Eduardo Porter had an interesting column in the NYT discussing the future of manufacturing jobs in the U.S. economy and the role of trade. While the piece makes several valid points, it seriously underplays the importance of manufacturing jobs. Remarkably, it also does not discuss the trade deficit and the dollar.
The piece is correct in saying that there is nothing intrinsically good about manufacturing jobs and that it makes little difference to manufacturing workers whether they lose their jobs to trade or productivity growth. Nonetheless, it is still true that manufacturing remains a source of relatively high-paying jobs for workers without college degrees. This may be the result of a historical legacy and higher than average unionization rates, but it is still the reality.
The issue of trade is also important, because the loss of jobs as a result of the trade deficit creates a situation that is in the long-run unsustainable. If the economy returns to full employment we would have a trade deficit of close to 5 percent of GDP (@$750 billion a year). A trade deficit of this size logically implies negative national savings of the same magnitude. That means that we must have either negative private savings (i.e. households and firms have negative savings) and/or a government budget deficit that is equal to $750 billion a year.
Of course the main factor in determining the size of the trade deficit is the value of the dollar. If the dollar is over-valued by 15 percent, it means that our exports will cost roughly 15 percent more for people in other countries while imports will cost roughly 15 percent less for people living in the United States. There is no policy or set of policies that can have anywhere near as much impact on trade as the value of the dollar.
This is why a discussion of the value of the dollar should be front and center in any discussion of trade. If the dollar were to fall by 10-15 percent, and bring trade back into balance, it would generate close to 5 million new manufacturing jobs in the United States. This would have an enormous impact on the labor market for less-educated workers.
The article also includes a comparison of jobs that are subject to international competition and jobs that are not. This is highly misleading.
Whether or not a job is subject to international competition is a matter of policy, not an intrinsic feature of the job. The fact that manufactured goods are widely traded is the result of long set of trade agreements over the last three decades that were deliberately designed to make it as easy as possible for U.S. firms to hire low-cost labor in the developing world and ship their production back to the United States.
Our trade negotiators could have instead devoted their energies to make it as easier as possible for foreign students to train to U.S. standards as doctors, dentists, lawyers, economists or other professionals. There are tens of millions of very bright people in China, India, Mexico and elsewhere in the developing world who would be very happy to train to U.S. standards in these professions, including becoming proficient in English, and work in the United States for less than $100,000 a year.
We do actually bring large numbers of foreign workers into the country in some occupations, but they tend to be low-paying ones. Immigrant workers are enormously important in farm work, restaurant and hotel work and residential construction. They would be equally dominant among physicians, dentists and lawyers if they faced as few barriers as they do to working in these low-paying occupations.
The savings to U.S. consumers from this sort of expanded trade in professional services would be hundreds of billions of dollars annually in the form of lower health care costs, reduced university tuition and savings on all other products in which the cost of highly paid professionals is a major input. The reason that trade agreements did not take this route is that U.S. professionals have much more political power than manufacturing workers. As a result, they have been able to maintain barriers that largely protect them from competition with their counterparts in the developing and developed world. (U.S. professionals also make more than their counterparts in Europe.)
As the old story goes in explaining the difference between autoworkers and economists; autoworkers are smart enough to know that they need protection, but lack the power to get it. Economists are too dumb to know that they need protection, abut are powerful enough to get it. This explains much of the story of wage differentials in the U.S. labor market.
Eduardo Porter had an interesting column in the NYT discussing the future of manufacturing jobs in the U.S. economy and the role of trade. While the piece makes several valid points, it seriously underplays the importance of manufacturing jobs. Remarkably, it also does not discuss the trade deficit and the dollar.
The piece is correct in saying that there is nothing intrinsically good about manufacturing jobs and that it makes little difference to manufacturing workers whether they lose their jobs to trade or productivity growth. Nonetheless, it is still true that manufacturing remains a source of relatively high-paying jobs for workers without college degrees. This may be the result of a historical legacy and higher than average unionization rates, but it is still the reality.
The issue of trade is also important, because the loss of jobs as a result of the trade deficit creates a situation that is in the long-run unsustainable. If the economy returns to full employment we would have a trade deficit of close to 5 percent of GDP (@$750 billion a year). A trade deficit of this size logically implies negative national savings of the same magnitude. That means that we must have either negative private savings (i.e. households and firms have negative savings) and/or a government budget deficit that is equal to $750 billion a year.
