One of the central themes in the Republican drive to repeal Dodd-Frank is the claim that it has made it difficult for businesses to get credit. This assertion is often given the he said/she said treatment, as in this Washington Post piece today. (Actually, it’s often just given the he said treatment, where the assertion is accepted as fact, with the question being whether a reduction in business credit is worth making the banking industry safer.)
There is actually evidence that we can look to in order to assess the ability of businesses to get credit in the Dodd-Frank era. On the one hand we can look at the interest rate on high-yield bonds as being the cost of capital to many mid-size firms that are big enough to get access to the bond market, but still far too risky to qualify as investment grade.
Rates in this market, as well as spreads against Treasury bonds, have been extraordinarily low in recent years. In fact, there were so low that Fed chair Janet Yellen warned against a bubble in this market in the summer of 2014. The other major piece of evidence is the self-assessment of businesses of the problems they face in getting credit.
The National Federation of Independent Businesses (NFIB) has been surveying its members on the problems they face in their business. They explicitly ask about credit conditions. In recent years, this has been a very minor problem and in fact last year hit record lows for the survey.
While all surveys have methodological issues, there is no reason to believe that the NFIB would tilt its findings to make credit look like less of a problem than it actually is. Nor is plausible that credit could be a major problem for a substantial portion of U.S. businesses but not for the businesses included in the NFIB survey.
In short, we do have evidence on the question of Dodd-Frank undermining access to business credit and it is unambiguous, it has not posed a major problem. The claim that Dodd-Frank has prevented businesses from expanding and undermined the recovery is one of those alternative facts that is so popular in political debates these days. It should not be taken seriously.
One of the central themes in the Republican drive to repeal Dodd-Frank is the claim that it has made it difficult for businesses to get credit. This assertion is often given the he said/she said treatment, as in this Washington Post piece today. (Actually, it’s often just given the he said treatment, where the assertion is accepted as fact, with the question being whether a reduction in business credit is worth making the banking industry safer.)
There is actually evidence that we can look to in order to assess the ability of businesses to get credit in the Dodd-Frank era. On the one hand we can look at the interest rate on high-yield bonds as being the cost of capital to many mid-size firms that are big enough to get access to the bond market, but still far too risky to qualify as investment grade.
Rates in this market, as well as spreads against Treasury bonds, have been extraordinarily low in recent years. In fact, there were so low that Fed chair Janet Yellen warned against a bubble in this market in the summer of 2014. The other major piece of evidence is the self-assessment of businesses of the problems they face in getting credit.
The National Federation of Independent Businesses (NFIB) has been surveying its members on the problems they face in their business. They explicitly ask about credit conditions. In recent years, this has been a very minor problem and in fact last year hit record lows for the survey.
While all surveys have methodological issues, there is no reason to believe that the NFIB would tilt its findings to make credit look like less of a problem than it actually is. Nor is plausible that credit could be a major problem for a substantial portion of U.S. businesses but not for the businesses included in the NFIB survey.
In short, we do have evidence on the question of Dodd-Frank undermining access to business credit and it is unambiguous, it has not posed a major problem. The claim that Dodd-Frank has prevented businesses from expanding and undermined the recovery is one of those alternative facts that is so popular in political debates these days. It should not be taken seriously.
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While intellectual types are writing all sorts of grand treatises on how automation is going to take all the jobs and leave most people unemployed, the folks at the Bureau of Labor Statistics who actually collect the data haven’t gotten the message. They released data today on productivity growth (this is the measure of the rate at which automation is reducing the need for labor) for the 4th quarter of 2016.
The data showed that productivity grew at a 1.3 percent annual rate in the 4th quarter and is now 1.0 percent higher than it was a year ago. This is roughly the same pace that productivity has grown for the last decade. It is an extremely slow rate of productivity growth. Productivity had grown at close to a 3.0 percent rate from 1995 to 2005 and also in the long Golden Age from 1947 to 1973.
In other words, instead of automation moving along at an incredibly rapid rate leading to mass displacement of workers, it is actually advancing very slowly. We can put the threat of automation in the alternative facts category, albeit in the category of alternative facts that appeals to intellectual-types.
