Suppose that President Obama had a press conference where he announced that he had found a quarter. Once the press corps realized that he was not joking and that this was actually the point of his press conference, they would immediately rush out pieces about how the president was off his rocker.
Well President Obama has not, thus far, had a press conference on the topic, but a “senior administration official” reportedly touted an agreement with China to buy $45 billion in U.S. exports. The Post article provided no information about the time period over which these goods would be purchased (e.g. 2 years? 10 years?), nor is there any reason to believe that the deal actually involves new exports. (One of the items in the Post article is planes being sold by Boeing, the sale of which had already been announced.)
While $45 billion may sound like a big commitment, senior administration officials know that it is not. The United States had a trade deficit with China of more than $250 billion over the first 11 months of 2010. Exports of $45 billion over some indefinite number of future years, many of which were already in the pipeline, will not affect this in any noticeable way.
In other words, it’s great that President Obama found a quarter, but he should not be wasting the public’s time by telling us about his good luck. The media should be ridiculing him for implying that this is an economically meaningful event.
Suppose that President Obama had a press conference where he announced that he had found a quarter. Once the press corps realized that he was not joking and that this was actually the point of his press conference, they would immediately rush out pieces about how the president was off his rocker.
Well President Obama has not, thus far, had a press conference on the topic, but a “senior administration official” reportedly touted an agreement with China to buy $45 billion in U.S. exports. The Post article provided no information about the time period over which these goods would be purchased (e.g. 2 years? 10 years?), nor is there any reason to believe that the deal actually involves new exports. (One of the items in the Post article is planes being sold by Boeing, the sale of which had already been announced.)
While $45 billion may sound like a big commitment, senior administration officials know that it is not. The United States had a trade deficit with China of more than $250 billion over the first 11 months of 2010. Exports of $45 billion over some indefinite number of future years, many of which were already in the pipeline, will not affect this in any noticeable way.
In other words, it’s great that President Obama found a quarter, but he should not be wasting the public’s time by telling us about his good luck. The media should be ridiculing him for implying that this is an economically meaningful event.
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The NYT Magazine piece providing the inside story on President Obama’s economic team in his first two years is littered with conservative talking points. For beginners we get the hoary myth that businesses are not hiring because they are “uncertain about government policy.”
While businesses like to blame uncertainties over tax policy or regulation, there is zero evidence to support this assertion. If firms were seeing demand for labor that would cause them to hire, except for their uncertainty, then we should expect to see large upticks in average hours per worker and increased hiring of temps. In fact, average weekly hours is still down from its pre-recession level. Temp employment is down almost 15 percent from its pre-recession level. This suggests that the problem is lack of demand pure and simple, not uncertainty about regulation and taxes.
It is also worth noting that investment in equipment and software has been rising at almost a 20 percent annual rate over the last four quarters, so it’s not accurate to say that businesses are not investing. It is also important to recognize that this component of the economy is only 7 percent of GDP, so if Obama’s economic team is counting on business investment to boost the economy out of its slump, they are not very good at arithmetic.
The second business myth is the assertion that trade: “represents one of the ‘solutions on the cheap’ the president wanted, a way of promoting growth without deficit spending.” This comment is made in reference to the South Korea trade agreement. In fact, in both theory and practice these trade deals are projected to have a minimal effect on jobs. U.S. trade deficits have in fact risen with many countries, such as Mexico, following the signing of trade agreements, meaning that they have been in the short-run job losers, not job gainers.
Finally, the piece tells readers that:
“Republicans have made shrinking government the core of their economic message.”
Of course they are not really for shrinking government. Most of the Republican leadership supported the bank bailouts. They also support strong patent and copyright protection, which would have the government policing every aspect of people’s lives. (One effort at copyright enforcement sought to make the Girl Scouts pay for the songs they sing around camp fires.) The Republicans also supported the 2005 bankruptcy reform that would have the government provide business with a much greater role in acting as a bill collector. The reality is that the Republicans are not interested in shrinking the role of government, even if this is what they say. They are interested in shrinking the government functions that help low and middle income people.