Of course the main factor in determining the size of the trade deficit is the value of the dollar. If the dollar is over-valued by 15 percent, it means that our exports will cost roughly 15 percent more for people in other countries while imports will cost roughly 15 percent less for people living in the United States. There is no policy or set of policies that can have anywhere near as much impact on trade as the value of the dollar.
This is why a discussion of the value of the dollar should be front and center in any discussion of trade. If the dollar were to fall by 10-15 percent, and bring trade back into balance, it would generate close to 5 million new manufacturing jobs in the United States. This would have an enormous impact on the labor market for less-educated workers.
The article also includes a comparison of jobs that are subject to international competition and jobs that are not. This is highly misleading.
Whether or not a job is subject to international competition is a matter of policy, not an intrinsic feature of the job. The fact that manufactured goods are widely traded is the result of long set of trade agreements over the last three decades that were deliberately designed to make it as easy as possible for U.S. firms to hire low-cost labor in the developing world and ship their production back to the United States.
Our trade negotiators could have instead devoted their energies to make it as easier as possible for foreign students to train to U.S. standards as doctors, dentists, lawyers, economists or other professionals. There are tens of millions of very bright people in China, India, Mexico and elsewhere in the developing world who would be very happy to train to U.S. standards in these professions, including becoming proficient in English, and work in the United States for less than $100,000 a year.
We do actually bring large numbers of foreign workers into the country in some occupations, but they tend to be low-paying ones. Immigrant workers are enormously important in farm work, restaurant and hotel work and residential construction. They would be equally dominant among physicians, dentists and lawyers if they faced as few barriers as they do to working in these low-paying occupations.
The savings to U.S. consumers from this sort of expanded trade in professional services would be hundreds of billions of dollars annually in the form of lower health care costs, reduced university tuition and savings on all other products in which the cost of highly paid professionals is a major input. The reason that trade agreements did not take this route is that U.S. professionals have much more political power than manufacturing workers. As a result, they have been able to maintain barriers that largely protect them from competition with their counterparts in the developing and developed world. (U.S. professionals also make more than their counterparts in Europe.)
As the old story goes in explaining the difference between autoworkers and economists; autoworkers are smart enough to know that they need protection, but lack the power to get it. Economists are too dumb to know that they need protection, abut are powerful enough to get it. This explains much of the story of wage differentials in the U.S. labor market.
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A major Washington Post article reporting on the situation of depressed areas of former West Germany implied that Germans would have to sacrifice more in order to finance a larger bailout of Greece, Spain and other heavily indebted countries. This is not true.
The major problem facing the euro zone countries right now is a lack of demand, not a lack of supply. In other words, increased resources for the indebted countries do not have to come at the expense of Germany’s living standard. The European Central Bank (ECB) can simply support increased demand, as it is now doing to some extent with its $1 trillion special lending facility. This would actually leave the people in the depressed regions of western Germany better off, not worse off.
Unfortunately, rather than trying to boost demand enough to restore full employment, the ECB is producing silly propaganda cartoons about the “inflation monster,” which tries to scare viewers into believing that there is a realistic fear of hyper-inflation in Europe. Of course the real problem facing Europe right now is the depression monster, which is leaving millions of people out of work, but the folks running the ECB lack the competence to recognize this fact.
A major Washington Post article reporting on the situation of depressed areas of former West Germany implied that Germans would have to sacrifice more in order to finance a larger bailout of Greece, Spain and other heavily indebted countries. This is not true.
The major problem facing the euro zone countries right now is a lack of demand, not a lack of supply. In other words, increased resources for the indebted countries do not have to come at the expense of Germany’s living standard. The European Central Bank (ECB) can simply support increased demand, as it is now doing to some extent with its $1 trillion special lending facility. This would actually leave the people in the depressed regions of western Germany better off, not worse off.
Unfortunately, rather than trying to boost demand enough to restore full employment, the ECB is producing silly propaganda cartoons about the “inflation monster,” which tries to scare viewers into believing that there is a realistic fear of hyper-inflation in Europe. Of course the real problem facing Europe right now is the depression monster, which is leaving millions of people out of work, but the folks running the ECB lack the competence to recognize this fact.
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That’s undoubtedly what NYT readers were asking after reading a piece saying that banks are fleeing federal regulators in order to avoid the excessive burden. The piece begins by telling us about Monadnock Community Bank, a small community bank in New Hampshire.
According to the piece, William Pierce, the president of Monadnock, is planning to sell the bank to credit union so that it can avoid the burdensome regulation of the Office of the Comptroller of the Currency (OCC). As an example, the piece tells us that the OCC required the bank to review its procedures for dealing with delinquent mortgages, even though it has only had two foreclosures in the last four years. This review is supposed to require the time of 3 of the banks 18 employees.
