Celebrating Twenty Years of the Center for Economic and Policy Research

October 21, 2019

21 Octubre 2019

Next week we will be celebrating the 20th anniversary of the founding of the Center for Economic and Policy Research (October 29th to be precise). I’m going to take this opportunity to point out how much economic debate has shifted over the last two decades, and also do a bit of boasting. When Mark Weisbrot and I started CEPR at the end of 1999, it was the heyday of neoliberalism. Bill Clinton had won reelection in 1996, assuring us that the era of big government was over. Two big agenda items from his first term were the passage of NAFTA and welfare reform, which, as he put it, “ended welfare as we know it.” In international economics, the Washington Consensus reigned supreme, with privatization and austerity being pushed pretty much everywhere in the developing world. Mark and I felt that the debate on economic policies had become overly narrow, and we thought that a small dynamic think tank, without major institutional constraints, could make a difference. One of the first issues that we weighed in on was Social Security. At the time, the conventional wisdom, even among Democrats, was that Social Security was in crisis and that benefits had to be cut. Our book, Social Security: The Phony Crisis, came out just as CEPR was launching. Two decades later, not only have benefits not been cut, but the centrist position in the Democratic Party has shifted to benefits should be raised. We also had pushed for full employment policies. In two books, Jared Bernstein and I argued that the benefits from low levels of unemployment to workers at the middle and bottom of the pay ladder were enormous. We also argued that economists had underestimated the economy’s ability to maintain low levels of unemployment without spiraling inflation. Today, as the unemployment rate sits at 3.5 percent, Jerome Powell, the chair of the Federal Reserve Board, has largely adopted our position.

Is the Washington Post Selling Headlines to Mark Zuckerberg?

By CEPRCEPR

October 18, 2019

18 Octubre 2019

That is undoubtedly what readers are asking after seeing the headline, “Facebook’s Mark Zuckerberg struggles to balance truth and free speech.” The headline is for the recording of a remarkably uncritical interview of Zuckerberg.

In the interview, Zuckerberg presents himself as struggling to deal with the trade-off between banning ads that are untrue and allowing free speech. If a reporter had been conducting the interview, they would have pointed out that every newspaper in the country faces the same problem and, unlike Zuckerberg, seem capable of dealing with it.

They will not print ads that they know to be untrue and, if they are shown evidence that an ad is untruthful after it runs, they typically will run a correction. It would have been useful to point this out to readers.

That is undoubtedly what readers are asking after seeing the headline, “Facebook’s Mark Zuckerberg struggles to balance truth and free speech.” The headline is for the recording of a remarkably uncritical interview of Zuckerberg.

In the interview, Zuckerberg presents himself as struggling to deal with the trade-off between banning ads that are untrue and allowing free speech. If a reporter had been conducting the interview, they would have pointed out that every newspaper in the country faces the same problem and, unlike Zuckerberg, seem capable of dealing with it.

They will not print ads that they know to be untrue and, if they are shown evidence that an ad is untruthful after it runs, they typically will run a correction. It would have been useful to point this out to readers.

Trump Declares Victory in China Trade War

By CEPRCEPR

October 18, 2019

18 Octubre 2019

(This post originally appeared on my Patreon page.) Back in the late 1960s, when it was clear that the United States was losing in Vietnam, Vermont Senator George Aiken came up with the plan to declare victory and leave. It seems that Donald Trump has stolen the senator’s playbook. While we don’t know much of the details of Trump’s partial deal with China, it seems almost certain that he has not won most of his demands. According to press accounts, China will commit to buy a large amount of U.S. agricultural products. This is a highly visible, but largely pointless victory for Trump. All the major agricultural commodities, such as wheat, corn, soybeans, and beef, sell on massive world markets. If China commits to buying some amount from U.S. producers, for the most part, it will come at the expense of producers from other countries. It will not be an increase in world demand. This means that the displaced producers will be dumping their now surplus commodities on world markets, leaving the market price received by U.S. farmers little changed. Anyhow, it was hardly a surprise to some of us that Trump would go the declare victory and leave route. My colleague at the Center for Economic and Policy Research, Mark Weisbrot, made exactly this prediction a couple of weeks ago, as did I, a few days earlier. This outcome was easy to see. Trump could not care less about U.S.-China trade policy. He does care about not looking weak and he very much wants to be re-elected. The obvious answer is to say that he won. It doesn’t matter that he may have gotten almost nothing of what he demanded. His followers will believe him and when the media raise questions after seeing the deal, we all know the Trump response: FAKE NEWS.

