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Article Artículo

Trade Treaty Propaganda Goes Into High Gear

The proponents of the protectionist Trans-Pacific Partnership (TPP) trade agreement are getting ever more shrill as it becomes clearer that the public is not buying what they have to sell. David Ignatius does the rant for the deal in his column in the Post today. The title of his column warns against "Trump and Sanders' dangerous revolt against free trade."

The first point that everyone should remember is "free trade" is just a term that the proponents of these deals throw around to make themselves feel virtuous and so that they can call their political opponents names. These deals are actually about selective protection, where protections that benefit some groups are left in place, while other groups (i.e. ordinary workers) are forced to compete with much lower paid workers in the developing world.

As far as the protectionism in the TPP, the deal is quite explicitly about increasing the length and strength of patent and copyright protection. Yes, that is "protection" as in "protectionism." Patent and copyright protection do serve a purpose in providing an incentive for innovation and creative work, but all forms of protection serve a purpose. The question that serious people ask is whether there is a better way to serve the purpose.

There are lots of reasons for thinking that our rules on patent and copyright protection are already too strong, as they have led to massive abuses. This is especially true in the case of prescription drugs. To take one prominent example, generic versions of the Hepatitis C drug Sovaldi can be profitably manufactured for $300 to $500 per treatment. The list price for the drug in the United States is $84,000.

And raising the price of a drug by more than 10,000 percent as a result of patent monopoly causes all the economic waste and corruption that imposing a 10,000 percent would. The market doesn't care that we call the intervention a "patent" rather than a "tariff."

The TPP will also do nothing to reduce the protectionist barriers that allow our doctors and dentists to earn twice as much as their counterparts in other wealthy countries. Unlike autoworkers and textile workers, doctors and dentists have the political power to protect themselves from being forced to compete with their lower paid counterparts in the developing world.

Dean Baker / March 18, 2016

Article Artículo

United States

Workers

Employers Aren’t Competing to Hire Workers – Workers Are Competing to Be Hired

Earlier this morning, the Bureau of Labor Statistics (BLS) released the January 2016 results from the Job Openings and Labor Turnover Survey (JOLTS). In its summary of the newest JOLTS data, the BLS notes: “Job openings remain at historically high levels, rising to 5.5 million (+260,000) in January.” In fact, the 5.5 million openings is the third-highest level since the inception of JOLTS in December 2000.

A greater number of job openings means that more employers are looking to hire. And if employers are competing to hire workers, they will have to bid up wages to attract workers to their firms. So other things equal, a higher number of vacancies should benefit workers by pushing up wages.

However, what remains salient from a wage-setting perspective is not the number of job openings per se but rather the ratio of job openings to unemployed workers. If more job openings force employers to compete for workers and bid wages up, unemployment has the opposite effect: it forces prospective workers to compete for jobs and thus pushes wages down. Think of it this way: unemployed workers are desperate for jobs and will work at even very low wages, because any wage is an improvement over unemployment. When unemployment is high, employers need not bid up wages to attract workers to their firms, since the unemployed are desperate to work anyways.

CEPR and Nicolas Buffie / March 17, 2016

Article Artículo

Trade Lessons for Thomas Friedman

Thomas Friedman once again stumbled into trade policy, telling us that the Trans-Pacific Partnership (TPP) is exactly the sort of trade deal that tough negotiator Donald Trump would have gotten. Unfortunately, he gets some of the big things badly wrong.

First, he would have us believe that the TPP is a really good deal for the U.S. because the tariffs that we eliminate on imports are mostly small, whereas the tariffs other countries will eliminate on our exports are in some cases very large. He cites Vietnam’s “peak tariffs of over 50 percent on cars and machines” and refers to over 18,000 foreign tariffs that will be eliminated as a result of the TPP.

While it might be good if Vietnam eliminated its tariffs on U.S. cars and machines, it is highly unlikely that the U.S. will ever export any significant number of cars and machines to Vietnam. It is certainly possible that U.S. corporations General Motors and GE will export cars and machines (???) to Vietnam, but these products will almost certainly be produced in other Asian countries. That might be good for the bottom lines of General Motors and GE, but not especially good news for workers in the United States.

The 18,000 tariffs are a joke line that the Obama administration came up with for ill-informed members of Congress and pundits. As Public Citizen points out, the U.S. exports in less than half of these 18,000 categories and in most of the others the volume of exports is trivial. Among the 18,000 tariffs on the Obama administration’s list are Malaysia’s shark fin tariffs, Vietnam’s whale meat tariffs, and Japan’s ivory tariffs. (Would Donald Trump really spend time negotiating the removal of these tariffs?)

But the really good part is when Friedman told readers about how the TPP gets tough on enforcing intellectual property rules for U.S. corporations:

“He certainly would have insisted on strong intellectual property protections for America’s software industry, one of our greatest export assets, and taken an approach to pharmaceuticals that splits the difference between what the big drug companies want in the way of intellectual property protection time for their products and what the generic manufacturers want.”

Getting more money for Microsoft and Merck is of course good news for shareholders of Microsoft and Merck, but it’s bad news for the rest of us. As the Peterson Institute’s new study of the impact of the TPP pointed out:

“The model assumes that the TPP will affect neither total employment nor the national savings (or equivalently trade balances) of countries.”

If the trade balance of the United States does not change, and we get more money for Microsoft’s software and Merck’s drugs, then we must get less money for everything else. It is hard to see why most people would be celebrating a rise in the U.S. trade deficit in manufactured goods and other items that is offset by higher royalty and patent fees for our software and drug companies.

