That might not be a surprise to regular readers of the paper, but there it was in black and white in a column talking about the budget deficit. The piece notes how the deficit has gotten much smaller in recent years and therefore people are paying much less attention to it. The last line in the piece told readers;
“Well, we don’t miss the deficit. But we sure miss that clock [a debt clock used as campaign prop by Governor Romney].”
Actually, people who care about jobs and wage growth do very much miss the deficit. The spending that was cut to reduce the deficit was creating jobs. There is no magical process by which this spending will be replaced by demand in the private sector, which means that the reduction in government spending means less demand and jobs in the economy. [If the deficit hawks at the Post think otherwise they could grab themselves a quick Nobel prize in economics by showing how.]
In addition, fewer jobs means that those at the middle and bottom of the labor force have less market power and therefore less ability to secure higher wages. This is good news for the small segment of the population that owns lots of stock and can benefit from higher corporate profits and cheap help, but it is bad news for the vast majority of people in the country. At least the Post has made clear which side they are on, just in case there was any confusion.
That might not be a surprise to regular readers of the paper, but there it was in black and white in a column talking about the budget deficit. The piece notes how the deficit has gotten much smaller in recent years and therefore people are paying much less attention to it. The last line in the piece told readers;
“Well, we don’t miss the deficit. But we sure miss that clock [a debt clock used as campaign prop by Governor Romney].”
Actually, people who care about jobs and wage growth do very much miss the deficit. The spending that was cut to reduce the deficit was creating jobs. There is no magical process by which this spending will be replaced by demand in the private sector, which means that the reduction in government spending means less demand and jobs in the economy. [If the deficit hawks at the Post think otherwise they could grab themselves a quick Nobel prize in economics by showing how.]
In addition, fewer jobs means that those at the middle and bottom of the labor force have less market power and therefore less ability to secure higher wages. This is good news for the small segment of the population that owns lots of stock and can benefit from higher corporate profits and cheap help, but it is bad news for the vast majority of people in the country. At least the Post has made clear which side they are on, just in case there was any confusion.
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Floyd Norris has an interesting piece discussing Citigroup’s $7 billion settlement for misrepresenting the quality of the mortgages in the mortgage backed securities it marketed in the housing bubble. Norris notes that the bank had consultants who warned that many of the mortgages did not meet its standards and therefore should not have been included the securities.
Towards the end of the piece Norris comments:
“And it may well be true that actions like Citigroup’s were necessary for any bank that wanted to stay in what then appeared to be a highly profitable business. Imagine for a minute what would have happened in 2006 if Citigroup had listened to its consultants and canceled the offerings. To the mortgage companies making the loans, that might have simply marked Citigroup as uncooperative. The business would have gone to less scrupulous competitors.”
This raises the question of what purpose is served by this sort of settlement. Undoubtedly Norris’ statement is true. However, the market dynamic might be different if this settlement were different.
Based on the information Norris presents here, Citigroup’s top management essentially knew that the bank was engaging in large-scale fraud by passing along billions of dollars worth of bad mortgages. If these people were now facing years of prison as a result of criminal prosecution then it may well affect how bank executives think about these situations in the future. While it will always be true that they do not want to turn away business, they would probably rather sacrifice some of their yearly bonus than risk spending a decade of their life behind bars. The fear of prision may even deter less scrupulous competitors. In that case, securitizing fraudulent mortgages might have been a marginal activity of little consequence for the economy.
Citigroup’s settlement will not change the tradeoffs from what Citigroup’s top management saw in 2006. As a result, in the future bankers are likely to make the same decisions that they did in 2006.
Floyd Norris has an interesting piece discussing Citigroup’s $7 billion settlement for misrepresenting the quality of the mortgages in the mortgage backed securities it marketed in the housing bubble. Norris notes that the bank had consultants who warned that many of the mortgages did not meet its standards and therefore should not have been included the securities.
