small to be noticed by the public.

This point is important, because the plausible impact on growth from hiding the tax cut in people’s paychecks was trivial. On the other hand, the lost in political goodwill from not sending out a check, as George W. Bush had done, was substantial.

The Obama people did not sacrifice politics for the good of the economy, they sacrificed politics to be able to conduct an experiment in economic policy. It proved to be a very costly experiment.

Just wondering, since they do it so often in contexts where it is inappropriate, like this Washington Post piece on Bernie Sanders foreign policy. After noting how Trump has upended U.S. foreign policy in many areas, it adds:

“Sanders would deliver another jolt — echoing some of Trump’s criticisms of military actions and free trade but realigning the country’s priorities even more thoroughly.”

The piece could have far more accurately said “U.S. trade policy.” Of course patent and copyright proteections, which have been at the center of this policy, are 180 degrees at odds with free trade — even if people might like tthem.

 

Just wondering, since they do it so often in contexts where it is inappropriate, like this Washington Post piece on Bernie Sanders foreign policy. After noting how Trump has upended U.S. foreign policy in many areas, it adds:

“Sanders would deliver another jolt — echoing some of Trump’s criticisms of military actions and free trade but realigning the country’s priorities even more thoroughly.”

The piece could have far more accurately said “U.S. trade policy.” Of course patent and copyright proteections, which have been at the center of this policy, are 180 degrees at odds with free trade — even if people might like tthem.

 

(This post originally appeared on my Patreon page.)

Last month, in an interview with Rolling Stone, Chuck Todd responded to a question about whether he was surprised that the Trump administration would deliberately spread misinformation (i.e. lie):

“I fully admit, listening to you ask that question now, and me giving you the honest answer of, yeah, I guess I really believed they wouldn’t do this. Just so absurdly naive in hindsight.”

This answer had to have people all over the country banging their heads against the wall. Chuck Todd is the host of Meet the Press, the country’s most widely watched news interview show. He also regularly appears as a commentator on MSNBC.

After the Trump administration has engaged in a systematic pattern of lying on a wide range of issues, it is truly incredible that Chuck Todd would be telling us that he just came to realize this fact now. (Many of the lies, including Kellyanne Conway’s famous “alternative facts” were told right to Todd’s face on Meet the Press.)

This is a bit like the lead announcer at Super Bowl games over the last decade saying that he just discovered that the teams were trying to get the ball into the opposing team’s end zone. The big question in that case, as it is with Todd, is whether it is worse that they could be so astonishing ignorant over a prolonged period of time or that they apparently see nothing wrong with admitting it now.

While honesty should be applauded, Todd effectively said in this interview that he has totally failed in his job. If he didn’t recognize that Trump and his supporters were making up nonsense to advance their agenda, he was not acting as a serious reporter.

When most workers completely mess up on their job (e.g. the custodian who doesn’t clean the toilets or the dishwasher who breaks all the dishes) they face serious consequences, like getting fired. That does not appear to be the case with Chuck Todd. In all probability he will continue in his role with Meet the Press as though nothing had happened.

This raises the obvious question, if someone at the top of journalism profession can completely fail in their job for three years, and face no consequences, what does this say about the profession? Obviously NBC, Mr. Todd’s employer, doesn’t care at all that, by his own admission, he has completely failed in his responsibility to accurately inform his audience over the last three years. He has assisted the Trump administration and Republicans more generally in passing along misinformation to the public, and NBC is just fine with that.

I’ve been following economic reporting closely for decades, and I can’t say that I am surprised. While there are some very good economic reporters out there (far more today than two decades ago), it is clear that the major news outlets care very little about accurately informing their audience about the economy.

The most blatant example of this is their persistent refusal to put huge numbers, especially budget numbers, in a context that makes them understandable to their audience. When a news article tells readers that a transportation bill calls for spending $196 billion over six years, it is essentially providing no information at all.

Almost none of the readers of even the high end papers, like the New York Times or Washington Post, have any idea how much money $196 billion is over six years. It would likely mean the same to them if they added a zero or subtracted a zero. And of course much of the time they don’t even give the number of years over which a specific spending or tax item is projected to occur. It would be a relatively simple matter if reporters took two seconds to put the numbers in a context that would make them understandable to most of their audience, such as expressing them as a share of the total budget or as a per person expenditure.

I recall celebrating a big victory on this front back in 2013. I had been pounding on this point endlessly in Beat the Press, but that fall Just Foreign Policy and Media Matters joined the battle with a petition drive directed towards Margaret Sullivan, who was at the time the Public Editor of the New York Times.

Sullivan responded with a column in which she agreed with us 100 percent. She acknowledged that almost none of the NYT’s readers had any understanding of what these really big numbers meant. She even got buy in from David Leonhardt, who was the paper’s Washington editor at the time. Leonhardt commented that the paper might as well just write “really big number,” since the actual number that appeared in print was almost meaningless to everyone who saw it.

I assumed that Sullivan’s article, coupled with Leonhardt’s whole-hearted agreement, meant that the NYT would change its practices and insist that news articles make some effort to put big numbers in a context where they would be meaningful to most of their readers. Given the NYT’s standing as the country’s preeminent newspaper, I expected that this change in practice would filter down to other new outlets, so that reporters would feel an obligation to put these huge numbers in some context that would make them meaningful to their audience.

I was wrong. Nothing changed at the NYT or anywhere else. As a result, a practice that no one can defend persists. This failure contributes to the widespread confusion about the budget with most people (not just racists) enormously over-estimating the share of the budget that goes to anti-poverty programs like food stamps and TANF. Needless to say, it becomes more difficult to argue for the food stamp budget, TANF, or other anti-poverty programs if people think that more than a third of the budget is already going to anti-poverty programs, as opposed to 5-6 percent.

In fact, the media seem to have gone the other way in freely tossing around massive numbers with no context whatsoever, often even failing to mention the number of years involved. The Washington Post gave us an absolute orgy of this sort of reporting last month when it reported on the spending plans of the various Democratic candidates for president. It threw around figures in the trillions and tens of trillions, often not being clear on the relevant time frame. The article would have been every bit as informative if it just used Leonhardt’s “really big number” phrase in place of the actual numbers.

In fact, that seemed to be the main point of the piece. The Washington Post wanted to tell readers that the Democratic presidential candidates wanted to spend lots of money. And of course, this was in a news story, not an opinion piece.

Anyhow, I use the numbers in context item as my canary in the coal mine, for the simple reason that it is not a debatable issue. No one thinks that anyone, except a tiny number of budget wonks, has any idea what the billions and trillions that appear in these budget articles mean. Yet the practice of using these numbers without any context persists.

Given that reality, how can we hope to make economics reporters more responsible in other areas where they may be at least a debatable opposing position? In this context, I’ll mention my new year’s resolution to get a reporter at a major news outlet to recognize that government-granted patent and copyright monopolies are implicit government debt. The idea is that the government pays for things, like innovation and creative work, by granting these monopolies. This is an alternative to direct spending.

