A Washington Post fact check on the debate commented on a debate question on outsourcing:
“But economists are unanimous that trade, including outsourcing, is hugely beneficial to economic growth at home and abroad.”
This is highly misleading for two reasons. First, economists are unanimous in agreeing that trade could have major distributional consequences. And some prominent economists, such as Paul Krugman, have argued that the recent pattern of trade for the United States has had negative distributional consequences for large segment of the U.S. workforce.
The second reason that it is misleading is that economists are unanimous in believing that in the context of below full employment economy, like the one we have seen the last five years, a larger trade deficit implies lower growth and fewer jobs. In this context outsourcing hurts the economy.
A Washington Post fact check on the debate commented on a debate question on outsourcing:
“But economists are unanimous that trade, including outsourcing, is hugely beneficial to economic growth at home and abroad.”
This is highly misleading for two reasons. First, economists are unanimous in agreeing that trade could have major distributional consequences. And some prominent economists, such as Paul Krugman, have argued that the recent pattern of trade for the United States has had negative distributional consequences for large segment of the U.S. workforce.
The second reason that it is misleading is that economists are unanimous in believing that in the context of below full employment economy, like the one we have seen the last five years, a larger trade deficit implies lower growth and fewer jobs. In this context outsourcing hurts the economy.
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That what people who saw this NPR Planet Money piece must be wondering. The problem is that the United States, as a result of its loss of manufacturing production, now has a large annual trade deficit of $600 billion or 4 percent of GDP. If were closer to full employment it would likely be around 5 percent of GDP, or $750 billion.
At the moment we are able to run these deficits because countries like China are willing to subsidize their exports to the U.S. by spending hundreds of billions of dollars every year to buy U.S. bonds and other assets. This keeps up the price of the dollar relative to their currencies, which makes their goods cheap for people in the United States.
While it is very generous of these countries to subsidize our consumption, it is unlikely they will do so forever. These subsidies keep up demand for their products in the United States, but they could also use the same money to subsidize the purchase of goods and services by their own people. This could lead to substantial improvements in the living standards of the people in the countries who are sustaining the over-valued dollar.
If these countries stopped propping up the dollar then the dollar would presumably fall to a level that it is roughly consistent with balanced trade. This would almost certainly mean a large increase in manufactured exports as well as increased domestic production to replace imports of manufactured goods. Roughly 70 percent of U.S. trade is in goods, and most of these goods involve some degree of manufacturing (as opposed to raw agricultural products or mining output).
It is difficult to imagine an adjustment to more balanced trade that doesn’t involve a large increase in production of U.S. manufactured goods. While our trade surplus on services can increase, it seems unlikely that it could go too far towards filling this gap. Also, it is not clear how many more people in the United States will want to work as housekeepers and table servers, since tourism is by far the largest category of service exports, accounting for more than a quarter of the total (travel plus passenger fares).
If we moved to balanced trade and manufacturing adjusted in accordance to its share of total trade, it would imply an increase in manufacturing output of close to 30 percent. Unless we have extraordinary gains in productivity, this would mean considerably more employment in the sector.
That what people who saw this NPR Planet Money piece must be wondering. The problem is that the United States, as a result of its loss of manufacturing production, now has a large annual trade deficit of $600 billion or 4 percent of GDP. If were closer to full employment it would likely be around 5 percent of GDP, or $750 billion.
At the moment we are able to run these deficits because countries like China are willing to subsidize their exports to the U.S. by spending hundreds of billions of dollars every year to buy U.S. bonds and other assets. This keeps up the price of the dollar relative to their currencies, which makes their goods cheap for people in the United States.
While it is very generous of these countries to subsidize our consumption, it is unlikely they will do so forever. These subsidies keep up demand for their products in the United States, but they could also use the same money to subsidize the purchase of goods and services by their own people. This could lead to substantial improvements in the living standards of the people in the countries who are sustaining the over-valued dollar.
If these countries stopped propping up the dollar then the dollar would presumably fall to a level that it is roughly consistent with balanced trade. This would almost certainly mean a large increase in manufactured exports as well as increased domestic production to replace imports of manufactured goods. Roughly 70 percent of U.S. trade is in goods, and most of these goods involve some degree of manufacturing (as opposed to raw agricultural products or mining output).