Towards the end of the piece Norris comments:
“And it may well be true that actions like Citigroup’s were necessary for any bank that wanted to stay in what then appeared to be a highly profitable business. Imagine for a minute what would have happened in 2006 if Citigroup had listened to its consultants and canceled the offerings. To the mortgage companies making the loans, that might have simply marked Citigroup as uncooperative. The business would have gone to less scrupulous competitors.”
This raises the question of what purpose is served by this sort of settlement. Undoubtedly Norris’ statement is true. However, the market dynamic might be different if this settlement were different.
Based on the information Norris presents here, Citigroup’s top management essentially knew that the bank was engaging in large-scale fraud by passing along billions of dollars worth of bad mortgages. If these people were now facing years of prison as a result of criminal prosecution then it may well affect how bank executives think about these situations in the future. While it will always be true that they do not want to turn away business, they would probably rather sacrifice some of their yearly bonus than risk spending a decade of their life behind bars. The fear of prision may even deter less scrupulous competitors. In that case, securitizing fraudulent mortgages might have been a marginal activity of little consequence for the economy.
Citigroup’s settlement will not change the tradeoffs from what Citigroup’s top management saw in 2006. As a result, in the future bankers are likely to make the same decisions that they did in 2006.
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Regular readers of Beat the Press know that putting numbers in context is one of my main beefs with economic reporting. News stories, especially about government budget items, routinely throw out big numbers that are completely meaningless to almost everyone who reads or hears them. That is not serious reporting. Reporting is about informing your audience. (This is why I use the term “frat boy reporting” to refer to the use of big numbers without context. It conforms to a ritual among reporters, but it does not provide information.)
To his great credit, Glenn Kessler, who runs the Washington Post’s Fact Checker section, does believe in putting numbers in context. He did so in a piece today that examined the claims that sanctions against Iran had cost the United States $175 billion in exports. (The original study is here.) Kessler pointed out that this number sums estimates of lost exports over 18 years, and therefore it is deceptively large. He points out that this sum amounts to just 0.5 percent of U.S. exports over this period.
This analysis is very helpful in giving readers a better sense of how much these lost exports mean to the economy. It is also possible to compare the lost exports to another item that has been in the news lately, the Export-Import Bank whose current authorization ends on September 30th. According to the Bank, its loans supported $37.4 billion in exports in 2013. By comparison, the study on the impact of the sanctions calculated that the United States would have exported $15.4 billion worth of goods and services to Iran in the absence of sanctions in 2012 (the last year covered), an amount that is equal to 41.2 percent of the exports supported by the Export-Import Bank.
This comparison should give readers an indication of the relative importance of the sanctions and Ex-Im Bank. Of course, the volume of exports supported by the Ex-Im Bank exaggerates its actual importance since many of these exports would take place even without the Bank’s support. For example, if the Bank supports $15 billion in exports from Boeing, then perhaps $10-$12 billion of these exports would still occur even without the Bank’s support. Boeing would simply earn a smaller profit on these exports since it would have to pay the market interest rate on its borrowing.
If we say that between 10 percent and 30 percent of the exports supported by the Bank would not occur without access to its loans or guarantees then it added between $3.7 billion and $11.1 billion to U.S. exports in 2013. This is between 24.0 percent and 72.0 percent of the amount of exports lost in the prior year due to the the sanctions against Iran, according to the study.
Regular readers of Beat the Press know that putting numbers in context is one of my main beefs with economic reporting. News stories, especially about government budget items, routinely throw out big numbers that are completely meaningless to almost everyone who reads or hears them. That is not serious reporting. Reporting is about informing your audience. (This is why I use the term “frat boy reporting” to refer to the use of big numbers without context. It conforms to a ritual among reporters, but it does not provide information.)
