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Article Artículo

Trump’s Trade War with China and “Our” Intellectual Property

(This post first appeared on my Patreon page.)

Some events give extraordinary insights into the biases of the economics profession. The trade war with China clearly fit the bill.

The origins of the trade war can be traced to campaign promises Trump made to go after China over its large trade surplus with the United States, which he attributed to “currency manipulation.” The argument was that by intervening in currency markets (buying up U.S. dollars), China was propping up the value of the dollar against its own currency.

This makes Chinese goods and services relatively cheaper to U.S. consumers and makes U.S. goods more expensive to Chinese purchasers. The net effect is to increase U.S. imports of Chinese goods and reduce U.S. exports to China, thereby leading to a large trade deficit.

While most economists now acknowledge that China was intervening in currency markets in the last decade (they did not acknowledge the currency intervention at the time), they insist that this is no longer an issue. China is no longer a large net buyer of dollar denominated assets, so the argument goes, therefore it is not currently keeping down the value of its currency against the dollar.

As I have argued elsewhere, this argument ignores the effect of China holding well in excess of $3 trillion worth of dollar denominated assets. Its decision to hold a massive stock of dollar assets depresses the value of the Chinese yuan against the dollar, thereby maintaining the competitive advantage from a lower valued currency.

This is the same logic that applies with the Fed’s decision to hold trillions of dollars worth of assets that it acquired as part of its quantitative easing program. Even though the Fed is not currently buying assets, most economists argue that its holding of assets still works to keep down interest rates. Perhaps in the next decade they will acknowledge that the same relationship holds with China’s massive stock of dollars and the relative value of the dollar and the yuan, but for now they insist that currency intervention was only an issue in the past.

This is important background, because currency values will directly affect our trade balance with China, and thereby impact the number of manufacturing jobs in the United States. While reducing the trade deficit will not get back most of the relatively high paying manufacturing jobs that were lost in the last decade, it would likely still be a plus for relatively less-educated workers who still rely on manufacturing as a source of higher paying jobs.

CEPR / May 23, 2019

Article Artículo

Government

United States

Wall Street

Senator Sanders and Representative Lee Propose to Make Wall Street Pay

This week Senator Bernie Sanders and Representative Barbara Lee are introducing bills in the Senate and House for a financial transaction tax (FTT). Their proposed tax is similar to, albeit somewhat higher than, the FTT proposed by Senator Brian Schatz earlier this year. The Sanders-Lee proposal would impose a 0.5 percent tax on stock transactions, with lower rates on transfers of other financial assets. Senator Schatz’s bill would impose a 0.1 percent tax on trades of all financial assets.

At this point, it is not worth highlighting the differences between the bills. Both would raise far more than half a trillion dollars over the next decade, almost entirely at the expense of the financial industry and hedge fund-types. In the case of the Schatz tax, the Congressional Budget Office estimated revenue of almost $80 billion a year, a bit less than 2.0 percent of the budget. The Sanders-Lee tax would likely raise in the neighborhood of $120–$150 billion a year, in the neighborhood of 3.0 percent of the federal budget.

While the financial industry will make great efforts to convince people that this money is coming out of the middle-class’ 401(k)s and workers’ pensions, that’s not likely to be true. This can be seen with some simple arithmetic.

Dean Baker / May 21, 2019

Article Artículo

Ady Barken, the Fed, and the Liberal Funder Industry

(This post first appeared on my Patreon page.) Earlier this month, New York Times reporter Binyamin Appelbaum wrote a moving piece on Ady Barkan. Ady is a lifelong activist who is now dying from A.L.S., often known as Lou Gehrig’s disease.

It is an incredibly sad story, Ady is just 35 years old. He is married with a young son. While I’m sure he would like to spend the time he has left with his loved ones, he is determined to use whatever energy he can to push for universal Medicare.

I was sitting next to him last month when we were both testifying on universal Medicare. Ady was in a wheel chair, having lost control over most of his muscles. He could not speak and instead had a mechanical voice speak out the words he typed.

It was clear that it was not easy for him to be there. He was sweating profusely in a room that was not particularly warm. It was a very impressive show of determination for a cause to which he is very committed.

I actually first met Ady through his work on a different topic, the Fed Up campaign, which was designed to push the Federal Reserve Board to prioritize full employment and higher wages. Fed Up was about bringing the voices of ordinary workers and community activists into the debate on monetary policy. Ady was one of the lead organizers with the Center for Popular Democracy, the group that spearheaded the Fed Up campaign.

As Appelbaum points out in this piece, the Fed Up campaign was remarkably successful in getting the Fed to take the concerns of working people more seriously. In general, the Fed is far more responsive to the concerns of the financial industry.

CEPR / May 16, 2019

Article Artículo

The "We're Overstating Inflation!" Story is Back!!!!!!!!

The Wall Street Journal's opinion page has never been a place where reality is a binding constraint. Andy Kessler demonstrates this fact in a column that tells us that the Consumer Price Index (CPI) overstates the true rate of inflation by at least 2.0 percentage points annually and possibly as much as 5.0 percentage points.

The immediate basis for this observation is an interview Alan Greenspan gave in which he said:

"Because products are continuously changing, ..... when new products go on the market, they come in at relatively high prices. Henry Ford’s Model T came in at a very high price, and the price went down as technology improved. You didn’t start to pick up the price level until well into that declining phase.”

“So there is a bias in the statistic. You’re getting statistics which are not correct. ... If you had a 2% inflation rate as currently measured, it’s the equivalent of zero for actually what consumers are buying.”

As Kessler describes it, "pretty heady stuff from the former Fed head."

Perhaps, but it's hardly new. Greenspan made the same observation more than a quarter-century ago. He told Congress back then that the CPI overstates inflation by at least 1.0 percentage point, and possibly as much as 2.0 percentage points. He suggested that Congress could use this alleged fact as a way to reduce the budget deficit, since Social Security payments (post-retirement) were linked to the CPI, as were income tax brackets. If the annual inflation adjustment in these measures was 1.0-2.0 percentage points lower, it would drastically reduce Social Security benefits over time and raise a great deal of tax revenue.

CEPR / May 13, 2019

Article Artículo

Health and Social Programs

Workers

A Mother’s Day Letter to America

Dear America,

A working mother recently wrote to the New York Times asking what really makes for a “family friendly” company. Her workplace experiences were the opposite of the company’s stated commitment to the notion and she wanted to know if her expectations were too high. The reply that followed was not so much a definition of a family friendly workplace, but advice: “Even if you are short on funds, it is worth it for you to go into (potentially further) debt at this time to pay for as much day-to-day help as you can get.” In other words, if you’re looking for a better work-life balance, you’re on your own in 2019 America.

A survey on work-family stress due to lack of childcare support conducted among working mothers from the US and other industrialized countries found “it was American moms uniquely who blamed themselves for their own stress and thought it was their own job to resolve it.”

May 09, 2019