Yet again the Washington Post tries to tell readers that trade has not been a major factor in the loss of manufacturing jobs in this century. It concluded an interesting piece on Ford’s decision to cancel plans for a plant in Mexico by telling readers:
“The president-elect has argued that trade policy has quashed American livelihoods, encouraging businesses to seek cheaper labor in other countries. He has criticized Ford, General Motors and Carrier on Twitter for shuttling work south of the border.
“A study last year from the Center for Business and Economic Research at Ball State University, a school in the manufacturing heartland, tells a different story. Co-author Michael Hicks, an economics professor, found that advances in technology caused far more job loss. That’s because automation has enabled factories to produce more goods with fewer people.“
Actually, automation is not new. It’s called “productivity growth” and has been going on for centuries, often much faster than it is today. As we can see, manufacturing employment remained roughly even, with cyclical ups and downs, from 1970 to 2000. It then plunged as the trade deficit exploded to almost 6.0 percent of GDP in 2005 and 2006 ($1.1 trillion in today’s economy).
Manufacturing Employment
Source: Bureau of Labor Statistics.
The basic story is that manufacturing employment was declining as a share of total employment through this whole period and undoubtedly would have continued to do so regardless of what happened with trade. However, the sharp plunge in employment that we saw in the years 2000 to 2007 (pre-crash) was due to the trade deficit.
It is remarkable that the Washington Post feels so much need to deny this simple fact. It is in the same vein as its refusal to correct its 2007 editorial claiming that NAFTA had led Mexico’s GDP to quadruple between 1987 and 2007. The actual number is 83 percent according to I.M.F data. A serious newspaper would correct such an egregious error.
Yet again the Washington Post tries to tell readers that trade has not been a major factor in the loss of manufacturing jobs in this century. It concluded an interesting piece on Ford’s decision to cancel plans for a plant in Mexico by telling readers:
“The president-elect has argued that trade policy has quashed American livelihoods, encouraging businesses to seek cheaper labor in other countries. He has criticized Ford, General Motors and Carrier on Twitter for shuttling work south of the border.
“A study last year from the Center for Business and Economic Research at Ball State University, a school in the manufacturing heartland, tells a different story. Co-author Michael Hicks, an economics professor, found that advances in technology caused far more job loss. That’s because automation has enabled factories to produce more goods with fewer people.“
Actually, automation is not new. It’s called “productivity growth” and has been going on for centuries, often much faster than it is today. As we can see, manufacturing employment remained roughly even, with cyclical ups and downs, from 1970 to 2000. It then plunged as the trade deficit exploded to almost 6.0 percent of GDP in 2005 and 2006 ($1.1 trillion in today’s economy).
Manufacturing Employment
Source: Bureau of Labor Statistics.
The basic story is that manufacturing employment was declining as a share of total employment through this whole period and undoubtedly would have continued to do so regardless of what happened with trade. However, the sharp plunge in employment that we saw in the years 2000 to 2007 (pre-crash) was due to the trade deficit.
It is remarkable that the Washington Post feels so much need to deny this simple fact. It is in the same vein as its refusal to correct its 2007 editorial claiming that NAFTA had led Mexico’s GDP to quadruple between 1987 and 2007. The actual number is 83 percent according to I.M.F data. A serious newspaper would correct such an egregious error.
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Folks undoubtedly heard about Donald Trump’s boast about getting Ford to keep jobs in the U.S. rather than investing in a new plant in Mexico. The decision seems to have more to do with Ford’s product mix than anything that Trump did with his boast and bully strategy, but whatever. We’re getting used to a guy that would take credit for the sun rising and gives us jobs that you can count on your fingers. (To be clear, I think it would be great if Donald Trump pushes policies that bring (or save) good-paying manufacturing jobs to the United States, but we’re interested in policies that affect millions of jobs, not press shows with hundreds of jobs.)
Anyhow, one aspect of these Ford jobs that has not gotten sufficient attention is that the only reason they exist is because of President Obama’s policy on combating global warming. As the NYT article points out, the plant in Michigan where production is being increased produces hybrid and electric cars. These cars were given subsidies as part of President Obama’s efforts to curb greenhouse gas emissions. This was part of Obama’s strategy to combat global warming.
As folks may recall, Donald Trump has said that global warming is a hoax invented by the Chinese. It turns out that President Obama’s response to this hoax is responsible for creating the jobs that Trump claims to have saved.