To his great credit, Glenn Kessler, who runs the Washington Post’s Fact Checker section, does believe in putting numbers in context. He did so in a piece today that examined the claims that sanctions against Iran had cost the United States $175 billion in exports. (The original study is here.) Kessler pointed out that this number sums estimates of lost exports over 18 years, and therefore it is deceptively large. He points out that this sum amounts to just 0.5 percent of U.S. exports over this period.
This analysis is very helpful in giving readers a better sense of how much these lost exports mean to the economy. It is also possible to compare the lost exports to another item that has been in the news lately, the Export-Import Bank whose current authorization ends on September 30th. According to the Bank, its loans supported $37.4 billion in exports in 2013. By comparison, the study on the impact of the sanctions calculated that the United States would have exported $15.4 billion worth of goods and services to Iran in the absence of sanctions in 2012 (the last year covered), an amount that is equal to 41.2 percent of the exports supported by the Export-Import Bank.
This comparison should give readers an indication of the relative importance of the sanctions and Ex-Im Bank. Of course, the volume of exports supported by the Ex-Im Bank exaggerates its actual importance since many of these exports would take place even without the Bank’s support. For example, if the Bank supports $15 billion in exports from Boeing, then perhaps $10-$12 billion of these exports would still occur even without the Bank’s support. Boeing would simply earn a smaller profit on these exports since it would have to pay the market interest rate on its borrowing.
If we say that between 10 percent and 30 percent of the exports supported by the Bank would not occur without access to its loans or guarantees then it added between $3.7 billion and $11.1 billion to U.S. exports in 2013. This is between 24.0 percent and 72.0 percent of the amount of exports lost in the prior year due to the the sanctions against Iran, according to the study.
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For decades people have relied on Robert Samuelson to give a confused rendering of economic reality in the pages of the Washington Post. He came through again today in his warnings about an explosion of part-time work.
The centerpiece of Samuelson’s concern is a reported, “whopping — 1,115,000 — increase in part-time jobs offset by the 708,000 loss in full-time jobs.” Yes, that sounds pretty worrying. The number of full-time jobs is plunging.
The reason that you are hearing this concern raised by Robert Samuelson and not by any of the economists or analysts who commented on the June jobs report is that the latter group understands the volatility of the data in the household survey from which the numbers on part-time work is obtained. It is not uncommon to see sharp month-to-month movements in part-time or full-time work. This is why economists generally ignore the month to month changes in these numbers in the household survey and rely instead on longer period changes, like year over year comparisons.
If Robert Samuelson had written this piece last month, before the release of the June data, he could have been decrying the disappearance of part-time work, since the economy had lost 318,000 part-time jobs in the prior two months. No one can believe that we really saw a sharp drop in part-time in April and May, only to be reversed by a huge surge in June. These numbers are simply errors in the survey. This is why no one raised the monthly movements.
There is an interesting story if we look at the year over year numbers. These numbers do show an increase in the number of part-time work, but all on the voluntary side. Voluntary part-time employment increased by 840,000 from June of 2013 to June of 2014. At the same time involuntary part-time employment fell by 650,000, leaving a net gain of 190,000. Since this was accompanied by a year over year change in total employment of 2,146,000 jobs, it implies a gain in full-time employment of 1,956,000 jobs. Are you scared?
There is actually a story (a good one in my view) of increased part-time work. Many people would prefer to work part-time. They have young children or ill family members they would like to spend time with. Or, they may be older workers who would like to partially retire. Before the passage of the Affordable Care Act these people might have worked full-time because this was the only way they could get health care insurance. However now that they can get insurance on the exchanges, they have the option to work part-time. I don’t see the problem with this.
Samuelson does raise the issue that employers are cutting workers hours to less than 30 to avoid the employer sanctions that apply to firms who have more than 50 full-time employees but don’t provide health care insurance. The imposition of these sanctions has been delayed, but Helene Jorgensen and I looked at the evidence that such hours reductions were happening in the first half of 2013 when employers thought the sanctions would apply to them. (The Obama administration announced the delay of the sanctions in early July of 2013.) There was none.
