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…
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…
from Dean Baker
In spite of the hopes of many elite types for a last-minute resurrection, it appears that the Trans-Pacific Partnership (TPP) is finally dead. This is good news, but it took a long time to kill the deal, and the country is likely to pay a huge price for the execution.
The basic point that everyone should know by now is that the TPP had little to do with trade. The United States already had trade deals with six of the 11 other countries in the pact. The trade barriers with the other five countries were already very low in most cases, so there was little room left for further trade liberalization in the TPP.
Instead, the main purpose of the TPP was to lock in place a business-friendly structure of regulation. The deal was negotiated by a series of working groups that were dominated by representatives of major corporations. The regulatory structure was to be enforced by investor-state dispute settlement tribunals. This is an extrajudicial system that would be able to override US laws with secret rulings that were not bound by precedent or subject to appeal.
In addition, the TPP would strengthen and lengthen patent and copyrights and related protections. This is protectionism: It is 180 degrees at odds with free trade. These protections can raise the price of protected items, like prescription drugs, by a factor of 10 or even 100. This is equivalent to tariffs of several thousand percent, with the same waste and incentives for corruption. Free-traders oppose such protections, if they are honest. Read more…
from Dean Baker
Donald Trump has basically come right out said that he intends to use the presidency to further enrich himself and his family. After refusing to follow long-established precedent and put his assets in a blind trust, he proclaimed, “the president can’t have a conflict of interest.”
Of course the president absolutely can have a conflict of interest as speakers of the English language use the expression. If a president owns a large business empire, as does Mr. Trump, there are all sorts of situations where his personal business interests could be in conflict with the country’s interests.
For example, he may want favorable treatment from a form government for one of his hotels. This may lead him to make concessions to the government in other areas which he would not otherwise do. The same applies to domestic tax policy where he may decide to push tax changes that will help his business interests. There are literally an infinite number of situations where the president can and does have a conflict of interest when he owns a business empire like Mr. Trump.
It is also worth noting that it does not seem as though corruption will be exlcusively a family affair with Mr. Trump. David Dayen has an interesting piece in the Intercept about how Trump may hand billions to his friend and campaign contributor, John Paulson, by reprivatizing Fannie Mae and Freddie Mac. Of course this is just the tip of the iceberg. Trump seems intent on raising political corruption to a new level in his administration. As he is prone to say, it will be yuuge! Read more…
from Dean Baker
I will claim no special insight into the politics that led to Trump’s election last Tuesday. I was as surprised as anyone else when not just Florida and North Carolina, but also Pennsylvania, Michigan, and Wisconsin started to turn red. But that’s history now. We have to live with the fact of President Trump and we have to figure out how to protect as much as possible of what we value in this country from his presidency.
This won’t be easy when the Republicans control both houses of Congress and will soon be able to appoint a new justice to the Supreme Court to again give them a right-wing majority. But there are still points of pressure.
Most importantly, the people in Congress want to get re-elected. Pushing unpopular policies like privatizing Social Security or Medicare, or taking away insurance by ending Obamacare, will be horrible albatrosses hanging over their heads the next time they face voters. This reality has to constantly be put in their faces. It is easy for politicians to push nonsense stories about eliminating trillions of dollars of waste, fraud, and abuse. It is much harder to get away with taking away your parents’ Social Security check or the health care insurance that pays for your kid’s insulin.
The other point of pressure is that we know (even if the folks who report the news don’t) that Trump got elected by making many promises that he will not be able to keep. Rebuilding an economy in which the benefits of growth are broadly shared is a great idea, but Donald Trump is not going to bring back the coal mining jobs lost in West Virginia, Kentucky, Ohio and elsewhere. These jobs were not lost because of environmentalists concerned about the future of the planet; they were lost because of productivity growth in the industry (think of strip mining replacing underground mining). We should make sure that people regularly are informed about President Trump’s progress in bringing back coal mining jobs to Appalachia.
Before getting into some specific issues, it is worth noting that not everything Trump says he wants to do is bad. He says that he wants a big infrastructure program. This is badly needed both to modernize our infrastructure and also to create jobs. Trump’s proposed tax cuts will provide a boost to demand that will generate jobs as well. It’s horribly targeted in giving most of the benefits to the rich, but it will still lead to more consumption and therefore more demand and jobs. This may finally give the economy enough stimulus to restore the labor market to its pre-recession strength. That will be good, especially since the beneficiaries of the job growth and the stronger labor market will be disproportionately African American and Hispanic and less-educated workers. Now, I will get to some specifics. Read more…
from Dean Baker
Globalization and technology are routinely cited as drivers of inequality over the last four decades. While the relative importance of these causes is disputed, both are often viewed as natural and inevitable products of the working of the economy, rather than as the outcomes of deliberate policy. In fact, both the course of globalization and the distribution of rewards from technological innovation are very much the result of policy. Insofar as they have led to greater inequality, this has been the result of conscious policy choices.
