Okay, Brownstein didn’t use the word “fake,” but that is the position he described in his CNN column. Brownstein argues that the Democrats predominately live in tech centers like Seattle and the Bay area which export large amounts of high tech products and services. He argues these tech areas won’t be helped by Trump’s steel tariffs and could be hurt by retaliation from foreign countries.
While it is true that these areas will not be helped by steel tariffs it is dishonest to say that these industries support free trade. The tech sector is hugely dependent on protectionism in the form of patent and copyright protection. These government-granted monopolies raise the price of protected items by factors or ten or even a hundred over the free market price, making them the equivalent of tariffs of several thousand percent or even tens of thousands percent.
There is a rationale for this protectionism, as there is for all protectionism. This is the government’s way to provide incentives for innovation and creative work. But there are other, more efficient, mechanisms for financing innovation and creative work that would not put so much money in the pockets of high tech sectors. The people who insist on longer and stronger patent and copyright protections, and use trade deals to lock them in domestically and impose them on other countries are protectionists, not free traders. (This is discussed in my [free] book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer, chapter 5.)
It is also worth noting that most of Brownstein’s “free traders” are just fine with the protectionist barriers that insulate doctors and other highly paid professionals from foreign competition. In the case of doctors these barriers have created a situation in which the average pay of our doctors is roughly twice as high as it is in other wealthy countries (see Rigged, chapter 7).
Protectionism for doctors costs us roughly $100 billion a year in higher health care costs. This is ten times as much as the amount of money at stake with the steel tariffs. All the people who apparently are fine with the barriers that prevent foreign doctors from competing with U.S. doctors are protectionists, not free traders.
Okay, Brownstein didn’t use the word “fake,” but that is the position he described in his CNN column. Brownstein argues that the Democrats predominately live in tech centers like Seattle and the Bay area which export large amounts of high tech products and services. He argues these tech areas won’t be helped by Trump’s steel tariffs and could be hurt by retaliation from foreign countries.
While it is true that these areas will not be helped by steel tariffs it is dishonest to say that these industries support free trade. The tech sector is hugely dependent on protectionism in the form of patent and copyright protection. These government-granted monopolies raise the price of protected items by factors or ten or even a hundred over the free market price, making them the equivalent of tariffs of several thousand percent or even tens of thousands percent.
There is a rationale for this protectionism, as there is for all protectionism. This is the government’s way to provide incentives for innovation and creative work. But there are other, more efficient, mechanisms for financing innovation and creative work that would not put so much money in the pockets of high tech sectors. The people who insist on longer and stronger patent and copyright protections, and use trade deals to lock them in domestically and impose them on other countries are protectionists, not free traders. (This is discussed in my [free] book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer, chapter 5.)
It is also worth noting that most of Brownstein’s “free traders” are just fine with the protectionist barriers that insulate doctors and other highly paid professionals from foreign competition. In the case of doctors these barriers have created a situation in which the average pay of our doctors is roughly twice as high as it is in other wealthy countries (see Rigged, chapter 7).
Protectionism for doctors costs us roughly $100 billion a year in higher health care costs. This is ten times as much as the amount of money at stake with the steel tariffs. All the people who apparently are fine with the barriers that prevent foreign doctors from competing with U.S. doctors are protectionists, not free traders.
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The Washington Post has long used both its opinion pages and news section to advance its agenda on trade. It is famous for inventing a GDP boom in Mexico to push the case for NAFTA. More than a decade ago it ran an editorial claiming that Mexico’s GDP quadrupled between 1987 and 2007, which it attributed to NAFTA.
The actual number was 84.2 percent, according to the I.M.F. In spite of this gross error, the paper has never run a correction.
Given the Post’s history on trade, it was not surprising to see a piece (“The obsolete number that drives Trump’s China obsession and how to fix it”) telling readers that China’s trade surplus with the United States is actually much smaller Donald Trump thinks it is. The gist of the piece is that China’s trade surplus with the U.S. is actually considerably smaller than the standard data reported by the Commerce Department. The reason is that much of what China exports includes inputs from other countries, including the United States.