The NYT Magazine piece providing the inside story on President Obama’s economic team in his first two years is littered with conservative talking points. For beginners we get the hoary myth that businesses are not hiring because they are “uncertain about government policy.”
While businesses like to blame uncertainties over tax policy or regulation, there is zero evidence to support this assertion. If firms were seeing demand for labor that would cause them to hire, except for their uncertainty, then we should expect to see large upticks in average hours per worker and increased hiring of temps. In fact, average weekly hours is still down from its pre-recession level. Temp employment is down almost 15 percent from its pre-recession level. This suggests that the problem is lack of demand pure and simple, not uncertainty about regulation and taxes.
It is also worth noting that investment in equipment and software has been rising at almost a 20 percent annual rate over the last four quarters, so it’s not accurate to say that businesses are not investing. It is also important to recognize that this component of the economy is only 7 percent of GDP, so if Obama’s economic team is counting on business investment to boost the economy out of its slump, they are not very good at arithmetic.
The second business myth is the assertion that trade: “represents one of the ‘solutions on the cheap’ the president wanted, a way of promoting growth without deficit spending.” This comment is made in reference to the South Korea trade agreement. In fact, in both theory and practice these trade deals are projected to have a minimal effect on jobs. U.S. trade deficits have in fact risen with many countries, such as Mexico, following the signing of trade agreements, meaning that they have been in the short-run job losers, not job gainers.
Finally, the piece tells readers that:
“Republicans have made shrinking government the core of their economic message.”
Of course they are not really for shrinking government. Most of the Republican leadership supported the bank bailouts. They also support strong patent and copyright protection, which would have the government policing every aspect of people’s lives. (One effort at copyright enforcement sought to make the Girl Scouts pay for the songs they sing around camp fires.) The Republicans also supported the 2005 bankruptcy reform that would have the government provide business with a much greater role in acting as a bill collector. The reality is that the Republicans are not interested in shrinking the role of government, even if this is what they say. They are interested in shrinking the government functions that help low and middle income people.
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David Leonhardt has a nice piece pointing out that the difference between the unemployment rate in the United States and most European countries is due to the structure of the labor market, not the rate of GDP. The United States has actually done better in terms of GDP than Germany and most other European countries, yet it has a far worse problem of unemployment. (Germany’s unemployment rate is below its pre-recession level.) Germany has encouraged companies to keep workers on working shorter hours. It is also more difficult in general to just lay off workers in Europe. These differences explain the better labor market outcomes in Europe.
David Leonhardt has a nice piece pointing out that the difference between the unemployment rate in the United States and most European countries is due to the structure of the labor market, not the rate of GDP. The United States has actually done better in terms of GDP than Germany and most other European countries, yet it has a far worse problem of unemployment. (Germany’s unemployment rate is below its pre-recession level.) Germany has encouraged companies to keep workers on working shorter hours. It is also more difficult in general to just lay off workers in Europe. These differences explain the better labor market outcomes in Europe.
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The Washington Post had a front page article touting the growth of investment by Chinese firms in the United States as a way of creating jobs. In fact, as the chart accompanying the article shows, the vast majority of the investment involves buying up existing firms. In most cases, this will not create any jobs.
The amount of new investment has averaged less than $1 billion a year. This is less than 0.5 percent of the U.S. trade deficit with China and not the sort of economic development that would ordinarily merit a front page article.
The Washington Post had a front page article touting the growth of investment by Chinese firms in the United States as a way of creating jobs. In fact, as the chart accompanying the article shows, the vast majority of the investment involves buying up existing firms. In most cases, this will not create any jobs.
The amount of new investment has averaged less than $1 billion a year. This is less than 0.5 percent of the U.S. trade deficit with China and not the sort of economic development that would ordinarily merit a front page article.
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The United States remains the world’s number one economic and military power. This means that when President Obama sits down with many heads of state, the list of concerns that he presents is essentially a shopping list that he expects his counterpart to make good on. In many cases, the head of state of a country heavily dependent on the United States will have little choice but to deliver on the items on the list.