How Has AP Determined that Ecuador's Debt and Deficits are Unsustainable?

By CEPRCEPR

October 18, 2019

18 Octubre 2019

It made this assertion in two different articles last week, without attributing it to a source. The budget data from the I.M.F. do not seem to support this claim. (The numbers are all percent of GDP.)

While the deficits run in 2015 and 2016 were unsustainable, the deficit came down sharply in the next two years. The deficit run in 2018 and projected for 2019 could be sustained indefinitely. (Ecuador uses the dollar as its currency, so it must be able to borrow the money needed to finance its deficit in financial markets.)

Subject Descriptor	2015	2016	2017	2018	2019
General government net lending/borrowing	-6.119	-8.232	-4.533	-0.949	0.022
General government structural balance	-6.714	-6.783	-4.020	-1.676	-0.012
General government primary net lending/borrowing	-4.688	-6.670	-2.415	1.541	2.659
General government gross debt	33.798	43.166	44.617	46.132	49.199

It made this assertion in two different articles last week, without attributing it to a source. The budget data from the I.M.F. do not seem to support this claim. (The numbers are all percent of GDP.)

While the deficits run in 2015 and 2016 were unsustainable, the deficit came down sharply in the next two years. The deficit run in 2018 and projected for 2019 could be sustained indefinitely. (Ecuador uses the dollar as its currency, so it must be able to borrow the money needed to finance its deficit in financial markets.)

Subject Descriptor	2015	2016	2017	2018	2019
General government net lending/borrowing	-6.119	-8.232	-4.533	-0.949	0.022
General government structural balance	-6.714	-6.783	-4.020	-1.676	-0.012
General government primary net lending/borrowing	-4.688	-6.670	-2.415	1.541	2.659
General government gross debt	33.798	43.166	44.617	46.132	49.199

Are Mark Zuckerberg and Facebook Too Incompetent to Do What Publishers of Small Town Papers Do?

By CEPRCEPR

October 17, 2019

17 Octubre 2019

That seemed to be what Zuckerberg was saying in an interview with the Washington Post. Zuckerberg responding to complaints that Facebook was allowing people to lie in political ads:

“‘People worry, and I worry deeply, too, about an erosion of truth,’ Zuckerberg told The Washington Post ahead of a speech Thursday at Georgetown University. ‘At the same time, I don’t think people want to live in a world where you can only say things that tech companies decide are 100 percent true. And I think that those tensions are something we have to live with.'”

Zuckerberg apparently feels tech companies lack the competence to determine the truth of claims that people make in ads and elsewhere. Traditional publishers make this determination all the time. They refuse ads that they believe to be false and issue corrections for ads that they run and then later are presented with proof that the ads are false.

It may well be the case that Facebook is run by incompetents, but that is an argument for improving the quality of its staffing, not allowing it to be a medium for spreading lies.

That seemed to be what Zuckerberg was saying in an interview with the Washington Post. Zuckerberg responding to complaints that Facebook was allowing people to lie in political ads:

“‘People worry, and I worry deeply, too, about an erosion of truth,’ Zuckerberg told The Washington Post ahead of a speech Thursday at Georgetown University. ‘At the same time, I don’t think people want to live in a world where you can only say things that tech companies decide are 100 percent true. And I think that those tensions are something we have to live with.'”

Zuckerberg apparently feels tech companies lack the competence to determine the truth of claims that people make in ads and elsewhere. Traditional publishers make this determination all the time. They refuse ads that they believe to be false and issue corrections for ads that they run and then later are presented with proof that the ads are false.

