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Donald Trump’s capricious tariffs open the door to corruption

June 12, 2019 5 comments

from Dean Baker

Donald Trump has repeatedly proclaimed his love for tariffs, even dubbing himself “Tariff Man.” While Trump clearly does not understand how tariffs work, some of the discussion in the media has been off target as well. It’s worth trying to get the basic story straight.

First, it has been widely pointed out that Trump is wrong in thinking that China or other targeted countries are paying tariffs to the U.S. Treasury. To make it simple, a tariff is a tax on imports.

It can be thought of as being like a tax on cigarettes or alcohol. The buyer is the one who most immediately pays the tax on Chinese or other targeted imports. However, the tax will generally not be borne entirely by the consumer.

The seller  in this case, producers in the countries subject to the tax  will typically lower their price to maintain their market share. So, some of the burden of the tariff will be borne by China or other targeted countries. (An important exception is a financial transactions tax, where the financial industry will bear almost the entire burden of the tax.)

It is also important to point out that part of this burden is likely to come through fluctuations in currency prices, an issue that has been almost completely ignored in media reports on tariffs. The classic economics story is that if the U.S. puts a tariff on Chinese or other imports, the value of the dollar will rise relative to the Chinese yuan and other currencies.  Read more…

New York City moves forward with paid vacation measure

June 9, 2019 26 comments

from Dean Baker

Workers in the United States
now put in more time than workers in any other wealthy country, including Japan.

This week New York’s city council will begin to consider a measure put forward by Mayor Bill de Blasio that would guarantee workers in the city at least 10 days of paid time off per year. This proposal is an important step toward bringing the United States inline with the other rich countries in guaranteeing its workers some amount of paid vacation.

As a new report from Adewale Maye at the Center for Economic Research shows, the United States is very much an outlier from its peer countries in not guaranteeing its workers any paid vacation days or holidays. Countries in the European Union all guarantee workers at least four weeks of paid vacation (it’s a condition of EU membership). Many provide five weeks, in addition to an average of 10 paid holidays. Read more…

We wrecked the planet but if the young just read the Washington Post, they will only blame us for the national debt!

May 24, 2019 27 comments

from Dean Baker

You have to love Robert Samuelson. He writes a column noting that baby boomers are leaving the workforce, and some are dying off, leaving the country to our children and grandchildren. He concludes the piece with a comment on the national debt.

“To boot, there’s also a massive federal debt. Good luck.”

Given the enormous damage that we have done to the environment, our children and grandchildren would be enormously forgiving if all they blamed us for is the national debt. Of course, since we (baby boomers) will all be dead at some point, we will also be passing on the bonds that constitute the national debt to our children and grandchildren. Read more…

Trump’s trade war with China is waged to make the rich richer

May 21, 2019 8 comments

from Dean Baker

Donald Trump seems determined to double down and keep pressing forward on his trade war with China. He promises more and higher tariffs, apparently not realizing that U.S. consumers are the ones paying these taxes — not China’s government or corporations.

While tariffs clearly impose a cost on people in the United States, this cost could be justified as a weapon to change a trading partner’s harmful practices. During his campaign, Trump pledged to wage a trade war with China over its currency policy. He said he would declare China a “currency manipulator” on day one of his administration, putting pressure on China to raise the value of its currency against the dollar.

The value of China’s currency matters, since it determines the relative price of goods and services produced in China and the United States. Ordinarily, the currency of a rapidly growing country with a large trade surplus like China would be expected to rise against the currency of a country with a large trade deficit like the United States. However, China’s government intervened in currency markets to keep its currency from rising, thereby keeping down the price of China’s goods and services.

This was ostensibly the behavior that Trump was determined to change in his China trade war. But now that we are in the war, the currency issue has largely disappeared from the conversation. According to the published accounts, the big issue is over China’s respect for the intellectual property claims (i.e., patent and copyrights) of U.S. corporations. Read more…

The US labor market is deteriorating for black men

May 14, 2019 2 comments

from Dean Baker

The April jobs report was, for the most part, pretty good news. The overall unemployment rate fell to 3.6 percent, a level not seen in almost 50 years. The survey of businesses showed the economy generated more than 260,000 new jobs in the month — a very strong pace of job growth.

