President Obama's allies in the media are working hard laying the groundwork for Congressional approval of the Trans-Pacific Partnership (TPP). Robert Samuelson did his part with a column warning that it would be "dangerous" if the next president repudiated the TPP. I suppose the piece is worth some brownie points with the administration, but it doesn't make much sense.

He tells readers:

"The United States has had continuous annual trade deficits since 1976, well before the North American Free Trade Agreement (1994) and China’s joining the World Trade Organization (2001). The explanation is that the dollar is widely used to settle trade transactions, to make cross-border investments and — for governments — to hold as international reserves.

"The resulting dollar demand on foreign exchange markets raises the dollar’s value in relation to other currencies. This makes U.S. exports more expensive and imports into the United States cheaper."

There is a big difference between the relatively modest trade deficit (@ 1 percent of GDP) the United States ran in most of the years from 1976 to 1997 and the much larger trade deficits the United States ran in the years after the East Asian financial crisis in 1997. This was when developing countries began accumulating massive amounts of reserves. As a result the deficit expanded to a peak of almost 6 percent of GDP and is now somewhat over $500 billion (@ 3 percent of GDP).

Most newspapers try to avoid the self-serving studies that industry groups put out to try to gain public support for their favored policies. But apparently the New York Times does not feel bound by such standards. It ran a major news story on a study by Citigroup that was designed to scare people about the state of public pensions and encourage them to trust more of their retirement savings to the financial industry.

Both the article and the study itself seem intended to scare more than inform. For example, the piece tells readers;

"Twenty countries of the Organization for Economic Cooperation and Development have promised their retirees a total $78 trillion, much of it unfunded, according to the Citigroup report.

"That is close to twice the $44 trillion total national debt of those 20 countries, and the pension obligations are 'not on government balance sheets,' Citigroup said."

Okay folks, how much is $78 trillion over the rest of the century for the 20 OECD countries mentioned? Is it bigger than a breadbox?

The NYT has committed itself to putting numbers in context, where is the context here? Virtually none of the NYT's readers has any clue how large a burden $78 trillion is for the OECD countries over the rest of the century. The article did not inform readers with this comment, it tried to scare them. That is not journalism.

For those who are keeping score, GDP in these countries for the next 80 years will be around $2,000 trillion (very rough approximation, not a careful calculation) so we're talking about a big expense, roughly 4 percent of GDP, but hardly one that should be bankrupting.

Dean Baker
CQ Researcher, March 18, 2015

The proponents of the protectionist Trans-Pacific Partnership (TPP) trade agreement are getting ever more shrill as it becomes clearer that the public is not buying what they have to sell. David Ignatius does the rant for the deal in his column in the Post today. The title of his column warns against "Trump and Sanders' dangerous revolt against free trade."

The first point that everyone should remember is "free trade" is just a term that the proponents of these deals throw around to make themselves feel virtuous and so that they can call their political opponents names. These deals are actually about selective protection, where protections that benefit some groups are left in place, while other groups (i.e. ordinary workers) are forced to compete with much lower paid workers in the developing world.

As far as the protectionism in the TPP, the deal is quite explicitly about increasing the length and strength of patent and copyright protection. Yes, that is "protection" as in "protectionism." Patent and copyright protection do serve a purpose in providing an incentive for innovation and creative work, but all forms of protection serve a purpose. The question that serious people ask is whether there is a better way to serve the purpose.

There are lots of reasons for thinking that our rules on patent and copyright protection are already too strong, as they have led to massive abuses. This is especially true in the case of prescription drugs. To take one prominent example, generic versions of the Hepatitis C drug Sovaldi can be profitably manufactured for $300 to $500 per treatment. The list price for the drug in the United States is $84,000.

And raising the price of a drug by more than 10,000 percent as a result of patent monopoly causes all the economic waste and corruption that imposing a 10,000 percent would. The market doesn't care that we call the intervention a "patent" rather than a "tariff."

The TPP will also do nothing to reduce the protectionist barriers that allow our doctors and dentists to earn twice as much as their counterparts in other wealthy countries. Unlike autoworkers and textile workers, doctors and dentists have the political power to protect themselves from being forced to compete with their lower paid counterparts in the developing world.

Earlier this morning, the Bureau of Labor Statistics (BLS) released the January 2016 results from the Job Openings and Labor Turnover Survey (JOLTS). In its summary of the newest JOLTS data, the BLS notes: “Job openings remain at historically high levels, rising to 5.5 million (+260,000) in January.” In fact, the 5.5 million openings is the third-highest level since the inception of JOLTS in December 2000.

A greater number of job openings means that more employers are looking to hire. And if employers are competing to hire workers, they will have to bid up wages to attract workers to their firms. So other things equal, a higher number of vacancies should benefit workers by pushing up wages.