For decades people have relied on Robert Samuelson to give a confused rendering of economic reality in the pages of the Washington Post. He came through again today in his warnings about an explosion of part-time work.
The centerpiece of Samuelson’s concern is a reported, “whopping — 1,115,000 — increase in part-time jobs offset by the 708,000 loss in full-time jobs.” Yes, that sounds pretty worrying. The number of full-time jobs is plunging.
The reason that you are hearing this concern raised by Robert Samuelson and not by any of the economists or analysts who commented on the June jobs report is that the latter group understands the volatility of the data in the household survey from which the numbers on part-time work is obtained. It is not uncommon to see sharp month-to-month movements in part-time or full-time work. This is why economists generally ignore the month to month changes in these numbers in the household survey and rely instead on longer period changes, like year over year comparisons.
If Robert Samuelson had written this piece last month, before the release of the June data, he could have been decrying the disappearance of part-time work, since the economy had lost 318,000 part-time jobs in the prior two months. No one can believe that we really saw a sharp drop in part-time in April and May, only to be reversed by a huge surge in June. These numbers are simply errors in the survey. This is why no one raised the monthly movements.
There is an interesting story if we look at the year over year numbers. These numbers do show an increase in the number of part-time work, but all on the voluntary side. Voluntary part-time employment increased by 840,000 from June of 2013 to June of 2014. At the same time involuntary part-time employment fell by 650,000, leaving a net gain of 190,000. Since this was accompanied by a year over year change in total employment of 2,146,000 jobs, it implies a gain in full-time employment of 1,956,000 jobs. Are you scared?
There is actually a story (a good one in my view) of increased part-time work. Many people would prefer to work part-time. They have young children or ill family members they would like to spend time with. Or, they may be older workers who would like to partially retire. Before the passage of the Affordable Care Act these people might have worked full-time because this was the only way they could get health care insurance. However now that they can get insurance on the exchanges, they have the option to work part-time. I don’t see the problem with this.
Samuelson does raise the issue that employers are cutting workers hours to less than 30 to avoid the employer sanctions that apply to firms who have more than 50 full-time employees but don’t provide health care insurance. The imposition of these sanctions has been delayed, but Helene Jorgensen and I looked at the evidence that such hours reductions were happening in the first half of 2013 when employers thought the sanctions would apply to them. (The Obama administration announced the delay of the sanctions in early July of 2013.) There was none.
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David Kestenbaum of the Planet Money team had an interesting piece on whether patents are an impediment or spur to innovation. The immediate issue was the decision by Tesla Motors to put all its patents in the public domain with the hope of helping to create a mass market for electric cars. However the piece went further and asked the question of whether patents actually promote innovation.
The argument in the opposite direction is that they lock up technologies for the period of the patent’s duration. They also create enormous legal uncertainties since the boundaries of a patent’s applicability are rarely clear. This means that a deep-pocketed patent holder can often scare away potential innovators with the threat of a lawsuit.
The piece includes an interview with David Levine and Michele Boldrin, who have been warning of the economic harms of patents and copyrights for more than a decade. They also maintain the fascinating website AgainstMonopoly.org.
One area where I would disagree with their argument about experimenting with an alternative approach is the suggestion in the interview that the way to get from here to there is through a gradual shortening of patent duration. This may actually provide little benefit since all the legal structures around patents and the need for secrecy would still be in place. As a result there may be little, if any, perceptible benefit from reducing patent duration from 20 to 18 years, for example.
An alternative would be to carve out areas where research would be publicly funded with all findings and patents put in the public domain. For example, the government could set aside $5 billion a year to finance the research and development of new cancer drugs. We would then be able to compare progress in an area where the research is all openly available and the final products are all sold as generics compared to output in areas that rely on the current patent system. This would provide a quicker and simpler test of the relative merits of research supported by government granted patent monopolies as opposed to research supported by direct upfront funding.