While not great, the average hourly wage grew 3.2 percent. That is more than a percentage point above the 2 percent inflation rate, meaning that wages are at least rising faster than prices, and workers are getting their share of the gains from productivity growth. This was not true earlier in the recovery when the labor market was weaker.

But the situation for Black Americans, and especially Black men, is disturbing. While the data are erratic, we now have enough of it to indicate that the employment prospects of Black men may actually be deteriorating even as the overall labor market continues to improve. Read more…

Trump Fed nominee Stephen Moore predicts big downward redistribution of wealth if Trump defeated

April 29, 2019 11 comments

from Dean Baker

Moore said it would take the form of “the biggest sell-off in the stock market in American history.” Since stock is overwhelmingly held by the wealthy, if the market plunges, it means that wealthy will have relatively less wealth.

It is important to remember that the stock market in principle represents the value of future after-tax corporate profits. This means that any measure that should increase after-tax profits, such as the Republicans’ corporate tax cut, should lead to a rise in the stock market. By contrast, measures that reduce corporate profits, like reining in abusive insurers or taxing fossil fuel companies for the damage they cause to the environment, will lead a fall in the stock market.

While this would mean that rich people would have less money, it has little to do with the health of the economy.

Trade games are back: The USITC report on the new NAFTA

April 26, 2019 3 comments

from Dean Baker

U.S. trade policy is truly fascinating. Probably more than in any other area of public policy, trade agreements are structured by corporate interests behind closed doors. Then when a deal is produced, the establishment media and economists insist that we have to support the deal behind the important principle of “free trade.” The opponents are treated as knuckle-dragging Neanderthals who just can’t understand how the economy works.

We got another episode in this long-running show last week when the United States International Trade Commission (USITC) came out with its assessment of the United States, Mexico, Canada Agreement (USMCA), also known as the new NAFTA. It came as a surprise to virtually no one that the USITC study showed economic gains from the deal. The study projected that the deal would lead to an increase in GDP of 0.35 percent when its effects are fully felt. However, the real impressive part of the story is how it got this result. Read more…

Why is populism on the rise and what do populists want?

April 5, 2019 3 comments

from Dean Baker

In the United States, the pay of a typical worker has badly trailed productivity growth over the last four decades, allowing only marginal improvements in living standards over this period. At the same time, a small number of people have gotten incredibly rich in the finance and tech sectors and by being top executives in major U.S. corporations. There is a similar, if somewhat less stark, picture in most other wealthy countries.

The standard story for this rise in inequality is that this is just the inevitable course of globalization and technology. While many in the elite may feel bad for those left behind, and even propose policies to help them, the line is that the rise in inequality is something that happened, not the result of conscious policy.

That is a lie. And the persistence of this lie is one of the reasons that populist politics has so much resonance in Europe and the United States.  Read more…

As US economy weakens, economists struggle to predict next recession

April 2, 2019 3 comments

from Dean Baker

Many of the people who completely missed the worst recession since the Great Depression are trying to get out front and tell us about the next one on the way. The big item glowing in their crystal ball is an inversion of the yield curve. There has been an inversion of the yield curve before nearly every prior recession and we have never had an inversion of the yield curve without seeing a recession in the next two years.

Okay, if you have no idea what an inversion of the yield curve means, it probably means you’re a normal person with better things to do with your time. But for economists, and especially those who monitor financial markets closely, this can be a big deal.

An inverted yield curve refers to the relationship between shorter- and longer-term interest rates. Typically, the longer-term interest rate — say, the interest rate you would get on a 30-year bond — is higher than what you would get from lending short-term, like buying a three-month U.S. Treasury bill.

The logic is that if you are locking up your money for a longer period of time, you have to be compensated with a higher interest rate. Therefore, it is generally true that as you get to longer durations — say, a one year bond compared to three-month bond — the interest rate rises. This relationship between interest rates and the duration of the loan is what is known as the “yield curve.”

We get an inverted yield curve when this pattern of higher interest rates associated with longer-term lending does not hold, as is now the case. For example, on March 27, the interest rate on a three-month Treasury bill was 2.43 percent. The interest rate on a 10-year Treasury bond was just 2.38 percent, 0.05 percentage points lower. This means we have an inverted yield curve.

