Wow, the Social Security trustees have no better grasp of the economy than Alan Greenspan and the clowns at the Fed, the Congressional Budget Office, and other economic forecasting outfits! That is the implicit punch line of an article NBC ran with the headline, “Social Security may be in worse shape than we thought: study.”
The gist of the piece is that the Trustees projections have been overly optimistic since 2000. This is true. The trustees failed to recognize that the stock market bubble would collapse and throw the economy into a recession in 2001 and that the recovery from this recession would be very weak. Nor did they recognize that the housing bubble would collapse and throw the economy into an even deeper recession in 2007-2009 and the recovery would be even weaker.
It is reasonable to blame the trustees for missing these really huge bubbles, the collapse of which and the resulting damage were predictable. However, they erred in the same way as the vast majority of the economics profession. This does not excuse these huge errors. These people and their staffs are paid very well — say compared to people who don’t make mistakes cleaning rest rooms. However, it is extremely misleading to imply that the trustees are uniquely wearing rose-colored glasses in their view of the economy. It’s also worth noting that they erred on the pessimistic side when the economy had a growth and employment boom in the late 1990s.
The piece then tells us about a preferred approach using an infinite horizon rather than Social Security’s 75-year forecast period:
“Kotlikoff [Boston University economics professor, Larry Kotlikoff] wants the administration to calculate unfunded obligations using the “infinite horizon,” which accounts for funding after 75 years. Under this accounting system, SSA’s projected unfunded liabilities would be $24.9 trillion (instead of the $10.6 trillion projected in 2088).”
Presumably the point is to make readers really scared with a liability of $24.9 trillion! Scaring people could be the only possible motivation, since almost no one reading this piece has any idea of how much money $24.9 trillion is over the infinite future.
It would not have been difficult to make the number understandable to readers, since it can be found expressed as a share of GDP right in the trustees report. Table V1.F1 shows that $24.9 trillion is equal to 1.4 percent of future GDP. By comparison, the increase in military spending associated with the wars in Iraq and Afghanistan was equal to 1.6 percent of GDP at its peak.
If the concern is that mistaken assumptions will generate misleading numbers then that concern should be far greater with an infinite horizon calculation than a calculation for a 75-year horizon. After all, our knowledge of the 22nd and 23rd century is really not very good. (That is where most of the infinite horizon shortfall comes from.) Of course, people alive today also don’t get to make policy for people living 100 and 200 years from now. Assuming the country remains a democracy, the people alive at the time will decide what their social insurance programs look like.
If the point is to inform people and not to scare them, NBC might have celebrated the sharp reduction in the infinite horizon shortfall in Medicare. Back in 2008 the Trustees (Table III.B10) projected it would be $34.4 trillion (in 2008 dollars). The most recent report puts the shortfall at just $1.9 trillion (in 2014 dollars) or 0.1 percent of GDP. The change implies a reduction in the infinite horizon shortfall of almost $36 trillion (in 2014 dollars). This should be cause for real celebration for those arguing that infinite horizon projections are the way to go.
We look forward to the NBC piece on this good news.
Correction:
Andrew Biggs called my attention to the fact that the main point in the underlying article is that people are living longer than had been projected by the Social Security trustees, not that the they had over-predicted economic growth. As a consequence, we should expect more people to collect benefits, which worsens the program’s finances. There appears to be good evidence for this view.
A flip side is that if people are living longer than projected, and therefore presumably healthier, then we may expect more people to work later in life, which would improve the system’s finances. The article did not attempt to assess projections on retirement ages.
It is worth noting that whether or not workers share in the gains of economic growth over the next two decades, will swamp the impact of any conceivable increase in Social Security taxes that might be used to fund the program. Wages will be on average more than 40 percent higher in three decades according to the Social Security trustees projections. If the tax rate were raised by 3 full percentage points, it would take back less than 10 percent of the increase in wages.
Wow, the Social Security trustees have no better grasp of the economy than Alan Greenspan and the clowns at the Fed, the Congressional Budget Office, and other economic forecasting outfits! That is the implicit punch line of an article NBC ran with the headline, “Social Security may be in worse shape than we thought: study.”
