Dean Baker
Truthout, May 19, 2015

Dean Baker
Mother Jones, May 19, 2015

In March of 2014, nothing seemed to be going right for the Affordable Care Act (ACA). Members of the press were maligning the problems with the Healthcare.gov website, which had actually been fixed months beforehand. Enrollment on the ACA’s health insurance exchanges was far below projections. And perhaps worst yet, the ACA’s critics were claiming that the law would incentivize firms to cut workers’ hours and create a surge in part-time employment.

Discussion about the problems with the website subsided over time. And the claims about low enrollment figures were shot down in April, when it came to light that enrollment had surged during the previous month. It’s time that we shelved the critique about part-time work as well.

Suppose Ford closes an assembly plant in Ohio and instead has its cars assembled in Mexico and shipped back to the United States. The workers in the Ohio factory have lost their jobs because of imports. This is a very simple point. For some reason supporters of trade deals like the Trans-Pacific Partnership (TPP) have trouble acknowledging this basic fact.

The difficulty that TPP proponents have acknowledging the jobs lost due to imports is bizarre, because the job loss does not mean that the TPP would be bad policy. It is simply a factor that must be assessed in considering the overall merits of the deal. It is not possible to have a serious assessment of the impact of TPP or any trade deal without considering the workers who would likely lose their jobs due to increased imports. It is also important to note that the impact stems well beyond the workers who lose their jobs to the much larger number who see a reduction in pay as a result of reduced demand for their labor.

With a recent report on the topic, the Congressional Research Service (CRS) seems to have joined the ranks of the denialists. The report goes to great lengths to argue that it is not possible to produce a figure for jobs lost due to imports that is comparable to the International Trade Administration (ITA) estimate that $1 billion of exports supports an average of 5,590 jobs. Rather than providing information to members of Congress about the likely impact of trade on jobs, this report seems to be a deliberate effort at obscuring the issue so as to leave members confused about the extent to which imports will displace jobs.

The Washington Post recently reported on a new book about Elon Musk, a Silicon Valley billionaire, highlighting some of his noteworthy quotations. Although most of these are used to deify Musk, others paint a picture of someone who is demanding of his wor

As a general rule, when someone tries to tell you an economic issue is more complicated than it seems, they are trying to mislead you. This doesn't mean there are not occasionally some complex issues in economics, but these are much rarer than the experts want you to believe. After all, who would pay economists salaries well into the six figures if their work was as simple as washing dishes?

This should be kept in mind by anyone reading Robert Samuelson's column telling readers not to worry about an over-valued dollar leading to a large trade deficit and costing us millions of jobs. This piece includes the memorable lines:

"To be clear: China’s currency manipulation has been real and harmful to U.S.-based firms and workers. By a variety of estimates, Chinese exports have probably cost 2 million or more American jobs since 2000. I have been a critic of the currency manipulation in the past and still am. In an ideal world, we would have moved energetically to eliminate it. But (surprise!) we do not live in an ideal world and, for many reasons, it’s less important now than it once was.

"For starters, recall that trade-induced job losses are not (and never have been) the United States’ main employment problem. Domestic developments dominate the U.S. labor market, for good and ill. The U.S. economy now supports about 150 million jobs; 2 million is a small share of that."

Hey, 2 million jobs, no big deal! Wait, weren't we supposed to think the 20,000 jobs at stake with the Keystone Pipeline are a big deal? So now losing a hundred times (2 million is 100 times 20,000) as many jobs because of an over-valued currency is not a big deal? And of course Samuelson's number is just an estimate of the jobs lost to China. Other countries also prop up the dollar against their currency, likely raising the total to 3-4 million.

Tyler Cowen warns readers in his Upshot piece that we may be entering a new era in which growth is weak and the bulk of the workforce, including those with college degrees, see stagnant or declining wages. The warning is well taken, but what's missing is a serious discussion of the policies that are driving this outcome.

Cowen begins his story by pointing out that universities are replacing tenured faculty with low-paid adjuncts. He points out that major manufacturers are doing something similar by paying new hires much less than their incumbent workforce. He could also point to the large number of people who end up working in low paying sectors like retail and restaurants, including many with college degrees.

