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Article Artículo

Andrew Ross Sorkin's Confused Assessment of President Obama's Political Legacy

Andrew Ross Sorkin presented a confused account of the state of the economy and economic policy under President Obama. The account repeats many self-serving comments from Obama without comment and offers little useful context to readers.

The confusion starts early when he reports Obama's complaint that he doesn't get sufficient credit for the economy's strength, pointing out:

"His economy has certainly come further than most people recognize. The private sector has added jobs for 73 consecutive months — some 14.4 million new jobs in all — the longest period of sustained job growth on record. Unemployment, which peaked at 10 percent the year Obama took office, the highest it had been since 1983, under Ronald Reagan, is now 5 percent, lower than when Reagan left office."

The economy has also seen close to 3 million prime age workers (ages 25-54) drop out of the labor force. No one had predicted this back in 2009 when President Obama took office. The number of people who are working part-time involuntarily is still close to 1.7 million above their pre-recession level. No one had expected this back in 2009 either.

The 73 consecutive months of private sector job growth, "the longest period of sustained job growth on record," is kind of a joke. This is sort of like a weak scoring basketball player telling a reporter about the number of consecutive games in which he scored points, it is an utterly meaningless statistic. It is the average job growth, GDP growth, and improvement in living standards that matter, not the monthly job creation streak. (And President Obama wonders why people don't feel better.)

Dean Baker / April 28, 2016

Article Artículo

Brazil

Latin America and the Caribbean

World

Brazil, Public Opinion, Coups, Elections and VP Michel Temer

With Brazilian President Dilma Rousseff facing a likely impeachment, Vice President Michel Temer has been in the spotlight as the likely successor. Last week Temer sat down for an interview with The Financial Times, categorically rejecting the idea that what is happening in Brazil is a coup. “There is no coup whatsoever happening here in Brazil,” Temer stated. He then points to public opinion being against Dilma as proof that it is not a coup. The Financial Times continues:

He said political and popular support for impeachment was also overwhelming, with 367 members of the 513-seat lower house of congress voting for the motion, well over the two-thirds, or 342 votes, required for it to pass, and polls showing 60 to 70 per cent of Brazilians were in favour of Ms Rousseff’s constitutional removal.

“Therefore, I ask, when she accuses me of being a conspirator or a coup-monger — do I really have the capacity to influence 367 deputies [congressmen] and 70 per cent of the Brazilian population? It’s entirely without foundation this claim.”

As long as the people support it! (I wonder how many in the U.S. would support the removal of congress, what with its current approval rating of 17 percent?)

Of course, Temer, unlike Dilma Rousseff, has actually been accused of corruption. A Supreme Court judge has recommended he also face impeachment trials for the same accounting tricks that Dilma is currently defending herself against. 

Since Temer seems to really care what the Brazilian people think, maybe he should check out the results of the latest poll from IBOPE. The AP reports:

A new poll Monday showed people overwhelmingly favored the hypothetical resignation of both Rousseff and Temer, followed by new presidential elections. Just over 60 percent of respondents said that scenario would be the best way out of the crisis, although no such solution is stipulated under Brazil's constitution. Twenty-five percent of respondents said they would prefer to see Rousseff continue her mandate, while just 8 percent of respondents said Rousseff's impeachment, followed by her substitution by Temer, would be their preferred solution.

As unpopular as Dilma may be, Temer appears even less popular. More people would prefer she continue her mandate than be replaced by Temer. Of course, the clear majority prefer new elections.

CEPR / April 26, 2016

Article Artículo

Latin America and the Caribbean

Could US Trade Threaten Sustainable Agriculture in Cuba?

With limited access to chemical and mechanical inputs such as fertilizers, pesticides and farm machinery, Cuban farmers have pioneered innovations in sustainable agriculture out of necessity since the dissolution of the Soviet Union and the Eastern Bloc. Although most continue to employ conventional agricultural methods, and Cuba continues to import more than half of its food, around a quarter of the country’s farmers have nonetheless succeeded in supplying some 65 percent of national agricultural output using agroecological practices. These achievements, however, could come under threat with the expected resumption of U.S.-Cuban trade relations.

Having lost the Soviet Union and other Eastern Bloc trade partners, Cuba suffered an 80 percent reduction in foreign trade between 1989 and 1991, leaving it fully exposed to the U.S. trade embargo. Its agricultural sector was hit particularly hard given its heavy dependence on agrochemicals. Chemical fertilizer use per hectare, which had been roughly double that of the U.S. in 1989, fell by almost 90 percent in the following decade, while herbicide and pesticide use dropped by a similar amount.

CEPR and Ming Chun Tang / April 26, 2016

Article Artículo

United States

FedWatch: Loretta Mester, President of the Cleveland Federal Reserve Bank

This is the second in a series of profiles of the members of the Federal Reserve Board’s Open Market Committee [FOMC]. The profiles will focus on their writings, public statements, and voting records as members of the FOMC.

Since her appointment as President of the Cleveland Federal Reserve (Fed) Bank in June 2014, Loretta Mester has been considered one of the Fed’s more hawkish members. Due to the voting structure of the FOMC, Mester has only been able to cast votes during the second half of 2014 and the early meetings of 2016. However, her public statements indicate that Mester has been more anxious than her colleagues to raise interest rates.

Mester’s most dovish moment came in 2014, when she supported the Fed’s decision to not raise the Federal Funds interest rate. In a September 2014 interview with the Cleveland Plain Dealer, Mester stated[1]:

“At this point, now, there is still more progress we need to make (before we raise rates)...I do believe it's appropriate to keep interest rates at the zero to 0.25 percent range.”