It may well be the case that Facebook is run by incompetents, but that is an argument for improving the quality of its staffing, not allowing it to be a medium for spreading lies.

Fact Check: Warren Right, AP Fact Checkers Wrong, Economists Who Know the Data Blame Trade for Loss of Manufacturing Jobs

By CEPRCEPR

October 16, 2019

16 Octubre 2019

It is amazing how reporters and many economists feel the need to deceive the public about the reason for the loss of manufacturing jobs in the last decade. The number of manufacturing jobs was little changed from 1970 to 2000. From 2000 to the end of 2007 (before the Great Recession) we lost 3.4 million manufacturing jobs as the trade deficit exploded.

Fans of logic and arithmetic might think there is a connection there, the AP’s Fact Checker apparently does not. It tells readers:

“On trade

ELIZABETH WARREN: “The data show that we’ve had a lot of problems with losing jobs, but the principal reason has been bad trade policy. The principal reason has been a bunch of corporations, giant multinational corporations who’ve been calling the shots on trade.”

THE FACTS: Economists mostly blame those job losses on automation and robots, not trade deals.

So the Massachusetts senator is off.”

Here’s the picture as of a few years ago (sorry, I’m too lazy to update it).

baker buffie blue collar 2016 02 21 1

Apart from the huge falloff in the years from 2000 to 2007, which continued with the Great Recession, it is also interesting to note that manufacturing employment stabilized, and has risen modestly in the years since the Great Recession. So the economists AP relies on as sources much believe that robots and automation stopped displacing workers in manufacturing some time in 2010. Alternatively, we might note that the trade deficit has stabilized in the last nine years.

It is amazing how reporters and many economists feel the need to deceive the public about the reason for the loss of manufacturing jobs in the last decade. The number of manufacturing jobs was little changed from 1970 to 2000. From 2000 to the end of 2007 (before the Great Recession) we lost 3.4 million manufacturing jobs as the trade deficit exploded.

Fans of logic and arithmetic might think there is a connection there, the AP’s Fact Checker apparently does not. It tells readers:

“On trade

ELIZABETH WARREN: “The data show that we’ve had a lot of problems with losing jobs, but the principal reason has been bad trade policy. The principal reason has been a bunch of corporations, giant multinational corporations who’ve been calling the shots on trade.”

THE FACTS: Economists mostly blame those job losses on automation and robots, not trade deals.

So the Massachusetts senator is off.”

Here’s the picture as of a few years ago (sorry, I’m too lazy to update it).

baker buffie blue collar 2016 02 21 1

Apart from the huge falloff in the years from 2000 to 2007, which continued with the Great Recession, it is also interesting to note that manufacturing employment stabilized, and has risen modestly in the years since the Great Recession. So the economists AP relies on as sources much believe that robots and automation stopped displacing workers in manufacturing some time in 2010. Alternatively, we might note that the trade deficit has stabilized in the last nine years.