This is not true with China. While not yet the equal of the United States in either economic or military power, it is certainly a formidable enough power that the United States cannot simply dictate to it. This means that when it gives China a list of issues, it cannot reasonable expect China to agree to U.S. terms on all them. Therefore, when President Obama meets with China’s President Hu Jintao this week, he will have to emphasize some things on the U.S. list while downgrading the importance of others.
For example, President Obama may emphasize enforcement of the patents and copyrights of U.S. companies like Pfizer and Microsoft. Or he may emphasize market access for financial service companies like Goldman Sachs and Citigroup. The emphasis on these issues may imply that concerns over items, like the value of the yuan, get less attention.
The issue of trade-offs is not mentioned in the NYT’s stage setting for the meetings. This omission is striking since this priority setting obviously must be central in the administration’s preparations. Surely the NYT could have contacted some experts on U.S.-China relations even if it could not find anyone in the administration who was prepared to discuss its priorities.
The United States remains the world’s number one economic and military power. This means that when President Obama sits down with many heads of state, the list of concerns that he presents is essentially a shopping list that he expects his counterpart to make good on. In many cases, the head of state of a country heavily dependent on the United States will have little choice but to deliver on the items on the list.
This is not true with China. While not yet the equal of the United States in either economic or military power, it is certainly a formidable enough power that the United States cannot simply dictate to it. This means that when it gives China a list of issues, it cannot reasonable expect China to agree to U.S. terms on all them. Therefore, when President Obama meets with China’s President Hu Jintao this week, he will have to emphasize some things on the U.S. list while downgrading the importance of others.
For example, President Obama may emphasize enforcement of the patents and copyrights of U.S. companies like Pfizer and Microsoft. Or he may emphasize market access for financial service companies like Goldman Sachs and Citigroup. The emphasis on these issues may imply that concerns over items, like the value of the yuan, get less attention.
The issue of trade-offs is not mentioned in the NYT’s stage setting for the meetings. This omission is striking since this priority setting obviously must be central in the administration’s preparations. Surely the NYT could have contacted some experts on U.S.-China relations even if it could not find anyone in the administration who was prepared to discuss its priorities.
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Harvard Law Professor Mark Wu argued that the value of the yuan against the dollar is no big deal in determining the U.S. trade balance in China in an NYT column. His argument is bizarre to say the least.
First he argues that the value of the yuan has little to do with the ability of the U.S. to export to China. He points out that exports to China grew at a more rapid rate in the years from 2002 to 2005 when the yuan did not appreciate than in the years from 2005 to 2008 when the value of the yuan rose by almost 20 percent against the dollar.
This is true, but the problem is that the very low base in 2002 makes percent change a very misleading measure. The increase in exports from 2002 to 2005 was $19.1 billion, from $22.1 billion to $41.2 billion. Exports increased by $28.5 billion from 2005 to 2008 to $69.7 billion. The more obvious metric would be the increase as a percent of U.S. GDP, which was considerably larger in the second period.
If one was just looking at percent changes then the near doubling of imports in the three years when the yuan did not rise in value is a striking contrast to the increase of just over 40 percent in the three years in which the yuan rose by 20 percent. Of course a full model would consider relative price changes and other factors, but it takes some serious data abuse to use export volumes to argue that exchange rates don’t matter.
The other arguments are equally off-base. Wu claims that if the yuan rose against the dollar then we would simply import more from Cambodia, Vietnam and other countries. There are two problems with this argument. First the list of competing countries is not nearly large enough to replace China as a source of imports. If imports from China fell by a third, this would be roughly equal to Vietnam and Cambodia’s combined GDP. The other flaw in this logic is that countries like Vietnam and Cambodia target the value of their currency against the yuan. When China abruptly raised the value of the yuan in 2005, a wide range of countries followed suit. It is likely that further increases in the yuan would also be matched by rises in other currencies leaving the relative valuation of their exports little changed. (If these countries were just interested in gaining more of a competitive advantage of the yuan, they could devalue their currency any day of the week.)