Folks undoubtedly heard about Donald Trump’s boast about getting Ford to keep jobs in the U.S. rather than investing in a new plant in Mexico. The decision seems to have more to do with Ford’s product mix than anything that Trump did with his boast and bully strategy, but whatever. We’re getting used to a guy that would take credit for the sun rising and gives us jobs that you can count on your fingers. (To be clear, I think it would be great if Donald Trump pushes policies that bring (or save) good-paying manufacturing jobs to the United States, but we’re interested in policies that affect millions of jobs, not press shows with hundreds of jobs.)
Anyhow, one aspect of these Ford jobs that has not gotten sufficient attention is that the only reason they exist is because of President Obama’s policy on combating global warming. As the NYT article points out, the plant in Michigan where production is being increased produces hybrid and electric cars. These cars were given subsidies as part of President Obama’s efforts to curb greenhouse gas emissions. This was part of Obama’s strategy to combat global warming.
As folks may recall, Donald Trump has said that global warming is a hoax invented by the Chinese. It turns out that President Obama’s response to this hoax is responsible for creating the jobs that Trump claims to have saved.
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Yes, I know Peter Peterson is a major source of employment in Washington and that the Washington Post editors and many pundits would have to look for substantive issues to talk about if they couldn’t whine about the debt, but really it is time for these folks to grow up. The immediate provocation here is Steven Rattner’s NYT column giving “2016 in Charts.”
Most of the charts are actually quite interesting and useful, but then he ends the piece with a tirade about the prospects for the national debt under a Trump administration. Rattner warns:
“These huge tax giveaways — along with Mr. Trump’s promises to increase infrastructure spending and not touch Social Security and Medicare — would blow up the deficit and add $4 trillion to the national debt over the next 10 years over and above current projections.”
Just to be clear, there is no reason to be giving more money to Donald Trump’s billionaire friends as he proposes, but the argument is not that it will “blow up” the deficit and add to the debt. The argument is that this money could be much better used educating our children, improving our infrastructure, and making health care affordable, among other things.
The debt stuff is just silliness that we really need to get over. The problem of an actually excessive debt would show itself in high interest rates and high inflation rates. Have you checked those measures lately? Long-term interest rates are still way below their levels from the late 1990s when the government was running surpluses. And inflation remains persistently below the Fed’s 2.0 percent target and in recent months has edged downward. (And, for those keeping score at home, the government’s ratio of interest payments to GDP is near a post-World War II low.)
Furthermore, the whole focus on the debt encourages sloppy thinking that has no place in serious policy discussions. The government makes obligations for us all the time that don’t take the form of explicit debt. Donald Trump wants to have private companies spend a trillion dollars building infrastructure that they will then recoup in tolls. How do these tolls differ from taxes? So we would be doing bad things to our kids if we financed infrastructure with debt, but then taxed to repay the bonds, but if private companies charge the same amount (most likely much more) in tolls, everything is cool?
To take a much more important example, grants of patent and copyright monopolies are ways in which the government finances innovation and creative work. We pay $430 billion a year for prescription drugs that would likely cost around $60 billion in a free market without patents and related protection. (Yes, you can read more in my [free] book, Rigged.) If the government imposed a tax of $370 billion a year on drugs being sold in a free market the deficit hawks would be yelling and screaming about high taxes, but when we give drug companies a legal monopoly so that they can add this amount to the price of drugs it’s no big deal?
Okay, this is just silliness. We need discussions of the economy that are serious. When people scream about debt and deficits they are not being serious. The national debt is not a real measure of anything and folks should know that even if the “experts” don’t.
Yes, I know Peter Peterson is a major source of employment in Washington and that the Washington Post editors and many pundits would have to look for substantive issues to talk about if they couldn’t whine about the debt, but really it is time for these folks to grow up. The immediate provocation here is Steven Rattner’s NYT column giving “2016 in Charts.”
Most of the charts are actually quite interesting and useful, but then he ends the piece with a tirade about the prospects for the national debt under a Trump administration. Rattner warns:
“These huge tax giveaways — along with Mr. Trump’s promises to increase infrastructure spending and not touch Social Security and Medicare — would blow up the deficit and add $4 trillion to the national debt over the next 10 years over and above current projections.”
Just to be clear, there is no reason to be giving more money to Donald Trump’s billionaire friends as he proposes, but the argument is not that it will “blow up” the deficit and add to the debt. The argument is that this money could be much better used educating our children, improving our infrastructure, and making health care affordable, among other things.
The debt stuff is just silliness that we really need to get over. The problem of an actually excessive debt would show itself in high interest rates and high inflation rates. Have you checked those measures lately? Long-term interest rates are still way below their levels from the late 1990s when the government was running surpluses. And inflation remains persistently below the Fed’s 2.0 percent target and in recent months has edged downward. (And, for those keeping score at home, the government’s ratio of interest payments to GDP is near a post-World War II low.)
