In March of last year, CEPR released a series of five measures tracking the rate of recovery from the 2008 recession. The series was created in order to show that the labor market is much weaker than the unemployment rate implies.

The five measures have been updated every month at CEPR’s Graphic Economics page after each new jobs report. However, we have modified the series in two ways for the latest jobs figures. These modifications are described below.

Using 2007 Annual Data as Our Starting Point

In CEPR’s “Real Rate of Recovery” series, we determine both the degree to which the economy weakened during the recession and also the extent of recovery since then. In our original series, we used December 2007 — officially the first month of the recession, according to NBER — as our starting point for the pre-recession state of the economy. However, it appears that the economy began weakening even before December 2007. For example, the prime-age employment rate averaged 79.9 percent during 2007 as a whole, but had fallen to 79.7 percent by December. The unemployment rate itself exhibits this tendency, as it jumped from 4.7 to 5.0 percent between November and December.

December 2007 is a flawed starting point, as the economy had already begun shedding jobs by then. Therefore, we have updated our series by taking the average annual data for 2007 as our starting point. This changes our calculations somewhat, as it means that the economy worsened more significantly between 2007 and the recession’s trough than we had originally estimated.

The graph above displays the change in the prime-age employment rate for twenty countries between 2007 and 2015. Included in the graph are the United States, the remaining G-7 countries, various other advanced economies, and Mexico. (Mexico and Canada provide a useful point of comparison with the United States since they are part of the same regional economy.) 

The prime-age employment rate is a far better gauge of the labor market than the unemployment rate. As such, the graph above is useful in determining the level of employment lost in each country as a result of the 2008 recession.

It is sometimes difficult to distinguish between the paid content and the news stories in the NYT. Farhad Manjoo’s piece on Uber’s new carpooling service could leave any reader confused. Manjoo seems to have taken everything Uber said about this service at face value, just as one would expect in paid content.

We can start with the story that sets up the piece. The story is that Abby is going from San Francisco Tenderloin district to the Noe Valley, a trip which the piece tells us would ordinarily take about 25 minutes by car. She decides to use UberPool instead of driving. Before the UberPool trip ends, it picks up four other passengers. According to the article, the total trip takes 55 minutes (not all of it with Abby, who gets out before the last stop) and covers 10 miles.

The piece then tells readers:

'In total, Uber collected about $48 for the ride, of which the driver kept $35. The company had collapsed five separate rides into a single trip, saving about six miles of travel and removing several cars from the road.'

That might be Uber’s story, but let’s look at this more seriously. The driver has to pay for gas, insurance, and depreciation on the car. The I.R.S. puts these costs at an average of 54 cents a mile. We know the trip covered ten miles, but the driver also has to get to the start point and back from the end point. Let’s conservatively say that adds five miles for a total 15 miles driven. This comes to $8.10, which reduces the hourly pay rate for this ride to $26.90. That’s still not too bad, but remember, this is for the time the driver actually has people in the car. If he has to wait another half hour for his next fare, then the hourly rate falls to $17.90. Keep in mind this is in a city with high living costs where the minimum wage is being raised to $15.00 an hour.

March 2016, Dean Baker

Dean Baker
The Hankyoreh, March 29, 2016

“Berta Cáceres, my mother, is not dead. She multiplied. So it is our job, everyone whose lives she touched in some way, to continue multiplying her. From now on, we are committed to carrying on this work.” -Laura Zúñiga Cáceres, indigenous activist and daughter of Berta Cáceres

Berta Cáceres, co-founder of the Civic Council of Indigenous and Popular Organizations of Honduras (COPINH) and recipient of the 2015 Goldman Environmental Prize, was killed by gunmen in her home on March 3rd. Less than two weeks later, one of Cáceres’ colleagues, a COPINH member named Nelson García, was also assassinated following the violent eviction of a Lenca community at Rio Chiquito.

