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Article Artículo

Martin Feldstein Versus Accounting Identities

It is always painful to see an economist do battle with an accounting identity. Martin Feldstein takes on the task in a piece that explains that the dollar could fall sharply in the future, if investors come to expect its decline.

Most of what Feldstein says in this piece is exactly right. Investors do not need to hold dollars as a safe haven and in fact it is not a safe haven if it is falling in value against other currencies. Also, the vast majority of foreign dollar holdings are not necessary as foreign exchange reserves to finance trade. This means that we could in fact see large declines in the value of the dollar in the future.

The conflict with national income accounting comes in Feldstein's takeaway:

"And, despite a more competitive exchange rate, the US continues to run a large current-account deficit. If progress is not made in reducing the projected fiscal imbalances and limiting the growth of bank reserves, reduced demand for dollar assets could cause the dollar to fall more rapidly and the interest rate on dollar securities to rise."

Okay, if we reduce our fiscal imbalances and there is no decline in the dollar (remember, that is the bad news in this story) then what will happen to employment? Feldstein can't seriously believe that investment in equipment and software will increase substantially from what is already a reasonably high level measured as a share of GDP. He also can't expect that consumption will rise substantially given that the savings rate is already at a very low level compared to the post World War II average. And with enormous overbuilding in both the residential and non-residential sector, he can't think that construction will fill the gap in demand that will result from smaller deficits.

This would mean that the policy he is advocating is that we should deliberately slow growth and raise unemployment because if we don't the dollar will fall in the future. This would seem to contradict both common sense and what Feldstein himself has advocated in the past: allowing the dollar to fall to boost net exports.

Dean Baker / March 02, 2013

Article Artículo

Economic Growth

The Bipartisan Policy Center Endorses a Bi-Partisan Failure

The Bipartisan Policy Center's Housing Commission released its report, Housing America's Future, on housing policy this week. Its recommendations include winding down Fannie Mae and Freddie Mac, and limiting federal government involvement in mortgages to a "Public Guarantor." In a post originally published by the National Housing Institute. Dean Baker responded.

There is a good argument for having a public company like the old Fannie Mae sustain a secondary market in mortgages. Fannie Mae created this market in the 1930s. It was able to substantially reduce regional differences in mortgage costs and availability, with minimal operating expenses. This publicly-run company was a success by any reasonable measure.

We also know that the private market can provide housing finance without any direct support from the government. This is demonstrated by jumbo mortgages, which typically carried a premium of 25-50 basis points above conformable mortgages.

Given these successful routes for providing housing finance, the Bipartisan Policy Center took the natural path for people in Washington: a proven failure.

Instead of opting for either a public company or companies to sustain the secondary market or leaving finance to the private sector, the Bipartisan Policy Center opted for the sort of public-private mix that we saw with Fannie Mae and Freddie Mac in the years leading up to the housing crash. They want the government to guarantee investors’ stakes in mortgage backed securities.

Dean Baker / March 01, 2013

Article Artículo

Thoughts on Immigration Policy

Noah Smith of Noahpinion takes me to task (after some very nice comments) for being anti-immigration. I’m not sure I fit that description, but let me put together a few things that I have said in different places. 

First of all, there is the immediate issue of what we do with the undocumented workers who are already here. I don’t see much ambiguity on this one; they should be allowed to normalize their status and become citizens. These people are here as a matter of government policy even if they are working in violation of the law.

The government may often be less competent than we would like, but if the policy was to prevent foreigners without proper documents from working in the United States, then we would not have many millions of foreigners working without proper documents. We shouldn’t blame people who came here (like many of our parents or grandparents) to try to secure a better life for themselves and their children. If we want to punish someone for this violation of the law, we can always throw their employers behind bars.

The question is really how we structure immigration policy going forward. Noah argues the merits for having an open door for high-skilled immigrants. I am 100 percent for this policy, although I may draw the line in a somewhat different place than Noah. I absolutely want to see more foreign doctors, dentists, lawyers and other professionals in the United States.

Dean Baker / February 28, 2013

Article Artículo

Inequality

Workers

The Family and Medical Leave Act at 20: A Record of Success, But More Can Be Done

The federal Family and Medical Leave Act (FMLA) celebrated its 20th anniversary this month. It was a huge step forward for the U.S., which lags behind nearly all other high-income countries in enabling people to take the time they need, without worrying that they may be fired from their jobs, to care for themselves and their families when faced with serious illness or welcoming a new child.

The FMLA has been used 100 million times in the last 20 years, benefiting families and without unduly burdening employers. Yet there remain millions of Americans who are not covered by the FMLA – they can still be fired if they get sick, have a baby, or need to care for a seriously ill family member. And millions more are eligible but do not take the time off because they do not know they are eligible or can’t afford to go without pay.

Department of Labor surveys of experiences with the FMLA, released earlier this month, find ways to improve the effectiveness and increase the coverage of family and medical leave for American families. CEPR senior economist Eileen Appelbaum recently wrote a series of blog posts to review these findings of the FMLA surveys and draw lessons about what to do next.

