A NYT article on cuts to government subsidies for solar and wind energy were put in place by a conservative government, “determined to tighten spending and balance the budget in a program to grow the economy.” The piece does not indicate how budget cuts in the current economic situation are supposed to “grow the economy.”
As the article points out, Denmark’s economy is suffering from a lack of demand.
“Shortly after taking over in June, the new government was forced to cut its forecast for economic growth to 1.5 percent this year and 1.9 percent in 2016, citing a slow recovery in domestic demand.”
Cutting spending on clean technologies means less demand, not more. This would mean that the government’s plans to reduce its subsidies are in direct conflict with its stated desire to increase growth.
While it is certainly the case that in some contexts lower government spending can lead to lower interest rates, which will spur consumption and investment (the Danish Kroner is tied to the euro, so interest rates have no effect on the exchange rate), this is hardly a plausible story in the case of Denmark. The interest rate on its 10-year government bonds is currently 0.91 percent. By comparison, the rate in the United States is 2.27 percent. In this context, it is unlikely that cuts to government spending can have much of a further effect in lower interest rates, nor that any further reduction in rates would have a noticeable effect on spending.
A NYT article on cuts to government subsidies for solar and wind energy were put in place by a conservative government, “determined to tighten spending and balance the budget in a program to grow the economy.” The piece does not indicate how budget cuts in the current economic situation are supposed to “grow the economy.”
As the article points out, Denmark’s economy is suffering from a lack of demand.
“Shortly after taking over in June, the new government was forced to cut its forecast for economic growth to 1.5 percent this year and 1.9 percent in 2016, citing a slow recovery in domestic demand.”
Cutting spending on clean technologies means less demand, not more. This would mean that the government’s plans to reduce its subsidies are in direct conflict with its stated desire to increase growth.
While it is certainly the case that in some contexts lower government spending can lead to lower interest rates, which will spur consumption and investment (the Danish Kroner is tied to the euro, so interest rates have no effect on the exchange rate), this is hardly a plausible story in the case of Denmark. The interest rate on its 10-year government bonds is currently 0.91 percent. By comparison, the rate in the United States is 2.27 percent. In this context, it is unlikely that cuts to government spending can have much of a further effect in lower interest rates, nor that any further reduction in rates would have a noticeable effect on spending.
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The state of economics is pretty dismal these days, which is demonstrated constantly in the reporting on major issues. The NYT gave us a beautiful example this morning in a piece on a pledge by China’s government of $60 billion in aid to Africa.
The third paragraph told readers:
“Against longstanding accusations that China benefits from a lopsided relationship with Africa, contentions that have recently gained traction as China’s trade deficits with many African nations have widened, Mr. Xi said that ‘China has the strong political commitment to supporting Africa in achieving development and prosperity.'”
Okay folks, get those scorecards ready. In standard textbook theory, poor countries are supposed to run trade deficits with rich countries. The story goes that capital is plentiful in rich countries while it’s scare in poor countries. Rich countries should therefore lend capital to poor countries where it will get a better return.
The flip side of this flow of capital (it is an accounting identity) is that poor countries run trade deficits with rich countries. These trade deficits allow the poor countries to build up their infrastructure and capital stock while still have enough goods and services to meet the needs of their populations. If relatively better off countries like China are willing to give money, rather than lend it, the developing country trade deficits should be even larger.
This means that folks who believe the textbook trade theory should see the widening of the trade deficits that African nations are running with China as evidence that they are gaining from the relationship, not as evidence that the relationship is lopsided.
The state of economics is pretty dismal these days, which is demonstrated constantly in the reporting on major issues. The NYT gave us a beautiful example this morning in a piece on a pledge by China’s government of $60 billion in aid to Africa.
The third paragraph told readers:
“Against longstanding accusations that China benefits from a lopsided relationship with Africa, contentions that have recently gained traction as China’s trade deficits with many African nations have widened, Mr. Xi said that ‘China has the strong political commitment to supporting Africa in achieving development and prosperity.'”
Okay folks, get those scorecards ready. In standard textbook theory, poor countries are supposed to run trade deficits with rich countries. The story goes that capital is plentiful in rich countries while it’s scare in poor countries. Rich countries should therefore lend capital to poor countries where it will get a better return.
The flip side of this flow of capital (it is an accounting identity) is that poor countries run trade deficits with rich countries. These trade deficits allow the poor countries to build up their infrastructure and capital stock while still have enough goods and services to meet the needs of their populations. If relatively better off countries like China are willing to give money, rather than lend it, the developing country trade deficits should be even larger.