On Wednesday, March 23, Cáceres’ daughter and a COPINH activist were joined by experts on international law and megaprojects to brief U.S. congressional staff and the general public on the events surrounding Cáceres’ assassination and the efforts of Cáceres’ family members and COPINH to seek justice. The congressional briefing, “The Assassination of Berta Cáceres and Ongoing Killings and Attacks Targeting Social Activists in Honduras” was hosted by Representative Hank Johnson (D-Ga.) and moderated by Timi Gerson, Director of Advocacy with American Jewish World Service.

Eduardo Porter had an interesting piece in the NYT in which he argued that NAFTA actually saved jobs for auto workers in the United States. The argument is that by allowing U.S. manufacturers to have easier access to low cost labor in Mexico for part of their operation, they were able to keep a larger market share than would otherwise be the case.

The same would apply to foreign manufacturers choosing to locate operations in the United States rather than staying in Europe, Japan, or elsewhere. The argument is that better access to low cost labor in Mexico made locating part of their operating in the United States more attractive.

Currently we import roughly $100 billion a year in cars and parts from Mexico, this compares to total domestic production of around $500 billion. Porter argues that on net, because NAFTA improved the competitiveness of the U.S. industry, it actually saved jobs. This is not impossible, but it does seem implausible. I headlined the case of doctors to see an analogous story.

Suppose that we have large numbers of people going to other countries for major medical procedures to take advantage of the fact that the cost is typically less than half as much and sometimes less than one tenth as much for comparable quality care. (Imagine saving $200,000 on open heart surgery by having the operation in Germany. Most of these surgeries are done on a non-emergency basis, so it is possible.)

In this scenario, suppose that we have a somewhat different NAFTA that made it much easier for Mexican doctors to train to U.S. standards and come practice in the United States. Let’s imagine 200,000 Mexican doctors, or roughly one fifth of our total, chose to take advantage of this opportunity.

I'm tied up with many other things, but since folks asked, I will give a quick comment/explanation of the Vox analysis of Bernie Sanders' tax plans. For those who haven't seen it, Vox put together a calculator that allows people to plug in their income and then see how their tax bill would change under the tax plans proposed by Donald Trump, Ted Cruz, Hillary Clinton, and Bernie Sanders. For the first two, most people get tax cuts. There is little change with Clinton, but big tax increases with Sanders.

For example, I took a single person with one kid, who earns $30,000 a year. According to the tax calculator, this person would see an increase in their tax bill of $3,680 as a result of the Sanders' tax package. I can't quite follow the math here, because the calculator says that Sanders plan gives this a person a tax rate of 18.1 percent, compared with 10.3 percent for the current system. This implies an increase in the tax rate of 7.8 percentage points of this person's income. But 7.8 percentage points of $30,000 would get you $2,340 not the $3,680 indicated by the calculator.

Okay, but let's ignore the math problem and get to the underlying issues. Most of the basis for this tax increase for moderate income workers is Sanders' tax to pay for his universal Medicare plan. This would impose a payroll tax on employers of 6.2 percent and a 2.2 tax on individuals for income in excess of the standard deduction (roughly $9,500 for this person). There is also a 0.2 percentage point tax increase to cover the cost of paid family leave. In addition, some of the other taxes will have feedback that will affect moderate income earners, but these taxes are the bulk of the story.

In the world’s most dangerous country for environmental activists, Honduran indigenous leader Berta Cáceres was assassinated in her home in the early hours of March 3. Winner of the 2015 Goldman Environmental Prize for her relentless opposition to the construction of the Agua Zarca dam, which would have threatened the livelihoods of indigenous communities in the area, Cáceres had received numerous threats to her life in connection with her work.

In examining cases of journalists murdered since 2003, PEN International noted that Honduras has an impunity rate of 95 percent, a figure that has risen dramatically since a military coup in 2009. Honduras is even more deadly for environmentalists; at least 109 of them were murdered in Honduras between 2010 and 2015. As over 100 members of the U.S. Congress have pointed out, women, indigenous Hondurans, the LGBT community, Hondurans of African descent and other minorities have also been targeted.