While the direct spending for these purposes is added directly to the deficit and debt, the cost to the country of the patent and copyright monopolies granted by the government are ignored. These costs are enormous. In the case of prescription drugs alone the gap, between what we pay for patent-protected drugs versus their free market price, is close to $400 billion a year, roughly 9.0 percent of federal spending.

Anyhow, it makes zero sense to get all excited about the debt burden that we are passing on to our kids, while ignoring the huge amounts of money that they will be paying in patent and copyright rents, especially since the latter dwarfs the debt service paid each year. Responsible reporters would be taking note of this massive burden created by the government.

But how can we change economic reporting? The lesson from the Chuck Todd incident, as well as the follow-up from the Margaret Sullivan piece, is that those on top just don’t care. Pointing out to the powers that be at NBC, the New York Times, or any other major media outlet that they are doing a bad job informing their audience is a waste of time. We might as well be telling them about early impressionist painters. It’s possible that they have an interest, but it has nothing to do with their jobs.

The only real hope in this story is that some of the reporters take their jobs seriously. In recent years, many of the reporters at the major news outlets have gotten more interested in issues like income distribution, the impact of trade on wages, and other areas that had been largely ignored in prior decades.

Some of these reporters can be persuaded that if we want to talk about the burdens that current actions by the government create for us in the future, then we have to include patent and copyright rents. The point is simple and the issue is whether or not they want to be honest.

And, of course the Internet does give us a way around the major news outlets. When these reporters fail to do competent reporting, I can always correct them on Beat the Press, and try to get the correction out as widely as possible through Twitter. And, on rare occasions, a progressive magazine will write about the issue.

(This post originally appeared on my Patreon page.)

Last month, in an interview with Rolling Stone, Chuck Todd responded to a question about whether he was surprised that the Trump administration would deliberately spread misinformation (i.e. lie):

“I fully admit, listening to you ask that question now, and me giving you the honest answer of, yeah, I guess I really believed they wouldn’t do this. Just so absurdly naive in hindsight.”

This answer had to have people all over the country banging their heads against the wall. Chuck Todd is the host of Meet the Press, the country’s most widely watched news interview show. He also regularly appears as a commentator on MSNBC.

After the Trump administration has engaged in a systematic pattern of lying on a wide range of issues, it is truly incredible that Chuck Todd would be telling us that he just came to realize this fact now. (Many of the lies, including Kellyanne Conway’s famous “alternative facts” were told right to Todd’s face on Meet the Press.)

This is a bit like the lead announcer at Super Bowl games over the last decade saying that he just discovered that the teams were trying to get the ball into the opposing team’s end zone. The big question in that case, as it is with Todd, is whether it is worse that they could be so astonishing ignorant over a prolonged period of time or that they apparently see nothing wrong with admitting it now.

While honesty should be applauded, Todd effectively said in this interview that he has totally failed in his job. If he didn’t recognize that Trump and his supporters were making up nonsense to advance their agenda, he was not acting as a serious reporter.

When most workers completely mess up on their job (e.g. the custodian who doesn’t clean the toilets or the dishwasher who breaks all the dishes) they face serious consequences, like getting fired. That does not appear to be the case with Chuck Todd. In all probability he will continue in his role with Meet the Press as though nothing had happened.

This raises the obvious question, if someone at the top of journalism profession can completely fail in their job for three years, and face no consequences, what does this say about the profession? Obviously NBC, Mr. Todd’s employer, doesn’t care at all that, by his own admission, he has completely failed in his responsibility to accurately inform his audience over the last three years. He has assisted the Trump administration and Republicans more generally in passing along misinformation to the public, and NBC is just fine with that.

I’ve been following economic reporting closely for decades, and I can’t say that I am surprised. While there are some very good economic reporters out there (far more today than two decades ago), it is clear that the major news outlets care very little about accurately informing their audience about the economy.

The most blatant example of this is their persistent refusal to put huge numbers, especially budget numbers, in a context that makes them understandable to their audience. When a news article tells readers that a transportation bill calls for spending $196 billion over six years, it is essentially providing no information at all.

Almost none of the readers of even the high end papers, like the New York Times or Washington Post, have any idea how much money $196 billion is over six years. It would likely mean the same to them if they added a zero or subtracted a zero. And of course much of the time they don’t even give the number of years over which a specific spending or tax item is projected to occur. It would be a relatively simple matter if reporters took two seconds to put the numbers in a context that would make them understandable to most of their audience, such as expressing them as a share of the total budget or as a per person expenditure.

I recall celebrating a big victory on this front back in 2013. I had been pounding on this point endlessly in Beat the Press, but that fall Just Foreign Policy and Media Matters joined the battle with a petition drive directed towards Margaret Sullivan, who was at the time the Public Editor of the New York Times.

Sullivan responded with a column in which she agreed with us 100 percent. She acknowledged that almost none of the NYT’s readers had any understanding of what these really big numbers meant. She even got buy in from David Leonhardt, who was the paper’s Washington editor at the time. Leonhardt commented that the paper might as well just write “really big number,” since the actual number that appeared in print was almost meaningless to everyone who saw it.

I assumed that Sullivan’s article, coupled with Leonhardt’s whole-hearted agreement, meant that the NYT would change its practices and insist that news articles make some effort to put big numbers in a context where they would be meaningful to most of their readers. Given the NYT’s standing as the country’s preeminent newspaper, I expected that this change in practice would filter down to other new outlets, so that reporters would feel an obligation to put these huge numbers in some context that would make them meaningful to their audience.

I was wrong. Nothing changed at the NYT or anywhere else. As a result, a practice that no one can defend persists. This failure contributes to the widespread confusion about the budget with most people (not just racists) enormously over-estimating the share of the budget that goes to anti-poverty programs like food stamps and TANF. Needless to say, it becomes more difficult to argue for the food stamp budget, TANF, or other anti-poverty programs if people think that more than a third of the budget is already going to anti-poverty programs, as opposed to 5-6 percent.

In fact, the media seem to have gone the other way in freely tossing around massive numbers with no context whatsoever, often even failing to mention the number of years involved. The Washington Post gave us an absolute orgy of this sort of reporting last month when it reported on the spending plans of the various Democratic candidates for president. It threw around figures in the trillions and tens of trillions, often not being clear on the relevant time frame. The article would have been every bit as informative if it just used Leonhardt’s “really big number” phrase in place of the actual numbers.

In fact, that seemed to be the main point of the piece. The Washington Post wanted to tell readers that the Democratic presidential candidates wanted to spend lots of money. And of course, this was in a news story, not an opinion piece.

Anyhow, I use the numbers in context item as my canary in the coal mine, for the simple reason that it is not a debatable issue. No one thinks that anyone, except a tiny number of budget wonks, has any idea what the billions and trillions that appear in these budget articles mean. Yet the practice of using these numbers without any context persists.

Given that reality, how can we hope to make economics reporters more responsible in other areas where they may be at least a debatable opposing position? In this context, I’ll mention my new year’s resolution to get a reporter at a major news outlet to recognize that government-granted patent and copyright monopolies are implicit government debt. The idea is that the government pays for things, like innovation and creative work, by granting these monopolies. This is an alternative to direct spending.