(Publicly funded patents could be subject to a “copyleft” principle where anyone can freely use them as long as they themselves don’t use the patent to develop a privately held patent. If they do go that route then they would have to negotiate a payment to the government just as they would a private patent holder.)
Note; Typos corrected.
David Kestenbaum of the Planet Money team had an interesting piece on whether patents are an impediment or spur to innovation. The immediate issue was the decision by Tesla Motors to put all its patents in the public domain with the hope of helping to create a mass market for electric cars. However the piece went further and asked the question of whether patents actually promote innovation.
The argument in the opposite direction is that they lock up technologies for the period of the patent’s duration. They also create enormous legal uncertainties since the boundaries of a patent’s applicability are rarely clear. This means that a deep-pocketed patent holder can often scare away potential innovators with the threat of a lawsuit.
The piece includes an interview with David Levine and Michele Boldrin, who have been warning of the economic harms of patents and copyrights for more than a decade. They also maintain the fascinating website AgainstMonopoly.org.
One area where I would disagree with their argument about experimenting with an alternative approach is the suggestion in the interview that the way to get from here to there is through a gradual shortening of patent duration. This may actually provide little benefit since all the legal structures around patents and the need for secrecy would still be in place. As a result there may be little, if any, perceptible benefit from reducing patent duration from 20 to 18 years, for example.
An alternative would be to carve out areas where research would be publicly funded with all findings and patents put in the public domain. For example, the government could set aside $5 billion a year to finance the research and development of new cancer drugs. We would then be able to compare progress in an area where the research is all openly available and the final products are all sold as generics compared to output in areas that rely on the current patent system. This would provide a quicker and simpler test of the relative merits of research supported by government granted patent monopolies as opposed to research supported by direct upfront funding.
(Publicly funded patents could be subject to a “copyleft” principle where anyone can freely use them as long as they themselves don’t use the patent to develop a privately held patent. If they do go that route then they would have to negotiate a payment to the government just as they would a private patent holder.)
Note; Typos corrected.
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We all know how hard it is to get by on a $5 million a year salary in New York City. Therefore readers should not feel bad about subsidizing the $5.6 million paycheck for Herbert Pardes, the former CEO of New York-Presbyterian Hospital and now the executive vice-chairman of its board of trustees.
The NYT had an interesting piece on Dr. Pardes salary as well as the pay of other top executives at large hospitals. However the piece erred in presenting the issue of these large paychecks as a question of social justice versus market outcomes. As a top executive of a tax exempt institution, Dr. Pardes is being subsidized by taxpayers. If we assume that most of the money that he is soliciting for the hospital is coming from people in the top tax bracket, then taxpayers are paying roughly 40 percent of the money that Dr. Pardes is able to collect. If taxpayers were not providing this subsidy it is likely that he would be raising considerably less money for the hospital, which would make his market value considerably lower.
There is an argument that the public may want to subsidize the provision of health care by New York-Presbyterian Hospital. It is not clear what the argument would be that school teachers and firefighters should be subsidizing the paycheck of a hospital executive earning more than $5 million (16,800 months worth of food stamp benefits) a year.
We all know how hard it is to get by on a $5 million a year salary in New York City. Therefore readers should not feel bad about subsidizing the $5.6 million paycheck for Herbert Pardes, the former CEO of New York-Presbyterian Hospital and now the executive vice-chairman of its board of trustees.
The NYT had an interesting piece on Dr. Pardes salary as well as the pay of other top executives at large hospitals. However the piece erred in presenting the issue of these large paychecks as a question of social justice versus market outcomes. As a top executive of a tax exempt institution, Dr. Pardes is being subsidized by taxpayers. If we assume that most of the money that he is soliciting for the hospital is coming from people in the top tax bracket, then taxpayers are paying roughly 40 percent of the money that Dr. Pardes is able to collect. If taxpayers were not providing this subsidy it is likely that he would be raising considerably less money for the hospital, which would make his market value considerably lower.
