January 30, 2015

Okay folks, get out those umbrellas, we are about to showered with all sorts of garbage as the corporate interests pushing for the Trans-Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment Pact ((TTIP) go into overdrive to get Congress to approve their deals. We are entering the logic-free zone where ostensibly serious people say any sort of nonsense imaginable to advance these trade deals (not free-trade deals).

Today's entry is a piece by David Ignatius in the Washington Post pushing the merits of the Trans-Pacific Partnership (TPP). Ignatius' big punch line is:

"The Peterson Institute for International Economics estimates that the market-opening features of the TPP will boost U.S. exports by about $123 billion annually by 2025 and add 600,000 jobs."

Hey, 600,000 jobs sounds pretty good. What sort of troglodyte could be opposed to that?

There are a few points that are worth noting on this. First, the comment on exports is a big giveaway. No serious person would talk about exports. Exports do not create jobs in an underemployed economy, net exports create jobs. To see the distinction, suppose that GM shuts a car assembly plant in Ohio and instead ships the parts to Mexico to be assembled. The finished cars are then imported back into the United States.

Exports have risen in this story by the value of the car parts. If you think GM's move of the assembly plant to Mexico was a job creator in the United States, then think more carefully. Anyone who understands basic economics knows that exports by themselves don't create jobs, you have to look at net exports (exports minus imports). Someone who just discusses exports is either ignorant of economics or not being honest.

The next point is that standard trade models are full employment models. This means that everyone who wants a job at the prevailing wage has a job. (Ignatius does not provide a link so it's not clear where he got his numbers.) This means that they create jobs through increasing efficiency. The job creation effect will almost invariably be small and it results from an increased supply of labor. Greater efficiency means higher wages (in these models) and therefore more people want to work.

We're still down close to five million jobs from our trend employment path. Or, to put this in generational terms, millions of kids are being raised by parents who can't find work. We have endless needs for infrastructure, health care, child care, and education, and reducing greenhouse gas emissions which are not being met because of concerns over budget deficits. Given this situation, Ruth Marcus would naturally use her column in the Washington Post to warn about the government debt.

She bemoans the fact that President Obama barely even mentioned the debt in his State of the Union address:

"Oh, the debt. Yawn. How passe. How 2009.

"Once, President Obama held a summit on fiscal responsibility (2009). Once, he gave an entire speech devoted to the subject (2011). Once, his State of the Union addresses (2010, 2011, 2013) were studded with double-digit references to the problem of sky-high deficits and lingering mountains of debt.

"Now, the topic receives just a glancing mention, a clause ('shrinking deficits') in a series of presidential back-pats and a refutation of warnings of Apocalypse Soon."

While Marcus is clearly terrified by the deficit and debt, the column gives no reason why we should be more concerned about debts and deficits (yes, big numbers) than the number of trees in the United States (a number I do not know offhand, but I'm sure it's also big).

The best we get is a quote from an earlier State of the Union that is both wrong and arguably appealing to racist sentiments:

"Even after our economy recovers, our government will still be on track to spend more money than it takes in throughout this decade and beyond. That means we’ll have to keep borrowing more from countries like China. That means more of your tax dollars each year will go toward paying off the interest on all the loans that we keep taking out."

The budget deficit actually does not mean that we have to borrow from countries like China. We have to borrow from countries like China because we run a trade deficit. This in turn is the result of an over-valued dollar. The over-valuation of the dollar is the result of countries like China buying up large amounts of U.S. assets, including U.S. government debt. (This is how they "manipulate" their currency.)

If countries like China stopped buying U.S. debt and other dollar denominated assets then the value of the dollar would fall and we would move towards balanced trade. This would increase employment and also, by the way, reduce our budget deficit.

Marcus later tells readers, quoting in part from the Congressional Budget Office:

"Another is that, unlike at the start of the financial crisis, when debt amounted to just (!) 43 percent of GDP, the overhang of already huge debt could 'restrict policymakers’ ability to use tax and spending policies to respond [exclamation mark in original].'"

Yesterday, Radio Kiskeya made public a letter from leaders of the station to Lucien Jura, spokesperson of the presidency, alleging that President Martelly had personally given cash to journalists at a meeting in December. The letter begins:

Radio Tele Kiskeya hereby wishes to protest - to the president of the Republic and to you [presidential spokesperson Lucien Jura] in particular - the ignoble act of corruption that you were both responsible for last December 23 when, following a reception which you invited journalists with National Palace accreditation to, you delivered envelopes to them containing fifty thousand gourdes (50,000.00 Gdes) and forty thousand gourdes (40,000.00 Gdes). 

According to the information received from the concerned parties, the president of the Republic, Michel Joseph Martelly, personally offered them "a little gift that's so modest that it's not worth mentioning." Subsequently, he referred them to his spokesperson, Lucien JURA, and to Esther FATAL, head of the communication office of the Presidency, who personally delivered to each one of them the ignoble seal [envelope with presidential seal] beneath the glare of the palace cameras.

The letter reports that 3 Radio Kiskeya journalists received the payment and have been “severely sanctioned.” The letter continues, writing that the actions at the National Palace reflect “the general level of deterioration of moral values at both the state level and within all of society, including the press unfortunately.”

Today, Shearon Roberts, an assistant professor of Mass Communication at Xavier University of Louisiana, writes about the situation facing Haitian journalists, five years after the earthquake:

Haiti’s media landscape had been divided before the earthquake along political lines. The disaster brought media factions together as news organizations faced limited resources, ongoing political-socio-economic crises and a strong adversary in the government of President Michel Martelly.