The piece offers up the example of the iPhone, which is assembled in China. In the trade data the full value of the iPhone is counted as a Chinese export and a U.S. import, but most of the value actually comes from inputs produced in other countries. By counting the full value of the finished product as an export from China we are seriously overstating the value of exports from China.
While this point is entirely accurate, there is a flip side to this issue which the piece amazingly ignores. While much of the value-added in products imported from China originates in other countries, much of the value-added in our imports from other countries originates in China. China is a huge exporter not only to the United States, but to Japan, Korea, Europe, and elsewhere.
If we want to do a serious value-added analysis of our trade balance with China we would not only subtract out the foreign value-added in Chinese exports, we would also add in the Chinese value-added in our imports from other countries. It would take some serious work to calculate the total figure (see Rob Scott’s analysis), but the deficit would clearly be larger than the one the piece calculates by just pulling out the foreign value-added in Chinese exports.
The Washington Post has long used both its opinion pages and news section to advance its agenda on trade. It is famous for inventing a GDP boom in Mexico to push the case for NAFTA. More than a decade ago it ran an editorial claiming that Mexico’s GDP quadrupled between 1987 and 2007, which it attributed to NAFTA.
The actual number was 84.2 percent, according to the I.M.F. In spite of this gross error, the paper has never run a correction.
Given the Post’s history on trade, it was not surprising to see a piece (“The obsolete number that drives Trump’s China obsession and how to fix it”) telling readers that China’s trade surplus with the United States is actually much smaller Donald Trump thinks it is. The gist of the piece is that China’s trade surplus with the U.S. is actually considerably smaller than the standard data reported by the Commerce Department. The reason is that much of what China exports includes inputs from other countries, including the United States.
The piece offers up the example of the iPhone, which is assembled in China. In the trade data the full value of the iPhone is counted as a Chinese export and a U.S. import, but most of the value actually comes from inputs produced in other countries. By counting the full value of the finished product as an export from China we are seriously overstating the value of exports from China.
While this point is entirely accurate, there is a flip side to this issue which the piece amazingly ignores. While much of the value-added in products imported from China originates in other countries, much of the value-added in our imports from other countries originates in China. China is a huge exporter not only to the United States, but to Japan, Korea, Europe, and elsewhere.
If we want to do a serious value-added analysis of our trade balance with China we would not only subtract out the foreign value-added in Chinese exports, we would also add in the Chinese value-added in our imports from other countries. It would take some serious work to calculate the total figure (see Rob Scott’s analysis), but the deficit would clearly be larger than the one the piece calculates by just pulling out the foreign value-added in Chinese exports.
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The NYT had an article profiling Christopher Liddell, who is currently the Trump administration’s director of strategic initiatives and is apparently a top candidate to replace Gary Cohn as head of the National Economic Council. In recounting his career, the piece notes that Liddell had been the chief financial officer at Microsoft.
The piece later presents a comment on trade from Liddell:
“I think the days of unbridled free trade and unbridled free markets are over.”
“I worked in the private sector all my life, so I’m a believer in free markets, but not unbridled free markets […]And we’ve had 30 years since the mid-’80s, both in New Zealand and here in the U.S. and globally, of basically free markets being driving the whole thinking, the whole rhetoric around governing. I think those days are over, personally. I think we’re going to go through a circular trend of a much more restrained free market.”
Of course, we have not had free markets, as the government has actively structured markets in a variety of ways. In particular, Microsoft, the company at which Mr. Liddell served as Chief Financial Officer, benefited enormously from government-granted patent and copyright monopolies. These forms of protection are equivalent to tariffs of many thousand percent, raising the price of protected items by a factors of ten or even a hundred or more.
It is ironic that someone who had benefited so much from government intervention would somehow claim that this is a free market.
