Archive

Author Archive

Trade denialism continues: Trade really did kill manufacturing jobs

March 29, 2017 21 comments

from Dean Baker

There have been a flood of opinion pieces and news stories in recent weeks wrongly telling people that it was not trade that led to the loss of manufacturing jobs in recent years, but rather automation. This means that all of those people who are worried about trade deficits costing jobs are simply being silly. The promulgators of the automation story want everyone to stop talking about trade and instead focus on education, technology or whatever other item they can throw out as a distraction.

This “automation rather than trade story” is the equivalent of global warming denialism for the well-educated. And its proponents deserve at least as much contempt as global warming deniers.

The basic story on automation, trade and jobs is fairly straightforward. “Automation” is also known as “productivity growth,” and it is not new. We have been seeing gains in productivity in manufacturing ever since we started manufacturing things.

Productivity gains mean that we can produce more output with the same amount of work. Before the trade deficit exploded in the last decade, increases in productivity were largely offset by increases in output, making it so the total jobs in manufacturing did not change much.

Imagine that productivity increased by 20 percent over the course of a decade, roughly its average rate of growth. If manufacturing output also increases by 20 percent, then we have the same number of jobs at the end of the decade as at the beginning. This is pretty much what happened before the trade deficit exploded.

Read more…

The Wrongest Profession

March 16, 2017 2 comments

from Dean Baker

Over the past two decades, the economics profession has compiled an impressive track record of getting almost all the big calls wrong. In the mid-1990s, all the great minds in the field agreed that the unemployment rate could not fall much below 6 percent without triggering spiraling inflation. It turns out that the unemployment rate could fall to 4 percent as a year-round average in 2000, with no visible uptick in the inflation rate. As the stock bubble that drove the late 1990s boom was already collapsing, leading lights in Washington were debating whether we risked paying off the national debt too quickly. The recession following the collapse of the stock bubble took care of this problem, as the gigantic projected surpluses quickly turned to deficits. The labor market pain from the collapse of this bubble was both unpredicted and largely overlooked, even in retrospect. While the recession officially ended in November 2001, we didn’t start creating jobs again until the fall of 2003. And we didn’t get back the jobs we lost in the downturn until January 2005. At the time, it was the longest period without net job creation since the Great Depression.

When the labor market did finally begin to recover, it was on the back of the housing bubble. Even though the evidence of a bubble in the housing sector was plainly visible, as were the junk loans that fueled it, folks like me who warned of an impending housing collapse were laughed at for not appreciating the wonders of modern finance. After the bubble burst and the financial crisis shook the banking system to its foundations, the great minds of the profession were near unanimous in predicting a robust recovery. Stimulus was at best an accelerant for the impatient, most mainstream economists agreed — not an essential ingredient of a lasting recovery.   Read more…

Tony Blair, who brought us the war in Iraq, lectures on the evils of populism

March 13, 2017 4 comments

from Dean Baker

Tony Blair, the former Prime Minister of the United Kingdom, who is best known for lying his country into participating in the Iraq War, lectured NYT readers on the evils of populism. Once again he gets many key points wrong.

He criticizes the left for abandoning centrist politicians:

“One element has aligned with the right in revolt against globalization, but with business taking the place of migrants as the chief evil. They agree with the right-wing populists about elites, though for the left the elites are the wealthy, while for the right they’re the liberals.”

Blair then tells us:   Read more…

The new trade agenda: deals that promote equality rather than inequality

March 8, 2017 6 comments

from Dean Baker

With the Trans-Pacific Partnership now definitely dead and Donald Trump pushing for a renegotiation of NAFTA, many progressives are looking for a fundamental re-examination of trade deals. As supporters of international cooperation rather than narrow nationalists, progressives have often felt uncomfortable opposing trade deals.

While there is no reason to be defensive about opposing trade deals that favored business interests at the expense of workers, consumers, and the environment in all the countries participating, it is worth asking how trade deals can be crafted to promote a progressive agenda. There really is no shortage of ideas in this area.