• Financial Transaction Tax

The Economics and Politics of Financial Transactions Taxes and Wealth Taxes

By CEPRCEPR

October 10, 2019

10 Octubre 2019

(This piece first appeared on my Patreon page.) Last month, the Washington Post reported that Joe Biden is considering including a financial transactions tax (FTT) as part of his campaign for the Democratic nomination. For those of us who have long advocated such a tax, this is very good news. On this issue, Bernie Sanders has taken the lead among presidential candidates, including an FTT as part of his plan for free college tuition free. Several other candidates also support an FTT, but if the Democratic Party’s leading centrist candidate endorses the tax, it would mark a new degree of acceptance within the mainstream of political debate. It may be somewhat surprising, but Senator Warren is not among those supporting an FTT. This is certainly not due to a reluctance to challenge the interests of the wealthy. Warren has proposed a wide variety of measures that would directly challenge the interests of the rich and powerful. The most ambitious item on this agenda is a wealth tax. Her tax would tax wealth above $50 million at the rate of 2.0 percent a year and wealth above $1 billion at the rate of 3.0 percent a year. (Sanders has an even larger wealth tax.) While there are good reasons for wanting to tax the very rich, an FTT is almost certainly a better economic policy and would have much better political prospects. We can see the economics of an FTT are superior when we consider the motivation for taxation by the federal government. As the proponents of Modern Monetary Theory remind us, the federal government doesn’t need revenue to spend, it prints money. The purpose of taxation by the federal government is to reduce consumption, so as to create the economic space for spending. The argument is that if the government spent a large amount of money, and didn’t have any taxes, it is likely to create too much demand in the economy, thereby generating inflation. To see this point, imagine that the federal government was to spend another $1 trillion next year on Green New Deal policies (a bit more than 20 percent of current federal spending), such as clean energy and mass transit subsidies. If there were no increase in taxes, we would expect to see a huge surge in demand in the economy, likely leading to inflation. (Assume that the Federal Reserve Board simply prints more money so that interest rates are little changed.) Now suppose we had another big Republican-style tax cut where we handed $1 trillion annually to the very richest people in the country. Also assume that we have no offsetting reduction in spending or increase in other taxes. In this case, we almost certainly don’t have to worry about inflation. Jeff Bezos, Bill Gates, and other multi-billionaires already have pretty much all the money they can possibly spend. This government handout will fatten their stock portfolios but will have little effect on demand in the economy. And for that reason it is not likely to lead to inflation.

Quick Note on Protections for Facebook and Other Internet Intermediaries

By CEPRCEPR

October 08, 2019

08 Octubre 2019

The NYT had a piece on U.S. Internet regulations, and efforts to apply them to other countries, that may have left some readers confused. The piece focused on Section 230 of the Communications Decency Act, which protects Internet intermediaries from many of the liabilities faced by conventional publishers.

Perhaps the most important one of these liabilities is exposure to libel law. In the case of standard publishers, if a publisher helps to spread a third party’s libelous claim, then they can be sued for libel. For example, if Rudy Giuliani writes a column in the NYT saying that Joe Biden killed his neighbor, it can be held responsible if Biden presents it with clear evidence that he didn’t kill his neighbor and it makes no effort to correct the libelous information.

By contrast, under Section 230, if Giuliani makes and spreads this claim through Facebook, Biden has no ability to sue Mark Zuckerberg, even if he introduces Zuckerberg to his still living neighbor. It is not clear why an Internet intermediary should enjoy immunity for spreading libelous claims that neither a print nor broadcast outlet have.

The NYT had a piece on U.S. Internet regulations, and efforts to apply them to other countries, that may have left some readers confused. The piece focused on Section 230 of the Communications Decency Act, which protects Internet intermediaries from many of the liabilities faced by conventional publishers.

Perhaps the most important one of these liabilities is exposure to libel law. In the case of standard publishers, if a publisher helps to spread a third party’s libelous claim, then they can be sued for libel. For example, if Rudy Giuliani writes a column in the NYT saying that Joe Biden killed his neighbor, it can be held responsible if Biden presents it with clear evidence that he didn’t kill his neighbor and it makes no effort to correct the libelous information.

By contrast, under Section 230, if Giuliani makes and spreads this claim through Facebook, Biden has no ability to sue Mark Zuckerberg, even if he introduces Zuckerberg to his still living neighbor. It is not clear why an Internet intermediary should enjoy immunity for spreading libelous claims that neither a print nor broadcast outlet have.

Those Quaint Corporate Scandals in Japan

By CEPRCEPR

October 08, 2019

08 Octubre 2019

I was struck by a New York Times article on the disruptions within the corporate hierarchy at Nissan, the huge Japanese automaker. The article begins:

“An outside law firm investigating problems at Nissan, the troubled Japanese automaker, this summer discovered some potentially explosive information.

“Hari Nada, a powerful Nissan insider who was behind the ouster last year of Nissan’s chairman, Carlos Ghosn, over compensation issues, had been improperly overpaid himself, the firm found. A second insider involved in the corporate coup was responsible, the firm said, and had briefed Mr. Nada on what he had done.”

Reading on we discover:

“Mr. Nada, the head of Nissan’s legal department and security office, had in 2017 received about $280,000 in ‘unjust enrichment,’ the firm found.”