Read more…

The real college admissions scandal is structural inequality

March 25, 2019 7 comments

from Dean Baker

The indictments last week of a number of prominent people for paying bribes to get their children into elite colleges was perhaps more amusing than shocking. The fact that rich people are often able to buy their kids into schools is hardly a secret. After all, who believes that Donald Trump would have been accepted at the University of Pennsylvania, or his son-in-law Jared Kushner would have been attending Harvard, had it not been for their wealthy fathers?

We also know about all the ways in which people who are affluent, but not super-rich, give their children a huge advantage in the college admissions process. These kids go to the best schools, either public or private, that prepare students to get into and attend an elite college. They also can count on help from tutors if they have difficulty in their classes and to improve their scores on standardized tests.

In addition, the children of the affluent can count on being able to learn and master a musical instrument, which can make an applicant more attractive to an elite school. They may become expert at a less popular sport, like fencing or horseback riding, which can also make them appear well-rounded on a college application. Read more…

Medicare for all is doable; most Americans want it

March 9, 2019 10 comments

Dean Baker

In Canada, everyone in the country is guaranteed access to health care by the government.

The same is true for France, the United Kingdom, Germany, Netherlands and every other country that we think of as comparable in terms of levels of wealth, democracy and economic development.

In spite of providing universal care, these countries also all spend much less on health care than the United States.

In Canada, per person spending is 60 percent what it is in the United States. In Germany spending per person is 56 percent and in the United Kingdom just 42 percent of what we spend.

And these countries all have comparable outcomes. People in other wealthy countries not only have longer life expectancies and lower infant mortality rates, they also have comparable outcomes when looking at more narrow health issues like treatment for cancer or heart disease.

The basic story is that we spend roughly twice as much per person as people in other wealthy countries and we have pretty much nothing to show for it in terms of better health. This is the context in which critics of Medicare for all are telling us it is not possible. Read more…

To reduce inequality, let’s downsize the financial sector

March 7, 2019 9 comments

from Dean Baker

Matt Bruenig — the president of the progressive, grassroots-funded People’s Policy Project think tank — put forward a creative set of policy proposals last month on child care and family policy under the title of the Family Fun Pack. It prompted a major discussion in progressive circles on child care policy, helped in part by Sen. Elizabeth Warren’s important proposal in this area that was released the next week.

In the hope of prompting the same sort of debate on policy directed toward the financial sector, I am putting forward the “Finance Fun Pack.” While the full list of policies to rein in finance would be far more extensive, this one has three main components:

  1. A modest tax on financial transactions;
  2. Complete transparency on the contract terms that public pension funds sign with private equity companies; and
  3. Complete transparency on the contract terms that university and other nonprofit endowments sign with hedge funds.

The goal of these policies is to have a smaller and more efficient financial sector. They are also likely to reduce the opportunity for earning huge fortunes in the sector. People looking to get fabulously rich will instead have to do something productive.

A modest tax on trades in stock, bonds and derivatives (like options, futures and credit default swaps) can raise a large amount of money while making the financial sector more efficient. According to the Congressional Budget Office, a tax of 0.1 percent on trades, as proposed in a new bill by Sen. Brian Schatz, would raise close to $100 billion a year or 0.5 percent of GDP.  Read more…

‘Socialism’ and other bad words from the Name-Caller-in-Chief

February 25, 2019 8 comments

from Dean Baker

We know the way Republicans win elections these days. They call their opponents offensive names.

This is probably a good political tactic. After all, when your party’s agenda is about redistributing as much money as possible to the very richest people in the country, you are not likely to win much support based on your policies. Therefore, we get name-calling.

The latest bad word in the Republicans’ schoolyard taunts is “socialism.” President Trump and his team have decided that they will run around calling Democrats “socialists.”

Their hope is to conjure up images of the stagnation and shortages in the Soviet Union. Or, for those who lack memories of the problems of Soviet bloc economies, they’ll use the economic chaos in Venezuela as a substitute.

Of course, the policies being put forward by the Democrats have nothing to do with the socialist bogeyman Trump is using to try to scare people. They are policies that have deep roots in U.S. history and are, in fact, overwhelmingly popular among voters in both parties.