To start, from a U.S. perspective, the items opened up for trade has to be broadened. High-end professional services, such as physicians’ and dentists’ services should be front and center in any future trade deals. The U.S. has highly protectionist rules in this area. In the case of physicians, foreign doctors are prohibited from practicing in the United States unless they complete a U.S. residency program. Foreign dentists must graduate from a U.S. dental school, although in recent years graduates of Canadian schools have been allowed also.

As a result of this protectionism, doctors in the United States earn on average more than $250,000 a year, twice as much as their counterparts in other wealthy countries. The potential gain to the United States from standardizing licensing requirements in professional services is at least $100 billion a year and quite likely close to $200 billion (0.5-1.0 percent of GDP). The goal need not be that all countries have the same standard, but rather that licensing rules are transparent and based on legitimate public interest, not protecting the incomes of professionals.   Read more…

Bill Gates Is clueless on the economy

February 28, 2017 9 comments

from Dean Baker

Last week Bill Gates called for taxing robots. He argued that we should impose a tax on companies replacing workers with robots and that the money should be used to retrain the displaced workers. As much as I appreciate the world’s richest person proposing a measure that would redistribute money from people like him to the rest of us, this idea doesn’t make any sense.

Let’s skip over the fact of who would define what a robot is and how, and think about the logic of what Gates is proposing. In effect, Gates wants to put a tax on productivity growth. This is what robots are all about. They allow us to produce more goods and services with the same amount of human labor. Gates is worried that productivity growth is moving along too rapidly and that it will lead to large scale unemployment.

There are two problems with this story. First productivity growth has actually been very slow in recent years. The second problem is that if it were faster, there is no reason it should lead to mass unemployment. Rather, it should lead to rapid growth and increases in living standards.

Starting with the recent history, productivity growth has averaged less than 0.6 percent annually over the last six years. This compares to a rate of 3.0 percent from 1995 to 2005 and also in the quarter century from 1947 to 1973. Gates’ tax would slow productivity growth even further.   Read more…

The “Free Traders” do not believe in free trade: #46,765

February 25, 2017 4 comments

from Dean Baker

The concept of “free trade” has acquired near religious status among policy types. All serious people are supposed to swear their allegiance to it and deride anyone who questions its universal benefits.

Unfortunately, almost none of the people who pronounce themselves devotees of free trade actually do consistently advocate free trade policies. Rather they push selective protectionist policies, that have the effect of redistributing income to people like them, and call them “free trade.”

The NYT gave us yet one more example of a selective protectionist masquerading as a free trader in a column this morning by Jochen Bittner, a political editor for Die Zeit. Bittner contrasts the free trading open immigration types, who calls Lennonists (in the spirit of John Lennon’s song, Imagine) and the Bannonists who are nationalists followers of Steve Bannon or his foreign equivalents.

The problem with this easy division is that the “free traders” wholeheartedly support very costly protectionist measures in the form of ever stronger and longer patent and copyright protections. These protections redistribute several hundred billions dollars annually (at least 3 percent of GDP in the United States) from the bulk of the population to the small group of people who are in a position to benefit from these government granted monopolies.   Read more…

Bill Gates wants to undermine Donald Trump’s plans for growing the economy

February 21, 2017 15 comments

from Dean Baker

Yes, as Un-American as that may sound, Bill Gates is proposing a tax that would undermine Donald Trump’s efforts to speed the rate of economic growth. Gates wants to tax productivity growth (a.k.a. “automation) slowing down the rate at which the economy becomes more efficient.

This might seem a bizarre policy proposal at a time when productivity growth has been at record lows, averaging less than 1.0 percent annually for the last decade. This compares to rates of close to 3.0 percent annually from 1947 to 1973 and again from 1995 to 2005.