It is difficult to imagine an adjustment to more balanced trade that doesn’t involve a large increase in production of U.S. manufactured goods. While our trade surplus on services can increase, it seems unlikely that it could go too far towards filling this gap. Also, it is not clear how many more people in the United States will want to work as housekeepers and table servers, since tourism is by far the largest category of service exports, accounting for more than a quarter of the total (travel plus passenger fares).
If we moved to balanced trade and manufacturing adjusted in accordance to its share of total trade, it would imply an increase in manufacturing output of close to 30 percent. Unless we have extraordinary gains in productivity, this would mean considerably more employment in the sector.
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Andrew Ross Sorkin uses his column today to highlight the troubles of those suffering the most from the downturn: the CEOs of major banks who bought up failing competitors in the midst of the financial crisis. Jamie Dimon, J.P. Morgan’s CEO, get center stage for having to deal with Bear Stearns’ legal liabilities, but Sorkin also has some tears for Wells Fargo, which bought up Wachovia, and Bank of America, which took over Merrill Lynch.
While Sorkin apparently feels sorry for the burdens imposed on these banks and their bosses, those of us who are less sentimental might remember that these are people who all draw 8 figure paychecks. They are supposed to know what they are doing. For example, Sorkin presents Dimon’s perspective:
“Mr. Dimon is clearly frustrated. Had Bear Stearns filed for bankruptcy, he said, there ‘would be no money. There would be no lawsuits. There would be no stock-drop lawsuits, there would be no class actions, there would be no mortgage lawsuits because there would be no money. But we bought it.’ ….
“‘When the government helped save General Motors by providing money and guarantees as part of its bankruptcy, ‘they absolved G.M. of all prior legal liability,’ Mr. Dimon said in an earnings conference call with investors and analysts on Friday. ‘So the government’s being a little inconsistent here.'”
Actually, there is no inconsistency here whatsoever. Mr. Dimon negotiated the terms under which he took over Bear Stearns. He did not arrange for a bankruptcy of the latter or some other measure that would have absolved J.P. Morgan from the companies’ legal liabilities. Presumably Dimon understood this fact at the time of the takeover, as did the CEOs of the other banks.
If CEOs of our largest banks do not understand such simple concepts perhaps the remedy is remedial education. Maybe we should require CEOs of banks with more than $500 billion in assets to take course on legal liabilities for acquired companies. Or, perhaps they need the equivalent of a Consumer Financial Products Protection Bureau which will ensure that they do not stumble into deals that turn out to be bad for them.
One last point that is worth remembering. Had it not been for the special assistance provided by the Fed, the Treasury, and the FDIC at the peak of the financial crisis, it is likely that all of the major Wall Street bank CEOs would be among the nation’s unemployed today. It is understandable that they would want more from the government (“job creators” always do), but it can be a bit difficult for those who are less sentimental than Mr. Sorkin to take their whining seriously.
Andrew Ross Sorkin uses his column today to highlight the troubles of those suffering the most from the downturn: the CEOs of major banks who bought up failing competitors in the midst of the financial crisis. Jamie Dimon, J.P. Morgan’s CEO, get center stage for having to deal with Bear Stearns’ legal liabilities, but Sorkin also has some tears for Wells Fargo, which bought up Wachovia, and Bank of America, which took over Merrill Lynch.
While Sorkin apparently feels sorry for the burdens imposed on these banks and their bosses, those of us who are less sentimental might remember that these are people who all draw 8 figure paychecks. They are supposed to know what they are doing. For example, Sorkin presents Dimon’s perspective:
“Mr. Dimon is clearly frustrated. Had Bear Stearns filed for bankruptcy, he said, there ‘would be no money. There would be no lawsuits. There would be no stock-drop lawsuits, there would be no class actions, there would be no mortgage lawsuits because there would be no money. But we bought it.’ ….
“‘When the government helped save General Motors by providing money and guarantees as part of its bankruptcy, ‘they absolved G.M. of all prior legal liability,’ Mr. Dimon said in an earnings conference call with investors and analysts on Friday. ‘So the government’s being a little inconsistent here.'”
Actually, there is no inconsistency here whatsoever. Mr. Dimon negotiated the terms under which he took over Bear Stearns. He did not arrange for a bankruptcy of the latter or some other measure that would have absolved J.P. Morgan from the companies’ legal liabilities. Presumably Dimon understood this fact at the time of the takeover, as did the CEOs of the other banks.