This means that folks who believe the textbook trade theory should see the widening of the trade deficits that African nations are running with China as evidence that they are gaining from the relationship, not as evidence that the relationship is lopsided.
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The Post has an interesting piece discussing Janet Yellen’s tenure as Fed chair as she prepares to possibly raise interest rates for the first time since the onset of the recession. The piece discusses Yellen’s Republican critics in Congress who want to rein in the power of the Fed to conduct monetary policy. These critics complain that the Fed has been too loose with the money supply and that this will result in runaway inflation.
It would have been worth noting that these critics have been repeatedly proven wrong. They have been complaining about loose monetary policy for over five years yet the inflation rate has consistently been well below the Fed’s 2.0 percent target. This information would have been useful to readers trying to evaluate the seriousness of their complaints.
The Post has an interesting piece discussing Janet Yellen’s tenure as Fed chair as she prepares to possibly raise interest rates for the first time since the onset of the recession. The piece discusses Yellen’s Republican critics in Congress who want to rein in the power of the Fed to conduct monetary policy. These critics complain that the Fed has been too loose with the money supply and that this will result in runaway inflation.
It would have been worth noting that these critics have been repeatedly proven wrong. They have been complaining about loose monetary policy for over five years yet the inflation rate has consistently been well below the Fed’s 2.0 percent target. This information would have been useful to readers trying to evaluate the seriousness of their complaints.
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Neil Irwin had a piece in the Upshot section of the NYT raising the possibility that the Fed could have negative interest rates on reserves, rather than its current near zero rate, as a way to provide an additional boost to the economy. The argument is that it is very inconvenient to carry cash, so deposits would not flee banks even if the interest rate were a small negative number.
The problem is that this analysis does not consider the realities of the banked population. Banks have millions (tens of millions?) of customers with relatively low balances. These customers are marginally profitable to the banks. (Often the banks profit on fees from these people, like overdraft charges.)
If banks had to pay interest on reserves then these accounts would be even less desirable for banks, since they now would have to pay interest on the reserves that the small account holders had brought to their bank. For this reason, they may opt to raise their fees for opening and maintaining a bank account. The result would be that more people would be getting by without bank accounts.
Any serious discussion of negative interest rates has to deal with this problem.
Neil Irwin had a piece in the Upshot section of the NYT raising the possibility that the Fed could have negative interest rates on reserves, rather than its current near zero rate, as a way to provide an additional boost to the economy. The argument is that it is very inconvenient to carry cash, so deposits would not flee banks even if the interest rate were a small negative number.
The problem is that this analysis does not consider the realities of the banked population. Banks have millions (tens of millions?) of customers with relatively low balances. These customers are marginally profitable to the banks. (Often the banks profit on fees from these people, like overdraft charges.)
If banks had to pay interest on reserves then these accounts would be even less desirable for banks, since they now would have to pay interest on the reserves that the small account holders had brought to their bank. For this reason, they may opt to raise their fees for opening and maintaining a bank account. The result would be that more people would be getting by without bank accounts.
Any serious discussion of negative interest rates has to deal with this problem.
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It has become a common practice for reporters to refer to former Secretary of State Hillary Clinton’s proposal to spend $275 billion on infrastructure. Is this a lot of money? My guess is that almost no one reading the number has a clue. Certainly Secretary Clinton wants people to think it is a major commitment.
While there is no obvious yes or no answer, it would help first of all if reporters started by giving a time frame. Spending $275 billion over one year is a much larger commitment than $275 billion over 10 years. The proposal would spend this money out over five years, making the annual amount $55 billion a year.
By comparison, the new highway bill calls for spending just over $60 billion annually on infrastructure over the next five years, so Clinton’s proposal would nearly double current spending. As a share of the total budget it is still not a huge deal. With government spending projected to average around $4.7 trillion over the first five years of a Clinton administration, the proposal would amount to a bit less than 1.2 percent of projected spending. Measured as a share of projected GDP, it would be roughly 0.2 percent. And, it would come to roughly $170 a year per person in spending.
There are other ways to measure this sum, including looking at past levels of spending or relative to estimates of the need for new infrastructure. Reporters have much room to pick and choose on this one, but telling us that Clinton wants to spend $275 billion on infrastructure really is not providing information.
It has become a common practice for reporters to refer to former Secretary of State Hillary Clinton’s proposal to spend $275 billion on infrastructure. Is this a lot of money? My guess is that almost no one reading the number has a clue. Certainly Secretary Clinton wants people to think it is a major commitment.