The gist of the piece is that the Trustees projections have been overly optimistic since 2000. This is true. The trustees failed to recognize that the stock market bubble would collapse and throw the economy into a recession in 2001 and that the recovery from this recession would be very weak. Nor did they recognize that the housing bubble would collapse and throw the economy into an even deeper recession in 2007-2009 and the recovery would be even weaker.
It is reasonable to blame the trustees for missing these really huge bubbles, the collapse of which and the resulting damage were predictable. However, they erred in the same way as the vast majority of the economics profession. This does not excuse these huge errors. These people and their staffs are paid very well — say compared to people who don’t make mistakes cleaning rest rooms. However, it is extremely misleading to imply that the trustees are uniquely wearing rose-colored glasses in their view of the economy. It’s also worth noting that they erred on the pessimistic side when the economy had a growth and employment boom in the late 1990s.
The piece then tells us about a preferred approach using an infinite horizon rather than Social Security’s 75-year forecast period:
“Kotlikoff [Boston University economics professor, Larry Kotlikoff] wants the administration to calculate unfunded obligations using the “infinite horizon,” which accounts for funding after 75 years. Under this accounting system, SSA’s projected unfunded liabilities would be $24.9 trillion (instead of the $10.6 trillion projected in 2088).”
Presumably the point is to make readers really scared with a liability of $24.9 trillion! Scaring people could be the only possible motivation, since almost no one reading this piece has any idea of how much money $24.9 trillion is over the infinite future.
It would not have been difficult to make the number understandable to readers, since it can be found expressed as a share of GDP right in the trustees report. Table V1.F1 shows that $24.9 trillion is equal to 1.4 percent of future GDP. By comparison, the increase in military spending associated with the wars in Iraq and Afghanistan was equal to 1.6 percent of GDP at its peak.
If the concern is that mistaken assumptions will generate misleading numbers then that concern should be far greater with an infinite horizon calculation than a calculation for a 75-year horizon. After all, our knowledge of the 22nd and 23rd century is really not very good. (That is where most of the infinite horizon shortfall comes from.) Of course, people alive today also don’t get to make policy for people living 100 and 200 years from now. Assuming the country remains a democracy, the people alive at the time will decide what their social insurance programs look like.
If the point is to inform people and not to scare them, NBC might have celebrated the sharp reduction in the infinite horizon shortfall in Medicare. Back in 2008 the Trustees (Table III.B10) projected it would be $34.4 trillion (in 2008 dollars). The most recent report puts the shortfall at just $1.9 trillion (in 2014 dollars) or 0.1 percent of GDP. The change implies a reduction in the infinite horizon shortfall of almost $36 trillion (in 2014 dollars). This should be cause for real celebration for those arguing that infinite horizon projections are the way to go.
We look forward to the NBC piece on this good news.
Correction:
Andrew Biggs called my attention to the fact that the main point in the underlying article is that people are living longer than had been projected by the Social Security trustees, not that the they had over-predicted economic growth. As a consequence, we should expect more people to collect benefits, which worsens the program’s finances. There appears to be good evidence for this view.
A flip side is that if people are living longer than projected, and therefore presumably healthier, then we may expect more people to work later in life, which would improve the system’s finances. The article did not attempt to assess projections on retirement ages.
It is worth noting that whether or not workers share in the gains of economic growth over the next two decades, will swamp the impact of any conceivable increase in Social Security taxes that might be used to fund the program. Wages will be on average more than 40 percent higher in three decades according to the Social Security trustees projections. If the tax rate were raised by 3 full percentage points, it would take back less than 10 percent of the increase in wages.
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Matt O’Brien gets the story right. By most measures the stock market is above its normal levels, but given unusually low interest rates, it is not unreasonably priced. The price to earnings ratios are only slightly higher than in 2007, when almost no one thought the market was in a bubble. Back then the interest rate on 10-year Treasury bonds was over 5.0 percent, compared to around 2.0 percent today. That makes today’s market look like a decent buy, but don’t expect high returns.
One point is worth qualifying in O’Brien’s piece. He notes Greenspan’s famous irrational exuberance remark and says it didn’t do much beyond its immediate impact (markets did fall). This is likely because Greenspan backed away from it with doublespeak about how market valuations may be justified if profits accelerated. It would have been interesting to see what would have happened if he doubled down and continued to hit on the point, backed by data from the Fed. Janet Yellen’s foray into attacking bubbles this way last summer suggests that it can work.