While intellectual types are writing all sorts of grand treatises on how automation is going to take all the jobs and leave most people unemployed, the folks at the Bureau of Labor Statistics who actually collect the data haven’t gotten the message. They released data today on productivity growth (this is the measure of the rate at which automation is reducing the need for labor) for the 4th quarter of 2016.
The data showed that productivity grew at a 1.3 percent annual rate in the 4th quarter and is now 1.0 percent higher than it was a year ago. This is roughly the same pace that productivity has grown for the last decade. It is an extremely slow rate of productivity growth. Productivity had grown at close to a 3.0 percent rate from 1995 to 2005 and also in the long Golden Age from 1947 to 1973.
In other words, instead of automation moving along at an incredibly rapid rate leading to mass displacement of workers, it is actually advancing very slowly. We can put the threat of automation in the alternative facts category, albeit in the category of alternative facts that appeals to intellectual-types.
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During his presidential campaign Donald Trump frequently talked about how he used campaign contributions as payoffs to advance his business interests. He boasted that if you give politicians money they have to do what you want. In an apparent effort to further advance his business interests, Donald Trump is pushing a plan that would allow him to get taxpayer subsidies for these payoffs.
He proposed a plan that would overturn current law, so that tax-exempt churches could get directly involved in political campaigns. (The NYT article is inaccurately headlined, saying that Trump would end “law banning political endorsements by churches.” There is no law that blocks churches from making political endorsements. The law only blocks endorsements by organizations with tax-exempt status.)
If Congress follows the path proposed by Trump, he would be able to make tax-deductible donations to a church-like organization, which would then pass them on as payoffs to politicians of Mr. Trump’s choosing. This would mean, for example, that he could donate $100 million to the First Church of Trump. Since this donation would be tax deductible, he would get 40 percent, or $40 million, written off of his taxes. The Church of Trump would then make contributions to the candidates of Trump’s choosing. He would then call upon these politicians for favors he needs to boost his businesses profits.
It will be interesting to see if the same Congress will be able to vote for both cuts to people’s health care and subsidies to Donald Trump’s political payoffs.
During his presidential campaign Donald Trump frequently talked about how he used campaign contributions as payoffs to advance his business interests. He boasted that if you give politicians money they have to do what you want. In an apparent effort to further advance his business interests, Donald Trump is pushing a plan that would allow him to get taxpayer subsidies for these payoffs.
He proposed a plan that would overturn current law, so that tax-exempt churches could get directly involved in political campaigns. (The NYT article is inaccurately headlined, saying that Trump would end “law banning political endorsements by churches.” There is no law that blocks churches from making political endorsements. The law only blocks endorsements by organizations with tax-exempt status.)
If Congress follows the path proposed by Trump, he would be able to make tax-deductible donations to a church-like organization, which would then pass them on as payoffs to politicians of Mr. Trump’s choosing. This would mean, for example, that he could donate $100 million to the First Church of Trump. Since this donation would be tax deductible, he would get 40 percent, or $40 million, written off of his taxes. The Church of Trump would then make contributions to the candidates of Trump’s choosing. He would then call upon these politicians for favors he needs to boost his businesses profits.
It will be interesting to see if the same Congress will be able to vote for both cuts to people’s health care and subsidies to Donald Trump’s political payoffs.
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The discussion of the Trump administration’s view of the value of the dollar by Neil Irwin is somewhat confused. Irwin wrongly asserts that Treasury secretarys have always argued for a strong dollar:
“If you asked the Treasury secretary his view of the dollar, the answer would be equally rote: ‘A strong dollar is in the interest of the United States.'”
This is not true. There have been many occasions in the past when Treasury secretaries have quite openly worked to bring down the value of the dollar. In the mid-1980s, Reagan’s Treasury secretary James Baker met with his counterparts in major trading partners to negotiate a decline in the value of the dollar in the Plaza Accord. The point was quite explicitly to reduce the U.S. trade deficit.
There was a similar story in the early years of the Clinton administration. A main goal of his deficit reduction package was to lower the value of the dollar, thereby reducing the U.S. trade deficit. Lloyd Bentsen, Clinton’s first Treasury secretary indicated he was content to see the dollar fall in response to the decline in interest rates in the United States.