Starting with globalization, there was nothing pre-determined about a pattern of trade liberalization that put U.S. manufacturing workers in direct competition with their much lower paid counterparts in the developing world. Instead, that competition was the result of trade pacts written to make it as easy as possible for U.S. corporations to invest in the developing world to take advantage of lower labor costs, and then ship their products back to the United States. The predicted and actual result of this pattern of trade has been to lower wages for manufacturing workers and non-college educated workers more generally, as displaced manufacturing workers crowd into other sectors of the economy. Read more…
from Dean Baker
The establishment is trying to pull a big one over on the public yet again. One of the designated topics for the last presidential debate goes under the heading, “debt and entitlements.” This should have people upset for several reasons.
The first is simply the use of the term “entitlements.” While this has a clear meaning to policy wonks, it is likely that most viewers won’t immediately know that “entitlements” means the Social Security and Medicare their parents receive. It’s a lot easier for politicians to talk about cutting wasteful “entitlements” than taking away seniors’ Social Security and Medicare.
The ostensible purpose of the debate is to allow voters to be better informed about the candidates’ views. So if the purpose is conveying information, why not use terms that most voters will understand?
But the semantics are the less important part of the problem. Why is it that Social Security and Medicare are linked to debt? These are not the only programs that entail future commitments of resources.
For example, our military budget involves large commitments of future resources. New weapon systems can require decades to develop and produce. We commit ourselves not only to the annual salaries of current soldiers, but also many decades of veterans’ benefits. And, when we make military commitments through policies like the expansion of the North American Free Trade Agreement, we are potentially obligating ourselves to vast expenditures in future conflicts.
Many of the government’s largest commitments of future resources do not even appear in the budget. When the government grants a patent or copyright monopoly, it is allowing the holder to effectively tax the public for decades into the future. Read more…
from Dean Baker
Most workers suffer serious consequences when they mess up on their jobs. Custodians get fired if the toilet is not clean. Dishwashers lose their job when they break too many dishes, but not all workers are held accountable for the quality of their work.
At the top of the list of people who need not be competent to keep their job are economists. Unlike workers in most occupations, when large groups of economists mess up they can count on the media covering up their mistakes and insisting it was just impossible to understand what was going on.
This is first and foremost the story of the housing bubble. While it was easy to recognize that theUnited States and many other countries were seeing massive bubbles that were driving their economies, which meant that their collapse would lead to major recessions, the vast majority of economists insisted there was nothing to worry about.
The bubbles did burst, leading to a financial crisis, double-digit unemployment in many countries, and costing the world tens of trillions of dollars of lost output. The media excused this extraordinary failure by insisting that no one saw the bubble and that it was impossible to prevent this sort of economic and human disaster. Almost no economists suffered any consequences to their career as a result of this failure. The “experts” who determined policy in the years after the crash were the same people who completely missed seeing the crash coming.
We are now seeing the same story with trade. The NYT has a major magazine article on the impact of trade on the living standards of workers in the United States and other wealthy countries. The subhead tells readers: Read more…
from Dean Baker
Last week marked the eighth anniversary of the collapse of Lehman Brothers, the huge Wall Street investment bank. This bankruptcy sent financial markets into a panic with the remaining investment banks, like Goldman Sachs and Morgan Stanley, set to soon topple. The largest commercial banks, like Citigroup and Bank of America, were not far behind on the death watch.
The cascade of collapses was halted when the Fed and Treasury went into full-scale bailout mode. They lent trillions of dollars to failing banks at below market interest rates. They also promised the markets that there would be “no more Lehmans” to use former Treasury Secretary Timothy Geithner’s term.
This promise was incredibly valuable in a time of crisis. It meant that investors could lend freely to Goldman and Citigroup without fear that their loans would not be repaid — they had the Treasury and the Fed standing behind them.