Okay, let’s see what our friend, Mr. Arithmetic, says about this. According to the piece, Monadnock has $82 million in assets. Let’s say that half of this, or $41 million, is in residential mortgages. The average home price nationwide is a bit over $200,000 (considerably higher in the Northeast). If the average mortgage has a loan-to-value ratio of 75 percent, that implies a value of $150,000. That means that the bank should have about 270 mortgages on its books.
Apparently the bank is careful with its loans, since it only had two foreclosures in the last four years, but let’s say that nonetheless an incredibly high percentage of the loans are still delinquent. If 10 percent of the mortgages were delinquent, then this would mean that Monadnock has 27 delinquent loans.
How long will it take 3 employees to review how these 27 delinquencies? If it took 2 hours for each mortgage (which seems extreme, unless the record-keeping is a mess), we get a total of 54 hours, or roughly two days work for each employee. In short, if Mr. Pierce’s claim about the burden of this regulation is true, it speaks more to the quality of his staff and his supervision than the burden of the regulation.
As a practical matter, presumably the bank has some list of procedures on handling delinquent mortgages. This would probably have to be reviewed and updated. This process should probably not require a great deal of time for one worker, although the bank would likely have other workers read and edit the revised version.
The piece should have made an effort to evaluate the claim that new regulations are imposing an excessive burden on Monadnock and similar banks, rather than just presenting them to readers as though they are true. Readers are likely to be very sympathetic to a small community bank. Putting the unexamined claims of Mr. Pierce at the beginning of the piece gives considerable credence to the claims of an excessive regulatory burden.
That’s undoubtedly what NYT readers were asking after reading a piece saying that banks are fleeing federal regulators in order to avoid the excessive burden. The piece begins by telling us about Monadnock Community Bank, a small community bank in New Hampshire.
According to the piece, William Pierce, the president of Monadnock, is planning to sell the bank to credit union so that it can avoid the burdensome regulation of the Office of the Comptroller of the Currency (OCC). As an example, the piece tells us that the OCC required the bank to review its procedures for dealing with delinquent mortgages, even though it has only had two foreclosures in the last four years. This review is supposed to require the time of 3 of the banks 18 employees.
Okay, let’s see what our friend, Mr. Arithmetic, says about this. According to the piece, Monadnock has $82 million in assets. Let’s say that half of this, or $41 million, is in residential mortgages. The average home price nationwide is a bit over $200,000 (considerably higher in the Northeast). If the average mortgage has a loan-to-value ratio of 75 percent, that implies a value of $150,000. That means that the bank should have about 270 mortgages on its books.
Apparently the bank is careful with its loans, since it only had two foreclosures in the last four years, but let’s say that nonetheless an incredibly high percentage of the loans are still delinquent. If 10 percent of the mortgages were delinquent, then this would mean that Monadnock has 27 delinquent loans.
How long will it take 3 employees to review how these 27 delinquencies? If it took 2 hours for each mortgage (which seems extreme, unless the record-keeping is a mess), we get a total of 54 hours, or roughly two days work for each employee. In short, if Mr. Pierce’s claim about the burden of this regulation is true, it speaks more to the quality of his staff and his supervision than the burden of the regulation.
As a practical matter, presumably the bank has some list of procedures on handling delinquent mortgages. This would probably have to be reviewed and updated. This process should probably not require a great deal of time for one worker, although the bank would likely have other workers read and edit the revised version.
The piece should have made an effort to evaluate the claim that new regulations are imposing an excessive burden on Monadnock and similar banks, rather than just presenting them to readers as though they are true. Readers are likely to be very sympathetic to a small community bank. Putting the unexamined claims of Mr. Pierce at the beginning of the piece gives considerable credence to the claims of an excessive regulatory burden.
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In his column today, titled “the right’s stealthy coup,” E.J. Dionne discussed the takeover of the Republican Party by its extreme right-wing. For example, he noted that the Republican Supreme Court justices appear to be taking positions that even President Reagan’s solicitor general considers absurd.
Dionne then shows how effective the right has been in their stealthy coup effort when he refers to “a vote on the deficit-reduction proposals offered by the commission headed by former Sen. Alan Simpson and Erskine Bowles, former chief of staff to Bill Clinton.”