Furthermore, the whole focus on the debt encourages sloppy thinking that has no place in serious policy discussions. The government makes obligations for us all the time that don’t take the form of explicit debt. Donald Trump wants to have private companies spend a trillion dollars building infrastructure that they will then recoup in tolls. How do these tolls differ from taxes? So we would be doing bad things to our kids if we financed infrastructure with debt, but then taxed to repay the bonds, but if private companies charge the same amount (most likely much more) in tolls, everything is cool?
To take a much more important example, grants of patent and copyright monopolies are ways in which the government finances innovation and creative work. We pay $430 billion a year for prescription drugs that would likely cost around $60 billion in a free market without patents and related protection. (Yes, you can read more in my [free] book, Rigged.) If the government imposed a tax of $370 billion a year on drugs being sold in a free market the deficit hawks would be yelling and screaming about high taxes, but when we give drug companies a legal monopoly so that they can add this amount to the price of drugs it’s no big deal?
Okay, this is just silliness. We need discussions of the economy that are serious. When people scream about debt and deficits they are not being serious. The national debt is not a real measure of anything and folks should know that even if the “experts” don’t.
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This fact was implicit in a NYT piece that discussed the extent to which U.S. medical schools are expanding enrollments. The piece notes that the number of doctors in the United States is limited by the requirement that they complete a U.S. residency program. It doesn’t give any indication that this protectionist restriction might be removed or weakened in the years ahead.
As a result of this protectionism, U.S. doctors earn on average more than twice as much as their counterparts in Germany, France, and other wealthy countries. This costs the country close to $100 billion a year in higher health care costs. Because of the political power of doctors, there is little public debate over this protectionism and news outlets like the NYT rarely even mention it.
This fact was implicit in a NYT piece that discussed the extent to which U.S. medical schools are expanding enrollments. The piece notes that the number of doctors in the United States is limited by the requirement that they complete a U.S. residency program. It doesn’t give any indication that this protectionist restriction might be removed or weakened in the years ahead.
As a result of this protectionism, U.S. doctors earn on average more than twice as much as their counterparts in Germany, France, and other wealthy countries. This costs the country close to $100 billion a year in higher health care costs. Because of the political power of doctors, there is little public debate over this protectionism and news outlets like the NYT rarely even mention it.
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Alright, that is not entirely fair, but when the NYT told readers that Germany’s unemployment rate is 6.0 percent it seriously misled readers. The issue is that this figure refers to Germany’s unemployment rate as calculated by Germany’s government. This measure counts workers who are employed part-time, but want full-time jobs, as being unemployed. By contrast, the standard measure of the unemployment rate in the United States counts these workers as being employed.
This would be reasonable if the German government measure was the only one available, but it isn’t. The OECD calculates a harmonized unemployment rate that is essentially the same as the unemployment rate generally used for the United States. By this measure Germany’s unemployment rate is just 4.0 percent.
The NYT can be partially forgiven since this was a Reuters story that it made available on its web site. (I don’t know if it ran in the print edition.) Still, it would not be hard to add a sentence either explaining the difference or alternatively including the OECD measure.
In this same vein, and it’s a new year, let me also harp on the practice of printing other country’s growth rates as quarterly figures. While the rate of GDP growth is always expressed as an annual rate in the United States, most other countries express their growth as a quarterly rate. Typically this raises the U.S. growth rate by a factor of four. For example, a 0.5 percent quarterly growth rate translates into a 2.0 percent annual rate. (To be precise, the growth rate should be taken to the fourth power. For low growth rates this will typically be the same as multiplying by four.)
Anyhow, articles often appear in the NYT and elsewhere that just print the growth rate as a quarterly rate, frequently without even pointing out that it is a quarterly rate. This gives readers an inaccurate impression of the growth rate in other countries.
It really should not be too much to expect a newspaper to convert the growth rates to annualized rates. After all, the reporters are more likely to have the time to do this than the readers. And, this is supposed to be about providing information to readers, right?
Alright, that is not entirely fair, but when the NYT told readers that Germany’s unemployment rate is 6.0 percent it seriously misled readers. The issue is that this figure refers to Germany’s unemployment rate as calculated by Germany’s government. This measure counts workers who are employed part-time, but want full-time jobs, as being unemployed. By contrast, the standard measure of the unemployment rate in the United States counts these workers as being employed.
This would be reasonable if the German government measure was the only one available, but it isn’t. The OECD calculates a harmonized unemployment rate that is essentially the same as the unemployment rate generally used for the United States. By this measure Germany’s unemployment rate is just 4.0 percent.