Matt O’Brien gets the story right. By most measures the stock market is above its normal levels, but given unusually low interest rates, it is not unreasonably priced. The price to earnings ratios are only slightly higher than in 2007, when almost no one thought the market was in a bubble. Back then the interest rate on 10-year Treasury bonds was over 5.0 percent, compared to around 2.0 percent today. That makes today’s market look like a decent buy, but don’t expect high returns.
One point is worth qualifying in O’Brien’s piece. He notes Greenspan’s famous irrational exuberance remark and says it didn’t do much beyond its immediate impact (markets did fall). This is likely because Greenspan backed away from it with doublespeak about how market valuations may be justified if profits accelerated. It would have been interesting to see what would have happened if he doubled down and continued to hit on the point, backed by data from the Fed. Janet Yellen’s foray into attacking bubbles this way last summer suggests that it can work.
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Most Post readers know that the paper is prepared to say pretty much anything to push the Trans-Pacific Partnership (TPP) and other trade deals that are likely to have the effect of redistributing income upward. Therefore it is not surprising to see a column by Edward Alden, a senior fellow at the Council on Foreign Relations, lecturing the labor movement that they should support President Obama’s trade deals.
Alden’s basic point is that rather than oppose a trade deal that would likely further the upward redistribution of income, labor should demand conditions that ensure workers will benefit.
“They could insist, for example, on linking trade to new investments in infrastructure that would help U.S. exports flow to world markets. Or they could demand funding for comprehensive worker retraining programs like those in Europe, rather than the paltry Trade Adjustment Assistance that isn’t available to 99 percent of the unemployed.”
This sounds great. My guess is that most unions would gladly sign on to a deal that included $2 trillion in spending on infrastructure and education over the next decade as a quid pro quo for TPP. Or, if we’re making comparisons to Europe, how about a package that made U.S. look more like European welfare states, with the government largely picking up the tab on health care, college education, and childcare. Also, no more dismissal at will. If an employer wants to dump workers who have been with the company for twenty five years, how about six months of severance pay. That’s small by European standards, but a big step over what they get now (i.e. nothing).
Anyhow, if Alden could produce a deal with these provisions from President Obama and the Republican leadership in Congress, I’m sure those dunderheads in the labor movement would quickly sign on. Of course, my guess is Alden is instead arguing that the labor movement should settle for a few largely meaningless trinkets, and pretend that they are a big deal. As a practical matter that is all that would be on the table.
At the beginning of the piece Alden quotes president Obama:
“The Chamber of Commerce didn’t elect me twice — working folks did.”
This is partly true. President Obama did win because of votes from workers, but like his Republican opponents he raised huge amounts of money from rich people. No presidential candidate can win election in the United States without raising large amounts of money from rich people. This likely explains the structure of the TPP (which increases protection in areas that benefit corporations) and the president’s determination to get it through Congress.
Most Post readers know that the paper is prepared to say pretty much anything to push the Trans-Pacific Partnership (TPP) and other trade deals that are likely to have the effect of redistributing income upward. Therefore it is not surprising to see a column by Edward Alden, a senior fellow at the Council on Foreign Relations, lecturing the labor movement that they should support President Obama’s trade deals.
Alden’s basic point is that rather than oppose a trade deal that would likely further the upward redistribution of income, labor should demand conditions that ensure workers will benefit.
“They could insist, for example, on linking trade to new investments in infrastructure that would help U.S. exports flow to world markets. Or they could demand funding for comprehensive worker retraining programs like those in Europe, rather than the paltry Trade Adjustment Assistance that isn’t available to 99 percent of the unemployed.”
This sounds great. My guess is that most unions would gladly sign on to a deal that included $2 trillion in spending on infrastructure and education over the next decade as a quid pro quo for TPP. Or, if we’re making comparisons to Europe, how about a package that made U.S. look more like European welfare states, with the government largely picking up the tab on health care, college education, and childcare. Also, no more dismissal at will. If an employer wants to dump workers who have been with the company for twenty five years, how about six months of severance pay. That’s small by European standards, but a big step over what they get now (i.e. nothing).
Anyhow, if Alden could produce a deal with these provisions from President Obama and the Republican leadership in Congress, I’m sure those dunderheads in the labor movement would quickly sign on. Of course, my guess is Alden is instead arguing that the labor movement should settle for a few largely meaningless trinkets, and pretend that they are a big deal. As a practical matter that is all that would be on the table.