If CEOs of our largest banks do not understand such simple concepts perhaps the remedy is remedial education. Maybe we should require CEOs of banks with more than $500 billion in assets to take course on legal liabilities for acquired companies. Or, perhaps they need the equivalent of a Consumer Financial Products Protection Bureau which will ensure that they do not stumble into deals that turn out to be bad for them.
One last point that is worth remembering. Had it not been for the special assistance provided by the Fed, the Treasury, and the FDIC at the peak of the financial crisis, it is likely that all of the major Wall Street bank CEOs would be among the nation’s unemployed today. It is understandable that they would want more from the government (“job creators” always do), but it can be a bit difficult for those who are less sentimental than Mr. Sorkin to take their whining seriously.
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Yes, that is absurd and even offensive, but since the NYT is going in for gross exaggeration to scare its readers about the budget, I thought I would play along. A NYT piece on the budget deficit told readers that:
“But even if Democrats and the financial markets go along with the delay [a decision to put off any longer term plans on taxes and spending if Romney wins the election], the months before Mr. Romney’s swearing-in could be as crucial to his presidency as the transition period was for Mr. Obama four years ago, when the economic crisis led him to draft a big stimulus package while President George W. Bush still occupied the White House.”
This is wrong. The economy was losing 700,000 jobs a month in the period between the election and when President Obama took office. His decision to push a stimulus, which in the context should not be called “big,” kept several million more people from losing their job. His decision shortly after the passage of the stimulus to “pivot to deficit reduction,” has likely ensured that millions of people will be needlessly unemployed for much of a decade.
It is difficult to imagine the set of events in a transition to a Romney administration that could have anywhere near the same consequence.
Yes, that is absurd and even offensive, but since the NYT is going in for gross exaggeration to scare its readers about the budget, I thought I would play along. A NYT piece on the budget deficit told readers that:
“But even if Democrats and the financial markets go along with the delay [a decision to put off any longer term plans on taxes and spending if Romney wins the election], the months before Mr. Romney’s swearing-in could be as crucial to his presidency as the transition period was for Mr. Obama four years ago, when the economic crisis led him to draft a big stimulus package while President George W. Bush still occupied the White House.”
This is wrong. The economy was losing 700,000 jobs a month in the period between the election and when President Obama took office. His decision to push a stimulus, which in the context should not be called “big,” kept several million more people from losing their job. His decision shortly after the passage of the stimulus to “pivot to deficit reduction,” has likely ensured that millions of people will be needlessly unemployed for much of a decade.
It is difficult to imagine the set of events in a transition to a Romney administration that could have anywhere near the same consequence.
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I wouldn’t try taking the deduction, but apparently banks and other corporate crooks are often able to deduct the settlements in civil actions from their taxes. Good piece in the Post calling attention to this issue.
I wouldn’t try taking the deduction, but apparently banks and other corporate crooks are often able to deduct the settlements in civil actions from their taxes. Good piece in the Post calling attention to this issue.
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Is everyone in the news business a frustrated mind reader? Given their often demonstrated tendency to tell us what politicians think, we might believe this to be the case.
The NYT was doing some mind reading in its coverage of the vice presidential debate when it told readers:
“Mr. Ryan believes competition will drive down the cost of health care, keeping the voucher’s value up to date.”
(“Up to date” in this context means large enough to cover the cost of a Medicare equivalent policy.) Of course the NYT gives no explanation of how it knows what Ryan “believes” about the effectiveness of competition in keeping costs down. The very next sentence in the article reports the assessment of the Congressional Budget Office:
“The Congressional Budget Office projected that over time, the value of the voucher would erode, shifting the extra costs to seniors.”
So does Ryan have access to information that the Congressional Budget Office does not have? Does he have a different way to interpret the data? After all, we have more than a half century of experience with the private insurance market, including experiments with including private insurers in Medicare. This experience has shown that private insurers raise, not lower, costs.
In the absence of any evidence otherwise, we might reasonably conclude that Representative Ryan wants to cut the cost of Medicare in order to maintain lower tax rates. We might also conclude that Ryan wants to give money to insurers who would profit enormously from the voucher system that he has proposed. The insurance industry is a major contributor to the Republican party.