The final point that Wu makes is that only 15 percent of our exports compete directly against Chinese exports in third markets. This is likely true, but by itself this is already a large volume of trade. Furthermore, this percentage is rising rapidly as China moves into more upscale manufacturing sectors. The share of exports that compete with Chinese goods likely would have been close to zero five years ago.
In short, there is not much of a case here. Economists generally believe that relative prices matter and the exchange rate is a major determinant of relative prices. (Do tariffs of 20 percent matter? The Chinese sure think so.) Mr. Wu’s column gives us little reason to discard standard economics.
Harvard Law Professor Mark Wu argued that the value of the yuan against the dollar is no big deal in determining the U.S. trade balance in China in an NYT column. His argument is bizarre to say the least.
First he argues that the value of the yuan has little to do with the ability of the U.S. to export to China. He points out that exports to China grew at a more rapid rate in the years from 2002 to 2005 when the yuan did not appreciate than in the years from 2005 to 2008 when the value of the yuan rose by almost 20 percent against the dollar.
This is true, but the problem is that the very low base in 2002 makes percent change a very misleading measure. The increase in exports from 2002 to 2005 was $19.1 billion, from $22.1 billion to $41.2 billion. Exports increased by $28.5 billion from 2005 to 2008 to $69.7 billion. The more obvious metric would be the increase as a percent of U.S. GDP, which was considerably larger in the second period.
If one was just looking at percent changes then the near doubling of imports in the three years when the yuan did not rise in value is a striking contrast to the increase of just over 40 percent in the three years in which the yuan rose by 20 percent. Of course a full model would consider relative price changes and other factors, but it takes some serious data abuse to use export volumes to argue that exchange rates don’t matter.
The other arguments are equally off-base. Wu claims that if the yuan rose against the dollar then we would simply import more from Cambodia, Vietnam and other countries. There are two problems with this argument. First the list of competing countries is not nearly large enough to replace China as a source of imports. If imports from China fell by a third, this would be roughly equal to Vietnam and Cambodia’s combined GDP. The other flaw in this logic is that countries like Vietnam and Cambodia target the value of their currency against the yuan. When China abruptly raised the value of the yuan in 2005, a wide range of countries followed suit. It is likely that further increases in the yuan would also be matched by rises in other currencies leaving the relative valuation of their exports little changed. (If these countries were just interested in gaining more of a competitive advantage of the yuan, they could devalue their currency any day of the week.)
The final point that Wu makes is that only 15 percent of our exports compete directly against Chinese exports in third markets. This is likely true, but by itself this is already a large volume of trade. Furthermore, this percentage is rising rapidly as China moves into more upscale manufacturing sectors. The share of exports that compete with Chinese goods likely would have been close to zero five years ago.
In short, there is not much of a case here. Economists generally believe that relative prices matter and the exchange rate is a major determinant of relative prices. (Do tariffs of 20 percent matter? The Chinese sure think so.) Mr. Wu’s column gives us little reason to discard standard economics.
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The Republicans have been ranting for most of the last year about the “job killing” health care bill (now changed to “job destroying” in an effort at promoting comity). As I noted yesterday, reporters are supposed to attempt to verify such accusations, not just repeat them.
The Associated Press made precisely the sort of effort at verification that reporters are supposed to do. They found the Republicans came up a bit short in the evidence department. The best they could do was an analysis from the Congressional Budget Office that estimated that around 600,000 people would opt out of the labor force if they could get health insurance through the new health care system. The reason is that they would no longer need to work for their health care coverage. This is not exactly “job killing” or “job destroying” – after all, the jobs will still be there, it’s just that people will opt not to take them.
In this way we can think of the bill as being job destroying in the same way that winning the lottery might be job destroying. Many people who take home multi-million dollar jackpots opt not to work because they no longer need the money. The Republican methodology would have us worried about “job killing” lottery jackpots.
AP deserves credit for doing the sort of basic fact checking that good reporters do. This sort of reporting provides valuable information to the public.
Addendum:
McClatchey also did its homework.