While the direct spending for these purposes is added directly to the deficit and debt, the cost to the country of the patent and copyright monopolies granted by the government are ignored. These costs are enormous. In the case of prescription drugs alone the gap, between what we pay for patent-protected drugs versus their free market price, is close to $400 billion a year, roughly 9.0 percent of federal spending.

Anyhow, it makes zero sense to get all excited about the debt burden that we are passing on to our kids, while ignoring the huge amounts of money that they will be paying in patent and copyright rents, especially since the latter dwarfs the debt service paid each year. Responsible reporters would be taking note of this massive burden created by the government.

But how can we change economic reporting? The lesson from the Chuck Todd incident, as well as the follow-up from the Margaret Sullivan piece, is that those on top just don’t care. Pointing out to the powers that be at NBC, the New York Times, or any other major media outlet that they are doing a bad job informing their audience is a waste of time. We might as well be telling them about early impressionist painters. It’s possible that they have an interest, but it has nothing to do with their jobs.

The only real hope in this story is that some of the reporters take their jobs seriously. In recent years, many of the reporters at the major news outlets have gotten more interested in issues like income distribution, the impact of trade on wages, and other areas that had been largely ignored in prior decades.

Some of these reporters can be persuaded that if we want to talk about the burdens that current actions by the government create for us in the future, then we have to include patent and copyright rents. The point is simple and the issue is whether or not they want to be honest.

And, of course the Internet does give us a way around the major news outlets. When these reporters fail to do competent reporting, I can always correct them on Beat the Press, and try to get the correction out as widely as possible through Twitter. And, on rare occasions, a progressive magazine will write about the issue.

Jim Tankersley and Jeanna Smialek had a column in the NYT talking about how economists seem to be worried about the economy, in spite of low unemployment and continued growth. The economists cited had a variety of concerns, but most seemed to center on the possibility that the government will lack the tools to respond to the next recession.

The basis of the concern is that the federal funds rate, at 1.5 percent, is already very low, leaving little room to fall further. In terms of fiscal policy, we already have deficits of more than $1 trillion (4.6 percent of GDP), which are high by historical standards. The argument is that both monetary and fiscal policy seem to be near limits, so that there is not much else the government can do.

The prospect of ending up like Japan, which now has a debt to GDP ratio of more than 250 percent, was raised as one possible bad outcome. It is not clear why this would be an especially bad outcome to fear. On a per capita basis, Japan’s economy has grown at an average annual rate of 1.4 percent since 1990. That is less than the 2.3 percent rate in the U.S., but hardly seems like a disaster.

Furthermore, the length of the average work year has been reduced by 16 percent over this period, which means that workers in Japan are enjoying far more leisure time than they did before the collapse of the country’s stock and housing bubble. The work year has only declined by 3.0 percent over this period in the United States.

As far as the burden of Japan’s debt, interest payments on Japan’s debt will amount to 0.005 percent of GDP this year, according to the I.M.F. That would be equivalent to interest payments of roughly $1.2 billion in the U.S. economy. (Our interest payments will be a bit over $200 billion this year, after netting out money rebated by the Federal Reserve Board.) The I.M.F. projects that Japan’s interest burden will turn negative next year, as investors are paying the country money to hold its debt.

In short, there doesn’t seem to be much of a horror story here. If the U.S. economy does fall into recession it seems the only obstacle to a large fiscal stimulus will be political, not any actual economic constraint.

Jim Tankersley and Jeanna Smialek had a column in the NYT talking about how economists seem to be worried about the economy, in spite of low unemployment and continued growth. The economists cited had a variety of concerns, but most seemed to center on the possibility that the government will lack the tools to respond to the next recession.

The basis of the concern is that the federal funds rate, at 1.5 percent, is already very low, leaving little room to fall further. In terms of fiscal policy, we already have deficits of more than $1 trillion (4.6 percent of GDP), which are high by historical standards. The argument is that both monetary and fiscal policy seem to be near limits, so that there is not much else the government can do.

The prospect of ending up like Japan, which now has a debt to GDP ratio of more than 250 percent, was raised as one possible bad outcome. It is not clear why this would be an especially bad outcome to fear. On a per capita basis, Japan’s economy has grown at an average annual rate of 1.4 percent since 1990. That is less than the 2.3 percent rate in the U.S., but hardly seems like a disaster.

Furthermore, the length of the average work year has been reduced by 16 percent over this period, which means that workers in Japan are enjoying far more leisure time than they did before the collapse of the country’s stock and housing bubble. The work year has only declined by 3.0 percent over this period in the United States.

As far as the burden of Japan’s debt, interest payments on Japan’s debt will amount to 0.005 percent of GDP this year, according to the I.M.F. That would be equivalent to interest payments of roughly $1.2 billion in the U.S. economy. (Our interest payments will be a bit over $200 billion this year, after netting out money rebated by the Federal Reserve Board.) The I.M.F. projects that Japan’s interest burden will turn negative next year, as investors are paying the country money to hold its debt.

In short, there doesn’t seem to be much of a horror story here. If the U.S. economy does fall into recession it seems the only obstacle to a large fiscal stimulus will be political, not any actual economic constraint.

I’m asking because a New York Times piece on the troubles facing a steel factory in southern Italy asserted that closing the troubled factory would cost Italy 1.4 percent of its GDP. According to the piece, the plant directly employs 10,500 workers. That is a bit less than 0.05 percent of Italy’s workforce of 23,400,000.

The piece is surely right in highlighting the importance of the plant to a very depressed region in Italy, but the claim its closing would reduce Italy’s GDP by 1.4 percent does not seem plausible.

I’m asking because a New York Times piece on the troubles facing a steel factory in southern Italy asserted that closing the troubled factory would cost Italy 1.4 percent of its GDP. According to the piece, the plant directly employs 10,500 workers. That is a bit less than 0.05 percent of Italy’s workforce of 23,400,000.

The piece is surely right in highlighting the importance of the plant to a very depressed region in Italy, but the claim its closing would reduce Italy’s GDP by 1.4 percent does not seem plausible.

Charles Lane used his Washington Post column to brag about the fact that the fossil fuel industry and climate denialists have had enough political power to prevent more widespread use of electrical cars, as he had apparently predicted would be the case a decade ago. He seems very proud of this fact. He also concludes by citing a prediction that there will be 125 million electric vehicles on the road worldwide in a decade, less than one-tenth of the total. And he is confident that the actual number will be below this.

Okay, I’m sure it’s fun to use your column in the Washington Post to predict a climate disaster, but let’s take a look at some of the facts here, insofar as Lane has any.   

He starts by telling readers:

“gas-powered cars account for between one-sixth and one-fifth of U.S. carbon emissions.”

Lane’s source actually says that transportation accounts for 29 percent of carbon emissions. Cars and trucks account for 82 percent of this, with ships, boats, and “other” accounting for another 7.0 percent. If we assume that half of those emissions could also be readily replaced with electric motors, that would get us to 85.5 percent of the 29 percent of emissions attributable to transportation, which would put us at just under a quarter of total emissions. That’s a bit more than “between one-sixth and one-fifth,” but why quibble?