It would of course be irresponsible for the NYT to report as a fact that Ryan is pushing his voucher plan as a way to redistribute tax dollars to the insurance industry. It is similarly irresponsible to report as a fact that he believes that his voucher plan will reduce costs.
Is everyone in the news business a frustrated mind reader? Given their often demonstrated tendency to tell us what politicians think, we might believe this to be the case.
The NYT was doing some mind reading in its coverage of the vice presidential debate when it told readers:
“Mr. Ryan believes competition will drive down the cost of health care, keeping the voucher’s value up to date.”
(“Up to date” in this context means large enough to cover the cost of a Medicare equivalent policy.) Of course the NYT gives no explanation of how it knows what Ryan “believes” about the effectiveness of competition in keeping costs down. The very next sentence in the article reports the assessment of the Congressional Budget Office:
“The Congressional Budget Office projected that over time, the value of the voucher would erode, shifting the extra costs to seniors.”
So does Ryan have access to information that the Congressional Budget Office does not have? Does he have a different way to interpret the data? After all, we have more than a half century of experience with the private insurance market, including experiments with including private insurers in Medicare. This experience has shown that private insurers raise, not lower, costs.
In the absence of any evidence otherwise, we might reasonably conclude that Representative Ryan wants to cut the cost of Medicare in order to maintain lower tax rates. We might also conclude that Ryan wants to give money to insurers who would profit enormously from the voucher system that he has proposed. The insurance industry is a major contributor to the Republican party.
It would of course be irresponsible for the NYT to report as a fact that Ryan is pushing his voucher plan as a way to redistribute tax dollars to the insurance industry. It is similarly irresponsible to report as a fact that he believes that his voucher plan will reduce costs.
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During the vice-presidential debate Martha Raddatz used her position as debate moderator to ask the candidates about the impending bankruptcies of Social Security and Medicare. It was incredibly irresponsible to use such a loaded term to refer to the financial problems facing these programs.
Both Social Security and Medicare are projected to face shortfalls over their 75-year planning horizon, however these shortfalls are not accurately described as “bankruptcy.” This phrase undoubtedly leads many people to believe that there is a prospect that the programs would go out of business.
Polls consistently show that a majority of young people believe that they stand to get nothing back from Social Security when they retire. That is of course not true unless Congress were to vote to eliminate the program. Under the latest projections they would stand to get a larger benefit than current retirees even if nothing is ever done to change the program’s finances. It is unlikely that listeners would understand this to be the case based on Raddatz’s comment.
It is also unlikely that viewers would have realized that the changes put in place by the Affordable Care Act extended the date when Medicare is first projected to face a shortfall from 2016 to 2024 and reduced the projected shortfall over the program’s 75-year planning period by more than two thirds. The remaining gap could be filled by a tax increase that is less than 2 percent of projected wage growth over the next 30 years.
It is the job of the moderator to try to provide their audience with information and to draw out the candidates’ views. It is incredibly irresponsible to use this platform to push their personal agenda for the country’s two most important social programs.
During the vice-presidential debate Martha Raddatz used her position as debate moderator to ask the candidates about the impending bankruptcies of Social Security and Medicare. It was incredibly irresponsible to use such a loaded term to refer to the financial problems facing these programs.
Both Social Security and Medicare are projected to face shortfalls over their 75-year planning horizon, however these shortfalls are not accurately described as “bankruptcy.” This phrase undoubtedly leads many people to believe that there is a prospect that the programs would go out of business.
Polls consistently show that a majority of young people believe that they stand to get nothing back from Social Security when they retire. That is of course not true unless Congress were to vote to eliminate the program. Under the latest projections they would stand to get a larger benefit than current retirees even if nothing is ever done to change the program’s finances. It is unlikely that listeners would understand this to be the case based on Raddatz’s comment.
It is also unlikely that viewers would have realized that the changes put in place by the Affordable Care Act extended the date when Medicare is first projected to face a shortfall from 2016 to 2024 and reduced the projected shortfall over the program’s 75-year planning period by more than two thirds. The remaining gap could be filled by a tax increase that is less than 2 percent of projected wage growth over the next 30 years.
It is the job of the moderator to try to provide their audience with information and to draw out the candidates’ views. It is incredibly irresponsible to use this platform to push their personal agenda for the country’s two most important social programs.
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