The NYT can be partially forgiven since this was a Reuters story that it made available on its web site. (I don’t know if it ran in the print edition.) Still, it would not be hard to add a sentence either explaining the difference or alternatively including the OECD measure.
In this same vein, and it’s a new year, let me also harp on the practice of printing other country’s growth rates as quarterly figures. While the rate of GDP growth is always expressed as an annual rate in the United States, most other countries express their growth as a quarterly rate. Typically this raises the U.S. growth rate by a factor of four. For example, a 0.5 percent quarterly growth rate translates into a 2.0 percent annual rate. (To be precise, the growth rate should be taken to the fourth power. For low growth rates this will typically be the same as multiplying by four.)
Anyhow, articles often appear in the NYT and elsewhere that just print the growth rate as a quarterly rate, frequently without even pointing out that it is a quarterly rate. This gives readers an inaccurate impression of the growth rate in other countries.
It really should not be too much to expect a newspaper to convert the growth rates to annualized rates. After all, the reporters are more likely to have the time to do this than the readers. And, this is supposed to be about providing information to readers, right?
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The NYT had an editorial arguing that major corporations are helping Donald Trump lie about job creation in order to get favors from his administration. The main example is the Japanese investment firm Soft Bank, which allowed Trump to get away with taking credit for investment decisions which had been announced in October, before Donald Trump was elected. It argues that Soft Bank is hoping that Trump will allow a merger between its Sprint subsidiary and T-Mobile. This merger had been opposed by the Obama administration because it would reduce competition in the cell phone industry. It would likely also result in the loss of a substantial number of jobs.
It is worth noting that such phony claims of job creation can only be effective for Trump if the media allow it. If the headline of the news stories was something to the effect of “Trump again makes phony job claim,” with the article carefully explaining that Trump had nothing to with creating any jobs, it is likely that Trump would give up on the tactic. Of course this would require the media to engage in objective reporting even if it ends up being very critical of a particular politician.
The NYT had an editorial arguing that major corporations are helping Donald Trump lie about job creation in order to get favors from his administration. The main example is the Japanese investment firm Soft Bank, which allowed Trump to get away with taking credit for investment decisions which had been announced in October, before Donald Trump was elected. It argues that Soft Bank is hoping that Trump will allow a merger between its Sprint subsidiary and T-Mobile. This merger had been opposed by the Obama administration because it would reduce competition in the cell phone industry. It would likely also result in the loss of a substantial number of jobs.
It is worth noting that such phony claims of job creation can only be effective for Trump if the media allow it. If the headline of the news stories was something to the effect of “Trump again makes phony job claim,” with the article carefully explaining that Trump had nothing to with creating any jobs, it is likely that Trump would give up on the tactic. Of course this would require the media to engage in objective reporting even if it ends up being very critical of a particular politician.
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Breaking the taxi industry cartel’s and promoting Uber has been somewhat of a cause célèbre among economists in recent years. Any card carrying economist can give you the two minute tirade on the evils of the taxi cartel and the benefits of Uber. (I can too, but the argument should be for modernized regulation, not Uber gets to do whatever it wants because it’s Uber, see pieces here, here, and here.)
What is striking is that the enthusiasm for the virtues of competition seems to disappear when we switch the topic from the taxi cartel to the doctors’ cartel. Doctors actually have been far more effective than taxi companies in limiting competition. Doctors largely get to set standards of care, which not surprisingly requires twice as high a percentage of highly paid specialists as in other wealthy countries. They also restrict the number of doctors with a wonderfully protectionist rule that prohibits doctors from practicing in the United States unless they have completed a U.S. residency program. This means that even well-established doctors in places like Germany, France, and Canada would face arrest if they attempted to practice medicine in the United States.
As a result of this cartel, doctors in the U.S. earn on average more than $250,000 a year, putting the average doctor not far below the one percent threshold, even assuming no other family income. This is roughly twice the pay as the average doctor earns in other wealthy countries.
It is striking that the doctors’ cartel gets so much less attention from economists than the taxi cartel. After all, we spend close to $250 billion a year on doctors compared to $6 billion a year on taxis. I could suggest that the lack of interest is due to the fact that many economists have parents, siblings and/or children who are doctors, but I wouldn’t be that rude.
Anyhow, there are measures that can be taken at both the national and state level to break the cartel if economists ever take an interest in free trade. At the national level the obvious step would be to establish an international certification system so that doctors trained in other countries could establish their competency and then practice in the United States just like a doctor born and trained here. (Save the whine. We can establish a system whereby we repatriate money to developing countries for the doctors they train who then practice in the United States. As it stands, they get zero money for the doctors that leave the country, so this system would almost certainly be a net improvement for them. Yes, this is discussed in Rigged.)