Of course there were no deficit-reduction proposals offered by the commission. The commission never issued any proposals. The by-laws of the commission clearly state:
“The Commission shall vote on the approval of a final report containing a set of recommendations to achieve the objectives set forth in the Charter no later than December 1, 2010. The issuance of a final report of the Commission shall require the approval of not less than 14 of the 18 members of the Commission.”
There was no vote taken by December 1 on any plan. There was an informal poll of members on December 3, 2010. This poll found that 11 of the 18 commission members supported the proposal put forward by the commission co-chairs, Morgan Stanley Director Erskine Bowles and former Senator Alan Simpson.
This means that the proposals that Dionne refers to as coming from the commission are in fact just proposals from the co-chairs. They cannot accurately be called proposals from the commission.
Remarkably, the right is using public money to advance this deception. The commission’s website inaccurately posted the report of the co-chairs as a report of the commission. Showing an extraordinary sense of irony, they titled the report, “the moment of truth.”
In his column today, titled “the right’s stealthy coup,” E.J. Dionne discussed the takeover of the Republican Party by its extreme right-wing. For example, he noted that the Republican Supreme Court justices appear to be taking positions that even President Reagan’s solicitor general considers absurd.
Dionne then shows how effective the right has been in their stealthy coup effort when he refers to “a vote on the deficit-reduction proposals offered by the commission headed by former Sen. Alan Simpson and Erskine Bowles, former chief of staff to Bill Clinton.”
Of course there were no deficit-reduction proposals offered by the commission. The commission never issued any proposals. The by-laws of the commission clearly state:
“The Commission shall vote on the approval of a final report containing a set of recommendations to achieve the objectives set forth in the Charter no later than December 1, 2010. The issuance of a final report of the Commission shall require the approval of not less than 14 of the 18 members of the Commission.”
There was no vote taken by December 1 on any plan. There was an informal poll of members on December 3, 2010. This poll found that 11 of the 18 commission members supported the proposal put forward by the commission co-chairs, Morgan Stanley Director Erskine Bowles and former Senator Alan Simpson.
This means that the proposals that Dionne refers to as coming from the commission are in fact just proposals from the co-chairs. They cannot accurately be called proposals from the commission.
Remarkably, the right is using public money to advance this deception. The commission’s website inaccurately posted the report of the co-chairs as a report of the commission. Showing an extraordinary sense of irony, they titled the report, “the moment of truth.”
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The NYT had a good piece reporting on the fact that public sector pension funds that have invested heavily in alternative investments (e.g. hedge funds, real estate funds and private equity funds) have done much worse than those that just held traditional investments (e.g. stocks and bonds). While the managers of these alternative investments did quite well collecting fees, the governments did not.
There is a simple way to avoid this problem. If the funds made compensation for the managers of these investments almost entirely contingent on their beating a conventional market basket, then the risk would be shared. If managers are not willing to accept such contracts it implies that they don’t believe they will be able to beat the returns on conventional instruments. If the managers don’t believe that they can beat conventional returns, then governments should not either.
The NYT had a good piece reporting on the fact that public sector pension funds that have invested heavily in alternative investments (e.g. hedge funds, real estate funds and private equity funds) have done much worse than those that just held traditional investments (e.g. stocks and bonds). While the managers of these alternative investments did quite well collecting fees, the governments did not.
There is a simple way to avoid this problem. If the funds made compensation for the managers of these investments almost entirely contingent on their beating a conventional market basket, then the risk would be shared. If managers are not willing to accept such contracts it implies that they don’t believe they will be able to beat the returns on conventional instruments. If the managers don’t believe that they can beat conventional returns, then governments should not either.
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National Public Radio told listeners that, “Like the U.S., Europe Wrestles With Health Care.” If the wrestling in Europe is anything like the U.S., then we must be talking about professional wrestling. (“Hit him over the head with a chair!”)
The per person cost of health care across Europe is far less than in the United States. According to the OECD, in 2009 (the most recent year for which it has comparable data), per capita health care expenditures in the United States were $7,960. In France, Germany, and the UK, the three countries featured in the piece, the costs were $3,978, $4,218, and $3,487 respectively.
In other words, costs in the U.S. were more than twice as high as in France and the U.K. and more than 80 percent higher than in Germany. While the rise in health care costs poses a problem in these countries, as it does in the United States, the impact is very different than what it is in the United States. NPR should have pointed out the huge difference in current costs instead of trying to imply that all countries face the same problem.
There is one other point in this piece that badly needs correcting. The piece quotes Arthur Daemmrich, a professor at Harvard Business School:
“In Britain, for example, a new bio-tech drug that extends a person’s life on average one or two months, but costs $25,000, would not be reimbursed.”