The strong-dollar policy began with Robert Rubin becoming Treasury secretary. This led to an explosion in the U.S. trade deficit and the massive imbalances that led to the housing bubble and the Great Recession that followed its collapse. So, a strong dollar hardly has a solid pedigree either in economic theory or reality.
The piece also perversely warns that is a border adjustment tax isn’t fully offset by a rise in the value of the dollar:
“…the tax would hit American consumers and retailers hard.”
If the Trump administration wants the dollar to fall then it must have the intention of increasing import prices. This generally doesn’t “hit American consumers and retailers hard” because the net effect on the price of most items they buy is limited. (Recall the huge rise in prices associated with the 30 percent drop in the dollar from 2002 to 2008? Yeah, no one else does either.)
In other words, higher import prices is a feature, not a bug. It is a necessary aspect of a policy intended to reduce the trade deficit and create more jobs in manufacturing.
The discussion of the Trump administration’s view of the value of the dollar by Neil Irwin is somewhat confused. Irwin wrongly asserts that Treasury secretarys have always argued for a strong dollar:
“If you asked the Treasury secretary his view of the dollar, the answer would be equally rote: ‘A strong dollar is in the interest of the United States.'”
This is not true. There have been many occasions in the past when Treasury secretaries have quite openly worked to bring down the value of the dollar. In the mid-1980s, Reagan’s Treasury secretary James Baker met with his counterparts in major trading partners to negotiate a decline in the value of the dollar in the Plaza Accord. The point was quite explicitly to reduce the U.S. trade deficit.
There was a similar story in the early years of the Clinton administration. A main goal of his deficit reduction package was to lower the value of the dollar, thereby reducing the U.S. trade deficit. Lloyd Bentsen, Clinton’s first Treasury secretary indicated he was content to see the dollar fall in response to the decline in interest rates in the United States.
The strong-dollar policy began with Robert Rubin becoming Treasury secretary. This led to an explosion in the U.S. trade deficit and the massive imbalances that led to the housing bubble and the Great Recession that followed its collapse. So, a strong dollar hardly has a solid pedigree either in economic theory or reality.
The piece also perversely warns that is a border adjustment tax isn’t fully offset by a rise in the value of the dollar:
“…the tax would hit American consumers and retailers hard.”
If the Trump administration wants the dollar to fall then it must have the intention of increasing import prices. This generally doesn’t “hit American consumers and retailers hard” because the net effect on the price of most items they buy is limited. (Recall the huge rise in prices associated with the 30 percent drop in the dollar from 2002 to 2008? Yeah, no one else does either.)
In other words, higher import prices is a feature, not a bug. It is a necessary aspect of a policy intended to reduce the trade deficit and create more jobs in manufacturing.
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According to the Wall Street Journal, Donald Trump and the Republicans in Congress are looking to get rid of the Dodd-Frank financial reform bill and to repeal the fiduciary rule which requires financial advisers to give advice that is in the best interest of their clients. Without this rule, many financial advisers would give advice to clients suggesting they invest in products which may not be good for them, but pay the advisers a high commission.
While the fiduciary rule and the consumer protections in Dodd-Frank are often portrayed as being important for consumers, which they are, they also serve an important economic purpose. If we make it more difficult to make profits by designing deceptive profits, then banks and other financial institutions will have to do things like offering better service and lower fees to attract customers. While ripping off customers is simply a form of redistribution (from customers to bankers and shareholders) providing better service and products is economic growth. In other words, people who care about growth rather than redistributing income upward should be in favor of these regulations.
According to the Wall Street Journal, Donald Trump and the Republicans in Congress are looking to get rid of the Dodd-Frank financial reform bill and to repeal the fiduciary rule which requires financial advisers to give advice that is in the best interest of their clients. Without this rule, many financial advisers would give advice to clients suggesting they invest in products which may not be good for them, but pay the advisers a high commission.