It is not clear if Gates has any understanding of economic data, but since the election of Donald Trump there has been a major effort to deny the fact that the trade deficit has been responsible for the loss of manufacturing jobs and to instead blame productivity growth. This is in spite of the fact that productivity growth has slowed sharply in recent years and that the plunge in manufacturing jobs followed closely on the explosion of the trade deficit, beginning in 1997.

Manufacturing Employment

manu empl
Read more…

The trouble with trade: people understand it

February 16, 2017 12 comments

from Dean Baker

Ever since Donald Trump was elected there has been a huge backlash among elite-types against those blaming trade for their problems. Major news outlets have been filled with misleading and dishonest stories claiming that the real cause of manufacturing job loss has been automation and that people are stupid to worry about trade.

In fact, people are exactly right to be concerned about the impact of our trade policies on their living standards. It is the fact that people are right that is worrying our elites. Trade is just one of the areas in which politicians of both parties have promoted policies to redistribute income upward. It just happens to be the area in which the impact is most recognizable and therefore people have mounted an effective resistance.

The story with trade is simple. When a manufacturing worker in the US is placed in direct competition with a worker in Mexico, China or some other developing country, who earns one-tenth of their pay, it puts downward pressure on their wages. Either their jobs go away or they are forced to take substantial pay cuts to keep their job.

This competition has cost a huge number of manufacturing jobs in this century. It has also put downward pressure directly on the wages of manufacturing workers and indirectly on the wages of less-educated workers more generally, as displaced manufacturing workers sought jobs in other sectors.

Elite media types have tried to deny these facts by claiming that the source of job loss is automation (i.e. productivity growth), not trade. This claim deserves to be met with the same sort of derision as the claims of climate change deniers.

Read more…

Badly confused economics: The debate on automation

February 8, 2017 24 comments

from Dean Baker

The media have been filled with accounts in recent years of how automation is displacing workers and threatening the country with mass unemployment. Even President Obama even made a point of warning about the dangers of mass displacement from automation in his farewell address.

This obsession is bizarre for two reasons. The first is a simple empirical point. In contrast to the concern about automation leading to massive displacement, in recent years the pace of automation has been extremely slow. Productivity growth, which is a measure of the rate at which workers are being displaced by technology, has averaged less than 1.0 percent annually in the United States over the last decade.

By contrast, it averaged almost 3.0 percent annually in the decade from 1995 to 2005. Productivity growth also averaged almost 3.0 percent annually in the long Golden Age from 1947 to 1973. This slowdown has not been restricted to the United States. Virtually every wealthy country has seen very slow productivity growth over the last decade. The United Kingdom even had several years of negative productivity growth. This is equivalent to workers were replacing robots: a situation where it takes more workers to produce the same amount of output.

So at a time when automation is proceeding at an extraordinarily slow pace we are seeing many policy types and politicians worrying about mass displacement from automation. That does not make a great deal of sense.   Read more…

End patent and copyright requirements in NAFTA

February 4, 2017 8 comments

from Dean Baker

The trade deals negotiated in the last quarter century are becoming less focused on traditional trade barriers like tariffs and quotas. Instead, they are imposing a regulation structure on the parties, which tend to be very business oriented. In many cases, the rules being required under the trade deals would never be accepted if they went through the normal political process.

The renegotiation of the North American Free Trade Agreement allows the United States, Canada and Mexico to get rid of rules that have no place in trade deals. At the top of this list is the Investor-State Dispute Settlement (I.S.D.S.) tribunals. These tribunals operate outside the normal judicial process. Their rulings are not bound by precedent, nor are they subject to appeal. Also, they are only open to foreign investors as a mechanism to sue member governments.