There is an argument that the public may want to subsidize the provision of health care by New York-Presbyterian Hospital. It is not clear what the argument would be that school teachers and firefighters should be subsidizing the paycheck of a hospital executive earning more than $5 million (16,800 months worth of food stamp benefits) a year.
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The NYT had a piece on the release of new data showing China’s economy was 7.5 percent larger in the second quarter of 2014 than a year ago. While the piece noted that this is a healthy pace, even for China, it told readers:
“Three of the four cylinders of the Chinese economy — exports, private sector construction and retail sales — are sputtering.”
It then went on to explain that the government sector is filling the gap with large-scale lending. Readers were then warned that this pattern cannot continue because China would reach the limits of its borrowing capacity.
“Some economists inside and outside the government say China has a choice: slow down lending and accept steady declines in economic growth each year, or continue heavy lending and risk a sharp drop in economic growth someday when the financial system begins to teeter. But nobody knows when that might happen.”
If that sounds very scary then it’s worth reading through to the last paragraph:
“Retail sales are growing strongly, up 12.4 percent in June from a year earlier, according to the government figures released Wednesday, nearly matching a pace of 12.5 percent in May.”
As the article explains, real wages for factory workers are rising at more than an 8.0 percent annual rate. If that pace of real wage growth continues, the country should not have to worry about a lack of demand in the years ahead.
The NYT had a piece on the release of new data showing China’s economy was 7.5 percent larger in the second quarter of 2014 than a year ago. While the piece noted that this is a healthy pace, even for China, it told readers:
“Three of the four cylinders of the Chinese economy — exports, private sector construction and retail sales — are sputtering.”
It then went on to explain that the government sector is filling the gap with large-scale lending. Readers were then warned that this pattern cannot continue because China would reach the limits of its borrowing capacity.
“Some economists inside and outside the government say China has a choice: slow down lending and accept steady declines in economic growth each year, or continue heavy lending and risk a sharp drop in economic growth someday when the financial system begins to teeter. But nobody knows when that might happen.”
If that sounds very scary then it’s worth reading through to the last paragraph:
“Retail sales are growing strongly, up 12.4 percent in June from a year earlier, according to the government figures released Wednesday, nearly matching a pace of 12.5 percent in May.”
As the article explains, real wages for factory workers are rising at more than an 8.0 percent annual rate. If that pace of real wage growth continues, the country should not have to worry about a lack of demand in the years ahead.
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Feel informed? That’s the information you would have gotten from reading the NYT article on the debate over a new transportation bill. In case you cared, this comes to about 1.8 percent of projected federal spending over the next four years or about $240 per person per year. But hey, everyone knows how much $302 billion over the next four years is.
Feel informed? That’s the information you would have gotten from reading the NYT article on the debate over a new transportation bill. In case you cared, this comes to about 1.8 percent of projected federal spending over the next four years or about $240 per person per year. But hey, everyone knows how much $302 billion over the next four years is.
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Wonkblog let down its readers badly in a piece on Sovaldi, the hepatitis C drug that Gilead Sciences is marketing in the United States at the price of $84,000 per treatment. While the post is headlined with the question in the title, it never makes the obvious point that the drug really doesn’t “cost” $84,000.
This is the price that Gilead Sciences charges. It is able to get away with charging the price because the government gave it a patent monopoly, which means that any competitors would be arrested. In India, where the government ruled that the drug did not deserve a patent (it is a combination drug, not a new chemical compound) the generic version is sold for less than $1,000. “How do you pay for a drug that costs $1,000?” is a much simpler question to answer.
Of course if we did not give drug companies patent monopolies we would need an alternative mechanism for financing research, but such alternatives do exist as people know who have heard of the National Institutes of Health, which get $30 billion a year from the government. (The Defense Department provides another example of how research and development can be paid for upfront, rather than recovered through patent monopolies.)