While the fiduciary rule and the consumer protections in Dodd-Frank are often portrayed as being important for consumers, which they are, they also serve an important economic purpose. If we make it more difficult to make profits by designing deceptive profits, then banks and other financial institutions will have to do things like offering better service and lower fees to attract customers. While ripping off customers is simply a form of redistribution (from customers to bankers and shareholders) providing better service and products is economic growth. In other words, people who care about growth rather than redistributing income upward should be in favor of these regulations.
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Thomas Edsall has an interesting piece on the turn to right-wing populists in the United States and elsewhere in recent years. While he connects the turn to the right to economic hardship for the working class, he leaves out an important part of the story. The economic hardship for the working class was actually to a large extent the result of policies supported by the Democratic Party in the United States and social democratic parties across Europe.
In the United States, the Democratic Party supported trade, financial, and intellectual property policies that had the effect of redistributing income upward. In the case of trade, deals like NAFTA and the Trans-Pacific Partnership (TPP), were quite explicitly designed to put U.S. manufacturing workers in direct competition with low-paid workers in the developing world. The predicted and actual outcome of these policies is a loss of manufacturing jobs and downward pressure on the wages of non-college educated workers more generally. This policy was aggravated by the decision of the Clinton administration to push a high dollar policy that caused the trade deficit to explode.
At the same time, the self proclaimed “free traders” in the Democratic Party favored policies that protected doctors, dentists, and lawyers from the same sort of international competition. It’s not surprising that working class voters would not be pleased with a party that was working to take away their jobs and push down their pay, and derided them as stupid “protectionists” for opposing the policies, even while they personally were benefiting from protectionists policies.
In this vein, longer and stronger patent and copyright protections also have the effect of redistributing upward. Similarly, the regulatory policies directed towards the financial industry, including free too big to fail insurance, also have the effect of redistributing upward.
In Europe, the push for needless austerity, which has generally been embraced by social democratic parties, both directly and indirectly hurt the working class. The direct effect shows up in cuts in areas like health care, education, and pensions. The indirect effect is high unemployment and lower wages.
For these reasons, it is not surprising working class voters would not be happy with the establishment parties they have traditionally supported even if the right-wing populists may not offer a coherent economic alternative. (Yes, this is largely the point of my (free) book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.
Thomas Edsall has an interesting piece on the turn to right-wing populists in the United States and elsewhere in recent years. While he connects the turn to the right to economic hardship for the working class, he leaves out an important part of the story. The economic hardship for the working class was actually to a large extent the result of policies supported by the Democratic Party in the United States and social democratic parties across Europe.
In the United States, the Democratic Party supported trade, financial, and intellectual property policies that had the effect of redistributing income upward. In the case of trade, deals like NAFTA and the Trans-Pacific Partnership (TPP), were quite explicitly designed to put U.S. manufacturing workers in direct competition with low-paid workers in the developing world. The predicted and actual outcome of these policies is a loss of manufacturing jobs and downward pressure on the wages of non-college educated workers more generally. This policy was aggravated by the decision of the Clinton administration to push a high dollar policy that caused the trade deficit to explode.
At the same time, the self proclaimed “free traders” in the Democratic Party favored policies that protected doctors, dentists, and lawyers from the same sort of international competition. It’s not surprising that working class voters would not be pleased with a party that was working to take away their jobs and push down their pay, and derided them as stupid “protectionists” for opposing the policies, even while they personally were benefiting from protectionists policies.
In this vein, longer and stronger patent and copyright protections also have the effect of redistributing upward. Similarly, the regulatory policies directed towards the financial industry, including free too big to fail insurance, also have the effect of redistributing upward.
In Europe, the push for needless austerity, which has generally been embraced by social democratic parties, both directly and indirectly hurt the working class. The direct effect shows up in cuts in areas like health care, education, and pensions. The indirect effect is high unemployment and lower wages.
For these reasons, it is not surprising working class voters would not be happy with the establishment parties they have traditionally supported even if the right-wing populists may not offer a coherent economic alternative. (Yes, this is largely the point of my (free) book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.
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The response to Donald Trump’s ban on Muslim immigrants has been reassuring. Millions of people have acted in various ways to express their opposition to this blatant act of bigotry. But as part of this story, we are being told that immigrants everywhere and always benefit all workers.