It also turns out that Hiroto Saikawa, the successor to Ghosn as CEO, had gotten $440,000 in compensation to which he was not entitled.

It is hard not to be struck by the small size of the payments that form the basis of this scandal. To be clear, this is real money, and in any case, top executives should not be stealing from the companies they manage.

But for comparison, consider the case of John Stumpf, the CEO of Wells Fargo. Mr. Stumpf was at the center of a fake account scandal where the bank created millions of fake accounts, presumably as part of an effort to boost its stock price. In spite of being the person overseeing this massive scandal, Stumpf walked away with $130 million, an amount that is almost 300 times the size of the improper payments that got Mr. Saikawa fired and more than 400 times the payments to Mr. Nada.

Clearly there are some differences between the United States and Japan on the accountability of CEOs and top management.

I was struck by a New York Times article on the disruptions within the corporate hierarchy at Nissan, the huge Japanese automaker. The article begins:

“An outside law firm investigating problems at Nissan, the troubled Japanese automaker, this summer discovered some potentially explosive information.

“Hari Nada, a powerful Nissan insider who was behind the ouster last year of Nissan’s chairman, Carlos Ghosn, over compensation issues, had been improperly overpaid himself, the firm found. A second insider involved in the corporate coup was responsible, the firm said, and had briefed Mr. Nada on what he had done.”

Reading on we discover:

“Mr. Nada, the head of Nissan’s legal department and security office, had in 2017 received about $280,000 in ‘unjust enrichment,’ the firm found.”

It also turns out that Hiroto Saikawa, the successor to Ghosn as CEO, had gotten $440,000 in compensation to which he was not entitled.

It is hard not to be struck by the small size of the payments that form the basis of this scandal. To be clear, this is real money, and in any case, top executives should not be stealing from the companies they manage.

But for comparison, consider the case of John Stumpf, the CEO of Wells Fargo. Mr. Stumpf was at the center of a fake account scandal where the bank created millions of fake accounts, presumably as part of an effort to boost its stock price. In spite of being the person overseeing this massive scandal, Stumpf walked away with $130 million, an amount that is almost 300 times the size of the improper payments that got Mr. Saikawa fired and more than 400 times the payments to Mr. Nada.

Clearly there are some differences between the United States and Japan on the accountability of CEOs and top management.

Donald Trump’s Trade War: Report from the Front

By CEPRCEPR

October 06, 2019

06 Octubre 2019

Donald Trump is bravely carrying on a trade war, not just with the bad guys with China, but with longtime allies like Canada and the European Union. Incredibly, the media just don’t seem that interested in reporting on the ongoing progress. Last week the Commerce Department released trade data for August, and it got almost no attention whatsoever. The report showed that the trade deficit increased modestly from $54.0 billion in July to $54.9 billion in August. This is virtually identical to the deficit from August of 2018, so comparing these two months year over year, at least the trade deficit is not expanding. Looking at a slightly bigger picture, in 2016, the last year of the Obama administration, the trade deficit was $518.8 billion, or 2.8 percent of GDP. The trade deficit expanded in both 2017 and 2018, reaching $638.2 billion in 2018, or 3.1 percent of GDP. It looks to come in slightly higher in 2019, with the deficit averaging $648.3 billion in the first half of 2019. There are many factors behind the rise in the trade deficit. Growth in the U.S. has been somewhat faster than in major trading partners like the EU and Japan. The dollar has also risen in value, although most of that rise pre-dates Trump. But putting these aside, if Trump’s goal was to bring the trade deficit closer to balance, he’s been going the wrong way in the first two and half years of his administration. If we look at his major nemeses in the international arena, there are not many signs of Trumpian success. Starting with China, in the last year of the Obama administration, the trade deficit in goods with China was $346.8 billion.[1] This had increased to $419.6 billion last year. It looks like the trade deficit is coming down somewhat in 2019, with the deficit for the first eight months at $231.6 billion, compared to just over $260.0 billion last year. Nonetheless, we are still likely to end up with a higher deficit with China in 2019 than we had in the last year of the Obama administration.