The public has every right to be furious about this set of events eight years ago, as well what has happened subsequently. First, everything about the crisis caught the country’s leading economists by surprise. Somehow, the country’s leading economists both could not see an $8 trillion housing bubble, nor could they understand how its collapse would seriously damage the economy. This bubble was clearly driving the economy prior to the crash, it is difficult to envision what these economists thought would replace the demand lost when the bubble burst. Read more…
from Cherrie Bucknor and Dean Baker
The 4.9 percent unemployment rate is getting close to most economists’ estimates of full employment. In fact, it is below many estimates from recent years and some current ones. Many policy types, including some at the Federal Reserve Board, take this as evidence that it’s necessary to raise interest rates in order to keep the unemployment rate from falling too low and triggering a round of spiraling inflation.
The argument on the other side is first and foremost there is zero evidence that inflation is about to start spiraling upward. The Fed’s key measure, the core personal consumption expenditure deflator, remains well below the Fed’s target and shows no evidence of acceleration. The same is true of most wage growth measures.
But there is also good reason for skepticism on the current unemployment rate as a useful measure of labor market tightness. Other measures of labor market tightness, such as the percentage of workers employed part-time for economic reasons and the share of unemploymentdue to voluntary quits, remain close to recession levels.
Most importantly, there has been a sharp drop in labor force participation rates. As a result, in spite of the relatively low unemployment rate, the employment rate is still close to 3.0 percentage points below its pre-recession level. This story holds up even if we restrict ourselves to looking at prime-age workers (between the ages of 25–54), with an EPOP that is close to 2.0 percentage points below pre-recession levels and almost 4.0 percentage points below 2000 peaks. Read more…
As UK productivity growth falls to zero, John Harris at the Guardian tells readers that technology is making old workplace relations obsolete
from Dean Baker
The efforts by many elite types to deny basic statistics and to tout the new technologies transforming the workplace are truly Trumpian in their nature. According to the OECD, productivity growth in the UK was essentially zero between 2007 and 2014 (the most recent year for which it has data). So we would naturally expect that the Guardian would run a column telling us that globalization and new technologies are making old workplace relations obsolete.
As John Harris tells readers:
“In a world in which businesses can survey their order books on an hourly basis and temporarily hire staff at the touch of a button, why would they base their arrangements on agreements that last for years?”
Well, a big part of the story is that the UK (like the U.S.) has a very weak labor market. This was a result of conscious policy decisions. The Conservative government put in a policy of austerity that had the effect of reducing demand in the UK and slowing the rate of job creation. In this context, of course employers get to call the shots.
Serious people would address the context which has denied workers bargaining power. It is not “technology” as Harris and his elite Trumpians would like to pretend, it is macroeconomic policy. But Harris has no time for talking about macroeconomic policy. He dismisses a plan put forward by Labor Party Leader Jeremy Corbyn to produce full employment as, “either naive or dishonest” adding “but they reflect delusions that run throughout Labour and the left.”
There we have it, in elite Trumpland we don’t have to deal with data or arguments; we can just dismiss people and ideas with ad hominem arguments. Read more…
from Dean Baker
While Elizabeth Warren is praising the European Union’s crackdown on Apple’s Ireland tax scheme, Jack Lew and the Obama Treasury Department are going to bat for corporate tax cheating. Warren is far too optimistic about the prospect of a successful crackdown. These folks are prepared to spend a lot of money to hide their profits from tax authorities and they are likely to find accomplices in many Irelands around the world.
It would be good to look in a different direction. I remain a big fan of my proposal for companies to turn over non-voting shares of stock to the government. In that case, what goes to the shareholders also goes to the government. Unless you cheat your shareholders, you can’t cheat the government.
I know this is probably too simple to be taken seriously in policy circles, but those who care about an efficient and effective way to collect corporate taxes should be thinking about it.
from Dean Baker
Donald Trump seems to have driven a substantial portion of the media into a frenzy with his anti-trade rhetoric. While much of what Trump says is wrong, and his solutions are at best ill-defined, the response in the press has largely been dishonest.
For example, a New York Times editorial tried to imply that there was an ambiguous relationship between the size of the trade deficit and employment in manufacturing. It pointed out that Japan and Germany, both countries with trade surpluses, had seen a comparable percentage decline in the number of workers employed in manufacturing as the United States over the last quarter-century.
What the editorial for some reason chose to ignore was that Japan and Germany have seen near-stagnant labor force growth over the last quarter-century. Other things equal, we should therefore expect to see a smaller increase or larger percentage point decline in manufacturing jobs in these countries than in the United States, where the labor force has grown by more than 25 percent over this period.