These tribunals can be used to penalize governments for measures designed to protect the environment, consumers, workers or to ensure the stability of financial institutions. TransCanada, the company that had been building the XL pipeline, gave us an example of how these tribunals can be used. It initiated a suit after President Barack Obama decided to cancel the pipeline. It is likely that we would see many more suits in the future using the I.S.D.S. tribunals if they are left in NAFTA and other trade deals.  Read more…

Truthiness on trade

February 1, 2017 10 comments

from Dean Baker

With the official death of the Trans-Pacific Partnership (TPP) and the likely renegotiation of the North American Free Trade Agreement (NAFTA), the proponents of these deals are doubling down in their defense of the current course of US trade policy. While there are serious arguments that can be made in defense of these policies, advocates are instead seeking to deny basic reality.

These trade policy proponents are trying to deny that these policies have hurt large segments of the workforce and are claiming that the people, who believe that they were hurt by trade, are simply misinformed. The proponent’s story is that the real cause of job loss was the impersonal force of technology, not a trade policy that deliberately placed US manufacturing workers in direct competition with low paid workers in the developing world.

Fortunately this is a case where the facts are clear. The people who think they were hurt by trade are right. It is the people who blame technology who are misinformed or worse.

The obvious error in the technology or automation story is that automation is not anything new. We have been seeing increases in productivity in manufacturing forever; it is not something that just happened in the last two decades. In fact, the most rapid period of technological change was in the quarter century from 1947 to 1973, not the last two decades.  Read more…

The Trump cabinet: strangest show on Earth

January 28, 2017 4 comments

from Dean Baker

As we start the Trump presidency, events just keep getting more bizarre. At his first and last press conference as president-elect, Donald Trump boasted about his divestment plan in which he was “sort of, kind of” turning over the management of his business enterprises to his two adult sons. He displayed a table full of documents that were supposed to indicate the extent of his divestment, but the documents were not made available for the press to examine.

Furthermore, in spite of claiming that he was stepping away from his business enterprises, Trump was still boasting being offered a $2 billion deal from a Dubai businessman. While Trump assured us that he turned the deal down, the obvious question is why he was discussing it in the first place.

Insofar as Trump is actually stepping away from his business, this is very far from the sort of blind trust arrangements made by presidents of both parties for the last half century. The public can never be sure that his actions as president are not motivated by a desire to fatten the profits of Trump enterprises. Nor can we be assured that actions by foreign governments won’t be affected by their country’s dealings with the president’s business empire.

The ethical lapses from the top carry through to his cabinet appointments, which seem destined to replace Ringling Bros. Circus as the strangest show on Earth. Andy Puzder, Trump’s pick for secretary of labor, runs two chains of fast-food restaurants that have repeatedly violated wage and hour laws and has been legally forced to make payments to workers. These are the laws that Mr. Puzder will be responsible for enforcing if he gets approved for the job.
Read more…

Weak labor market: President Obama hides behind automation

January 13, 2017 8 comments

from Dean Baker

It really is shameful how so many people, who certainly should know better, argue that automation is the factor depressing the wages of large segments of the workforce and that education (i.e. blame the ignorant workers) is the solution. President Obama takes center stage in this picture since he said almost exactly this in his farewell address earlier in the week. This misconception is repeated in a Claire Cain Miller’s NYT column today. Just about every part of the story is wrong.

Starting with the basic story of automation replacing workers, we have a simple way of measuring this process, it’s called “productivity growth.” And contrary to what the automation folks tell you, productivity growth has actually been very slow lately.

Book2 9104 image001

Source: Bureau of Labor Statistics.

The figure above shows average annual rates of productivity growth for five year periods, going back to 1952. As can be seen, the pace of automation (productivity growth) has actually been quite slow in recent years. It is also projected by the Congressional Budget Office and most other forecasters to remain slow for the foreseeable future, so the prospect of mass displacement of jobs by automation runs completely counter to what we have been seeing in the labor market.

What does Donald Trump actually intend to do about trade?

January 5, 2017 4 comments

from Dean Baker

Shortly after Donald Trump enters the White House, we should get an answer to a key question from his campaign: What does he actually intend to do about trade? Trade was one of his main issues when he campaigned in the key industrial states that he won in November.