Since protectionists dominate trade policy (I mean up until now, not just since the election of Donald Trump), we can also look to measures at the state level. It seems that several states are considering policies that would allow doctors who do not complete a residency program to practice under the supervision of another doctor. This is a great first step as is expanding the scope of practice for nurse practitioners and other less highly paid health care professionals.
Developments in technology should allow health care professionals with much less training than doctors to make diagnoses as accurately or more accurately than the best doctors. The same is true with robotics, which is likely to eventually outperform even the best surgeons. These technologies will offer both huge savings and better care, if we don’t allow the doctors’ cartel to maintain its lock on the practice of medicine.
Breaking the taxi industry cartel’s and promoting Uber has been somewhat of a cause célèbre among economists in recent years. Any card carrying economist can give you the two minute tirade on the evils of the taxi cartel and the benefits of Uber. (I can too, but the argument should be for modernized regulation, not Uber gets to do whatever it wants because it’s Uber, see pieces here, here, and here.)
What is striking is that the enthusiasm for the virtues of competition seems to disappear when we switch the topic from the taxi cartel to the doctors’ cartel. Doctors actually have been far more effective than taxi companies in limiting competition. Doctors largely get to set standards of care, which not surprisingly requires twice as high a percentage of highly paid specialists as in other wealthy countries. They also restrict the number of doctors with a wonderfully protectionist rule that prohibits doctors from practicing in the United States unless they have completed a U.S. residency program. This means that even well-established doctors in places like Germany, France, and Canada would face arrest if they attempted to practice medicine in the United States.
As a result of this cartel, doctors in the U.S. earn on average more than $250,000 a year, putting the average doctor not far below the one percent threshold, even assuming no other family income. This is roughly twice the pay as the average doctor earns in other wealthy countries.
It is striking that the doctors’ cartel gets so much less attention from economists than the taxi cartel. After all, we spend close to $250 billion a year on doctors compared to $6 billion a year on taxis. I could suggest that the lack of interest is due to the fact that many economists have parents, siblings and/or children who are doctors, but I wouldn’t be that rude.
Anyhow, there are measures that can be taken at both the national and state level to break the cartel if economists ever take an interest in free trade. At the national level the obvious step would be to establish an international certification system so that doctors trained in other countries could establish their competency and then practice in the United States just like a doctor born and trained here. (Save the whine. We can establish a system whereby we repatriate money to developing countries for the doctors they train who then practice in the United States. As it stands, they get zero money for the doctors that leave the country, so this system would almost certainly be a net improvement for them. Yes, this is discussed in Rigged.)
Since protectionists dominate trade policy (I mean up until now, not just since the election of Donald Trump), we can also look to measures at the state level. It seems that several states are considering policies that would allow doctors who do not complete a residency program to practice under the supervision of another doctor. This is a great first step as is expanding the scope of practice for nurse practitioners and other less highly paid health care professionals.
Developments in technology should allow health care professionals with much less training than doctors to make diagnoses as accurately or more accurately than the best doctors. The same is true with robotics, which is likely to eventually outperform even the best surgeons. These technologies will offer both huge savings and better care, if we don’t allow the doctors’ cartel to maintain its lock on the practice of medicine.
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Gretchen Morgenson had an interesting piece on the New York Teamsters pension fund, which appears likely to impose a substantial benefit cut on current and future retirees as a result of a large funding shortfall. While there are many causes for the shortfall, most importantly a declining number of active workers contributing to the fund, the situation has been made worse by the high fees paid to private equity companies.
It appears that the fund invested heavily in private equity in recent years in the hope of raising its returns. The investments have not generally paid off, with private equity funds doing no better than comparable market indexes. However, the pensions had to pay much more in fees to the private equity fund managers than they would have paid had they invested in a stock index. It is probably worth mentioning that many of the most highly paid people in the country are private equity fund managers.
Gretchen Morgenson had an interesting piece on the New York Teamsters pension fund, which appears likely to impose a substantial benefit cut on current and future retirees as a result of a large funding shortfall. While there are many causes for the shortfall, most importantly a declining number of active workers contributing to the fund, the situation has been made worse by the high fees paid to private equity companies.
It appears that the fund invested heavily in private equity in recent years in the hope of raising its returns. The investments have not generally paid off, with private equity funds doing no better than comparable market indexes. However, the pensions had to pay much more in fees to the private equity fund managers than they would have paid had they invested in a stock index. It is probably worth mentioning that many of the most highly paid people in the country are private equity fund managers.
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