For example, Alexandria Ocasio-Cortez, the new representative from Queens, New York, has proposed a marginal income tax rate of 70 percent on income in excess of $10 million. This is the same rate that was in effect under that well-known socialist Richard Nixon. Under Dwight Eisenhower, another prominent socialist, the top tax rate was 90 percent.  Read more…

End bloated salaries in the nonprofit sector

February 23, 2019 17 comments

from Dean Baker

An average family participating in the federal Temporary Assistance for Needy Families (TANF) program costs taxpayers $400 a month. We pay $126 a month to the typical beneficiary of food stamps—the Supplemental Nutrition Assistance Program (SNAP).

By contrast, Susan Desmond-Hellmann, the CEO of the Bill & Melinda Gates Foundation, costs us $44,200 a month. This figure may catch some readers by surprise, because they probably don’t think of themselves as paying the salaries of people who work at nonprofit organizations. But we do pay her that amount, and it is a problem.

The salary of the Gates Foundation’s CEO costs taxpayers money because we gave Bill Gates a large tax break that subsidizes his contribution to his eponymous foundation or any other philanthropy. If Gates was in the 40 percent tax bracket (a safe bet before the 2017 Tax Cuts and Jobs Act pushed by President Donald Trump), then the government effectively picked up the tab for 40 cents of every dollar that Gates decided to contribute to his foundation. Read more…

When politicians say “free trade,” they mean upward redistribution

February 12, 2019 4 comments

from Dean Baker

In Washington policy circles, being a supporter of free trade is pretty much comparable to saying you believe in evolution. All reasonable people say they accept the doctrine and agree that tariffs and other forms of protectionism are evil and dirty.

While there are good arguments for free trade as an economic policy, in the real world what passes for “free trade” is pretty much any policy that redistributes income upward, even if it is directly at odds with free trade. I have long harped on patent and copyright protection, both because I think that these government-granted monopolies are bad policy (at least in their current form), and because they are 180 degrees at odds with free trade.

The rationale for patents and copyrights is they provide incentives for innovation and creative work, but there is a rationale for every form of protectionism. This doesn’t change the fact that patent and copyright protection are still forms of protectionism. And, the imposition of stronger patent and copyright protections, which has been a central component of every trade deal for the last quarter-century, is a very costly form of protectionism.

Needless to say, the beneficiaries of this protectionism tend to be in the high end of income distribution. The list includes folks like Bill Gates, the pharmaceutical industry and the entertainment industry.  Read more…

Farhad Manjoo promotes billionaire ideology in proposal to get rid of billionaires

February 9, 2019 3 comments

from Dean Baker

New York Times columnist Farhad Manjoo tells us that he likes to “explore maximalist policy visions” in his columns. He falls well short of this goal in a piece calling for abolishing billionaires, which actually helps legitimate their existence.

The piece repeatedly tells us that their wealth is driven by technology, a point that first appears in the subhead which refers to “tech-driven inequality.” The problem with Manjoo’s piece is that the inequality is not in fact driven by technology, it is driven by our policy on technology, specifically patent and copyright monopolies. These forms of protection do not stem from the technology, they are policies created by a Congress which is disproportionately controlled by billionaires.

If the importance of these government granted monopolies is not clear, ask yourself how rich Bill Gates would be if any start-up computer manufacturer could produce millions of computers with Windows and other Microsoft software and not send the company a penny. The same story holds true with most other types of technology. The billionaires get rich from it, not because of the technology but because the government will arrest people who use it without the patent or copyright holder’s permission.

This point is central to the debate on the value of billionaires. If we could get the same or better technological progress without making some people ridiculously rich, then we certainly don’t need billionaires (I discuss alternatives in chapter 5 of my book Rigged [it’s free].) But in any discussion of the merits of billionaires, it is important to understand that they got their wealth because we wrote rules that allowed it. Their immense wealth was not a natural result of the development of technology.

It is unfortunate that this idea is apparently too radical for Manjoo.

Progressive taxes only go so far. Pre-tax income is the problem

February 5, 2019 8 comments

from Dean Baker

In recent weeks, there have been several bold calls for large increases in progressive taxation. First we had Representative Alexandria Ocasio-Cortez (D-NY), often referred to as AOC, proposing a top marginal tax rate on income over $10 million. This sent right-wing talking heads into a frenzy, leading many to show they don’t know the difference between a marginal tax rate and an average tax rate. (AOC’s 70 percent rate would only apply to an individual’s income above $10 million.)