Then Lane informs us:

“government subsidies for them [electric cars] will be a regressive transfer of social resources in return for little climate benefit, given that the U.S. power grid the cars draw from is 64 percent fueled by coal and gas.”

Okay, there may have been someone somewhere who did not realize that the climate benefits from switching to electric cars are minimal unless we also switch to clean power sources, but I’ve never encountered such a person. The obvious point here is that even if we have a massive switch to clean sources of electricity generation, we will still be emitting huge amounts of greenhouse gases if most of our cars are still powered by fossil fuels.

Then Lane tells us the horrible news:

“Government, both federal and state, subsidized electric-car sales and production to the tune of several billion dollars, yet as of March 2019.”

Wow, several billion dollars! That’s a lot of money. He doesn’t tell us how many billions “several billion” is, but his source warns that it could be as high as $20 billion in total. Let’s see, that would be around 3.0 percent of the annual military budget. But since these are subsidies that took place over a decade, we would be talking about somewhere in the neighborhood of 0.5 percent of military spending over this period.

Lane also shares his great wisdom for those who want to see mass adoption of electric cars:

“Mass adoption of electric cars, however, cannot occur unless they can do everything gas-powered vehicles can do — including the ability to go hundreds of miles before refueling, and refueling easily — at a comparable total cost of ownership.”

When we think about the total cost of ownership and go back to Mr. Lane’s great insights on the issue of electric cars a decade ago, it might be worth considering projections for the price of oil at that time. Back in 2010, the OECD projected that the price of oil in 2020 would be $120 a barrel in 2009 dollars, which would translate into more than $140 a barrel in today’s dollars.  

That would easily add another $2 a gallon to the current price of gasoline. It would be interesting to know if Lane had recognized a decade ago that the OECD and other forecasters had hugely over-projected the price of oil, or alternatively, if he thinks it would not affect the competitiveness of electric cars if gas was selling for $5 a gallon instead of $3 a gallon.

This also raises the obvious point that folks who care about the future of the planet might want to tax gas by $2 a gallon (or more) as is done in Europe. Of course, if we think it is cute to wreck the planet for future generations, then we would never think of making people pay for the damage they cause.

In terms of what is possible, China sold almost 1.3 million electric cars in 2018 and sales are projected to grow at more than a 33 percent annual rate through 2024.  The industry has taken somewhat of a hit this year, as the government cut back subsidies, but it appears that the leadership is renewing its commitment to electric cars, which means it is likely to get back on this growth path. (China also leads the world in production of electricity from wind and solar power, so electric cars will make a difference there.)

Anyhow, Lane could be proved right. His friends in the fossil fuel industry may be able to thwart any serious efforts to reduce greenhouse gas emissions here and around the world. That will give him something to gloat about in 2030.

It is worth noting, for anyone making nonsense arguments about affordability, the worldwide savings between the oil price projected from 2010 and the actual price of oil today comes to more than $2.7 trillion a year. If we add in savings from lower priced natural gas and coal, which would be at least comparable, the total would be in the neighborhood of $5.4 trillion a year.

The $5.4 trillion in savings that the world is seeing each year from lower than projected fossil fuel prices would be enough to buy 180 million electric cars a year, if they cost $30,000 each. In other words, switching to electric cars on a large scale is affordable, if anyone cares about the future of the planet.

Charles Lane used his Washington Post column to brag about the fact that the fossil fuel industry and climate denialists have had enough political power to prevent more widespread use of electrical cars, as he had apparently predicted would be the case a decade ago. He seems very proud of this fact. He also concludes by citing a prediction that there will be 125 million electric vehicles on the road worldwide in a decade, less than one-tenth of the total. And he is confident that the actual number will be below this.

Okay, I’m sure it’s fun to use your column in the Washington Post to predict a climate disaster, but let’s take a look at some of the facts here, insofar as Lane has any.   

He starts by telling readers:

“gas-powered cars account for between one-sixth and one-fifth of U.S. carbon emissions.”

Lane’s source actually says that transportation accounts for 29 percent of carbon emissions. Cars and trucks account for 82 percent of this, with ships, boats, and “other” accounting for another 7.0 percent. If we assume that half of those emissions could also be readily replaced with electric motors, that would get us to 85.5 percent of the 29 percent of emissions attributable to transportation, which would put us at just under a quarter of total emissions. That’s a bit more than “between one-sixth and one-fifth,” but why quibble?

Then Lane informs us:

“government subsidies for them [electric cars] will be a regressive transfer of social resources in return for little climate benefit, given that the U.S. power grid the cars draw from is 64 percent fueled by coal and gas.”

Okay, there may have been someone somewhere who did not realize that the climate benefits from switching to electric cars are minimal unless we also switch to clean power sources, but I’ve never encountered such a person. The obvious point here is that even if we have a massive switch to clean sources of electricity generation, we will still be emitting huge amounts of greenhouse gases if most of our cars are still powered by fossil fuels.

Then Lane tells us the horrible news:

“Government, both federal and state, subsidized electric-car sales and production to the tune of several billion dollars, yet as of March 2019.”

Wow, several billion dollars! That’s a lot of money. He doesn’t tell us how many billions “several billion” is, but his source warns that it could be as high as $20 billion in total. Let’s see, that would be around 3.0 percent of the annual military budget. But since these are subsidies that took place over a decade, we would be talking about somewhere in the neighborhood of 0.5 percent of military spending over this period.

Lane also shares his great wisdom for those who want to see mass adoption of electric cars:

“Mass adoption of electric cars, however, cannot occur unless they can do everything gas-powered vehicles can do — including the ability to go hundreds of miles before refueling, and refueling easily — at a comparable total cost of ownership.”

When we think about the total cost of ownership and go back to Mr. Lane’s great insights on the issue of electric cars a decade ago, it might be worth considering projections for the price of oil at that time. Back in 2010, the OECD projected that the price of oil in 2020 would be $120 a barrel in 2009 dollars, which would translate into more than $140 a barrel in today’s dollars.  

That would easily add another $2 a gallon to the current price of gasoline. It would be interesting to know if Lane had recognized a decade ago that the OECD and other forecasters had hugely over-projected the price of oil, or alternatively, if he thinks it would not affect the competitiveness of electric cars if gas was selling for $5 a gallon instead of $3 a gallon.

This also raises the obvious point that folks who care about the future of the planet might want to tax gas by $2 a gallon (or more) as is done in Europe. Of course, if we think it is cute to wreck the planet for future generations, then we would never think of making people pay for the damage they cause.

In terms of what is possible, China sold almost 1.3 million electric cars in 2018 and sales are projected to grow at more than a 33 percent annual rate through 2024.  The industry has taken somewhat of a hit this year, as the government cut back subsidies, but it appears that the leadership is renewing its commitment to electric cars, which means it is likely to get back on this growth path. (China also leads the world in production of electricity from wind and solar power, so electric cars will make a difference there.)