The NYT had an article profiling Christopher Liddell, who is currently the Trump administration’s director of strategic initiatives and is apparently a top candidate to replace Gary Cohn as head of the National Economic Council. In recounting his career, the piece notes that Liddell had been the chief financial officer at Microsoft.
The piece later presents a comment on trade from Liddell:
“I think the days of unbridled free trade and unbridled free markets are over.”
“I worked in the private sector all my life, so I’m a believer in free markets, but not unbridled free markets […]And we’ve had 30 years since the mid-’80s, both in New Zealand and here in the U.S. and globally, of basically free markets being driving the whole thinking, the whole rhetoric around governing. I think those days are over, personally. I think we’re going to go through a circular trend of a much more restrained free market.”
Of course, we have not had free markets, as the government has actively structured markets in a variety of ways. In particular, Microsoft, the company at which Mr. Liddell served as Chief Financial Officer, benefited enormously from government-granted patent and copyright monopolies. These forms of protection are equivalent to tariffs of many thousand percent, raising the price of protected items by a factors of ten or even a hundred or more.
It is ironic that someone who had benefited so much from government intervention would somehow claim that this is a free market.
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As Robert Samuelson tells us in his weekly column in the Washington Post, there is a big market for people saying that things are great. Samuelson cites a number of authors and statistics telling readers that things are getting better.
He then speculates about why we have so much pessimism. He suggests that the media is at fault for using the word “crisis” too frequently and tells us:
“But some of today’s pessimism is simply a political fad. It ‘became fashionable, starting in academia and expanding to the public square, brought there by politicians [and] social media,’ Easterbrook [economist Gregg Easterbrook] writes. ‘Today the conventional wisdom is that any informed person should feel the world is falling apart.'”
Of course, the other plausible explanation is that most of the workforce in the United States has seen stagnating wages over the last four decades even as those at the top have become incredibly rich. And, the incredibly rich don’t like to highlight this fact, so there is a big market for people saying that everything is great.
As Robert Samuelson tells us in his weekly column in the Washington Post, there is a big market for people saying that things are great. Samuelson cites a number of authors and statistics telling readers that things are getting better.
He then speculates about why we have so much pessimism. He suggests that the media is at fault for using the word “crisis” too frequently and tells us:
“But some of today’s pessimism is simply a political fad. It ‘became fashionable, starting in academia and expanding to the public square, brought there by politicians [and] social media,’ Easterbrook [economist Gregg Easterbrook] writes. ‘Today the conventional wisdom is that any informed person should feel the world is falling apart.'”
Of course, the other plausible explanation is that most of the workforce in the United States has seen stagnating wages over the last four decades even as those at the top have become incredibly rich. And, the incredibly rich don’t like to highlight this fact, so there is a big market for people saying that everything is great.
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Most data indicate relatively little acceleration in wage growth overall, but as I have noted the Current Population Survey shows more rapid wage growth at middle and especially the bottom end of the wage distribution over the last three years. The “Workforce Vitality Index” produced by ADP, shows a similar picture.
Its most recent survey shows hourly wage growth of more than 6.0 percent for workers earning less than $20,000 a year and 5.6 percent for workers earning $20,000 to $50,000 a year. This compares to increases of 5.4 percent and 5.0 percent in the 3rd quarter of 2014, the first period in the sample. By comparison, wages increased 3.4 percent on the most recent quarter for workers earning more than $75,000 a year, virtually the same as the 3.3 percent increase in the 3rd quarter of 2014. (These are figures for job holders — found on page 5.)
This supports the view that the tightening of the labor market has disproportionately benefited those at the bottom end of the wage distribution. It also should be a warning of bad effects if the Fed moves too aggressively in raising interest rates and causes the unemployment rate to rise.
Most data indicate relatively little acceleration in wage growth overall, but as I have noted the Current Population Survey shows more rapid wage growth at middle and especially the bottom end of the wage distribution over the last three years. The “Workforce Vitality Index” produced by ADP, shows a similar picture.