At the beginning of the piece Alden quotes president Obama:
“The Chamber of Commerce didn’t elect me twice — working folks did.”
This is partly true. President Obama did win because of votes from workers, but like his Republican opponents he raised huge amounts of money from rich people. No presidential candidate can win election in the United States without raising large amounts of money from rich people. This likely explains the structure of the TPP (which increases protection in areas that benefit corporations) and the president’s determination to get it through Congress.
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A post by Paul Krugman on the price of credit default swaps (CDS) on bonds issued by the United Kingdom reminds me of the dark days of the financial crisis when otherwise serious people used the price of CDS on U.S. Treasury bonds as a measure of the risk of a default by the U.S. government. With the price of the CDS rising, we had some of these people getting very concerned about the prospect of a default.
As the more calm among us tried to explain, it’s not clear that the price of a CDS on U.S. Treasury bonds measured anything. A person holding the CDS can only get paid off, if the U.S. government defaults on its debt and the bank that issued the CDS is around to make the payment. If there is a real default (I don’t mean a delay of a few hours or days over debt ceiling fights), it is hard to imagine what banks would still be standing to make good on the CDS they had issued.
In other words the probability that the U.S. government would default and there would be bank in a situation to meet its CDS obligations is very close to zero. This is why the price of a CDS issued on U.S. Treasury bonds is virtually meaningless as a measure of default risk.
A post by Paul Krugman on the price of credit default swaps (CDS) on bonds issued by the United Kingdom reminds me of the dark days of the financial crisis when otherwise serious people used the price of CDS on U.S. Treasury bonds as a measure of the risk of a default by the U.S. government. With the price of the CDS rising, we had some of these people getting very concerned about the prospect of a default.
As the more calm among us tried to explain, it’s not clear that the price of a CDS on U.S. Treasury bonds measured anything. A person holding the CDS can only get paid off, if the U.S. government defaults on its debt and the bank that issued the CDS is around to make the payment. If there is a real default (I don’t mean a delay of a few hours or days over debt ceiling fights), it is hard to imagine what banks would still be standing to make good on the CDS they had issued.
In other words the probability that the U.S. government would default and there would be bank in a situation to meet its CDS obligations is very close to zero. This is why the price of a CDS issued on U.S. Treasury bonds is virtually meaningless as a measure of default risk.
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Catherine Rampell used her column to note the decline in birthrates among millennials. She identifies the weak economy as a main factor behind the drop. However she warns that this drop in birthrates is “bad news for older folks” because:
“for economic reasons — including cultivating the next generation of Americans to work and pay for the benefits of their many, many elders — we still need more babies.”
This is not true. If we have fewer people entering the labor force, we would expect that they would move into higher productivity, higher paying jobs. This might mean that fewer people would be willing to work at near minimum wages at McDonalds or Walmart (we would therefore have fewer McDonalds and Walmarts) and would instead work at higher paying jobs in health care, manufacturing, or other sectors. A worker earning $60,000 a year in the health care sector can afford to pay much more to support retirees than a worker earning $20,000 a year at Walmart. The impact of a smaller number of workers can easily be offset by an increase in the productivity per worker.
Fewer children will also mean less demand on public services (e.g schools) and infrastructure. It also means less environmental damage.
It is also worth noting that Rampell’s concern about too few children goes 180 degrees against the concern that robots will take the jobs. In other words, if you are concerned that we won’t have enough workers, then you must think the robot worriers are nuts.
It is a problem if people feel they are unable to have children for financial reasons because we should want people to have good lives. That means having children if they want them. It is definitely not a problem for the rest of us if they don’t have children.
Catherine Rampell used her column to note the decline in birthrates among millennials. She identifies the weak economy as a main factor behind the drop. However she warns that this drop in birthrates is “bad news for older folks” because:
“for economic reasons — including cultivating the next generation of Americans to work and pay for the benefits of their many, many elders — we still need more babies.”
This is not true. If we have fewer people entering the labor force, we would expect that they would move into higher productivity, higher paying jobs. This might mean that fewer people would be willing to work at near minimum wages at McDonalds or Walmart (we would therefore have fewer McDonalds and Walmarts) and would instead work at higher paying jobs in health care, manufacturing, or other sectors. A worker earning $60,000 a year in the health care sector can afford to pay much more to support retirees than a worker earning $20,000 a year at Walmart. The impact of a smaller number of workers can easily be offset by an increase in the productivity per worker.