The editorial also neglected to mention that Japan now has just under 17 percent of its workforce employed in manufacturing, while in Germany the share is almost 20 percent. This compares to 8.6 percent in the United States. If the United States had the same share of its workforce employed in manufacturing as Japan, we would have another 11 million manufacturing jobs. If we had the same share as Germany, we would have another 16 million manufacturing jobs. That would make a huge difference in the US labor market. Read more…
from Dean Baker
The prospects for the Trans-Pacific Partnership (TPP) are not looking very good right now. Both parties’ presidential candidates have come out against the deal. Donald Trump has placed it at the top of his list of bad trade deals that he wants to stop or reverse. Hillary Clinton had been a supporter as secretary of state, but has since joined the opposition in response to overwhelming pressure from the Democratic base.
As a concession to President Obama, the Democratic platform does not explicitly oppose the TPP. However it does include unambiguous language opposing investor-state dispute settlement mechanisms — the extra-judicial tribunals that are an integral part of the TPP.
If the political prospects look bleak there also is not much that can be said for the economic merits of the pact. The classic story of gaining from free trade by removing trade barriers doesn’t really apply to the TPP primarily because we have already removed most of the barriers between the countries in the pact.
The United States has trade deals in place with six of the 11 countries in the TPP, so tariffs with these countries are already at or very near zero. Even with the other five countries, in most cases the formal trade barriers are already low, so pushing them to zero will not have much economic impact. Read more…
from Dean Baker
Thanks in large part to Sen. Bernie Sanders, the Democratic Party recently added a financial transactions tax to its platform. In his run for the presidential nomination, Sanders had promoted the idea of an FTT — a small sales tax on the purchase of stocks, bonds or other financial assets — as a way to finance free college for everyone, with money left over for infrastructure and other important needs. The idea has currency beyond the platform, too: Rep. Peter A. DeFazio (D-Ore.) recently reintroduced an earlier proposal for a tax of 3 cents on every 100 dollars on most financial transactions.
Talk of FTTs scares the financial industry: They would significantly reduce the industry’s revenue and profits. As soon as anyone starts taking FTTs seriously, the industry immediately begins issuing dire warnings — which, unsurprisingly, almost always amount to nonsense.
Of late, the industry has taken to pretending that the real victims of an FTT won’t be the high rollers on Wall Street, but rather middle-class families. If families have 401(k)s, industry complainers say, they will have to pay more for the trades done by the people who manage their funds. Likewise, if they have a traditional pension, each trade made by the pension will cost more.
There’s a basic problem with the industry’s logic. A great deal of research shows that trading of stock and other financial assets is hugely responsive to the cost of trading. In fact, most research shows that if the cost of trading goes up by a certain amount — say 20% — the number of trades will fall by an even larger amount, say 25%. Read more…
from Dean Baker
Paul Krugman actually did not make any predictions on the stock market, so those looking to get investment advice from everyone’s favorite Nobel Prize winning economist will be disappointed. But he did make some interesting comments on the market’s new high. Some of these are on the mark, but some could use some further elaboration.
I’ll start with what is right. First, Krugman points out that the market is horrible as a predictor of the future of the economy. The market was also at a record high in the fall of 2007. This was more than a full year after the housing bubble’s peak. At the time, house prices were falling at a rate of more than 1 percent a month, eliminating more than $200 billion of homeowner’s equity every month. Somehow the wizards of Wall Street did not realize this would cause problems for the economy. The idea that the Wall Street gang has some unique insight into the economy is more than a bit far-fetched.
The second point where Krugman is right on the money (yes, pun intended) is that the market is supposed to be giving us the value of future profits, not an assessment of the economy. This is the story if we think of the stock market acting in textbook form where all investors have perfect foresight. The news that the economy will boom over the next decade, but the profit share will plummet as workers get huge pay increases, would be expected to give us a plunging stock market. Conversely, weak growth coupled with a rising profit share should mean a rising market. Even in principle the stock market is not telling us about the future of the economy, it is telling us about the future of corporate profits.
Okay, now for a few points where Krugman’s comments could use a bit deeper analysis. Read more…
from Dean Baker
Sorry folks, this isn’t Trump University, I don’t have the plan for you to get rich quick. But it is important for everyone to understand exactly why Bill Gates is very rich. It’s called “copyright protection.”