Its most recent survey shows hourly wage growth of more than 6.0 percent for workers earning less than $20,000 a year and 5.6 percent for workers earning $20,000 to $50,000 a year. This compares to increases of 5.4 percent and 5.0 percent in the 3rd quarter of 2014, the first period in the sample. By comparison, wages increased 3.4 percent on the most recent quarter for workers earning more than $75,000 a year, virtually the same as the 3.3 percent increase in the 3rd quarter of 2014. (These are figures for job holders — found on page 5.)
This supports the view that the tightening of the labor market has disproportionately benefited those at the bottom end of the wage distribution. It also should be a warning of bad effects if the Fed moves too aggressively in raising interest rates and causes the unemployment rate to rise.
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Well, it is the era of Donald Trump in Washington, but this turning reality on its head pre-dated Trump. Anyhow, the Washington Post was in its full trade deal promotion mode when it announced the signing of the Trans-Pacific Partnership (TPP) by the other eleven countries who had been negotiating the pact with the United States.
The headline of the piece tells readers, “as Trump imposes tariffs, allies sign on to free-trade pact — without US” The first sentence proclaims:
“As the Trump administration took another step away from free trade on Thursday, 11 nations bordering the Pacific Ocean made an equally loud statement in favor of free trade.”
The piece reads largely like an editorial in favor of the TPP. It includes no comments from critics of the pact and ignores the fact that the TPP did little to actually reduce trade barriers since most of these were already low. The United States already had trade pacts with six of the other eleven countries in the pact.
The TPP was mostly about locking in a business-friendly structure of regulation, including special tribunals (investor–state dispute settlement tribunals) which would only be open to foreign investors. These tribunals would effectively override US or state and local laws, imposing penalties for actions that the tribunal ruled to be in violation of the TPP.
A major thrust of the deal was also longer and stronger patent and copyright protections, with higher prices for prescription drugs being a major goal. This is of course 180 degrees at odds with free trade, but apparently, the paper likes the beneficiaries of these protections, so it simply turns reality on its head to promote them.
Well, it is the era of Donald Trump in Washington, but this turning reality on its head pre-dated Trump. Anyhow, the Washington Post was in its full trade deal promotion mode when it announced the signing of the Trans-Pacific Partnership (TPP) by the other eleven countries who had been negotiating the pact with the United States.
The headline of the piece tells readers, “as Trump imposes tariffs, allies sign on to free-trade pact — without US” The first sentence proclaims:
“As the Trump administration took another step away from free trade on Thursday, 11 nations bordering the Pacific Ocean made an equally loud statement in favor of free trade.”
The piece reads largely like an editorial in favor of the TPP. It includes no comments from critics of the pact and ignores the fact that the TPP did little to actually reduce trade barriers since most of these were already low. The United States already had trade pacts with six of the other eleven countries in the pact.
The TPP was mostly about locking in a business-friendly structure of regulation, including special tribunals (investor–state dispute settlement tribunals) which would only be open to foreign investors. These tribunals would effectively override US or state and local laws, imposing penalties for actions that the tribunal ruled to be in violation of the TPP.
A major thrust of the deal was also longer and stronger patent and copyright protections, with higher prices for prescription drugs being a major goal. This is of course 180 degrees at odds with free trade, but apparently, the paper likes the beneficiaries of these protections, so it simply turns reality on its head to promote them.
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Ruchir Sharma had an NYT column warning about the risks of a trade war from the tariffs Trump is imposing on steel and aluminum imports. At one point the piece tells readers about rising protectionism across the world and says that as a result, “trade has yet to recover to its pre-crisis level.”
The measure of trade the article gives is merchandise trade as a percent of world GDP. This measure is misleading since a major factor reducing this ratio is a fall in oil and other commodity prices. Before the crisis oil prices rose sharply, peaking at $150 a barrel in 2008. Other commodity prices also were very high in the years just before the recession.