If the research was financed up front we would not have to deal with Wonkblog’s $84,000 question. We also wouldn’t be giving drug companies an incredible incentive to lie, cheat, and steal in order to maximize the sale of a product on which they have a mark-up in the neighborhood of 10,000 percent.
Note: Typos corrected, thanks to Robert Salzberg.
Wonkblog let down its readers badly in a piece on Sovaldi, the hepatitis C drug that Gilead Sciences is marketing in the United States at the price of $84,000 per treatment. While the post is headlined with the question in the title, it never makes the obvious point that the drug really doesn’t “cost” $84,000.
This is the price that Gilead Sciences charges. It is able to get away with charging the price because the government gave it a patent monopoly, which means that any competitors would be arrested. In India, where the government ruled that the drug did not deserve a patent (it is a combination drug, not a new chemical compound) the generic version is sold for less than $1,000. “How do you pay for a drug that costs $1,000?” is a much simpler question to answer.
Of course if we did not give drug companies patent monopolies we would need an alternative mechanism for financing research, but such alternatives do exist as people know who have heard of the National Institutes of Health, which get $30 billion a year from the government. (The Defense Department provides another example of how research and development can be paid for upfront, rather than recovered through patent monopolies.)
If the research was financed up front we would not have to deal with Wonkblog’s $84,000 question. We also wouldn’t be giving drug companies an incredible incentive to lie, cheat, and steal in order to maximize the sale of a product on which they have a mark-up in the neighborhood of 10,000 percent.
Note: Typos corrected, thanks to Robert Salzberg.
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Wow, the pundit class is really worried about the Export-Import Bank reauthorization. Today’s big shot comes from NYT columnist Joe Nocera.
Nocera is honest enough to acknowledge that big companies like Boeing and Caterpillar are the main recipients of support. The Export-Import bank supporters have been pushing the line that most loans go to small businesses. This is of course true, but most of the money goes to the Boeings and Caterpillars, and serious people care about the money, not the number of loans going out the bank’s door.
Nocera’s twist is that real beneficiaries are the customers of the big companies, not the companies:
“First, customers of these big companies get the bulk of the Ex-Im Bank’s assistance. …
“Second, most of the arguments made against the Ex-Im Bank revolve around its help to the big companies, not the small ones. For instance, it is argued that big companies have their own means of helping customers finance deals. That’s true, but it’s the customers, not the companies, that are pushing for export credit guarantees. A Boeing source told me that it is hearing from customers and potential customers about the fate of the Ex-Im Bank. ‘It’s a big deal,’ my source said, especially in places like Africa, where conventional financing for aircraft is hard to come by.”
Okay, this one should get be worth a big burst of laughter from a comedy show laugh track. Imagine that, a “Boeing source” told a New York Times columnist that the Export-Import Bank is really about helping the companies customers. Yeah, how could anyone question that. (This is like when companies oppose pollution regulations because they are worried about their workers’ jobs.)
The story here is not very complicated for believers in economics. If there were no subsidies from the Bank, Boeing would have to accept somewhat lower profits on its deals. It would likely make up some, but not all, of the value of the Bank’s subsidy. This means that the customers would be looking at slightly higher prices. Life’s tough. (Let’s get a list of the customers and see if they rank higher than veterans or inner city kids as beneficiaries of the taxpayers largesse.)
In some cases, the higher price will mean that Boeing will lose the deal to a competitor. That’s known as capitalism, it happens all the time.
It speaks volumes that at the same time the establishment pundits are getting hysterical over the dire consequences of not reauthorizing the Ex-Im Bank, the WTO issued a ruling against the U.S. over tariffs against Chinese and Indian steel imports. This ruling is likely to cost more U.S. jobs than the shutting of the Ex-Im Bank, but odds are none of the pundits will speak against it. Draw your own conclusions.