Dean Baker
Truthout, March 28, 2016

Neil Irwin takes issue with Donald Trump using the trade surplus between countries as a scorecard on trade. He is largely right with a couple of important qualifications.

Irwin notes that a country with a trade surplus should see its currency rise against the dollar if it doesn’t reinvest the money in dollar assets. He then comments that if it does reinvest the money in dollar assets, whether or not it benefits the United States depends on what the money is used for. As Irwin points out, in the last decade the money was used in large part to invest in residential housing and to inflate the housing bubble. This was of course not useful.

But there is a deeper point here. In an era of “secular stagnation,” which means there is not enough demand in the economy, the foreign assets may in effect be invested in nothing. Most of the foreign capital that went into the United States in the housing bubble years did not get directly invested in housing. It was invested in government bonds and short-term deposits.

These investments don’t directly create any jobs; they are simply assets on a balance sheet. Insofar as foreigners invest their surplus dollars in U.S. assets not directly linked to employment (which will generally be the case) a trade deficit will be associated with higher unemployment, unless the economy has some other force generating employment to offset it.

Currently we are running an annual trade deficit of around $540 billion (@ 3 percent of GDP). This could be offset by spending more on education, infrastructure, clean technology or other areas, but the Very Serious People will not let us run larger budget deficits. In that context, it is quite reasonable to link a trade deficit to higher unemployment, so Trump is not wrong in that respect.

According to a Foreign Affairs piece by Council on Foreign Relations Fellow Thomas Bollyky, the major pharmaceutical companies are being run by people who don’t know what they are doing. While they have devoted a large amount of time and resources to putting strong language on patent and related protections in U.S. trade agreements, including the recently concluded Trans-Pacific Partnership (TPP), Bollyky claims that these deals really don’t have much impact on drug prices in the partner countries. If Bollyky is right, the executives of Pfizer, Merck, and other major drug companies are just wasting energy that could be better devoted to other pursuits.

Unfortunately, Bollyky’s piece seems more designed to push the TPP than to seriously examine the extent to which drug prices in the member countries are likely to be affected by the deal. His main method for establishing his case is to look at past trade agreements that imposed tighter patent and related protections for prescription drugs and show that there was no sharp jump in drug prices immediately following the signing of an agreement. This is not a surprise.

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. Apparently the executives of European drug companies also waste their time trying to impose these rules in trade deals.

Everyone knows that reasonable people are supposed to hate protectionism, that is of course unless it's for doctors and lawyers, who lack the skills necessary to compete in the world economy (or drug patents). But that shouldn't mean that an ostensibly serious newspaper (I'm feeling generous today) gets to say whatever it wants to trash the policy.

Today we have the spectacle of the Washington Post telling us that Donald Trump's plan to impose 45 percent tariffs on imports from China coupled with his plan to impose 35 percent tariffs on imports from Mexico would cost us 7 million jobs if the countries retaliate and 3.5 million if they don't. This is supposedly the output that Mark Zandi got, the chief economist of Moody's Analytics, when he plugged these tariffs into their model. That seems more than a bit high to me. The logic of the tariffs is that they make it more expensive to import items from these countries, but the extent to which they raise prices here depends both on the extent to which we can substitute domestic production or can find other foreign sources.

The latter is likely to be especially important, since many of the items produced by both countries can be readily found elsewhere. In fact an analysis by the Peterson Institute of tariffs the U.S. imposed on imports of tires from China found that the tires were almost entirely replaced by imports from other countries. For this reason, the impact on consumers from tariffs imposed on these countries is likely to be substantially limited by the availability of imports from other countries and/or our ability to produce these items domestically.

But just to get a crude idea, let's assume that the price of our imports rise by half of the amount of the tariff. This is almost certainly a huge overstatement since for many imports the price rise will be just a small fraction of the size of the tariff, since there are alternative sources and even in the extreme cases the suppliers will almost certainly have to eat some of the tariff in the form of lower profit margins.

Jake Johnston
AlterNet, March 25, 2016