Trump argued that past presidents of both parties had failed the country’s workers by signing bad trade deals. He said that the negotiators were “stupid” and that he would instead appoint “smart” negotiators who wouldn’t let Mexico, China and other trading partners beat us at the negotiating table.

Trump is correct in identifying trade as a force that has caused enormous economic damage to millions of people in these states, but he is wrong that the problem was “stupid” negotiators. The vast majority of people who have been given the responsibility for negotiating trade deals are smart, ambitious and hard-working.

The large trade deficits we have been running in the last two decades are not due to negotiators. We run large trade deficits because securing manufacturing jobs in the United States has not been a priority for our negotiators.   Read more…

Economists, Doctors’ Cartels, and Uber

January 1, 2017 3 comments

from Dean Baker

Breaking the taxi industry cartel’s and promoting Uber has been somewhat of a cause celebre among economists in recent years. Any card carrying economist can give you the two minute tirade on the evils of the taxi cartel and the benefits of Uber. (I can too, but the argument should be for modernized regulation, not Uber gets to do whatever it wants because it’s Uber, see pieces here, here, and here.)

What is striking is that the enthusiasm for the virtues of competition seems to disappear when we switch the topic from the taxi cartel to the doctors’ cartel. Doctors actually have been far more effective than taxi companies in limiting competition. Doctors largely get to set standards of care, which not surprisingly requires twice as high a percentage of highly-paid specialists as in other wealthy countries. They also restrict the number of doctors with a wonderfully protectionist rule that prohibits doctors from practicing in the United States unless they have completed a U.S. residency program. This means that even well-established doctors in places like Germany, France, and Canada would face arrest if they attempted to practice medicine in the United States.  Read more…

Trump’s infrastructure financing seems like a joke

December 22, 2016 9 comments

from Dean Baker

While Trump is right to emphasize the need for more and better infrastructure, his program is not the way to address the problem.

There is much research showing the benefits of spending on traditional infrastructure such as roads and bridges. There are also likely to be large gains from less traditional areas like broadband, where the U.S. ranks poorly among wealthy countries, and improving the quality of public drinking water to avoid more Flint disasters. Ideally, a public investment agenda would carry over into areas like early childhood education, which we know provides huge benefits to the children directly affected and the economy over the longer term.

The economy can still use a further boost to demand. The percentage of the prime age population (ages 25-54) that is employed is still down by 2 full percentage points from pre-recession levels and four points from the year 2000 peaks. There is no evidence that the economy is pushing against limits in either more rapid wage growth or accelerating inflation. There is little reason not to push the economy to see how many more workers can be employed, especially since those who would get jobs are disproportionately Hispanic, African-American, and the less-educated, who are still less likely than others to have jobs.

But based on what is known to date, the Trump plan is not likely to meet these needs.  Read more…

Pushing to full employment: a Trump dividend?

December 15, 2016 3 comments

from Dean Baker

Economists are not very good at economics. We repeatedly get reminded of this fact when we see the economy act in ways that catch the bulk of the profession by complete surprise.

The most obvious example is the housing bubble, whose collapse gave us the financial crisis and the Great Recession. Almost no economists saw the bubble or the potential hazards posed by its bursting. But this is just the beginning of what economists got wrong in recent years.

Not only did the bubble and its collapse catch them by surprise, the recovery turned out to be much weaker than almost anyone predicted. Part of this was due to the austerity policies demanded by Congress, but even accounting for these policies, we didn’t see the rapid growth projected by the Congressional Budget Office (CBO) and other forecasters. In 2010, CBO projected average GDP growth of 4.4 percent for the years from 2012 to 2014. The actual number was less than half this amount.

The housing bubble wasn’t the first bubble CBO and other forecasters failed to see. The collapse of the stock bubble, which gave us the 2001 recession, also caught almost all economic forecasters by surprise. In short, the ability of economists to predict the future state of the economy, or understand the present state, is really poor.