The Republicans have been ranting for most of the last year about the “job killing” health care bill (now changed to “job destroying” in an effort at promoting comity). As I noted yesterday, reporters are supposed to attempt to verify such accusations, not just repeat them.
The Associated Press made precisely the sort of effort at verification that reporters are supposed to do. They found the Republicans came up a bit short in the evidence department. The best they could do was an analysis from the Congressional Budget Office that estimated that around 600,000 people would opt out of the labor force if they could get health insurance through the new health care system. The reason is that they would no longer need to work for their health care coverage. This is not exactly “job killing” or “job destroying” – after all, the jobs will still be there, it’s just that people will opt not to take them.
In this way we can think of the bill as being job destroying in the same way that winning the lottery might be job destroying. Many people who take home multi-million dollar jackpots opt not to work because they no longer need the money. The Republican methodology would have us worried about “job killing” lottery jackpots.
AP deserves credit for doing the sort of basic fact checking that good reporters do. This sort of reporting provides valuable information to the public.
Addendum:
McClatchey also did its homework.
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The NYT reported on the austerity agenda being imposed across Europe:
“governments must get their costs down by reducing wages, compensation and income, while cutting spending and raising taxes.”
That’s all a very good way to make a downturn even deeper, slowing growth and raising unemployment. Of course European governments actually do have options.
They could leave the euro. Yes, the process would be disruptive, but it likely promises a much better growth path than the path prescribed by the geniuses of euro austerity. The Argentine 2001-2002 default/devaluation is the model here. Of course the threat of Ireland, Spain, Portugal, Greece and other troubled economies leaving the euro may be sufficient to prompt the core euro nations and the European Central Bank to adopt more expansionary monetary policy, which would be the best possible outcome.
However, it is bizarre that that the NYT would devote a lengthy piece to a discussion of European austerity without even mentioned the opt-out option. This is certainly being discussed by many Europeans.
The NYT reported on the austerity agenda being imposed across Europe:
“governments must get their costs down by reducing wages, compensation and income, while cutting spending and raising taxes.”
That’s all a very good way to make a downturn even deeper, slowing growth and raising unemployment. Of course European governments actually do have options.
They could leave the euro. Yes, the process would be disruptive, but it likely promises a much better growth path than the path prescribed by the geniuses of euro austerity. The Argentine 2001-2002 default/devaluation is the model here. Of course the threat of Ireland, Spain, Portugal, Greece and other troubled economies leaving the euro may be sufficient to prompt the core euro nations and the European Central Bank to adopt more expansionary monetary policy, which would be the best possible outcome.
However, it is bizarre that that the NYT would devote a lengthy piece to a discussion of European austerity without even mentioned the opt-out option. This is certainly being discussed by many Europeans.
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USA Today had a piece today noting the rise in temporary unemployment and warning that it may be permanent. It is worth noting that temp employment had fallen by more than 30 percent in the downturn. While there has been some upturn in temp employment in recent months, it is still down by more than 15 percent from pre-recession levels.
USA Today had a piece today noting the rise in temporary unemployment and warning that it may be permanent. It is worth noting that temp employment had fallen by more than 30 percent in the downturn. While there has been some upturn in temp employment in recent months, it is still down by more than 15 percent from pre-recession levels.
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Fox on 15th went Utopian on its readers today, ridiculing the suggestion by James Galbraith to temporarily lower the age at which workers can receive full Social Security benefits to 62. The plan, which also was put forward in a bill by Representative Dennis Kucinich, would pull some number of older workers out of the labor force and thereby create more jobs for unemployed younger workers.
The Post disses the plan. In addition to telling readers that it baffled financial journalists (are financial journalists really so thick that they had problems understanding this one?) it goes on:
“The proposals echo a familiar, and questionable, notion on the left: that we should find ways to better parcel out existing jobs. It’s the same logic that leads some countries to consider cutting the number of hours or days someone can work each week, so that more people can share the work pool. In reality, the true challenge is to figure out how to create new jobs.”
This one really is too delicious to believe that it actually appeared in print. Let’s go in order.