CEPR / February 28, 2013

Article Artículo

Cholera Eradication Plan Announced, But Funding Still in Question

865 days after Haiti’s cholera epidemic first began, with over 8,000 dead and some 650,000 sickened, the government of Haiti, with international support, officially launched a ten-year cholera eradication plan today after months of delays. The plan calls for an investment of $2.2 billion in clean water and sanitation infrastructure, with some $485.9 million needed for the next two years. Currently 31 percent of the population does not have access to potable water, while 83 percent lack access to adequate sanitation. By 2022, the plan aims to deliver potable water and improved sanitation services to 85 and 90 percent of the population, respectively.

The plan notes that in the short term, “actions will focus on preventing the transmission of cholera from one person to another through the use of drinking water disinfected with chlorine, and the promotion of hand washing, good sanitary practices, and food hygiene.” Resources will also go to capacity building and training for the relevant government agencies, in particular the health ministry (MSPP) and the water agency (DINEPA). Over the long-term, some $650 million will go to DINEPA to build water supply systems in the 21 largest cities in the country, though most of this would start after the next two years. A breakdown of funding needs by sector, program and time-frame can be seen below. Overall, about 70 percent of the needed funds are to go to water and sanitation provision, though just over 10 percent of that is planned to be spent in the first two years.

The objectives, in terms of cholera specifically, are to reduce the incidence rate to below 0.5 percent by 2014, below 0.1 percent in 2017 and below 0.01 percent by 2022. This compares to an incidence rate of over 1.1 percent in 2012, which translates to about 110,000 cases for that year.

The plan also envisions a strengthening of the public health sector and of the coordination between NGOs and the government. To this end, the government plans to “integrate their support into the national health system.” Through investments in training, capacity building and by channeling funds through the domestic institutions in charge of each sector, the plan aims to create a stronger public sector overall. This could be especially significant given that aid for the cholera response (and for the overall relief and reconstruction effort) has largely bypassed the Haitian government. According to data from the U.N. Special Envoy, only 2.5 percent of humanitarian spending for cholera went through the Haitian government. As noted in the plan, the “lack of investment coming directly from the country’s fiscal budget represents a threat to the stability of the” water and sanitation sector.

There are to be three evaluations of implementation done in 2014, 2017 and 2022 and an audit will be conducted at the half-way point and at the conclusion of the plan. Additionally, a technical committee made up of high-level representatives from relevant government agencies will meet quarterly to assess progress and propose remedies.

Plan Remains Woefully Underfunded

Responding to the plans’ launch today, implementing partner PAHO’s Director Carissa F. Etienne noted that, “For the plan to be implemented, Haiti’s friends in the international community must align their efforts and harmonize around this plan and provide the necessary financial resources.” Yet thus far, meaningful support has been hard to find.

Jake Johnston / February 27, 2013

Article Artículo

Workers

The Family and Medical Leave Act at 20, Part 4
The first three entries in this series examined the need for better outreach, education and enforcement to ensure that all workers eligible for a job-protected leave under the Family and Medical Leave Act know about and have access to such leaves. The sec

Eileen Appelbaum / February 27, 2013

Article Artículo

Honduras

Latin America and the Caribbean

World

Media Reports on “Charter Cities” Ignore the Larger Context

On Friday, February 22, Canadian Broadcasting Company (CBC) Radio’s The Current aired a nearly half-hour story about the Honduras government’s plans to create private, so-called “charter cities.” The show’s featured guest was Honduras president Pepe Lobo’s chief of staff, Octavio Sánchez. For some background, just days after the 2009 coup, Sánchez penned an opinion piece for the Christian Science Monitor in which he argued that democratically elected president Manuel Zelaya’s exile at gunpoint was constitutional. More recently, Sánchez has worked feverishly to make the same case for charter cities.

Sánchez’s pitch was briefly contested with a sound bite from Keane Bhatt, creator of the blog Manufacturing Contempt. Bhatt called the plan “social engineering at the behest of an international group of investors,” a point on which he elaborated in an article in the current print edition of the NACLA Report on the Americas. Also, later in the show Rights Action’s co-director Grahame Russell debated the merits of the proposed private cities with Carlo Dade, a professor at the University of Ottawa who endorses the concept.

As has been examined elsewhere, the charter cities concept is attributed to NYU economics professor Paul Romer, who envisions it as a path toward a rules-based, law-abiding society. In practice, though, the idea would take advantage of Honduras’ institutional breakdown to invite private corporations to build new cities on already-inhabited land, and to establish lax legal systems and tax codes to further attract foreign capital for low-cost production. Critics, such as economics professor and former Executive Director of the Institute for Fraud Prevention William K. Black, say the charter cities would lead to greater inequality. “Oligarchs . . . see this as yet another way to increase their wealth at the expense of other folks,” Black explained on Al Jazeera’s Inside Story Americas earlier this month.

Last September, Romer unexpectedly removed himself from the project after the Honduras government signed its first agreement with a group of private investors, a process which Romer claims should have first been approved by the transparency commission of which he was an appointed member (though the body was never formalized due to challenges in the Supreme Court). The NYU professor considered this an unforgivable affront and divorced himself from his nearly realized utopia.

CEPR and Arthur Phillips / February 27, 2013