Of course the real free trade position is to lower the value of the dollar against other countries’ currencies. That is how a trade deficit is supposed to be corrected in a world of floating exchange rates, like the one we are supposed to have. However the dollar does not fall to bring our deficit into balance because many countries, most notably China, buy up hundreds of billions of dollars to keep the dollar over-valued. The over-valued dollar makes our exports expensive (like taking away the subsidy from the Ex-Im Bank) and makes imports cheaper to people in the United States, crowding out domestically produced goods.
In an economy suffering from secular stagnation, we have no market mechanism to replace the $500 billion dollars in demand (3 percent of GDP) lost to the trade deficit. Adding in a multiplier effect, this deficit costs us around $750 billion in annual output or around 6 million jobs. Unlike the Ex-Im Bank, there is real money and real jobs at stake with the value of the dollar. It would be great for Joe Nocera to write about that.
Wow, the pundit class is really worried about the Export-Import Bank reauthorization. Today’s big shot comes from NYT columnist Joe Nocera.
Nocera is honest enough to acknowledge that big companies like Boeing and Caterpillar are the main recipients of support. The Export-Import bank supporters have been pushing the line that most loans go to small businesses. This is of course true, but most of the money goes to the Boeings and Caterpillars, and serious people care about the money, not the number of loans going out the bank’s door.
Nocera’s twist is that real beneficiaries are the customers of the big companies, not the companies:
“First, customers of these big companies get the bulk of the Ex-Im Bank’s assistance. …
“Second, most of the arguments made against the Ex-Im Bank revolve around its help to the big companies, not the small ones. For instance, it is argued that big companies have their own means of helping customers finance deals. That’s true, but it’s the customers, not the companies, that are pushing for export credit guarantees. A Boeing source told me that it is hearing from customers and potential customers about the fate of the Ex-Im Bank. ‘It’s a big deal,’ my source said, especially in places like Africa, where conventional financing for aircraft is hard to come by.”
Okay, this one should get be worth a big burst of laughter from a comedy show laugh track. Imagine that, a “Boeing source” told a New York Times columnist that the Export-Import Bank is really about helping the companies customers. Yeah, how could anyone question that. (This is like when companies oppose pollution regulations because they are worried about their workers’ jobs.)
The story here is not very complicated for believers in economics. If there were no subsidies from the Bank, Boeing would have to accept somewhat lower profits on its deals. It would likely make up some, but not all, of the value of the Bank’s subsidy. This means that the customers would be looking at slightly higher prices. Life’s tough. (Let’s get a list of the customers and see if they rank higher than veterans or inner city kids as beneficiaries of the taxpayers largesse.)
In some cases, the higher price will mean that Boeing will lose the deal to a competitor. That’s known as capitalism, it happens all the time.
It speaks volumes that at the same time the establishment pundits are getting hysterical over the dire consequences of not reauthorizing the Ex-Im Bank, the WTO issued a ruling against the U.S. over tariffs against Chinese and Indian steel imports. This ruling is likely to cost more U.S. jobs than the shutting of the Ex-Im Bank, but odds are none of the pundits will speak against it. Draw your own conclusions.
Of course the real free trade position is to lower the value of the dollar against other countries’ currencies. That is how a trade deficit is supposed to be corrected in a world of floating exchange rates, like the one we are supposed to have. However the dollar does not fall to bring our deficit into balance because many countries, most notably China, buy up hundreds of billions of dollars to keep the dollar over-valued. The over-valued dollar makes our exports expensive (like taking away the subsidy from the Ex-Im Bank) and makes imports cheaper to people in the United States, crowding out domestically produced goods.
In an economy suffering from secular stagnation, we have no market mechanism to replace the $500 billion dollars in demand (3 percent of GDP) lost to the trade deficit. Adding in a multiplier effect, this deficit costs us around $750 billion in annual output or around 6 million jobs. Unlike the Ex-Im Bank, there is real money and real jobs at stake with the value of the dollar. It would be great for Joe Nocera to write about that.
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