The first part describes the idea that we might want to redistribute work by cutting the number of hours each person works as a “notion on the left.” Wow, according to the Washington Post, Germany’s Christian Democratic government is now on the left. German Chancellor Angela Merkel has been a big supporter of the country’s work sharing program, although the idea originated with a Social Democratic minister in the previous unity government. These stupid leftists think they should be happy just because Germany’s unemployment rate is just 6.7 percent, in spite of the fact that its GDP has taken a bigger hit than the U.S. in this downturn. In fact, many other countries across the OECD also have work sharing policies and most of these countries are not run by politicians who are viewed as leftists by anyone other than the Washington Post.
Okay, now for part II: “In reality, the true challenge is to figure out how to create new jobs.” Oh yeah! And, let’s see what are the ideas that the Washington Post has for putting 15 million people back to work. Hmmmm, I looked through the rest of the Outlook section, I didn’t see any. I looked through the rest of the paper, and yesterday’s too, didn’t see any there either. In fact, I did a search of the paper over the last two months and I can’t say that I saw anything that resembled a proposal to put 15 million people back to work. A naive reader might think that the Washington Post, and the group of policy wonks it considers respectable, just don’t have ideas for creating “new jobs” and putting 15 million people back to work.
It sure would be wonderful if these respectable people did rise to the “true challenge” and come up with a way to put millions of people back to work, but they seem to be spending most of their time thinking of ways to reduce the deficit. It appears that our choices at the moment might be sharing the available work or having near double-digit unemployment.
The Post concludes by telling readers:
“sometimes the conventional wisdom is not only conventional, but wise as well.”
That might be true, but this doesn’t seem like one of those times.
Fox on 15th went Utopian on its readers today, ridiculing the suggestion by James Galbraith to temporarily lower the age at which workers can receive full Social Security benefits to 62. The plan, which also was put forward in a bill by Representative Dennis Kucinich, would pull some number of older workers out of the labor force and thereby create more jobs for unemployed younger workers.
The Post disses the plan. In addition to telling readers that it baffled financial journalists (are financial journalists really so thick that they had problems understanding this one?) it goes on:
“The proposals echo a familiar, and questionable, notion on the left: that we should find ways to better parcel out existing jobs. It’s the same logic that leads some countries to consider cutting the number of hours or days someone can work each week, so that more people can share the work pool. In reality, the true challenge is to figure out how to create new jobs.”
This one really is too delicious to believe that it actually appeared in print. Let’s go in order.
The first part describes the idea that we might want to redistribute work by cutting the number of hours each person works as a “notion on the left.” Wow, according to the Washington Post, Germany’s Christian Democratic government is now on the left. German Chancellor Angela Merkel has been a big supporter of the country’s work sharing program, although the idea originated with a Social Democratic minister in the previous unity government. These stupid leftists think they should be happy just because Germany’s unemployment rate is just 6.7 percent, in spite of the fact that its GDP has taken a bigger hit than the U.S. in this downturn. In fact, many other countries across the OECD also have work sharing policies and most of these countries are not run by politicians who are viewed as leftists by anyone other than the Washington Post.
Okay, now for part II: “In reality, the true challenge is to figure out how to create new jobs.” Oh yeah! And, let’s see what are the ideas that the Washington Post has for putting 15 million people back to work. Hmmmm, I looked through the rest of the Outlook section, I didn’t see any. I looked through the rest of the paper, and yesterday’s too, didn’t see any there either. In fact, I did a search of the paper over the last two months and I can’t say that I saw anything that resembled a proposal to put 15 million people back to work. A naive reader might think that the Washington Post, and the group of policy wonks it considers respectable, just don’t have ideas for creating “new jobs” and putting 15 million people back to work.
It sure would be wonderful if these respectable people did rise to the “true challenge” and come up with a way to put millions of people back to work, but they seem to be spending most of their time thinking of ways to reduce the deficit. It appears that our choices at the moment might be sharing the available work or having near double-digit unemployment.
The Post concludes by telling readers:
“sometimes the conventional wisdom is not only conventional, but wise as well.”
That might be true, but this doesn’t seem like one of those times.
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