Fewer children will also mean less demand on public services (e.g schools) and infrastructure. It also means less environmental damage.
It is also worth noting that Rampell’s concern about too few children goes 180 degrees against the concern that robots will take the jobs. In other words, if you are concerned that we won’t have enough workers, then you must think the robot worriers are nuts.
It is a problem if people feel they are unable to have children for financial reasons because we should want people to have good lives. That means having children if they want them. It is definitely not a problem for the rest of us if they don’t have children.
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The sharp jump in the March trade deficit reported this morning means that GDP in the first quarter will be revised into negative territory. The $51.4 billion trade deficit reported for March, was $15.5 billion increase from the $35.9 billion deficit reported in February. Some of this is undoubtedly noise in the data (the February number was surprisingly low), but some of the rise is likely due to the impact of the higher dollar which is making U.S. goods and services less competitive internationally.
This is a really big deal, much bigger than the news about greater or smaller than expected budget deficits that can often be found on the front page. There is no easy mechanism to offset the demand lost as a result of a trade deficit that was running at more than a $600 billion annual rate in March. It is difficult to see how the economy can get to full employment with a trade deficit of this size, without the government running large budget deficits or an asset bubble spurring demand.
The sharp jump in the March trade deficit reported this morning means that GDP in the first quarter will be revised into negative territory. The $51.4 billion trade deficit reported for March, was $15.5 billion increase from the $35.9 billion deficit reported in February. Some of this is undoubtedly noise in the data (the February number was surprisingly low), but some of the rise is likely due to the impact of the higher dollar which is making U.S. goods and services less competitive internationally.
This is a really big deal, much bigger than the news about greater or smaller than expected budget deficits that can often be found on the front page. There is no easy mechanism to offset the demand lost as a result of a trade deficit that was running at more than a $600 billion annual rate in March. It is difficult to see how the economy can get to full employment with a trade deficit of this size, without the government running large budget deficits or an asset bubble spurring demand.
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USA Today got its numbers seriously wrong in pushing the case for the Trans-Pacific Partnership (TPP). Its editorial told readers:
“Democrats, however, are wedded to unions who blame trade, and trade agreements, for the decline in manufacturing jobs.
“Theirs is a simplistic view that ignores the fact that manufacturing output has nearly doubled since the late 1990s, showing that technology is the real job killer.”
It’s USA Today, not the unions, who are being simplistic here. The data they are relying on refers to gross output. This would include the full value of a car assembled in the United States even if the engine, transmission, and the other major components are imported. It also doesn’t adjust for inflation. If USA used the correct table it would find that real value added in manufacturing has risen by a bit less than 41.0 percent since 1997, compared to growth of 45.8 percent for the economy as a whole.
The story here is a one of very basic marcoeconomics. The $500 billion annual trade deficit ($600 billion at an annual rate in March), implies a loss of demand of almost 3.0 percent of GDP. In the context of an economy that is below full employment, this has the same impact on the economy as if consumers took $500 billion every year and stuffed it under their mattress instead of spending it. USA Today might try working on its numbers and economics a bit before calling people names.
USA Today got its numbers seriously wrong in pushing the case for the Trans-Pacific Partnership (TPP). Its editorial told readers:
“Democrats, however, are wedded to unions who blame trade, and trade agreements, for the decline in manufacturing jobs.
“Theirs is a simplistic view that ignores the fact that manufacturing output has nearly doubled since the late 1990s, showing that technology is the real job killer.”
It’s USA Today, not the unions, who are being simplistic here. The data they are relying on refers to gross output. This would include the full value of a car assembled in the United States even if the engine, transmission, and the other major components are imported. It also doesn’t adjust for inflation. If USA used the correct table it would find that real value added in manufacturing has risen by a bit less than 41.0 percent since 1997, compared to growth of 45.8 percent for the economy as a whole.
The story here is a one of very basic marcoeconomics. The $500 billion annual trade deficit ($600 billion at an annual rate in March), implies a loss of demand of almost 3.0 percent of GDP. In the context of an economy that is below full employment, this has the same impact on the economy as if consumers took $500 billion every year and stuffed it under their mattress instead of spending it. USA Today might try working on its numbers and economics a bit before calling people names.