Anyhow, Lane could be proved right. His friends in the fossil fuel industry may be able to thwart any serious efforts to reduce greenhouse gas emissions here and around the world. That will give him something to gloat about in 2030.

It is worth noting, for anyone making nonsense arguments about affordability, the worldwide savings between the oil price projected from 2010 and the actual price of oil today comes to more than $2.7 trillion a year. If we add in savings from lower priced natural gas and coal, which would be at least comparable, the total would be in the neighborhood of $5.4 trillion a year.

The $5.4 trillion in savings that the world is seeing each year from lower than projected fossil fuel prices would be enough to buy 180 million electric cars a year, if they cost $30,000 each. In other words, switching to electric cars on a large scale is affordable, if anyone cares about the future of the planet.

Washington Post Gets Lost in Really Big Budget Numbers

The Washington Post ran a classic “really big numbers” piece on how much Democratic presidential candidates want to spend on the various initiatives they are proposing. These stories are known as “really big numbers” pieces because they provide basically zero context as they throw really big numbers at readers that they know almost none of them would understand.

The piece starts off by telling us that Bernie Sanders wants to spend $50 trillion over the next decade. It tells us that Warren would spend over $30 trillion and that Biden comes in at $4.1 trillion. While these proposals, especially the one for Medicare for All supported by Sanders and Warren, are complicated, the Post could at least show this spending as a share of projected GDP.

The Congressional Budget Office projects that GDP will be close to $280 trillion in the decade after the next president takes office in 2021. This means that Sanders projected spending comes to roughly 18.0 percent of projected GDP, while Warren’s would be a bit less than 11.0 percent. Biden’s proposals would be less than 1.5 percent of GDP. We are currently spending close to 22.0 percent of GDP.

However, this is only the beginning of the picture. The Sanders and Warren’s proposals would both radically reduce what the country pays for prescription drugs and medical equipment. Most of our payments for these items now are an implicit tax that the government imposes by granting patent monopolies. The Washington Post literally never talks about this implicit tax. (One can speculate about the reason for this neglect, but it is worth noting that the paper gets lots of advertising revenue from the prescription drug industry.)

There are other random uses of really big numbers in the piece. For example, it tells us that Trump signed a $1.4 trillion spending bill this month. That $1.4 trillion (6.6 percent of GDP) was mostly renewing existing spending for fiscal year 2020. The piece tells about Trump’s boast that he secured more than $2.5 trillion in military spending, without letting readers know whether the claim refers to an increase or how many years it covers. (Of course, with Trump, that may be hard to know.)

In throwing out its really big numbers the piece also refers to a proposal by Democratic presidential candidate Andrew Yang to give $100 in “Democracy Dollars” to each voter to support the candidate, party, or cause of their choice. If 200 million voters used this voucher it would $20 billion a year. That would come to less than 0.1 percent of GDP, but it is still a really big number.

Anyhow, this piece could be a classic in the really big numbers genre. The point is obviously to scare readers with really big numbers rather than to provide information.

The Washington Post ran a classic “really big numbers” piece on how much Democratic presidential candidates want to spend on the various initiatives they are proposing. These stories are known as “really big numbers” pieces because they provide basically zero context as they throw really big numbers at readers that they know almost none of them would understand.

The piece starts off by telling us that Bernie Sanders wants to spend $50 trillion over the next decade. It tells us that Warren would spend over $30 trillion and that Biden comes in at $4.1 trillion. While these proposals, especially the one for Medicare for All supported by Sanders and Warren, are complicated, the Post could at least show this spending as a share of projected GDP.

The Congressional Budget Office projects that GDP will be close to $280 trillion in the decade after the next president takes office in 2021. This means that Sanders projected spending comes to roughly 18.0 percent of projected GDP, while Warren’s would be a bit less than 11.0 percent. Biden’s proposals would be less than 1.5 percent of GDP. We are currently spending close to 22.0 percent of GDP.

However, this is only the beginning of the picture. The Sanders and Warren’s proposals would both radically reduce what the country pays for prescription drugs and medical equipment. Most of our payments for these items now are an implicit tax that the government imposes by granting patent monopolies. The Washington Post literally never talks about this implicit tax. (One can speculate about the reason for this neglect, but it is worth noting that the paper gets lots of advertising revenue from the prescription drug industry.)

There are other random uses of really big numbers in the piece. For example, it tells us that Trump signed a $1.4 trillion spending bill this month. That $1.4 trillion (6.6 percent of GDP) was mostly renewing existing spending for fiscal year 2020. The piece tells about Trump’s boast that he secured more than $2.5 trillion in military spending, without letting readers know whether the claim refers to an increase or how many years it covers. (Of course, with Trump, that may be hard to know.)

In throwing out its really big numbers the piece also refers to a proposal by Democratic presidential candidate Andrew Yang to give $100 in “Democracy Dollars” to each voter to support the candidate, party, or cause of their choice. If 200 million voters used this voucher it would $20 billion a year. That would come to less than 0.1 percent of GDP, but it is still a really big number.

Anyhow, this piece could be a classic in the really big numbers genre. The point is obviously to scare readers with really big numbers rather than to provide information.

Bill Greider and Secular Stagnation

My friend, Bill Greider, died on Christmas day. Greider, who was 83, was an old-time journalist who believed that the job meant exposing the corruption of the rich and powerful, rather than becoming their friends in order to get inside stories. This meant that he was never very popular with elite types, as perhaps best evidenced by his minimal obituary at the Washington Post, where he had worked for a decade as a reporter and an editor.

Greider’s writing had a large impact on my thinking about the economy and the world. When I was still in graduate school I read his great study of the Federal Reserve Board, Secrets of the Temple. While there were many things in that book which were not exactly right, it did much to highlight the power of this fundamentally undemocratic institution. I, and many others, have worked with considerable success in recent years to make the Fed more open to public input, and for it to take its legal mandate for maintaining full employment more seriously. 

Greider also wrote the book, Who Will Tell the People? The Betrayal of American Democracy, about the corruption of politics in Washington. The book became the basis for a PBS documentary with the same name. I remember well a segment from this documentary.

It was an interview with a reporter. (Sorry, can’t remember who it was.) The reporter was discussing how he came to fully appreciate the corruption of Washington. The reporter explained that someone asked him “why do you think members of Congress sit on the banking committee?” The reporter gave the textbook answer about sitting on the committee to oversee the regulations and laws on banking. His questioner responded, “they sit on the banking committee to get money from bankers.”

I grew up in Chicago, when the machine politics of the first Mayor Daley was the only game in town, so I was not naive about politics and corruption, but this still stunned me. Folks who have been around Washington know it is obviously true, but I think the level of corruption is probably news to most people in the country. This was an education for me.

Back in 1997, Greider wrote a book, One World, Ready or Not: The Manic Logic of Global Capitalism, which warned that competition from the developing world would put downward pressure on the wages of manufacturing workers and that large trade deficits could lead to serious shortfalls in aggregate demand, meaning weak growth and high unemployment. The book was widely trashed by economists, including the leading liberals of the day. In particular, they ridiculed the idea that trade deficits could lead to unemployment, after all, the Fed could just lower interest rates to make up any shortfall in demand.