Far be it from me to criticize this great wisdom, which we can find in this Wonkblog post by Christopher Ingraham. So let’s pretend that the people making this assertion have a shred of integrity. How about getting rid of the restrictions that make it extremely difficult for foreign doctors and dentists to practice in the United States?
Currently, foreign doctors are banned from practicing unless they complete a U.S. residency program. Foreign dentists are prohibiting from practicing in the United States unless they graduate a U.S. dental school. (We have allowed graduates of Canadian schools since 2011.) As a result of these protectionist measures our doctors earn on average more than twice as much as doctors in other wealthy countries, netting more than $250,000 a year. Our dentists also get paid twice as much, averaging close to $200,000 a year. This protectionism costs us close to $100 billion a year in higher health care costs.
So we all agree that protectionism is bad and that we want more immigrants, so how about it? Will we tear down the walls barring qualified doctors and dentists, or are all of our open border types not really sincere?
The response to Donald Trump’s ban on Muslim immigrants has been reassuring. Millions of people have acted in various ways to express their opposition to this blatant act of bigotry. But as part of this story, we are being told that immigrants everywhere and always benefit all workers.
Far be it from me to criticize this great wisdom, which we can find in this Wonkblog post by Christopher Ingraham. So let’s pretend that the people making this assertion have a shred of integrity. How about getting rid of the restrictions that make it extremely difficult for foreign doctors and dentists to practice in the United States?
Currently, foreign doctors are banned from practicing unless they complete a U.S. residency program. Foreign dentists are prohibiting from practicing in the United States unless they graduate a U.S. dental school. (We have allowed graduates of Canadian schools since 2011.) As a result of these protectionist measures our doctors earn on average more than twice as much as doctors in other wealthy countries, netting more than $250,000 a year. Our dentists also get paid twice as much, averaging close to $200,000 a year. This protectionism costs us close to $100 billion a year in higher health care costs.
So we all agree that protectionism is bad and that we want more immigrants, so how about it? Will we tear down the walls barring qualified doctors and dentists, or are all of our open border types not really sincere?
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That’s not exactly what he said but pretty damn close. Since you get thrown out of elite circles if you question the merits of the Trans-Pacific Partnership (TPP), the members are doubling down. They are insisting that terrible things will happen now that the TPP is dead.
David Leonhardt picked up the mantle in his NYT column today telling readers to counteract China, the countries of the region supported the TPP. He says they were:
“…willing to adopt American-style rules on intellectual property, pollution and labor unions, even though those rules created some political tensions in those countries.”
Among the rules on intellectual property was the retroactive extension of copyrights, requiring that countries protect works created in the past for at least 75 years. The retroactive extension of copyrights makes virtually no sense. Copyright monopolies are supposed to provide an incentive to produce creative work. While longer copyrights can in principle provide more incentive going forward they can’t provide incentive for past behavior.
Retroactive copyright extension has been a practice in the United States in large part to keep Mickey Mouse under copyright protection. The length of copyright has twice been extended retroactively in the United States as a result of Disney’s ability to lobby Congress.
This sort of protectionism is very costly. The Obama administration, at the request of the entertainment industry, the software industry, and pharmaceutical industry, insisted on stronger and longer patent and copyright related protections in the TPP. Unfortunately, the projections of the economic impact of the TPP do not take account of the costs of these protections.
Anyhow, it is worth noting these handouts to politically powerful corporations. If the future of the free world depends on the TPP, as Leonhardt argues here, then maybe it shouldn’t have included measures that will hugely raise the cost of everything from prescription drugs to software to Mickey Mouse memorabilia.
That’s not exactly what he said but pretty damn close. Since you get thrown out of elite circles if you question the merits of the Trans-Pacific Partnership (TPP), the members are doubling down. They are insisting that terrible things will happen now that the TPP is dead.
David Leonhardt picked up the mantle in his NYT column today telling readers to counteract China, the countries of the region supported the TPP. He says they were:
“…willing to adopt American-style rules on intellectual property, pollution and labor unions, even though those rules created some political tensions in those countries.”