CEPR and Nicolas Buffie / April 25, 2016

Article Artículo

Globalization and Trade

The Washington Post Says Doctors Without Borders Is Silly to Worry About the Impact of the TPP on Drug Prices

The humanitarian group, Doctors Without Borders, along with many other NGOs involved in providing health care to people in the developing world, have come out in opposition to the Trans-Pacific Partnership (TPP) over concerns that the deal will make it more difficult to provide drugs to people in the developing world. Their argument is that it will raise drug prices by making patent protection stronger and longer and by making it more difficult for countries to scale back protections that they may come to view as excessive and wasteful.

But the Washington Post editorial board tells us not to fear, that the TPP is actually "a healthy agreement." The gist of its argument is an analysis by Council on Foreign Relations Fellow Thomas Bollyky, which finds that there were few incidents of large increases in drug prices for countries following the signing of previous trade deals. 

As I noted in a previous post, this analysis almost seemed designed not to find substantial rises in prices. Bollyky looked at changes in drugs prices immediately after a trade deal took effect. The problem with this approach is:

"In most cases, the rules in these agreements will only apply to new drugs, and even then to a subset of new drugs, for example patent protection for a drug that is a combination of already approved drugs. They may also allow for the extension of patent terms beyond the date where they would have expired under pre-trade deal rules, but here again the impact will only be felt gradually over time.

"Furthermore, the date of a trade deal with the United States may not be the key factor in pushing up drug prices. The United States signed a deal with South Korea in 2012 that required stronger patent and related protections, but most of these conditions were already law as of 2009 due to a trade agreement Korea signed with the European Union."

In other words, this before and after approach is a bit like weighing people the day after they gave up drinking sugary soda to determine whether this decision will affect obesity. It's not serious stuff.

There is evidence that prior trade agreements have affected drug prices. As I noted in that earlier post:

"An analysis of the impact of the rules in the 2001 trade agreement between the United States and Jordan found that it had increased annual spending on drugs by $18 million by 2004. This is slightly less than 0.16 percent of Jordan’s GDP in that year, the equivalent of $28 billion annually in the U.S. economy today.

"There is a similar story of sharply higher drug spending in Morocco, which signed a pact with the United States in 2006. In Morocco, spending on drugs went from $662 million in 2009 (0.7 percent of GDP) to $1.4 billion (1.4 percent of GDP) in 2015."

Dean Baker / April 25, 2016

Article Artículo

Inequality

United States

States with More Regressive Tax Codes are Experiencing Weaker Revenue Growth

Between 2007 and 2009, real GDP and real GDP per capita fell 3.1 and 4.8 percent, respectively. Since then, the economy has been growing at about a 2.1 percent annual rate, and income per person is now about $1,500 higher than it was before the recession. However this income has not been evenly distributed, with a disproportionate share of income growth going to the top 1 percent of the income distribution.  

This is relevant to tax policy because it tells us that there are real benefits to be had from taxing the rich — precisely for the reason that their incomes have gone up so much. This can be seen in the tax filings data posted to the World Wealth and Income Database. In 1978 — right when the income share of the 1 percent began rising — the top 1 percent of income earners made less than 9 percent of national income. In 1978, taxing the top 1 percent at an effective tax rate of 50 percent would’ve generated revenue equivalent to almost 4.5 percent of GDP, assuming no behavioral effects. By contrast, in 2014 the top 1 percent of income earners made 21.2 percent of national income. (At least part of this growth is due to higher incomes in finance.) Given this much larger share of national income, taxing the top 1 percent at a 50 percent tax rate would’ve generated 10.6 percent of GDP, assuming no behavioral effects. Therefore, there actually is a substantial amount of revenue to be gained from taxing the rich, mostly because the rich control such a large share of all taxable income.

CEPR and Nicolas Buffie / April 25, 2016

Article Artículo

Globalization and Trade

Washington Post Opens the Door for Name-Calling to Push the TPP

Yep, all is fair in love and war and pushing trade agreements, and the Washington Post really really wants the Trans-Pacific Partnership (TPP). So, when they asked Ivo Daalder and Richard Kagan to make the case for the TPP as part of a story about preserving American leadership in the world, the Post apparently gave the greenlight to name-calling.

This meant that the opponents of the TPP appear in the piece as "demagogues." Sounds good, now we don't have to deal with arguments from people like Nobel prize winning economist Joe Stiglitz or Jeffrey Sachs. Hey, if you oppose the TPP you're just a demagogue, not someone who might have a serious argument.

This is not the only cheap trick in the Daalder and Kagan's deck. They also tell us that:

"According to the Peterson Institute for International Economics, the agreement will increase annual real incomes in the United States by $131 billion."

Wow, $131 billion, that sounds like really big money. Of course if Daalder and Kagan were actually interested in conveying information rather than pushing their agenda, they might have told us that this projection is equal to 0.5 percent of projected GDP for 2030, when the full benefits are realized. In other words, the Peterson Institute is projecting that with the TPP the United States will be as rich on January 1, 2030 as it would otherwise be on April 1, 2030. Sound like a must-pass deal?

It's also worth noting that computable general equilibrium models of the sort used by the Peterson Institute to make this projection have a really bad track record in projecting the outcomes of trade deals. Therefore, we may not want to rely on this projection too much in making policy.

There is much else that is not quite right in Daalder and Kagan's argument. For example, they tell readers:

"The widely touted “rise of the rest” — the idea that the United States was being overtaken by the economies of Brazil, Russia, India and China — has proved to be a myth."

If the "rise of the rest" is a myth, then the I.M.F. is now a purveyor of this myth. According to its data, China's economy is now more than 10 percent larger than the U.S. economy.

Dean Baker / April 24, 2016