This is clearly bad news, but all evidence of a weak labor market. We could make the labor market stronger, for example by having the government spend more money on infrastructure, education, and other good things. We could also make the labor market stronger by getting down the value of the dollar to bring our trade deficit closer to balance. If we had balanced trade, it would generate somewhere in the neighborhood of 5-6 million jobs. That would quickly absorb the slack in the labor market and give workers the bargaining power to demand higher wages and turn down low paying jobs.

We don't see this happening because our political leaders don't want to spend more money, preferring higher unemployment. They also have little interest in addressing the trade deficit, hence the decision by the Obama administration not to include currency rules in the Trans-Pacific Partnership (TPP). In fact, the folks in policy positions are prepared to act to ensure that the labor market does not tighten; that would be the purpose of an interest rate hike by the Fed. Higher interest rates slow growth and reduce the pace of job creation.

I'm afraid that I have to take some issue with Paul Krugman's claim that the economic equivalent of accepting nonsense about WMDs to support the war in Iraq was taking seriously the deficit hawks concerns about high interest rates and soaring inflation. While Krugman is right in calling many of these people frauds and cranks, this distracts attention from the real Iraq moment in economics: ignoring the housing bubble.

The accepted view in elite circles is that the crash in 2007-2008 was some sort of natural disaster like Hurricane Katrina. It was impossible to see it coming and only the most astute observers could detect evidence of problems in little things like an explosion in subprime loans and some questionable bank practices in securitization.

This view is very comforting to the elites since almost all of them chose to ignore the evidence that there was a huge bubble and that it's collapse would be really bad news. But just as it should have been easy to see that the dog and pony show the Bush administration put on about weapons of mass destruction was nonsense, it should have been easy to recognize the housing bubble and to know that its collapse would devastate the economy.

In terms of evidence for the bubble, we had a hundred year long history in which house prices had just tracked the overall rate of inflation. Why did they suddenly hugely outpace the rate of inflation? By 2002, when I first wrote about the bubble, the gap was 30 percentage points. In 2006, at the peak of the bubble, the gap was more than 70 percentage points. If this reflected the fundamentals of the housing market, why wasn't anything going on with rents, which were just rising in step with inflation? And why did we have a record vacancy rate as early as 2002?

Eileen Appelbaum and Gayle GoldinThe Boston Globe, May 14, 2015

That's the inevitable question people would ask after reading his column headlined, "you can't stop the trade machine." The piece conflates trade, which obviously is not going to be stopped, with the Trans-Pacific Partnership (TPP). There is of course no direct connection, but if you're trying to promote the TPP, why not?

Whether or not the TPP passes, trade between the United States and the countries in the region will continue to grow. It's not even clear that it will grow faster with the trade deal. While the TPP will lower tariffs, most tariffs with most of the countries in the region are already low. (Six of the eleven non-U.S. countries in the TPP already have trade agreements with the U.S.)

On the other hand a major thrust of the deal is to strengthen and lengthen patent and copyright protection. This will raise the price of many items, most importantly prescription drugs, thereby reducing trade. The price increases from these forms of protectionism are equivalent to large tariffs. In the case of drugs, patent protection can raise the price by close to 100 times the free market price.

For example, the Hepatitis-C drug Sovaldi sells for $84,000 for a 3-month course of treatment in the United States. A high quality generic version is available in India for less than $1,000. This has the same effect on the market as imposing a tariff of 10,000 percent. Since the economic distortions from a tariff are proportionate to the square of the size of the patent, the distortions from patent and copyright protection on a limited number of items can easily exceed the gains from eliminating small tariffs on a large number of items. In other words, Zakaria has little basis for even asserting that the TPP will increase trade and growth.

Furthermore, the deal imposes a business friendly regulatory structure that Zakaria just assumes we should want. As Canada's finance minister recently demonstrated when he argued that the Volcker Rule violates NAFTA, these trade deals can impede our ability to regulate the financial industry. The TPP may in fact limit the ability for the federal, state, and local governments to impose regulation in a wide range of areas, including the environment, consumer safety, and labor rules. Since the terms of the agreement will be enforced in the United States by an Investor State Dispute Settlement system, not the U.S. judiciary, it is entirely possible that a wide range of regulations in these areas could be considered violations of the trade agreement.