If that sounds strange, imagine a world where everyone could make as many copies as they liked of Windows, Microsoft’s Office Suite and any other software at no cost. They would only have to send Bill Gates a thank you note, if they felt like it. Bill Gates is undoubtedly a very smart and ambitious guy, but in the world without copyright protection, it is highly unlikely that he would be the world’s richest person.
This point may be simple and obvious, but it seems to have been lost on most of the people arguing about inequality. In these discussions we hear continual expressions of concern over how technology is behind the massive upward redistribution of income we have seen in the last four decades. This upward redistribution is usually treated as an unfortunate fact of nature. Even if we don’t like to see the rich continually get richer at the expense of the rest of society, what can we do, stop technology? A little serious thinking could go a long way. Read more…
from Dean Baker
Paul Krugman devoted his column on Friday to a mild critique of the drive to take the United Kingdom out of the European Union. The reason the column was somewhat moderate in its criticisms of the desire to leave EU is that Krugman sympathizes with the complaints of many in the UK and elsewhere about the bureaucrats in Brussels being unaccountable to the public. This is of course right, but it is worth taking the issue here a step further.
If we expect to hold people accountable then they have to face consequences for doing their job badly. In particular, if they mess up really badly then they should be fired. There is a whole economics literature on the importance of being able to fire workers as a way of ensuring work discipline. Unfortunately this never seems to apply to the people at the top. And this is seen most clearly in the cases of those responsible for economic policy in the European Union.
The European Central Bank (ECB) was amazingly negligent in its failure to recognize the dangers of the housing bubbles in Spain, Ireland, and elsewhere. Its response to the downturn was also incredibly inept, needlessly pushing many countries to the brink of default, thereby inflating interest rates to stratospheric levels. Nonetheless, when Jean-Claude Trichet retired as head of the bank in 2011, he was applauded for his years of service and patted himself on the back for keeping inflation under the bank’s 2.0 percent. (For those arguing that this was the bank’s exclusive mandate, it is worth noting that Mario Draghi, his successor, is operating under the same mandate. He nonetheless sees it as the bank’s job to maintain financial stability and promote growth.)
from Dean Baker
More than eight years after the start of the Great Recession, our labor market is far from recovering by most measures. At 5 percent, the current unemployment rate is not very different from its pre-recession level, but the main reason it is so low is that millions of people have given up looking for work and dropped out of the labor force. These people are no longer counted as being unemployed.
And contrary to what is often claimed, this is not a story of retiring baby boomers. The percentage of the prime age population (people between the ages of 25-54) that is working is down by 2 full percentage points from its pre-recession level. This translates into 2.5 million people who have given up looking for work at an age where they should be at the peak of their working career. That looks like pretty solid evidence of a weak labor market.
There are two ways to deal with a situation in which the number of people who want to work exceeds the number of jobs. The first is to increase demand in the economy, thereby increasing the demand for workers. We could in principle do this with increased government spending, but people don’t like budget deficits.
Reducing the size of the trade deficit would also increase demand, but this requires that our politicians make trade deficits a priority, which is not likely.
Some politicians claim that they have a magic formula that will cause companies to go on an investment spree. Unfortunately, the magic seems to work only in the elections, never once they are in office. Read more…
from Dean Baker
Eduardo Porter used his NYT column this week to remind us that we have seen people like Donald Trump before and it didn’t turn out well. Porter is of course right, but it is worth carrying the argument a bit further.
Hitler came to power following the devastating peace terms that the allies imposed on Germany following World War I. This lead to first the hyper-inflation that we will continue to hear about until the end of time, and then austerity and high unemployment that was the immediate economic environment in which Hitler came to power.
The point that we should all take away is that there was nothing natural about the desperate situation that many Germans found themselves in when they turned to Hitler for relief. Their desperation was the result of conscious economic decisions made by both the leaders of the victorious countries as well as the leaders of the Weimar Republic. (It is not as though the latter had any good choices.) Nothing can excuse support for a genocidal maniac, but we should be clear about what prompted the German people to turn in that direction.
When we look at the rise of Trump and other right-wing populists across Western Europe, we see people responding to similar decisions by their leaders. The European Commission has imposed austerity across the euro zone largely at the insistence of Germany. It is not clear what economic theory explains the infatuation with austerity, but nonetheless it is now the golden rule across Europe. The U.K. has gone in the same direction even though it is not bound by the euro rules. Even Denmark has been making cuts to its health care system and other aspects of its welfare state in spite of the fact that its debt to GDP ratio is less than 10.0 percent and it is running a massive trade surplus.