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Robert Samuelson begins his argument for the Trans-Pacific Partnership (TPP) by telling readers:
“The trouble with our trade debates is that people assume they’re only about economics.”
I suppose this means that the advocates of TPP think they are losing the economic argument so now it is a matter of national security. (Just out of curiosity, I wonder how many of the foreign policy experts arguing for the necessity of the TPP supported the Iraq war.)
Anyhow, we do get some economics in Samuelson’s piece, which deserve comment. He refers readers to a study by the Peterson Institute which shows that the increase in U.S. GDP by 2025 could be $85 billion, a bit less than 0.4 percent. It’s worth noting that this study took no account of the higher prices in drugs and other products due to stronger and longer patent and copyright protections.
The higher prices would be expected to slow growth in the same way that increases in protectionist barriers in general slow growth. The impact could be large. For example, if a country is forced to pay the $84,000 patent protected price for Sovaldi, the hepatitis C drug, rather than the $900 generic price, it will be a drain on its purchasing power and an impediment to growth.
The Peterson Institute analysis also does not take account of the costs that would result from rent-seeking behavior due to stronger and longer patent protection. A recent CEPR analysis found that the mismarketing of just five drugs imposed annual costs of $27 billion a year in the form of increased mortality and morbidity between 1994 and 2008.
Samuelson also turns to a peculiar analysis by Robert Lawrence to question the widely accepted view among economists that trade has cost manufacturing jobs and lowered wages for workers without college degrees. The study argues that we have seen nothing unusual in the sharp loss of manufacturing jobs as the trade deficit exploded in the last 15 years, claiming that the manufacturing share of employment has continued to decline at a trend rate of 0.4 percentage points a year.
This is bizarre, because we might expect manufacturing to decline at constant rate, not a constant percentage of total employment. If manufacturing employment fell by 0.4 percentage points when manufacturing accounted for 20 percent of total employment, the drop would be 2 percent. If it declines by 0.4 percentage points when manufacturing is 10 percent of total employment, the loss of jobs is 4 percent of manufacturing. There is no reason we would expect this pattern to hold. The implication is that if manufacturing employment were 4 percent of total employment then we would see 10 percent of total manufacturing employment to disappear in a single year.
Lawrence also criticizes Paul Krugman’s analysis showing that trade with China has lowered wages by complaining that his model is “simplistic.” He seems unaware of the research by David Autor and others that support this assessment.
Robert Samuelson begins his argument for the Trans-Pacific Partnership (TPP) by telling readers:
“The trouble with our trade debates is that people assume they’re only about economics.”
I suppose this means that the advocates of TPP think they are losing the economic argument so now it is a matter of national security. (Just out of curiosity, I wonder how many of the foreign policy experts arguing for the necessity of the TPP supported the Iraq war.)
Anyhow, we do get some economics in Samuelson’s piece, which deserve comment. He refers readers to a study by the Peterson Institute which shows that the increase in U.S. GDP by 2025 could be $85 billion, a bit less than 0.4 percent. It’s worth noting that this study took no account of the higher prices in drugs and other products due to stronger and longer patent and copyright protections.
The higher prices would be expected to slow growth in the same way that increases in protectionist barriers in general slow growth. The impact could be large. For example, if a country is forced to pay the $84,000 patent protected price for Sovaldi, the hepatitis C drug, rather than the $900 generic price, it will be a drain on its purchasing power and an impediment to growth.
The Peterson Institute analysis also does not take account of the costs that would result from rent-seeking behavior due to stronger and longer patent protection. A recent CEPR analysis found that the mismarketing of just five drugs imposed annual costs of $27 billion a year in the form of increased mortality and morbidity between 1994 and 2008.
Samuelson also turns to a peculiar analysis by Robert Lawrence to question the widely accepted view among economists that trade has cost manufacturing jobs and lowered wages for workers without college degrees. The study argues that we have seen nothing unusual in the sharp loss of manufacturing jobs as the trade deficit exploded in the last 15 years, claiming that the manufacturing share of employment has continued to decline at a trend rate of 0.4 percentage points a year.