Two decades later, most of the mainstream of the profession accepts the idea of “secular stagnation,” meaning a sustained shortfall in demand that leaves the economy operating well below its potential level of output. With interest rates having bottomed out at zero following the Great Recession, most economists would concede that the Fed does not have the ability to boost the economy back to full employment, or at least not with its traditional tool of lowering the federal funds rate.

While economists generally do not like to talk about the trade deficit as a cause of secular stagnation, fans of logic and arithmetic point out that if we had balanced trade rather than a deficit of 3.0 percent of GDP, it would provide the same boost to the economy as an increase in government spending of 3.0 percent of GDP or roughly $650 billion a year in today’s economy. There is little doubt that would be a huge boost to demand and would have gone far towards ending the problem of secular stagnation. (There is no magic to balanced trade. I only use it as a point of reference.)

There were certainly things that Greider got wrong in One World, Ready or Not, as he did in his other economic writings. He was a journalist not an economist. Still, as one great economist commented, it is better to be approximately right than exactly wrong, a position that described many of his economist critics.

The response to Greider’s death as well as his life calls to mind another great saying. In Washington, the only thing worse than being wrong is being right. And Greider was often guilty of that.

 

 

 

 
 

 

My friend, Bill Greider, died on Christmas day. Greider, who was 83, was an old-time journalist who believed that the job meant exposing the corruption of the rich and powerful, rather than becoming their friends in order to get inside stories. This meant that he was never very popular with elite types, as perhaps best evidenced by his minimal obituary at the Washington Post, where he had worked for a decade as a reporter and an editor.

Greider’s writing had a large impact on my thinking about the economy and the world. When I was still in graduate school I read his great study of the Federal Reserve Board, Secrets of the Temple. While there were many things in that book which were not exactly right, it did much to highlight the power of this fundamentally undemocratic institution. I, and many others, have worked with considerable success in recent years to make the Fed more open to public input, and for it to take its legal mandate for maintaining full employment more seriously. 

Greider also wrote the book, Who Will Tell the People? The Betrayal of American Democracy, about the corruption of politics in Washington. The book became the basis for a PBS documentary with the same name. I remember well a segment from this documentary.

It was an interview with a reporter. (Sorry, can’t remember who it was.) The reporter was discussing how he came to fully appreciate the corruption of Washington. The reporter explained that someone asked him “why do you think members of Congress sit on the banking committee?” The reporter gave the textbook answer about sitting on the committee to oversee the regulations and laws on banking. His questioner responded, “they sit on the banking committee to get money from bankers.”

I grew up in Chicago, when the machine politics of the first Mayor Daley was the only game in town, so I was not naive about politics and corruption, but this still stunned me. Folks who have been around Washington know it is obviously true, but I think the level of corruption is probably news to most people in the country. This was an education for me.

Back in 1997, Greider wrote a book, One World, Ready or Not: The Manic Logic of Global Capitalism, which warned that competition from the developing world would put downward pressure on the wages of manufacturing workers and that large trade deficits could lead to serious shortfalls in aggregate demand, meaning weak growth and high unemployment. The book was widely trashed by economists, including the leading liberals of the day. In particular, they ridiculed the idea that trade deficits could lead to unemployment, after all, the Fed could just lower interest rates to make up any shortfall in demand.

Two decades later, most of the mainstream of the profession accepts the idea of “secular stagnation,” meaning a sustained shortfall in demand that leaves the economy operating well below its potential level of output. With interest rates having bottomed out at zero following the Great Recession, most economists would concede that the Fed does not have the ability to boost the economy back to full employment, or at least not with its traditional tool of lowering the federal funds rate.

While economists generally do not like to talk about the trade deficit as a cause of secular stagnation, fans of logic and arithmetic point out that if we had balanced trade rather than a deficit of 3.0 percent of GDP, it would provide the same boost to the economy as an increase in government spending of 3.0 percent of GDP or roughly $650 billion a year in today’s economy. There is little doubt that would be a huge boost to demand and would have gone far towards ending the problem of secular stagnation. (There is no magic to balanced trade. I only use it as a point of reference.)

There were certainly things that Greider got wrong in One World, Ready or Not, as he did in his other economic writings. He was a journalist not an economist. Still, as one great economist commented, it is better to be approximately right than exactly wrong, a position that described many of his economist critics.

The response to Greider’s death as well as his life calls to mind another great saying. In Washington, the only thing worse than being wrong is being right. And Greider was often guilty of that.

 

 

 

 
 

 

The Future of Trade Deals

(This piece first appeared on my Patreon page.)

Last week, to take some of the sting off his impeachment, Donald Trump was celebrating his trade deals as evidence of the great success of his presidency. Specially, he has touted his revised NAFTA, which the Democratic leadership agreed to, and his first round trade agreement with China. Neither deal is likely to have a noticeable impact on the U.S. economy, but this does provide a good opportunity to think about the shape of future trade agreements.

First of all, it is worth noting some positives in the new NAFTA. Congressional Democrats forced Trump to include some serious language on labor rights in Mexico. While it remains to be seen how enforceable these will prove to be, they are definitely stronger than the provisions in the original NAFTA.

It will also help that Mexico’s current president, Lopez Obrador, is its most labor friendly leader in more than half century. In most cases, Obrador will likely be happy to improve labor standards in Mexico in accordance with the agreement.

While provisions that can improve the living standards of Mexican workers should be seen as good, this is unlikely to make much difference in terms of the number of manufacturing jobs going from the U.S. to Mexico. Even if the labor provisions of the deal are fully enforced, wages will still be far lower in Mexico than in the United States.

This point can be made more generally. Promoting respect for labor standards and the right of workers to organize in developing countries is a good thing. Where possible, we should try to help support democratic rights and rising living standards, but given the large gaps in productivity between the United States and developing countries, respect for workers’ rights will not eliminate the large differences in wages.

The one positive aspect of this picture for U.S. workers is that most of the jobs that are likely to be transferred to developing countries have already moved. This is the story of the plunge in manufacturing employment in the last decade. While there was relatively little change in manufacturing employment from 1970 to 2000 (even though manufacturing employment fell as a share of total employment), employment in manufacturing fell by 3.4 million, or 20 percent, between December of 2000 and December of 2007. That is before the beginning of the Great Recession.

This plunge in manufacturing employment coincided with the explosion of the trade deficit from 3.0 percent of GDP to almost 6.0 percent of GDP. (The economists who blame this job loss on technology have to explain why technology cost relatively few manufacturing jobs from 1970 to 2000 and why technology hasn’t prevented manufacturing jobs from increasing modestly since 2010. But I suppose stories that please a powerful constituency don’t have to fit the facts.) The period from 2000 to 2007 was even worse for union jobs in manufacturing, which fell by almost 40 percent over this period.

