Dean Baker
Truthout, March 28, 2016

Neil Irwin takes issue with Donald Trump using the trade surplus between countries as a scorecard on trade. He is largely right with a couple of important qualifications.

Irwin notes that a country with a trade surplus should see its currency rise against the dollar if it doesn’t reinvest the money in dollar assets. He then comments that if it does reinvest the money in dollar assets, whether or not it benefits the United States depends on what the money is used for. As Irwin points out, in the last decade the money was used in large part to invest in residential housing and to inflate the housing bubble. This was of course not useful.

But there is a deeper point here. In an era of “secular stagnation,” which means there is not enough demand in the economy, the foreign assets may in effect be invested in nothing. Most of the foreign capital that went into the United States in the housing bubble years did not get directly invested in housing. It was invested in government bonds and short-term deposits.

These investments don’t directly create any jobs; they are simply assets on a balance sheet. Insofar as foreigners invest their surplus dollars in U.S. assets not directly linked to employment (which will generally be the case) a trade deficit will be associated with higher unemployment, unless the economy has some other force generating employment to offset it.

Currently we are running an annual trade deficit of around $540 billion (@ 3 percent of GDP). This could be offset by spending more on education, infrastructure, clean technology or other areas, but the Very Serious People will not let us run larger budget deficits. In that context, it is quite reasonable to link a trade deficit to higher unemployment, so Trump is not wrong in that respect.

According to a Foreign Affairs piece by Council on Foreign Relations Fellow Thomas Bollyky, the major pharmaceutical companies are being run by people who don’t know what they are doing. While they have devoted a large amount of time and resources to putting strong language on patent and related protections in U.S. trade agreements, including the recently concluded Trans-Pacific Partnership (TPP), Bollyky claims that these deals really don’t have much impact on drug prices in the partner countries. If Bollyky is right, the executives of Pfizer, Merck, and other major drug companies are just wasting energy that could be better devoted to other pursuits.

Unfortunately, Bollyky’s piece seems more designed to push the TPP than to seriously examine the extent to which drug prices in the member countries are likely to be affected by the deal. His main method for establishing his case is to look at past trade agreements that imposed tighter patent and related protections for prescription drugs and show that there was no sharp jump in drug prices immediately following the signing of an agreement. This is not a surprise.

In most cases, the rules in these agreements will only apply to new drugs, and even then to a subset of new drugs, for example patent protection for a drug that is a combination of already approved drugs. They may also allow for the extension of patent terms beyond the date where they would have expired under pre-trade deal rules, but here again the impact will only be felt gradually over time.

Furthermore, the date of a trade deal with the United States may not be the key factor in pushing up drug prices. The United States signed a deal with South Korea in 2012 that required stronger patent and related protections, but most of these conditions were already law as of 2009 due to a trade agreement Korea signed with the European Union. Apparently the executives of European drug companies also waste their time trying to impose these rules in trade deals.

Everyone knows that reasonable people are supposed to hate protectionism, that is of course unless it's for doctors and lawyers, who lack the skills necessary to compete in the world economy (or drug patents). But that shouldn't mean that an ostensibly serious newspaper (I'm feeling generous today) gets to say whatever it wants to trash the policy.

Today we have the spectacle of the Washington Post telling us that Donald Trump's plan to impose 45 percent tariffs on imports from China coupled with his plan to impose 35 percent tariffs on imports from Mexico would cost us 7 million jobs if the countries retaliate and 3.5 million if they don't. This is supposedly the output that Mark Zandi got, the chief economist of Moody's Analytics, when he plugged these tariffs into their model. That seems more than a bit high to me. The logic of the tariffs is that they make it more expensive to import items from these countries, but the extent to which they raise prices here depends both on the extent to which we can substitute domestic production or can find other foreign sources.

The latter is likely to be especially important, since many of the items produced by both countries can be readily found elsewhere. In fact an analysis by the Peterson Institute of tariffs the U.S. imposed on imports of tires from China found that the tires were almost entirely replaced by imports from other countries. For this reason, the impact on consumers from tariffs imposed on these countries is likely to be substantially limited by the availability of imports from other countries and/or our ability to produce these items domestically.

But just to get a crude idea, let's assume that the price of our imports rise by half of the amount of the tariff. This is almost certainly a huge overstatement since for many imports the price rise will be just a small fraction of the size of the tariff, since there are alternative sources and even in the extreme cases the suppliers will almost certainly have to eat some of the tariff in the form of lower profit margins.

Jake Johnston
AlterNet, March 25, 2016

Writer and filmmaker Pablo Villaça has weighed in with a scathing assessment of what appears to be a concerted effort between the Brazilian opposition, the Supreme Court and the national media to remove President Dilma Rousseff from office over her alleged manipulation of government accounts. Rousseff’s administration has been marred by a combination of economic recession, austerity measures and a growing corruption scandal involving state oil company Petrobras and top officials in her center-left Workers Party (PT).