This is bizarre, because we might expect manufacturing to decline at constant rate, not a constant percentage of total employment. If manufacturing employment fell by 0.4 percentage points when manufacturing accounted for 20 percent of total employment, the drop would be 2 percent. If it declines by 0.4 percentage points when manufacturing is 10 percent of total employment, the loss of jobs is 4 percent of manufacturing. There is no reason we would expect this pattern to hold. The implication is that if manufacturing employment were 4 percent of total employment then we would see 10 percent of total manufacturing employment to disappear in a single year.
Lawrence also criticizes Paul Krugman’s analysis showing that trade with China has lowered wages by complaining that his model is “simplistic.” He seems unaware of the research by David Autor and others that support this assessment.
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The advocates of the Trans-Pacific Partnership must really be desperate. Why else would they continue to make such ridiculous assertions? (And why does the Post print them?)
Thomas McLarty puts on the show today. McLarty was President Clinton’s chief of staff when they pushed NAFTA through Congress. He used his column to tout all the jobs created through exports as a result of NAFTA. He never once mentions the jobs lost to imports. In fact, the United States went from having a modest trade surplus with Mexico, to having a trade deficit of $54 billion in 2014.
While this rise in the trade deficit may not be all or even mostly attributable to NAFTA, in the context of an economy that is below full employment, a trade deficit of this size would be expected to lead to a loss of roughly 600,000 jobs.
The advocates of the Trans-Pacific Partnership must really be desperate. Why else would they continue to make such ridiculous assertions? (And why does the Post print them?)
Thomas McLarty puts on the show today. McLarty was President Clinton’s chief of staff when they pushed NAFTA through Congress. He used his column to tout all the jobs created through exports as a result of NAFTA. He never once mentions the jobs lost to imports. In fact, the United States went from having a modest trade surplus with Mexico, to having a trade deficit of $54 billion in 2014.
While this rise in the trade deficit may not be all or even mostly attributable to NAFTA, in the context of an economy that is below full employment, a trade deficit of this size would be expected to lead to a loss of roughly 600,000 jobs.
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A NYT piece analyzing White House efforts to push the Trans-Pacific Partnership (TPP) began with the sentence:
“When President Obama defends the Trans-Pacific Partnership, a far-reaching agreement to tear down trade barriers between the United States and 11 other nations, he often argues it would cure the ills inflicted on American workers by trade pacts of the past, particularly the North American Free Trade Agreement.”
The problem with this sentence is that the TPP is not obviously, “a far-reaching agreement to tear down trade barriers.” The barriers to trade in most cases are already low. The main focus of the TPP is putting in place a new regulatory structure, which is likely to be very business friendly. The most obvious evidence of the business friendly nature of this structure is that the TPP would establish an extra-judicial legal system for enforcing the agreement. This system can only be used by foreign investors to sue governments; it is not open to governments, workers, or communities to sue foreign investors.
The deal also does much to increase barriers in the form of stronger patent and copyright protection. These barriers will raise prices and reduce trade.
For these reasons, it is a major distortion of reality to describe the TPP as “a far-reaching agreement to tear down trade barriers.” While the proponents of TPP may like to characterize the deal this way in order to appeal to the principle of “free trade,” it is not an accurate description of the agreement.
A NYT piece analyzing White House efforts to push the Trans-Pacific Partnership (TPP) began with the sentence:
“When President Obama defends the Trans-Pacific Partnership, a far-reaching agreement to tear down trade barriers between the United States and 11 other nations, he often argues it would cure the ills inflicted on American workers by trade pacts of the past, particularly the North American Free Trade Agreement.”
The problem with this sentence is that the TPP is not obviously, “a far-reaching agreement to tear down trade barriers.” The barriers to trade in most cases are already low. The main focus of the TPP is putting in place a new regulatory structure, which is likely to be very business friendly. The most obvious evidence of the business friendly nature of this structure is that the TPP would establish an extra-judicial legal system for enforcing the agreement. This system can only be used by foreign investors to sue governments; it is not open to governments, workers, or communities to sue foreign investors.
The deal also does much to increase barriers in the form of stronger patent and copyright protection. These barriers will raise prices and reduce trade.
For these reasons, it is a major distortion of reality to describe the TPP as “a far-reaching agreement to tear down trade barriers.” While the proponents of TPP may like to characterize the deal this way in order to appeal to the principle of “free trade,” it is not an accurate description of the agreement.
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