Actually, the drug does not “cost” $25,000. The British government gives a drug company a patent monopoly that allows it charge $25,000 because the government will arrest any competitors that try to sell the drug. The actual cost is more likely in the range of $5-$10.
This speaks to the incredible inefficiency associated with the patent system as a mechanism for financing drug research. However it is wrong to imply that it would be expensive to society to give patients these drugs. It would actually be very cheap.
National Public Radio told listeners that, “Like the U.S., Europe Wrestles With Health Care.” If the wrestling in Europe is anything like the U.S., then we must be talking about professional wrestling. (“Hit him over the head with a chair!”)
The per person cost of health care across Europe is far less than in the United States. According to the OECD, in 2009 (the most recent year for which it has comparable data), per capita health care expenditures in the United States were $7,960. In France, Germany, and the UK, the three countries featured in the piece, the costs were $3,978, $4,218, and $3,487 respectively.
In other words, costs in the U.S. were more than twice as high as in France and the U.K. and more than 80 percent higher than in Germany. While the rise in health care costs poses a problem in these countries, as it does in the United States, the impact is very different than what it is in the United States. NPR should have pointed out the huge difference in current costs instead of trying to imply that all countries face the same problem.
There is one other point in this piece that badly needs correcting. The piece quotes Arthur Daemmrich, a professor at Harvard Business School:
“In Britain, for example, a new bio-tech drug that extends a person’s life on average one or two months, but costs $25,000, would not be reimbursed.”
Actually, the drug does not “cost” $25,000. The British government gives a drug company a patent monopoly that allows it charge $25,000 because the government will arrest any competitors that try to sell the drug. The actual cost is more likely in the range of $5-$10.
This speaks to the incredible inefficiency associated with the patent system as a mechanism for financing drug research. However it is wrong to imply that it would be expensive to society to give patients these drugs. It would actually be very cheap.
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That’s what readers of today’s Washington Post column by Michael Gerson must conclude. After all, he tells readers that President Obama has done nothing to reduce the cost of government health care programs. If he had heard of the Affordable Care Act, then he would know President Obama had actually done a great deal to control the costs of these programs, as shown in the Congressional Budget Office’s (CBO) baseline budget projections which show spending if the cost control mechanisms in the ACA are left in place. These had the effect of reducing the projected 75-year shortfall in Medicare by more than 75 percent.
It would also be worth reminding readers that Representative Ryan’s Medicare plan is projected to hugely increase the cost of providing health care to seniors. CBO’s projections imply that Representative Ryan’s plan would increase the cost of providing Medicare equivalent policies to people over age 65 by $34 trillion over Medicare’s 75-year planning period.
That’s what readers of today’s Washington Post column by Michael Gerson must conclude. After all, he tells readers that President Obama has done nothing to reduce the cost of government health care programs. If he had heard of the Affordable Care Act, then he would know President Obama had actually done a great deal to control the costs of these programs, as shown in the Congressional Budget Office’s (CBO) baseline budget projections which show spending if the cost control mechanisms in the ACA are left in place. These had the effect of reducing the projected 75-year shortfall in Medicare by more than 75 percent.
It would also be worth reminding readers that Representative Ryan’s Medicare plan is projected to hugely increase the cost of providing health care to seniors. CBO’s projections imply that Representative Ryan’s plan would increase the cost of providing Medicare equivalent policies to people over age 65 by $34 trillion over Medicare’s 75-year planning period.
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Yes, that it is the way that the media reported the Labor Department’s release of new unemployment claims yesterday. Strictly speaking, this is true. The 359,000 claims reported for last week is the lowest number in almost four years.
However, it is worth pointing out that last week’s number was originally reported as 348,000. It was revised up this week to 364,000. There has been a very consistent trend with claims numbers be revised upward over the last couple of years. (I don’t think this is a deliberately rigging; it just suggests a bias in the methodology.) This upward revision makes the “lowest in four years” line somewhat less meaningful.
Yes, that it is the way that the media reported the Labor Department’s release of new unemployment claims yesterday. Strictly speaking, this is true. The 359,000 claims reported for last week is the lowest number in almost four years.
However, it is worth pointing out that last week’s number was originally reported as 348,000. It was revised up this week to 364,000. There has been a very consistent trend with claims numbers be revised upward over the last couple of years. (I don’t think this is a deliberately rigging; it just suggests a bias in the methodology.) This upward revision makes the “lowest in four years” line somewhat less meaningful.
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