While there is no obvious yes or no answer, it would help first of all if reporters started by giving a time frame. Spending $275 billion over one year is a much larger commitment than $275 billion over 10 years. The proposal would spend this money out over five years, making the annual amount $55 billion a year.
By comparison, the new highway bill calls for spending just over $60 billion annually on infrastructure over the next five years, so Clinton’s proposal would nearly double current spending. As a share of the total budget it is still not a huge deal. With government spending projected to average around $4.7 trillion over the first five years of a Clinton administration, the proposal would amount to a bit less than 1.2 percent of projected spending. Measured as a share of projected GDP, it would be roughly 0.2 percent. And, it would come to roughly $170 a year per person in spending.
There are other ways to measure this sum, including looking at past levels of spending or relative to estimates of the need for new infrastructure. Reporters have much room to pick and choose on this one, but telling us that Clinton wants to spend $275 billion on infrastructure really is not providing information.
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The Washington Post has long expressed outrage over the fact that unionized auto workers can get $28 an hour. Therefore it is hardly surprising to see editorial page writer Charles Lane with a column complaining that “the United Auto Workers sell out nonunion auto workers.”
The piece starts out by acknowledging that the AFL-CIO opposes tax provisions and trade agreements (wrongly called free trade agreements — apparently Lane has not heard about the increases in patent and copyright protection in these pacts) that encourage outsourcing. He could have also noted that it has argued for measures against currency management and promoted labor rights elsewhere, also measures that work against outsourcing. And, it would be appropriate to note in this context its support for measures that help the workforce as a whole, like Social Security, Medicare, unemployment insurance, and the Affordable Care Act.
But in spite of this seeming support for the workforce as a whole, Lane decides he going to prove to his readers that the United Auto Workers supports outsourcing. His smoking gun is the argument that if the union had agreed to lower pay for its workers at the Big Three, then they might shift fewer jobs to Mexico.
Lane’s water pistol here is shooting blanks. As he himself notes in the piece, even the non-union car manufacturers are shifting jobs to Mexico. They have cheaper wages there, companies will therefore try to do this. Essentially, Lane is arguing that unions sellout non-union workers by pushing for higher wages for their workers because if unionized workers got low pay in the United States, there would be less incentive to look overseas for cheap labor. That may be compelling logic at the Washington Post, but probably not anywhere else in the world.
It is worth noting that the Washington Post has never once run either an opinion piece or news article on the protectionist measures that allow U.S. doctors to earn on average twice as much as their counterparts in other wealthy countries. This costs the country nearly $100 billion a year in higher health care costs, or just under $800 a household.
It is probably also worth noting that manufacturing compensation is on average more than 30 percent higher in Germany and several other European countries than in the United States. And unions in general are associated with lower levels of inequality, according to the International Monetary Fund.
But hey, Charles Lane and the Washington Post are outraged that auto workers can earn $28 an hour.
The Washington Post has long expressed outrage over the fact that unionized auto workers can get $28 an hour. Therefore it is hardly surprising to see editorial page writer Charles Lane with a column complaining that “the United Auto Workers sell out nonunion auto workers.”
The piece starts out by acknowledging that the AFL-CIO opposes tax provisions and trade agreements (wrongly called free trade agreements — apparently Lane has not heard about the increases in patent and copyright protection in these pacts) that encourage outsourcing. He could have also noted that it has argued for measures against currency management and promoted labor rights elsewhere, also measures that work against outsourcing. And, it would be appropriate to note in this context its support for measures that help the workforce as a whole, like Social Security, Medicare, unemployment insurance, and the Affordable Care Act.
But in spite of this seeming support for the workforce as a whole, Lane decides he going to prove to his readers that the United Auto Workers supports outsourcing. His smoking gun is the argument that if the union had agreed to lower pay for its workers at the Big Three, then they might shift fewer jobs to Mexico.
Lane’s water pistol here is shooting blanks. As he himself notes in the piece, even the non-union car manufacturers are shifting jobs to Mexico. They have cheaper wages there, companies will therefore try to do this. Essentially, Lane is arguing that unions sellout non-union workers by pushing for higher wages for their workers because if unionized workers got low pay in the United States, there would be less incentive to look overseas for cheap labor. That may be compelling logic at the Washington Post, but probably not anywhere else in the world.
It is worth noting that the Washington Post has never once run either an opinion piece or news article on the protectionist measures that allow U.S. doctors to earn on average twice as much as their counterparts in other wealthy countries. This costs the country nearly $100 billion a year in higher health care costs, or just under $800 a household.