Dean Baker / March 17, 2016

Article Artículo

Economic Growth

The Fed and the Quest to Raise Rates

The Federal Reserve Board’s Open Market Committee (FOMC) voted not to raise interest rates at today’s meeting, but their statement indicates that they are still very much looking toward further rate hikes this year. It is difficult to see reason for this urgency.

The justification for raising rates is to prevent inflation from getting out of control, but inflation has been running well below the Fed’s 2.0 percent target for years. Furthermore, since the 2.0 percent target is an average inflation rate, the Fed should be prepared to tolerate several years in which the inflation rate is somewhat above 2.0 percent. In fact, since wages badly lagged productivity growth during the recession, the Fed should be prepared to allow for a period in which real wage growth slightly outpaces productivity growth in order to restore the pre-recession split between labor and capital. If preemptive steps are taken by the Fed in the near future that prevent workers from regaining their share of national income, that implies the use of the Fed’s power to make permanent the shift from wages to profits that took place in the recession.    

Dean Baker / March 16, 2016

Article Artículo

Economic Growth

The Fed’s Hunt for Inflation Should Stop at Home

Recent CPI data could give the impression that overall inflation is being held down by falling energy prices. While energy prices have fallen by 12.5 percent over the last year, the core inflation rate, which excludes food and energy prices, has risen by 2.3 percent. (The Federal Reserve Board actually targets the core Personal Consumption Expenditure Deflator, which has increased by 1.7 percent over the last year.)

However, it turns out that much of the inflation in the core index is driven by the shelter component as rents have been rising at more than a 3.0 percent annual rate. Excluding the shelter component, the core index is rising at just a 1.5 percent rate. While there has been some increase in this non-shelter core index in recent months, that was also true in 2001, when the economy and labor market were still quite weak by any measure.

CEPR and Rynn Reed / March 16, 2016

Article Artículo

Help CEPR to Make America Informed Again!

It’s presidential primary season!  That time every four years when the media focuses on all of the important policy issues facing our county with thorough, unbiased, factual analysis of all of the candidates’ proposals…

OK, we know that’s wishful thinking, especially this campaign season when the debate is about the size of the candidates’ “hands” rather than the size of workers’ paychecks. But on those occasions when the talk does turn to economic policy, CEPR is there - providing research and analysis that is truly fact-based and non-partisan.  

And we need your help to continue to inject some economic sanity into the news spin cycle this year.

CEPR / March 15, 2016

Article Artículo

Technology

Unions

Why Don't Globalization and Technology Lead to a Collapse in Unionization in Canada?

Paul Krugman has agreed to use his blog this week as a jumping off point for great CEPR papers of the past (yes, I'm kidding), but he gives us a great segue into an old paper on unionization rates in Canada with his latest blogpost. In his post Krugman makes the simple point that if inevitable forces like globalization and technology were responsible for the decline in unionization rates in the United States then we should expect to see a comparable decline in Canada. After all, Canada's economy is even more exposed to trade than the United States and the country has all the same technologies that we enjoy south of the border.

Yet, Canada has seen only a modest decline in its unionization rate over the last three decades. It is still close to 28 percent, compared to just 11 percent in the United States.

The CEPR paper, by former research associate Kris Warner, explains that the difference is the result of differing institutional structures around the unionization process. In most Canadian provinces (labor law is set at provincial level in Canada, as opposed to the national level in the United States), workers can organize through a process of majority sign-up. This means that if a majority of workers in a bargaining unit sign cards indicating their desire to join a union, then the employer must recognize the union.

Dean Baker / March 15, 2016

Article Artículo

Workers

Unemployment and the Budget

baker buffie unemployment budget 2016 03 14

The graph above shows the impact on the deficit of sustaining a 4.0 percent unemployment rate over the next decade, alongside projected spending on TANF, and SNAP. A 4.0 percent unemployment rate is 0.9 percentage points below the 4.9 percent average rate of unemployment projected by the Congressional Budget Office over the next decade.

The economy sustained a 4.0 percent unemployment rate as a year-round average in 2000, with the rate falling as low as 3.8 percent over the course of the year. Contrary to the predictions of most economists, there was no notable uptick in the rate of inflation despite this low unemployment rate. While we cannot know for certain the lowest unemployment rate the economy could sustain without leading to inflation, most economists had badly overstated this rate in the 1990s. There is reason to believe, most notably due to the aging of the labor force (older workers have lower unemployment rates), that the economy might be able to sustain a lower unemployment rate today than it did two decades ago.

Dean Baker and Nicolas Buffie / March 14, 2016

Article Artículo

FedWatch: Esther George, President of the Kansas City Federal Reserve Bank

This is the first 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.

Esther George has been one of the more hawkish members of the FOMC since becoming President of the Federal Reserve Bank of Kansas City in October of 2011. She first became a voting member of the FOMC in 2013. In her first seven meetings, she dissented from the majority each time and argued that the Fed should move to more restrictive monetary policy. (The statements on the dissents, from the Fed’s minutes, are at the end of this post.)  In six of the seven cases, she was the lone dissenter.

In 2014 and 2015 she continued to argue for tighter monetary policy in her public speeches. For example, in the summer of 2014 she argued that keeping the federal funds rate near zero could be signaling excessive pessimism and therefore have a negative effect on the economy:[1]

“And by keeping rates unusually low, policymakers may signal pessimism that the economy is not strong enough to begin moving to a more normal rate environment.”

Dean Baker / March 14, 2016