The reduction in prices for commodities is a major factor in reducing the ratio of trade to GDP. In the case of oil, with more than 40 million barrels trade daily, a drop of $50 a barrel in the price would reduce the volume of world trade by more than $750 billion a year, or roughly one percent of world GDP. There is a similar story with other commodities.
It is also worth noting that weaker and shorter patent and copyright protections would also lead to a lower ratio of trade to GDP. If drugs are traded across borders at generic prices rather than patent-protected prices, this ratio will fall even though the volume of trade can be rising.
Royalties and licensing fees are not picked up in this measure since it is explicitly merchandise trade, which would exclude payments for services. This is another factor that would tend to depress the ratio. As the world economy shifts from goods production to services, it is pretty much inevitable that the ratio of merchandise trade to GDP drops over time.
This doesn’t mean that Sharma is necessarily wrong about a rise in trade barriers over the last decade (certainly patent and copyright protections are getting stronger), only that the measure he uses to back up this assertion is not very useful.
Ruchir Sharma had an NYT column warning about the risks of a trade war from the tariffs Trump is imposing on steel and aluminum imports. At one point the piece tells readers about rising protectionism across the world and says that as a result, “trade has yet to recover to its pre-crisis level.”
The measure of trade the article gives is merchandise trade as a percent of world GDP. This measure is misleading since a major factor reducing this ratio is a fall in oil and other commodity prices. Before the crisis oil prices rose sharply, peaking at $150 a barrel in 2008. Other commodity prices also were very high in the years just before the recession.
The reduction in prices for commodities is a major factor in reducing the ratio of trade to GDP. In the case of oil, with more than 40 million barrels trade daily, a drop of $50 a barrel in the price would reduce the volume of world trade by more than $750 billion a year, or roughly one percent of world GDP. There is a similar story with other commodities.
It is also worth noting that weaker and shorter patent and copyright protections would also lead to a lower ratio of trade to GDP. If drugs are traded across borders at generic prices rather than patent-protected prices, this ratio will fall even though the volume of trade can be rising.
Royalties and licensing fees are not picked up in this measure since it is explicitly merchandise trade, which would exclude payments for services. This is another factor that would tend to depress the ratio. As the world economy shifts from goods production to services, it is pretty much inevitable that the ratio of merchandise trade to GDP drops over time.
This doesn’t mean that Sharma is necessarily wrong about a rise in trade barriers over the last decade (certainly patent and copyright protections are getting stronger), only that the measure he uses to back up this assertion is not very useful.
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That’s the question NYT readers are asking after reading the lead sentence of an article on the signing of an agreement by the other eleven countries that had been part of the Trans-Pacific Partnership (TPP). The sentence tells readers:
“A trade pact originally conceived by the United States to counter China’s growing economic might in Asia now has a new target: President Trump’s embrace of protectionism.”
If the point of the trade pact was to counter China’s influence then it may not have been wise to turn over the structuring of the deal to corporate interests who dominated the working groups that crafted the individual chapters of the TPP. As a result of turning the crafting of the deal to industry groups, provisions such as longer and stronger patent and copyright protections will raise the prices of drugs and other items for the countries in the TPP.
It is not clear how making it more difficult for countries to pay for health care would be expected to counter China’s growing economic might. The provisions on e-commerce could make it more difficult for countries to regulate Facebook and other social media companies so that they would have a harder time preventing the sort of fake postings that have been an important factor in U.S. politics. It is also not clear how such rules would help counter China’s growing economic might.
The piece also includes projections from the Peterson Institute, a strong proponent of the TPP, that might mislead readers. It tells readers:
“Once it goes into effect, the agreement should generate an additional $147 billion in global income, according to an analysis by the Peterson Institute for International Economics. Its backers say it also will bolster protections for intellectual property and include language that could prod members to improve labor conditions.”