“The Haitian state does not want freedom of the press that is not in their interest,” said Liliane Pierre-Paul, president of the Association National de Médias Haïtiens (ANMH), Haiti’s largest media organization. “They do no wish to respect transparency. They do no want to have awareness among the population, and they do not approve of our reporting that denounces their behavior in government.”

Dean Baker
Truthout, January 26, 2015

A new NBER working paper by Marcus Hagedorn, Iourii Manovskii, and Kurt Mitman (HMM) argues that end of extended unemployment benefits at the start of 2014 explains much of the pick up in employment growth in 2014 compared with 2013. The story would be that the end of benefits gave people an incentive to find work. Their method is to compare the change in employment in states that previously had lengthy periods of benefit duration with states where benefit duration was already short prior to January of 2014.

The argument is that in the states that previously had long benefit duration we should expect the cut in duration to have a large effect. By contrast, in the states where benefit duration was relatively short, we would expect to see little effect. This means that we should see a bigger uptick in job growth in 2014 relative to 2013 in the states that previously had long periods of benefit duration than in states that had short periods.

CEPR’s Dean Baker recently took Neil Irwin to task for claiming that wages are going to rise soon. Irwin argued that the growing number of job openings is a significant plus for American workers. According to Irwin, if firms are looking to hire, they may begin raising wages in order to fill current vacancies. Matthew Yglesias of Vox made the same point here.

There is some logic to this point. 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.

But the problem is that “other things” are not equal in today’s economy. In particular, we have a large number of unemployed Americans competing for those vacancies.

Joe Nocera used his NYT column this morning to beat up on a number of politicians who oppose President Obama's call for fast-track authority to facilitate passage of the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Pact (TTIP). He claims that they have the trade story badly wrong and that recent trade deals have actually been a big help to the country.

While Nocera may be correct in saying that many politicians have exaggerated the negative impact on NAFTA and other recent trade deals (stop the presses! politicians exaggerating!), but their basic story is correct. There are three points that people should understand in assessing the impact of trade and the meaning of these trade deals:

1) Trade has been an important factor increasing inequality in the United States;

2) The trade deficit is the major reason that the economy has weak demand and remains far below full employment;

3) The TPP and TTIP are about imposing a corporate friendly regulation structure, not trade.

Taking these in turn, the fact that trade has been a major factor contributing to inequality is no longer just a claim from the fringe lefty types. Paul Krugman has written about as has M.I.T. economist David Autor. It was even highlighted in the report of the commission on inclusive prosperity set up by the Center for American Progress and co-chaired by Larry Summers.

The basic point is a simple one. We constructed trade agreements designed to put our steelworkers and textile workers in direct competition with low-paid workers in the developing world. The predicted and actual effect of this policy is to lower the wages of steelworkers and textile workers.

If anyone finds this difficult to understand, imagine that the trade deals of the last quarter century were focused on making it as easy as possible for smart kids in India, China, and other developing countries to train to U.S. standards and then work as doctors, lawyers, dentists and in other highly paid professions in the United States. What would we expect to happen to the wages of doctors, lawyers, dentists and other highly paid professionals? They would fall, bingo!

The story on the trade deficit should be equally straightforward. Our annual trade deficit of $500 billion (@ 3.0 percent of GDP) is a direct drain on domestic demand. This represents money being spent by workers and companies in the United States that is creating demand in other countries, not in the United States. In the good old days, mainstream economists ridiculed the idea that a trade deficit could lead to a shortfall in demand because they assumed as an article of faith that any demand lost due to a trade deficit would be made by increased demand from other sources.

Last July, in a stirring and rare demonstration of bipartisanship, the U.S. House and the Senate passed a bill dedicated to increasing transparency and accountability around the billions of dollars of U.S. government funds allocated to assistance to Haiti since the January 2010 earthquake.  On August 8, President Obama signed the Assessing Progress in Haiti Act and the clock began ticking down for the State Department to produce the first of several comprehensive reports detailing the government’s assistance efforts, as mandated by the new law.

Assessing Progress instructed the State Department to complete a first report by the end of 2014.  While it’s not clear that that deadline was met, the Department’s Office of the Haiti Special Coordinator posted their report on their web page by the time the fifth anniversary of Haiti’s earthquake rolled around on January 12.

The reporting requirements outlined in Assessing Progress are far-reaching and fairly concrete.  It’s therefore not surprising that the report is truly massive in size, consisting of a general report on the results of U.S. assistance to Haiti and 17 attachments, many of which are PDFs of spreadsheets containing detailed quantitative and qualitative information about U.S. aid programs.

The question is: Is all of this information useful to those seeking an answer to the oft-repeated question, “Where did the money go?”  The answer is undoubtedly yes, but it doesn’t take more than a rapid survey of the report to see that the information provided is, in many cases, incomplete.  Furthermore, there are instances where State’s reporting may formally comply with the letter of the law, but not with its clear intent of providing lawmakers and the public with a better idea of the concrete results of U.S. Haiti assistance.

We’re not going to attempt a thorough analysis of this report at this time.  A rigorous and complete assessment requires considerable input from stakeholders, in particular those on the ground in Haiti.  For now we’ll share a few general observations regarding the report’s contents, highlighting what we see as the good, the bad and the murky.