Among the rules on intellectual property was the retroactive extension of copyrights, requiring that countries protect works created in the past for at least 75 years. The retroactive extension of copyrights makes virtually no sense. Copyright monopolies are supposed to provide an incentive to produce creative work. While longer copyrights can in principle provide more incentive going forward they can’t provide incentive for past behavior.
Retroactive copyright extension has been a practice in the United States in large part to keep Mickey Mouse under copyright protection. The length of copyright has twice been extended retroactively in the United States as a result of Disney’s ability to lobby Congress.
This sort of protectionism is very costly. The Obama administration, at the request of the entertainment industry, the software industry, and pharmaceutical industry, insisted on stronger and longer patent and copyright related protections in the TPP. Unfortunately, the projections of the economic impact of the TPP do not take account of the costs of these protections.
Anyhow, it is worth noting these handouts to politically powerful corporations. If the future of the free world depends on the TPP, as Leonhardt argues here, then maybe it shouldn’t have included measures that will hugely raise the cost of everything from prescription drugs to software to Mickey Mouse memorabilia.
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The New York Times ran a piece discussing in detail Republican efforts to repeal the financial reform bill passed under President Obama. The piece includes a quote from Representative Jeb Hensarling, the chairman of the House Financial Services Committee:
“Republicans on the Financial Services Committee are eager to work with the president and his administration to unclog the arteries of our financial system so the lifeblood of capital can flow more freely and create jobs.”
It would have been worth noting that the claim businesses are unable to get capital in the current environment has nothing to do with reality. The National Federation of Independent Businesses has been conducting surveys of its members for more than forty years. Their survey finds that access to credit today is less of a problem now than at almost any previous time.
It would have been useful to point this fact out to readers so that they would know that Mr. Hensarling either has no idea what he is talking about or is deliberately lying to advance his agenda for repealing Dodd-Frank.
The New York Times ran a piece discussing in detail Republican efforts to repeal the financial reform bill passed under President Obama. The piece includes a quote from Representative Jeb Hensarling, the chairman of the House Financial Services Committee:
“Republicans on the Financial Services Committee are eager to work with the president and his administration to unclog the arteries of our financial system so the lifeblood of capital can flow more freely and create jobs.”
It would have been worth noting that the claim businesses are unable to get capital in the current environment has nothing to do with reality. The National Federation of Independent Businesses has been conducting surveys of its members for more than forty years. Their survey finds that access to credit today is less of a problem now than at almost any previous time.
It would have been useful to point this fact out to readers so that they would know that Mr. Hensarling either has no idea what he is talking about or is deliberately lying to advance his agenda for repealing Dodd-Frank.
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The Fed raised interest rates last month because they said the economy was getting close to full employment and they were worried about accelerating inflation. The data do not provide much support for this concern.
Last week the Commerce Department reported that the core personal consumption expenditure deflator rose at just a 1.3 percent annual rate in the fourth quarter. This is well below the 2.0 percent average rate targeted by the Fed.
This morning the Bureau of Labor Statistics reported that the Employment Cost Index, which includes benefits and not just wages, rose at 2.0 percent annual rate in the fourth quarter and has risen just 2.2 percent over the last year.
The latest data suggest that inflation might even slowing rather than rising, indicating that there is no reason whatsoever for the Fed to weaken the labor market and slow job growth with further rate hikes. In other words, the Fed is shooting at phantom inflation.
The Fed raised interest rates last month because they said the economy was getting close to full employment and they were worried about accelerating inflation. The data do not provide much support for this concern.
Last week the Commerce Department reported that the core personal consumption expenditure deflator rose at just a 1.3 percent annual rate in the fourth quarter. This is well below the 2.0 percent average rate targeted by the Fed.
This morning the Bureau of Labor Statistics reported that the Employment Cost Index, which includes benefits and not just wages, rose at 2.0 percent annual rate in the fourth quarter and has risen just 2.2 percent over the last year.
The latest data suggest that inflation might even slowing rather than rising, indicating that there is no reason whatsoever for the Fed to weaken the labor market and slow job growth with further rate hikes. In other words, the Fed is shooting at phantom inflation.
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