More recently, we had Senator Elizabeth Warren propose a wealth tax that would apply to people with assets of more than $50 million. This tax could have Jeff Bezos sending more than $3 billion a year to the Treasury.

Given the enormous increase in inequality over the last four decades, and the reduction in the progressivity of the tax code, it is reasonable to put forward plans to make the system more progressive. But, the bigger source of the rise in inequality has been a growth in the inequality of before-tax income, not the reduction in high–end tax rates. This suggests that it may be best to look at the factors that have led to the rise in inequality in market incomes, rather than just using progressive taxes to take back some of the gains of the very rich.  Read more…

Yes, low unemployment does raise wages

January 28, 2019 Leave a comment

from Dean Baker

In the fall of 2013, Jared Bernstein and I wrote a book called Getting Back to Full Employment: A Better Bargain for Working People. The main point of the book was that low unemployment rates disproportionately benefited those who are most disadvantaged in the labor market. For this reason, we argued for using macroeconomic policy to get the unemployment rate as low as possible, until inflation became a clear problem.

At that time, the unemployment rate was still close to 7.0 percent. It was coming down from its Great Recession peak of 10.0 percent, but there were many economists, including some at the Federal Reserve Board, who argued that it should not be allowed to fall below a range between of 5.0–5.5 percent because lower rates of unemployment could trigger spiraling inflation. Our argument challenged that view.

We felt the evidence that unemployment rates this high should pose any sort of floor for macroeconomic policy were weak. Given the enormous gains from allowing the unemployment rate to fall further, we argued the Fed should take the small risk of accelerating inflation, and allow the unemployment to continue to decline.

Thankfully, Janet Yellen, who was then Fed chair, agreed with this position. (It helped that our friends with the Fed Up Coalition were also pushing hard in this direction.) Her replacement, Jerome Powell, seems to be following the same path, more or less.

Anyhow, we have now seen the unemployment rate fall below 4.0 percent, getting as low as 3.7 percent last fall, with impressive results.  Read more…

No one said rich people were very sharp: Davos tries to combat populism

January 22, 2019 7 comments

from Dean Baker

Let’s see, cattle ranchers are against vegetarianism, coal companies are against restricting CO2 emissions, and the Davos crew is trying to combat populism, according to The Washington Post. It is kind of amazing that the rich people at Davos would not understand how absurd this is.

Yeah, we get that rich people don’t like the idea of movements that would leave them much less rich, but is it helpful to their cause to tell us that they are devoting their rich people’s conference to combating them? The real incredible aspect of Davos is that so many political leaders and news organizations would go to a meeting that is quite explicitly about rich people trying to set an agenda for the world.

It is important to remember, the World Economic Forum is not some sort of international organization like the United Nations, the OECD, or even the International Monetary Fund. It is a for-profit organization that makes money by entertaining extremely rich people. The real outrage of the story is that top political leaders, academics, and new outlets feel obligated to entertain them.

The Green New Deal is happening in China

January 20, 2019 26 comments

from Dean Baker

One of the Trump administration’s talking points about global warming is that we’re reducing greenhouse gas emissions, while the countries that remain in the Paris accord are not. Well, the first part of this story is clearly not true, as data for 2018 show a large rise in emissions for the United States. The second part is also not very accurate, as most other countries are taking large steps to reduce emissions.

At the top of the list is China. The country has undertaken a massive push to convert to electric powered vehicles and clean energy sources.

China’s progress in this effort is truly extraordinary. In the case of electric cars, it has used a carrot-and-stick approach where it offers consumers large subsidies for buying electric cars while also requiring manufacturers to meet quotas for electric car production as a percent of their total fleet of cars. It has also invested in the necessary infrastructure, ensuring that there are a large number of charging stations widely dispersed across the country so that drivers don’t have to worry about being unable to recharge their cars.

The result has been a massive increase in the sale of electric cars. Electric car sales are projected to be 1.1 million this year, almost equal to sales in the rest of the world combined. The country expects sales to continue to rise rapidly, with annual sales hitting 11.5 million in 2030. By comparison, electric car sales are expected to be just 480,000 in the United States this year, less than half the number in China. Read more…