It is probably also worth noting that manufacturing compensation is on average more than 30 percent higher in Germany and several other European countries than in the United States. And unions in general are associated with lower levels of inequality, according to the International Monetary Fund.
But hey, Charles Lane and the Washington Post are outraged that auto workers can earn $28 an hour.
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Eduardo Porter discusses whether a no growth economy is feasible as a solution to addressing global warming. While he is largely right about the practicality of no-growth economy, there are a couple of points worth adding.
As a practical matter, it is just simple arithmetic that a larger world population will require fewer greenhouse gas (GHG) emissions per person. For this reason, a shrinking world population, or least more slowly growing one, would make it easier to hit emissions targets.
The second point is that historically people having taken the dividend of productivity gains in a mix of more lesiure and higher income. Given the strong correlation between income and GHG it would be desirable to structure policy to give people more incentive to take the benefits of productivity growth in leisure.
There has been a huge difference in this area between Europe and the United States over the 35 years. Europeans can almost all count on 4–6 weeks a year of paid vacation, paid family leave and sick days, and often shorter workweeks. As a result, the average work year in Europe has 20 percent fewer hours than in the United States. These countries have much lower levels of GHG per person than the United States. Policies that push the United States in this direction and push Europe further in the direction of more leisure should help to reduce GHG emissions.
As a definitional matter, better software, education, and health care would all be forms of economic growth. It is difficult to see why anyone would be opposed to such gains.
Eduardo Porter discusses whether a no growth economy is feasible as a solution to addressing global warming. While he is largely right about the practicality of no-growth economy, there are a couple of points worth adding.
As a practical matter, it is just simple arithmetic that a larger world population will require fewer greenhouse gas (GHG) emissions per person. For this reason, a shrinking world population, or least more slowly growing one, would make it easier to hit emissions targets.
The second point is that historically people having taken the dividend of productivity gains in a mix of more lesiure and higher income. Given the strong correlation between income and GHG it would be desirable to structure policy to give people more incentive to take the benefits of productivity growth in leisure.
There has been a huge difference in this area between Europe and the United States over the 35 years. Europeans can almost all count on 4–6 weeks a year of paid vacation, paid family leave and sick days, and often shorter workweeks. As a result, the average work year in Europe has 20 percent fewer hours than in the United States. These countries have much lower levels of GHG per person than the United States. Policies that push the United States in this direction and push Europe further in the direction of more leisure should help to reduce GHG emissions.
As a definitional matter, better software, education, and health care would all be forms of economic growth. It is difficult to see why anyone would be opposed to such gains.
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Most economists argue that the Fed’s quantitative easing policy, in which it bought up more than $3 trillion in government bonds and mortgage backed securities, is still helping to keep interest rates down even though the Fed has stopped buying these assets. The argument is that by holding a large stock of bonds the Fed is keeping their price higher than would otherwise be the case. And higher bond price mean lower interest rates.
While economists generally accept this view that the holding of a large stock of assets matters with U.S. interest rates, rather than just the flow of purchases, they don’t seem to apply the same logic to currency prices. This NYT article on the Chinese Renminbi becoming an international currency never mentions the fact that China’s central bank still holds more than $3 trillion in foreign exchange in discussing whether the renminbi is a freely floating currency.
If we believe that economics works the same way with currency values as with interest rates, then we have to believe that the decision by the Chinese central bank to continue to hold large amounts of dollars and other foreign currencies is raising their value relative to the renminbi compared to a situation where the bank held a more normal amount of reserves. This matters, since the implication is that the renminbi is still well below the level it would be at if the exchange rate was set without central bank interventions.
Most economists argue that the Fed’s quantitative easing policy, in which it bought up more than $3 trillion in government bonds and mortgage backed securities, is still helping to keep interest rates down even though the Fed has stopped buying these assets. The argument is that by holding a large stock of bonds the Fed is keeping their price higher than would otherwise be the case. And higher bond price mean lower interest rates.
While economists generally accept this view that the holding of a large stock of assets matters with U.S. interest rates, rather than just the flow of purchases, they don’t seem to apply the same logic to currency prices. This NYT article on the Chinese Renminbi becoming an international currency never mentions the fact that China’s central bank still holds more than $3 trillion in foreign exchange in discussing whether the renminbi is a freely floating currency.
If we believe that economics works the same way with currency values as with interest rates, then we have to believe that the decision by the Chinese central bank to continue to hold large amounts of dollars and other foreign currencies is raising their value relative to the renminbi compared to a situation where the bank held a more normal amount of reserves. This matters, since the implication is that the renminbi is still well below the level it would be at if the exchange rate was set without central bank interventions.
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