However, what remains salient from a wage-setting perspective is not the number of job openings per se but rather the ratio of job openings to unemployed workers. If more job openings force employers to compete for workers and bid wages up, unemployment has the opposite effect: it forces prospective workers to compete for jobs and thus pushes wages down. Think of it this way: unemployed workers are desperate for jobs and will work at even very low wages, because any wage is an improvement over unemployment. When unemployment is high, employers need not bid up wages to attract workers to their firms, since the unemployed are desperate to work anyways.

Dean Baker
Talk Poverty, March 17, 2016

Thomas Friedman once again stumbled into trade policy, telling us that the Trans-Pacific Partnership (TPP) is exactly the sort of trade deal that tough negotiator Donald Trump would have gotten. Unfortunately, he gets some of the big things badly wrong.

First, he would have us believe that the TPP is a really good deal for the U.S. because the tariffs that we eliminate on imports are mostly small, whereas the tariffs other countries will eliminate on our exports are in some cases very large. He cites Vietnam’s “peak tariffs of over 50 percent on cars and machines” and refers to over 18,000 foreign tariffs that will be eliminated as a result of the TPP.

While it might be good if Vietnam eliminated its tariffs on U.S. cars and machines, it is highly unlikely that the U.S. will ever export any significant number of cars and machines to Vietnam. It is certainly possible that U.S. corporations General Motors and GE will export cars and machines (???) to Vietnam, but these products will almost certainly be produced in other Asian countries. That might be good for the bottom lines of General Motors and GE, but not especially good news for workers in the United States.

The 18,000 tariffs are a joke line that the Obama administration came up with for ill-informed members of Congress and pundits. As Public Citizen points out, the U.S. exports in less than half of these 18,000 categories and in most of the others the volume of exports is trivial. Among the 18,000 tariffs on the Obama administration’s list are Malaysia’s shark fin tariffs, Vietnam’s whale meat tariffs, and Japan’s ivory tariffs. (Would Donald Trump really spend time negotiating the removal of these tariffs?)

But the really good part is when Friedman told readers about how the TPP gets tough on enforcing intellectual property rules for U.S. corporations:

“He certainly would have insisted on strong intellectual property protections for America’s software industry, one of our greatest export assets, and taken an approach to pharmaceuticals that splits the difference between what the big drug companies want in the way of intellectual property protection time for their products and what the generic manufacturers want.”

Getting more money for Microsoft and Merck is of course good news for shareholders of Microsoft and Merck, but it’s bad news for the rest of us. As the Peterson Institute’s new study of the impact of the TPP pointed out:

“The model assumes that the TPP will affect neither total employment nor the national savings (or equivalently trade balances) of countries.”

If the trade balance of the United States does not change, and we get more money for Microsoft’s software and Merck’s drugs, then we must get less money for everything else. It is hard to see why most people would be celebrating a rise in the U.S. trade deficit in manufactured goods and other items that is offset by higher royalty and patent fees for our software and drug companies.

The Federal Reserve Board’s Open Market Committee (FOMC) voted not to raise interest rates at today’s meeting, but their statement indicates that they are still very much looking toward further rate hikes this year. It is difficult to see reason for this urgency.

The justification for raising rates is to prevent inflation from getting out of control, but inflation has been running well below the Fed’s 2.0 percent target for years. Furthermore, since the 2.0 percent target is an average inflation rate, the Fed should be prepared to tolerate several years in which the inflation rate is somewhat above 2.0 percent. In fact, since wages badly lagged productivity growth during the recession, the Fed should be prepared to allow for a period in which real wage growth slightly outpaces productivity growth in order to restore the pre-recession split between labor and capital. If preemptive steps are taken by the Fed in the near future that prevent workers from regaining their share of national income, that implies the use of the Fed’s power to make permanent the shift from wages to profits that took place in the recession.    

Dan BeetonVerso, March 16, 2016

Recent CPI data could give the impression that overall inflation is being held down by falling energy prices. While energy prices have fallen by 12.5 percent over the last year, the core inflation rate, which excludes food and energy prices, has risen by 2.3 percent. (The Federal Reserve Board actually targets the core Personal Consumption Expenditure Deflator, which has increased by 1.7 percent over the last year.)

However, it turns out that much of the inflation in the core index is driven by the shelter component as rents have been rising at more than a 3.0 percent annual rate. Excluding the shelter component, the core index is rising at just a 1.5 percent rate. While there has been some increase in this non-shelter core index in recent months, that was also true in 2001, when the economy and labor market were still quite weak by any measure.

Mark WeisbrotTriple Crisis, March 16, 2016

Alexander MainMémoire des luttes, 15 mars, 2016