This history is relevant in assessing Donald Trump’s plans for infrastructure and tax cuts because much of what economists say about these plans is likely to be wrong. Just to be clear, from what we have heard to date, both the infrastructure and tax plans seem like they are primarily designed to make Trump’s wealthy friends richer.   Read more…

Disagreeing with Paul Krugman: His friends probably do vote against the interest of the working class (white and other)

December 10, 2016 7 comments

from Dean Baker

Paul Krugman told readers that intellectual types like him tend to vote for progressive taxes and other measures that benefit white working class people. This is only partly true.

People with college and advanced degrees tend to be strong supporters of recent trade deals [I’m including China’s entry to the WTO] that have been a major factor in the loss of manufacturing jobs in the last quarter century, putting downward pressure on the pay of workers without college degrees. They also tend to support stronger and longer patent and copyright protections (partly in trade deals), which also redistribute income upward. (We will pay $430 billion for prescription drugs this year, which would cost 10-20 percent of this amount in a free market. The difference is equal to roughly five times annual spending on food stamps.)

Educated people also tended to support the deregulation of the financial sector, which has led to some of the largest fortunes in the country. They also overwhelmingly supported the 2008 bailout which threw a lifeline to the Wall Street banks at a time when the market was going to condemn them to the dustbin of history. (Sorry, the second Great Depression story as the alternative is nonsense — that would have required a decade of stupid policy, nothing about the financial collapse itself would have entailed a second Great Depression.)  Read more…

Donald Trump and the Republicans: The art of the steal

December 6, 2016 4 comments

from Dean Baker

During the campaign Donald Trump boasted that he could kill someone on Fifth Avenue and it wouldn’t affect his standing among his supporters. Whether or not this is true, this appears to be the approach that Trump and his fellow Republicans are taking to their role in governing. The basic story is that they can rip off the public as much as they want, because ain’t no one going to stop them. They could be right.

The most immediate issue is Trump’s refusal to sell his assets and place the proceeds in a blind trust. This was a practice followed by every president in the last half century. The idea is that the president should be making decisions based on what they think is good for the country, not based on what they think will fatten their pocketbooks.

Trump’s proposal in this area is essentially a joke. The idea is he turns over the operation of his empire to his kids. It’s not clear how this helps at all. His kids will never discuss any business issues with him and also have no opportunity to discuss policy with their father or father-in-law?

Perhaps more importantly, he knows what properties are in his empire. This means that if he decides to make an issue of the crackdown on opposition by Turkey’s president, Recep Erdoğan, it is likely that Erdoğan will retaliate against the Trump resorts in Turkey. The same applies to his dealings with many other countries.

We shouldn’t have to rely on a “trust me” pledge from the president that the financial interests of his family will not be a consideration in his foreign policy. That is exactly why prior presidents put their assets into a blind trust. And, there is little reason to believe that Trump is more honest than our past presidents.   Read more…

Trade, Trump, and the economy: What does Greg Mankiw’s textbook say?

December 4, 2016 12 comments

from Dean Baker

Harvard professor, textbook author, and occasionally New York Times columnist Greg Mankiw told readers today that Donald Trump’s economic team is wrong to worry about the trade deficit.

“The most important lesson about trade deficits is that they have a flip side. When the United States buys goods and services from other nations, the money Americans send abroad generally comes back in one way or another. One possibility is that foreigners use it to buy things we produce, and we have balanced trade. The other possibility, which is relevant when we have trade deficits, is that foreigners spend on capital assets in the United States, such as stocks, bonds and direct investments in plants, equipment and real estate.” …..

“in reality, trade deficits are not a threat to robust growth and full employment. The United States had a large trade deficit in 2009, when the unemployment rate reached 10 percent, but it had an even larger trade deficit in 2006, when the unemployment rate fell to 4.4 percent.

“Rather than reflecting the failure of American economic policy, the trade deficit may be better viewed as a sign of success. The relative vibrancy and safety of the American economy is why so many investors around the world want to move their assets here.”

There are three points worth making here. Read more…