But the manufacturing jobs that remain are generally much less vulnerable to wage competition. In some cases, this is due to high transportation costs. For example, in the case of food manufacturing, employment has actually risen by more than 10 percent since 1990. This is because it would be very expensive to take various agricultural products produced in the United States, ship them to countries with low cost labor, and then ship the finished product back to the United States.

By contrast, we’ve lost almost 80 percent of the jobs in textile mills since 1990 and more than 90 percent of the jobs in apparel. It is not very expensive to ship clothes from China, Bangladesh, and elsewhere. U.S. workers in manufacturing will continue to see wage pressure as a result of competition with low paid workers in the developing world, but we are unlikely to see another big tide of job loss for the simple reason that so many of these jobs are already gone.

The loss of relatively high paid jobs in manufacturing has substantially reduced the historic wage premium enjoyed by workers in manufacturing. In 1990, the average hourly wage for production and non-supervisory workers in manufacturing was close to 6.0 percent higher than for the private sector as a whole. Now it is more than 6.0 percent lower. Manufacturing workers are still more likely to get health care insurance and other benefits than non-manufacturing workers, so there is still some compensation premium, but it clearly much less than in prior decades.[1]    

It is also worth noting that insofar as reductions in the trade deficit allow us to regain manufacturing jobs, the new ones will generally be of much lower quality than the ones that we lost. A big part of this story is that the unionization rate in manufacturing is continuing to fall. Since 2010 we have added more than 1.6 million jobs in manufacturing, however the number of union members in manufacturing has fallen by close to 100,000. At 9.0 percent, the unionization rate in manufacturing is still slightly higher than the average for the private sector as a whole, but it can hardly be seen as a stronghold of unionization.

The fact that we have already lost so many manufacturing jobs due to trade, and that the wages of the remaining jobs have taken such a large hit, means that manufacturing is a less important factor in future trade deals. To put it simply, the capitalists have won. They have access to cheap labor throughout the world. Any increased access from future trade deals will only have a marginal impact.

This means that the free flow of goods, which has long been at the center of trade deals, will be of much less consequence in future trade deals. Instead, the focus will be on setting up rules governing commerce in services. In most cases these rules will involve standardization, but in ways that have nothing to do with “free” trade.

Before going into what is in these deals it is worth saying a bit about what is not likely to be in future trade deals. Doctors in the United States get paid on average roughly twice as much as their counterparts in other wealthy countries. If we could bring their pay to the levels in countries like Germany and Canada, we would save close to $100 billion a year ($700 per family) in lower payments to doctors.

But we are not likely to see efforts to standardize licensing requirements for doctors, dentists, and other highly paid professionals for the simple reason that these professionals are extremely powerful, unlike auto workers and textile workers. While politicians were happy to push trade deals that reduced the pay of manufacturing workers for the benefit of their employers, this is not the case with doctors and other highly paid professionals. Therefore, we can expect future trade deals to ignore the enormous potential gains from standardizing licensing requirements, just like past deals.

Instead, we can expect future trade deals to focus on other ways to redistribute income upward, always in the name of advancing “free trade.” The most obvious is longer and stronger patent and copyright protection. These protections have been a central part of “free trade” deals since NAFTA.  (Congressional Democrats scored a victory in negotiating the revised NAFTA by forcing Trump to remove provisions that would have locked in longer protection from competition for biological drugs.)

We can expect that presidents of either party (Bernie Sanders and Elizabeth Warren likely being exceptions) will use future trade deals to make patents, copyrights, and related protections stronger. While this is routinely sold as being in the national interest, that is an absurd lie. We are continually told that China is stealing “our” intellectual property. The vast majority of us have not had any intellectual property stolen by China. Boeing, Microsoft, and other large corporations may believe that China’s government is not showing proper respect for their patents and copyrights, but this is not a problem that need concern the rest of us.

In fact, most of us would benefit from going in the opposite direction, by having technology more freely available. This is especially true in the case of biomedical research and clean technologies. I have written about this elsewhere (see Rigged, chapter 5 [it’s free]), but the basic point is straightforward.

An important part of the upward redistribution of the last four decades has been the result of making patents and copyrights longer and stronger. This transferred income from the people who don’t benefit from these forms of protection to the people who do. If we want to reverse this upward redistribution, or at least not make it worse, we should look to make these government-granted monopolies weaker. When our government uses trade deals to make them stronger, it is not acting in the national interest but only in the interest of those who gain from these forms of protection.

The other major area where new trade deals are likely to be directly at odds with the national interest is by putting in place rules that obstruct efforts to regulate the Internet. There is a whole range of Internet concerns on issues such as privacy, ownership of data, and the spreading of false information that have been raised in the United States and elsewhere.

The revised NAFTA will make it more difficult to impose new regulations in any of these areas. Of special concern is that the deal locks in, and applies to our trading partners, Section 230 of the Communications Decency Act. This protects Internet intermediaries, like Facebook, from facing the same sort of liability for knowingly spreading false information that print and broadcast outlets face.

This means, for example, that if someone alleges that a person falsely committed a horrible crime, Facebook has no responsibility to remove the allegation, even if it can be shown to be false. Since the intention of the administration and Congress is to treat the revised NAFTA as a model for other trade deals, this special treatment of Internet intermediaries is a very bad story.

Here too it is hard to make the case of any national interest being served by locking in the current structure of regulation of the Internet, even though it is likely to make Mark Zuckerberg and Google shareholders very happy.

In short, as we look to the future of trade agreements we must recognize that the concept of “free trade” has little relevance, except as part of a sales pitch. The deals will be about creating structures of regulation that are at least as likely to be obstructing trade as fostering it. And, as has been the case in the past, the over-riding goal will be to redistribute ever more income upward.

 

[1] Mishel (2018) found a 13 percent compensation premium for the years 2010 to 2016, but the ratio of the manufacturing wage to private sector average has been falling consistently, both in these years and subsequently. The premium would almost certainly be considerably less today.

(This piece first appeared on my Patreon page.)

Last week, to take some of the sting off his impeachment, Donald Trump was celebrating his trade deals as evidence of the great success of his presidency. Specially, he has touted his revised NAFTA, which the Democratic leadership agreed to, and his first round trade agreement with China. Neither deal is likely to have a noticeable impact on the U.S. economy, but this does provide a good opportunity to think about the shape of future trade agreements.

First of all, it is worth noting some positives in the new NAFTA. Congressional Democrats forced Trump to include some serious language on labor rights in Mexico. While it remains to be seen how enforceable these will prove to be, they are definitely stronger than the provisions in the original NAFTA.

It will also help that Mexico’s current president, Lopez Obrador, is its most labor friendly leader in more than half century. In most cases, Obrador will likely be happy to improve labor standards in Mexico in accordance with the agreement.

While provisions that can improve the living standards of Mexican workers should be seen as good, this is unlikely to make much difference in terms of the number of manufacturing jobs going from the U.S. to Mexico. Even if the labor provisions of the deal are fully enforced, wages will still be far lower in Mexico than in the United States.