There is no doubt that some officials within the PT have been heavily involved in corruption. Yet there is no lack of irony in the notion that Brazil’s centrist and right-wing opposition might sincerely be lending a helping hand to anti-corruption efforts. As The Intercept has astutely noted, most of the opposition parties working to impeach Rousseff are themselves “drowning in at least an equal amount of criminality” for the explicit purpose of personal gain – which Rousseff is not accused of, as Glenn Greenwald explains:

The irony of this widespread corruption is that President Rousseff herself is really the only significant politician, or one of the only significant politicians, in Brazil not to be implicated in any sort of corruption scheme for the—with the objective of personal enrichment. Everyone around her, virtually, including those trying to bring her government down and accuse her of corruption and impeach her, is implicated very seriously in schemes of corruption for personal enrichment. She’s essentially one of the only people who isn’t implicated that way.

March 2016, Cherrie Bucknor and Dean Baker

No one reads the Washington Post opinion page to learn about the economy. People read it to learn what the Very Serious People have to say about the world. Michael Gerson gave us the latest edition in a column attacking Bernie Sanders and Donald Trump.

Readers learned that this was about the Very Serious People view of the world rather than economic reality in the second paragraph.

"The past several decades have seen both dramatic increases in productivity and the fading of the traditional, American, middle-class dream. The globalization of labor markets (creating competition with skilled workers abroad) and new technology and automation (hollowing out whole categories of labor at home) have placed downward pressure on wages and put a relentless emphasis on acquiring new skills."

Both parts of this assertion are wrong. First, the past several decades have actually been a period of relatively slow increases in productivity growth, as our good friends at the Bureau of Labor Statistics will tell anyone who visits their website. (CEPR offers free tours for Washington Post columnists and editorial writers.) In the years since 1980, when inequality first began to grow, productivity growth has averaged 1.9 percent a year. That is down from 2.5 percent annual growth in the years from 1947 when wages at the middle and bottom grew as fast or faster than those at the top.

Source: Bureau of Labor Statistics.

Gerson doesn't just get the basic story of productivity growth 180 degrees backward, he also gets the story of globalization wrong. Our manufacturing workers saw their pay lowered by globalization because that was the purpose of the trade agreements we negotiated. The point was to make it as easy as possible to relocate factories in Mexico, China, and other developing countries, putting our workers in direct competition with low-paid workers who were often willing to work for less than one-tenth the wages of our workers.

At the same time we left in place or even increased the barriers that protect doctors, dentists, and lawyers from having to compete with their lower paid counterparts in the developing world or even other rich countries. (Apparently our trade negotiators think that doctors and lawyers lack the skills necessary to compete in the world economy.) For example, doctors still have to complete a U.S. residency program to practice in the United States and dentists have go a U.S. dental school. (We recently starting allowing graduates of Canadian dental schools to practice here as well.)

On Sunday, in what had increasingly become inevitable, Fritz Jean, the provisional president’s choice for prime minister, was rejected by Haiti’s chamber of deputies. Needing 60 votes to gain approval of his governmental program, only 38 voted in favor; 36 voted against, one abstained and more than a dozen stayed home. 60 votes would be an absolute majority in the Chamber, but more than 20 seats are empty, awaiting reruns of flawed elections.

Appointed by Haiti’s temporary leader, Jocelerme Privert over three weeks ago, Jean’s rejection has all but eliminated any chance that elections can be held next month. Privert, who came to office on February 14 with a mandate of 120 days, has yet to form a new government or a new electoral council.

Why was Jean’s platform rejected and where do things go from here? It’s as much about political control as it is about elections.

The opposition to Fritz Jean’s approval as prime minister was led by the pro-Martelly bloc in the chamber of deputies. Deputy Gary Bodeau explained to Reuters after the vote that “We rejected the program of Fritz Jean because his nomination by President Privert did not meet the consensus requirements which should characterize the prime minister.”

The political accord signed on February 5 called for a “consensus” prime minister, to be chosen after consultations with both chambers of parliament as well as civil society. After 10 days of meetings, Privert chose Fritz Jean, who was promptly sworn in while awaiting parliament’s approval of his government program.

Despite having broad support among the main private sector actors, the pro-Martelly bloc (including former PM Evans Paul) almost immediately signaled its rejection of Jean.

There are a few theories as to why.

Privert, who is a member of former-president Rene Preval’s political party and was a minister under Aristide in the early 2000s, chose a prime minister from a similar political current; Jean was head of the Central Bank under Aristide.