This projection for growth, which is more than twice the projection issued by the United States International Trade Commission, will be equal to roughly 0.08 percent of GDP in 2032, the point where these gains are expected to be realized. This is roughly equal to one week of growth.
The projection from the Peterson Institute also does not take account of any losses from the longer and stronger patent and copyright-related protections in the pact. These protections, which can raise the price of drugs and other protected items by more than a hundred-fold, are equivalent to tariffs of many thousand percent. It is entirely possible that the distortions from these protections more than offset any gains from reducing already low trade barriers.
That’s the question NYT readers are asking after reading the lead sentence of an article on the signing of an agreement by the other eleven countries that had been part of the Trans-Pacific Partnership (TPP). The sentence tells readers:
“A trade pact originally conceived by the United States to counter China’s growing economic might in Asia now has a new target: President Trump’s embrace of protectionism.”
If the point of the trade pact was to counter China’s influence then it may not have been wise to turn over the structuring of the deal to corporate interests who dominated the working groups that crafted the individual chapters of the TPP. As a result of turning the crafting of the deal to industry groups, provisions such as longer and stronger patent and copyright protections will raise the prices of drugs and other items for the countries in the TPP.
It is not clear how making it more difficult for countries to pay for health care would be expected to counter China’s growing economic might. The provisions on e-commerce could make it more difficult for countries to regulate Facebook and other social media companies so that they would have a harder time preventing the sort of fake postings that have been an important factor in U.S. politics. It is also not clear how such rules would help counter China’s growing economic might.
The piece also includes projections from the Peterson Institute, a strong proponent of the TPP, that might mislead readers. It tells readers:
“Once it goes into effect, the agreement should generate an additional $147 billion in global income, according to an analysis by the Peterson Institute for International Economics. Its backers say it also will bolster protections for intellectual property and include language that could prod members to improve labor conditions.”
This projection for growth, which is more than twice the projection issued by the United States International Trade Commission, will be equal to roughly 0.08 percent of GDP in 2032, the point where these gains are expected to be realized. This is roughly equal to one week of growth.
The projection from the Peterson Institute also does not take account of any losses from the longer and stronger patent and copyright-related protections in the pact. These protections, which can raise the price of drugs and other protected items by more than a hundred-fold, are equivalent to tariffs of many thousand percent. It is entirely possible that the distortions from these protections more than offset any gains from reducing already low trade barriers.
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Yes, I am on vacation, but I had to take a break from my vacation to call attention to the amazing act of mind reading in a Washington Post article on the Trump administration’s effort to nix federal funding for a new transit tunnel between New York City and New Jersey. While the piece notes the possibility that Trump’s opposition to the project may be an act of political vengeance directed at Senate Minority Leader Charles E. Schumer, it tells readers:
“But Trump and his aides have come to take a different view of the project, seeing it as a potential boondoggle that should be funded by New York and New Jersey taxpayers.”
Wow, isn’t it fantastic that we have Washington Post reporters who can tell us how Trump and his aides actually “see” the project? After all, it might otherwise be hard to believe that anyone who wants to spend $25 billion on a wall along the Mexican border could see anything as a boondoggle.
Yes, I am on vacation, but I had to take a break from my vacation to call attention to the amazing act of mind reading in a Washington Post article on the Trump administration’s effort to nix federal funding for a new transit tunnel between New York City and New Jersey. While the piece notes the possibility that Trump’s opposition to the project may be an act of political vengeance directed at Senate Minority Leader Charles E. Schumer, it tells readers:
“But Trump and his aides have come to take a different view of the project, seeing it as a potential boondoggle that should be funded by New York and New Jersey taxpayers.”
Wow, isn’t it fantastic that we have Washington Post reporters who can tell us how Trump and his aides actually “see” the project? After all, it might otherwise be hard to believe that anyone who wants to spend $25 billion on a wall along the Mexican border could see anything as a boondoggle.
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