This point can be made more generally. Promoting respect for labor standards and the right of workers to organize in developing countries is a good thing. Where possible, we should try to help support democratic rights and rising living standards, but given the large gaps in productivity between the United States and developing countries, respect for workers’ rights will not eliminate the large differences in wages.

The one positive aspect of this picture for U.S. workers is that most of the jobs that are likely to be transferred to developing countries have already moved. This is the story of the plunge in manufacturing employment in the last decade. While there was relatively little change in manufacturing employment from 1970 to 2000 (even though manufacturing employment fell as a share of total employment), employment in manufacturing fell by 3.4 million, or 20 percent, between December of 2000 and December of 2007. That is before the beginning of the Great Recession.

This plunge in manufacturing employment coincided with the explosion of the trade deficit from 3.0 percent of GDP to almost 6.0 percent of GDP. (The economists who blame this job loss on technology have to explain why technology cost relatively few manufacturing jobs from 1970 to 2000 and why technology hasn’t prevented manufacturing jobs from increasing modestly since 2010. But I suppose stories that please a powerful constituency don’t have to fit the facts.) The period from 2000 to 2007 was even worse for union jobs in manufacturing, which fell by almost 40 percent over this period.

But the manufacturing jobs that remain are generally much less vulnerable to wage competition. In some cases, this is due to high transportation costs. For example, in the case of food manufacturing, employment has actually risen by more than 10 percent since 1990. This is because it would be very expensive to take various agricultural products produced in the United States, ship them to countries with low cost labor, and then ship the finished product back to the United States.

By contrast, we’ve lost almost 80 percent of the jobs in textile mills since 1990 and more than 90 percent of the jobs in apparel. It is not very expensive to ship clothes from China, Bangladesh, and elsewhere. U.S. workers in manufacturing will continue to see wage pressure as a result of competition with low paid workers in the developing world, but we are unlikely to see another big tide of job loss for the simple reason that so many of these jobs are already gone.

The loss of relatively high paid jobs in manufacturing has substantially reduced the historic wage premium enjoyed by workers in manufacturing. In 1990, the average hourly wage for production and non-supervisory workers in manufacturing was close to 6.0 percent higher than for the private sector as a whole. Now it is more than 6.0 percent lower. Manufacturing workers are still more likely to get health care insurance and other benefits than non-manufacturing workers, so there is still some compensation premium, but it clearly much less than in prior decades.[1]    

It is also worth noting that insofar as reductions in the trade deficit allow us to regain manufacturing jobs, the new ones will generally be of much lower quality than the ones that we lost. A big part of this story is that the unionization rate in manufacturing is continuing to fall. Since 2010 we have added more than 1.6 million jobs in manufacturing, however the number of union members in manufacturing has fallen by close to 100,000. At 9.0 percent, the unionization rate in manufacturing is still slightly higher than the average for the private sector as a whole, but it can hardly be seen as a stronghold of unionization.

The fact that we have already lost so many manufacturing jobs due to trade, and that the wages of the remaining jobs have taken such a large hit, means that manufacturing is a less important factor in future trade deals. To put it simply, the capitalists have won. They have access to cheap labor throughout the world. Any increased access from future trade deals will only have a marginal impact.

This means that the free flow of goods, which has long been at the center of trade deals, will be of much less consequence in future trade deals. Instead, the focus will be on setting up rules governing commerce in services. In most cases these rules will involve standardization, but in ways that have nothing to do with “free” trade.

Before going into what is in these deals it is worth saying a bit about what is not likely to be in future trade deals. Doctors in the United States get paid on average roughly twice as much as their counterparts in other wealthy countries. If we could bring their pay to the levels in countries like Germany and Canada, we would save close to $100 billion a year ($700 per family) in lower payments to doctors.

But we are not likely to see efforts to standardize licensing requirements for doctors, dentists, and other highly paid professionals for the simple reason that these professionals are extremely powerful, unlike auto workers and textile workers. While politicians were happy to push trade deals that reduced the pay of manufacturing workers for the benefit of their employers, this is not the case with doctors and other highly paid professionals. Therefore, we can expect future trade deals to ignore the enormous potential gains from standardizing licensing requirements, just like past deals.

Instead, we can expect future trade deals to focus on other ways to redistribute income upward, always in the name of advancing “free trade.” The most obvious is longer and stronger patent and copyright protection. These protections have been a central part of “free trade” deals since NAFTA.  (Congressional Democrats scored a victory in negotiating the revised NAFTA by forcing Trump to remove provisions that would have locked in longer protection from competition for biological drugs.)

We can expect that presidents of either party (Bernie Sanders and Elizabeth Warren likely being exceptions) will use future trade deals to make patents, copyrights, and related protections stronger. While this is routinely sold as being in the national interest, that is an absurd lie. We are continually told that China is stealing “our” intellectual property. The vast majority of us have not had any intellectual property stolen by China. Boeing, Microsoft, and other large corporations may believe that China’s government is not showing proper respect for their patents and copyrights, but this is not a problem that need concern the rest of us.

In fact, most of us would benefit from going in the opposite direction, by having technology more freely available. This is especially true in the case of biomedical research and clean technologies. I have written about this elsewhere (see Rigged, chapter 5 [it’s free]), but the basic point is straightforward.

An important part of the upward redistribution of the last four decades has been the result of making patents and copyrights longer and stronger. This transferred income from the people who don’t benefit from these forms of protection to the people who do. If we want to reverse this upward redistribution, or at least not make it worse, we should look to make these government-granted monopolies weaker. When our government uses trade deals to make them stronger, it is not acting in the national interest but only in the interest of those who gain from these forms of protection.

The other major area where new trade deals are likely to be directly at odds with the national interest is by putting in place rules that obstruct efforts to regulate the Internet. There is a whole range of Internet concerns on issues such as privacy, ownership of data, and the spreading of false information that have been raised in the United States and elsewhere.

The revised NAFTA will make it more difficult to impose new regulations in any of these areas. Of special concern is that the deal locks in, and applies to our trading partners, Section 230 of the Communications Decency Act. This protects Internet intermediaries, like Facebook, from facing the same sort of liability for knowingly spreading false information that print and broadcast outlets face.

This means, for example, that if someone alleges that a person falsely committed a horrible crime, Facebook has no responsibility to remove the allegation, even if it can be shown to be false. Since the intention of the administration and Congress is to treat the revised NAFTA as a model for other trade deals, this special treatment of Internet intermediaries is a very bad story.

Here too it is hard to make the case of any national interest being served by locking in the current structure of regulation of the Internet, even though it is likely to make Mark Zuckerberg and Google shareholders very happy.

In short, as we look to the future of trade agreements we must recognize that the concept of “free trade” has little relevance, except as part of a sales pitch. The deals will be about creating structures of regulation that are at least as likely to be obstructing trade as fostering it. And, as has been the case in the past, the over-riding goal will be to redistribute ever more income upward.

 

[1] Mishel (2018) found a 13 percent compensation premium for the years 2010 to 2016, but the ratio of the manufacturing wage to private sector average has been falling consistently, both in these years and subsequently. The premium would almost certainly be considerably less today.

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