Though much of the criticism, such as branding this a Fanmi Lavalas “coup,” was clearly classic red-baiting, the pro-Martelly lawmakers had reason to worry.

After benefitting from the deep pockets of running a campaign while controlling the presidency, the Martelly bloc saw itself being excluded from the government. The provisional government would exert control over the continuation of the electoral process; whether or not there would be an electoral verification commission and the composition of the new electoral council.

Pressure was continuing to build from civil society and many political parties for an independent verification commission. Privert has signaled his opening to such an endeavor. The only political movement that has opposed such a commission is the one supporting Jovenel Moise, Martelly’s handpicked successor. Official results showed Moise in first place, but he has been dogged by allegations of fraud ever since.

If the pro-Martelly bloc failed to maintain some control over the government, the likelihood of a verification commission taking place, and either removing Moise from the race, or calling for entirely new first-round elections, would be significantly greater.

But it’s not all about the elections.

When Privert was sworn in as provisional president, very few political actors in Haiti believed he would be able to accomplish all that was needed in just 120 days. Many saw, from the beginning, that there would need to be either a new provisional leader after 120 days, or a new political agreement that would extend the mandate.

Both sides have accused the other of wanting to stall the process so as to force this next move. The pro-Martelly bloc accuses Privert of purposely choosing a prime minister that had little chance of success, in order to avoid any possibility of having elections in April and to extend his mandate. On the other hand, those supportive of Privert accuse the pro-Martelly bloc of blocking the prime minister in order to run out Privert’s 120 days, with the hope of taking control of the provisional presidency for themselves.

While the prime minister post remains unfilled, so too does the presidency of the Senate. When Privert resigned his senate seat to become provisional president, it left an opening at the top of the institution. The fight for that seat provides important context. Youri Latortue, who tried and failed to become Senate president in January (Privert got the votes), still aspires to the leadership position. If Latortue presided over the Senate, and with his political ally Chancy Cholzer leading the lower house, the pro-Martelly bloc would be in a stronger position to determine the next provisional president. The accord states that if the mandate expires, “Where appropriate, the National Assembly will take the necessary decisions.”

If Latortue had been given the Senate presidency, it’s likely that Jean would have been approved as prime minister. But, the provisional government refused, recognizing the threat that Latortue could pose in that position. The usual horse-trading didn’t work, though accusations that Jean’s backers tried to buy support in parliament have emerged. If they did, it wasn’t a great investment.

Controlling the government also includes control over demands for an audit of the finances of the Martelly administration. Privert and Jean at times indicted they were favorable to such an audit, and at others said it was best left to an elected government. The economy is stagnant and public finances have deteriorated to a dangerous level. Whether legitimate or not, calls for an audit have only heightened the political tension; some of those supporting it are clearly interested in political revenge, while some opposed clearly are trying to protect themselves from greater scrutiny.

Dean Baker
Truthout, March 21, 2016

The following post is cross-posted from the Haiti Elections blog. 

Senate candidate and former paramilitary leader Guy Philippe has threatened a “civil war” if the Privert government fails to hold elections on April 24. Efforts to restart the electoral process have been stalled by a stand-off between interim President Jocelerme Privert and pro-Martelly legislators, who insist on quick elections without a verification of the vote. Philippe’s threat to resolve Haiti’s electoral crisis through violence would seem very real, given the recent parade of militiamen sympathetic to PHTK on February 5. Despite his bellicose comments and his name appearing on the U.S. government’s Drug Enforcement Administration (DEA) wanted list for drug trafficking, the international powers do not appear concerned by Philippe’s political involvement or his repeated threats of violence.

In a February 29 radio message commemorating the 12th anniversary of the 2004 coup d’État, Philippe accused President Privert of wanting to hold on to power beyond his 120-day term limit and warned of “a macabre plan, a Machiavellian plan to bring the country directly into a civil war.” Philippe called for “vigilance” on the part of former soldiers and others who had fought against the “dictatorship” of Jean-Bertrand Aristide in 2004, and declared that “there are people who are prepared to make the ultimate sacrifice if necessary.” Philippe concluded by saying:

Once more, we say no coup, no Machiavellian plan will pass. No one in power will be able to be my enemy. There’s an election that needs to happen, and it will happen. And if it doesn’t happen, neither Parliamentarians, nor the provisional president, nor anyone with any repressive force they know and have in their service, no one will be able to hold back this people, no one will be able to hold back these honest citizens, no one will be able to hold me, Guy Philippe, back. Thank you.

In a subsequent television interview at his home in Pestel, Philippe reiterated this message, stating that a civil war would break out if the “Lavalassian tendency” tried to stay in power. “I believe Privert has no choice; he must organize elections or he must leave power May 14.” Philippe also denounced Prime Minister Fritz Jean’s appointment as contrary to constitutional norms.

Philippe’s political position mirrors that of Youri Latortue and other PHTK-aligned figures, who have alleged that Jean, a former governor of Haiti’s central bank, is too close to Lavalas and is thus not qualified to handle the resumption of elections. At issue is whether or not the interim government will conduct a verification of vote on August 9 and October 25. Pro-Martelly candidates, including presidential candidate Jovenel Moïse, are widely suspected of having benefitted from fraudulent votes in previous rounds. 

Philippe ran for Senator of the Grand’Anse, finishing first with 22.5% of the vote on October 25. Violence, confrontations and allegations of ballot-stuffing were rife in the Grand’Anse during the first-round legislative elections on August 9. These disruptions meant that for the constituencies of Pestel, Anse-d’Hainault/Les Irois, Jérémie, Corail and Roseaux (5 out of 9 in the department) only 70.7% to 75.9% of tally sheets were received by the CEP’s Tabulation Center. The CEP ultimately decided to withhold publication of first-round results until after October 25, when Senate voting was re-run in Jérémie and Pestel (Philippe’s hometown). Philippe’s party, Consortium, ran candidates in the region and has two deputies in the new parliament. Louis-Jodel Chamblain, a notorious leader of the death squad FRAPH during the 1991-1994 coup, ran under the Consortium banner as a candidate in Les Anglais-Chardonnières, Sud. Chamblain served as Philippe’s lieutenant during the 2004 paramilitary insurgency and was acquitted of the 1993 murder of pro-democracy activist Antoine Izmery in a widely-denounced retrial after the coup.

Haitian human rights groups, election observers and opposition parties continue to call for a verification commission as an indispensible step before resuming the electoral process, even if this means extending the term of the transition government. Moïse and his parliamentary allies, on the other hand, insist that the elections be held on April 24, as called for in the political accord, and on the basis of the current results. They strongly oppose any verification commission. Philippe’s statements clearly place him in the latter camp. The political party he leads, Consortium, is reputed have had close relations with former President Michel Martelly. During the presidential campaign, Jovenel Moïse was photographed with Guy Philippe when he toured the Grand’Anse. 

Philippe’s threats of a civil war may be a bluff to frighten the Privert government. But the danger cannot be lightly dismissed, given the apparent influence Philippe has over recently-mobilized paramilitaries seen in Port-au-Prince and other towns on February 5. After the cancellation of second-round elections by the CEP on January 22, Guy Philippe had denounced opposition protesters as “anarchists” and declared that he and his men were “ready for war.” Days later, nearly a hundred armed men in green military fatigues claiming to be members of Haiti’s disbanded military paraded menacingly through the streets of several Haitian cities, as negotiations over the creation of an interim government were unfolding. Clashes between the paramilitaries and anti-Martelly protesters left one paramilitary member dead. 

The international community has been surprisingly silent on Philippe’s calls to arms. U.S. representatives in Haiti have made no comments about the threat of armed rebellion by pro-Martelly paramilitary forces or the inflammatory calls to insurrection made by Philippe. When opposition protesters committed acts of vandalism in late January, however, State Department envoy Kenneth Merten reacted by strongly denouncing these incidents as “electoral intimidation” that was “not acceptable.” The UN, for its part, merely "noted with concern the organized presence of several dozen people in green uniforms, some armed."

The complacency of the U.S. is all the more intriguing, given that Philippe is wanted by U.S. law enforcement for involvement in drug trafficking and money laundering. Philippe has been on a DEA fugitive list for years and has escaped numerous attempts to arrest him. A DEA spokesperson confirmed he remained a fugitive, adding that he has proven to be “very elusive,” and that the U.S. Marshalls had been given apprehension authority. However, a spokesperson for the Marshalls replied that this was not the case, stating given the “solid information” possessed by the DEA “about the subject’s whereabouts,” there was”no reason” to transfer apprehension authority. The DEA later acknowledged its sole responsibility for apprehending Philippe. Despite his rising public profile, however, Philippe has yet to be arrested.

Interestingly, the DEA has had the cooperation of the Martelly administration in other high-profile cases. In an interview with the New Yorker’s John Lee Anderson, a DEA informant said that no one was particularly concerned about allegations that Martelly’s associates were involved in drug trafficking or corruption, because "whatever else Martelly had done, he complied with the DEA’s local operations."

Human rights groups worried prior to the start of the 2015 elections that Haiti’s next parliament could become a redoubt of drug dealers, criminals and human rights abusers. The political involvement of Guy Philippe, who is on the U.S. government’s Drug Enforcement Administration (DEA) wanted list for drug trafficking, and his political party Consortium underlines how real this concern is.