An AP article in the Washington Post on the release of Commerce Department data showing a sharp drop in the trade deficit in April concluded with a discussion of the Trans-Pacific Partnership (TPP). The piece told readers:
"Obama and backers of the trade deal argue that it would open huge markets to U.S. goods by lowering tariffs and other trade barriers. But critics, including labor and environmental groups, say that the trade agreement would subject American workers to unfair competition from countries with lower standards for both labor rights and environmental protections."
Actually critics also dispute the assertion that the TPP "would open huge markets." Most of the countries included in the TPP already have trade deals with the United States, so there is likely to be little increase in access to their markets. Of the remaining countries, Japan is by far the most important, but Japan's tariffs on U.S. exports are already low, so the gains from lowering these barriers further is likely to be limited. The remaining countries all have relatively small economies. Their size coupled with their distance from the United States makes it implausible that the United States will have any substantial increase in exports as a result of the TPP.
The Washington Post is apparently pulling out all the stops in pushing its agenda on trade. It ran a front page news story that included several heroic acts of mind reading and flagrant misrepresentations to help push the deal to its readers.
In the later category, the second paragraph told readers:
"members of the New Democrat Coalition [a group of centrist Democrats in Congress] heard from frustrated tech executives who pleaded with them to help boost global growth and demanded to know why the president’s party was not lining up behind his trade push."
In fact the tech executives were not pleading with them to help "boost global growth," or if they were they were not being honest. There are no models that show the TPP having more than a trivial impact on global growth. In fact, the United States Department of Agriculture projected that the impact on growth in the United States would be too small to measure.
If the tech executives were pleading with the New Democratic Coalition to "boost global growth" it was an argument of the form, "give me money, it will be good for the economy." The reality is that they of course want a deal that they helped craft to make themselves richer.
Contrary to the assertions in this article, the TPP is absolutely not about expanding trade. In fact, it increases protectionism in important areas in the form of stronger and longer patent and copyright protections. No models have sought to estimate the costs to the economy of these government granted monopolies. It is likely these costs are substantial since they can raise the price of the protected items by a hundredfold or more. (The patent protected price of the Hepatitis C drug Sovaldi is $84,000 per treatment in the United States. A high quality generic is available in India for less than $1000.) This increase in prices is equivalent to a 10,000 percent tariff. It leads to exactly the sort of distortions and corruption that economists predict from high tariffs.
The NYT ran a column on helping low income homeowners by Elysse Cherry, the chief executive of Boston Community Capital. The piece includes various proposals designed to help low income homeowners who were hit by the collapse of the housing bubble, but it also includes the bizarre complaint:
"In many areas, housing prices are stuck below their inflated pre-bubble levels. Until we deal with this fact, entire communities will continue to struggle with high foreclosure rates and a lack of economic mobility. ....
"However, the poorest fifth of Americans already spend more than 40 percent of their income on housing, compared with less than 31 percent for the upper fifth, according to government data. Meanwhile, real wages for most Americans have been flat or falling for decades. Absent an extraordinary increase in income for low-income families, home prices in low-income areas aren’t going anywhere.
"This disparity between high- and low-income neighborhoods is evident in the numbers. The Standard & Poor’s/Case-Shiller National Home Price Index for March was over the March 2004 index, and national median home prices, according to the real estate website Zillow, are just over what they were 10 years ago."
There are two problems with this complaint. First, it is factually wrong, or at least misleading. The weak price performance of lower cost homes depends very much on the time window being considered. If homeowners bought near the peak of the bubble, which disproportionately affected lower income neighborhoods, then their prices would still be depressed, however if they bought before the bubble they would be doing quite well.
American Enterprise economist Andrew Biggs again warned about public pension funding in a Wall Street Journal piece. He’s not altogether wrong. Biggs points out that many states continue to badly underfund their pensions. He also cautions against pension funds taking too much risk with their investments. These points are well taken, but I would raise a few issues about Bigg’s argument.
First, it’s good to see that Kansas is Bigg’s poster child as one of the states with a poorly funded pension plan looking for higher market returns rather than making its required contributions. This is worth noting because Kansas is one of the most Republican states in the country, with a very conservative governor. It certainly it is not a hotbed of public sector unionism. This point is important. It was not public sector unions that caused states to have problems with pension funding, it was bad management by elected officials, both Democrats and Republicans.
Second, Biggs somewhat misrepresents the issues on returns. He argues the return assumptions used by public pension plans are considerably higher than the recommendations of a group of investment consultants and asset managers. However the asset mix for which this group made their projections was a portfolio of 70 percent equities and 30 percent bonds. The mix of assets held by pensions tends to be oriented towards somewhat higher return assets, with holdings in private equity and venture capital. The returns assumed by the pension funds are much closer the returns recently recommended in a report by the Pension Consulting Alliance.
It is also worth noting one source of confusion in these comparisons. Many pension funds assume higher rates of inflation than we have been seeing recently or are expected in the future. For example, the Kansas plan cited by Biggs assumes a 3.0 percent average rate of inflation over its planning horizon. The Congressional Budget Office and most other forecasters assume a 2.0 percent inflation rate. The difference in inflation assumptions should translate one to one into differences in returns. In other words, a 6.0 percent return assumption with a 2.0 percent inflation rate translates into a 7.0 percent return assumption with a 3.0 percent inflation rate.
However Biggs is right to raise a flag about some of the risky investments being pursued by pension funds. Private equity and venture capital can both be very risky. In the past these investments have provided a better return than the overall market, but pension funds would be wise to exercise caution if they are relying on this continuing in the future.
It is amazing how economic reporters continue to repeat nonsense about deflation. As fans of arithmetic and logic everywhere know, deflation is bad for the same reason a lower rate of inflation is bad. It raises the real interest rate at a time when we want a lower real interest rate and it increases the real value of debt when we want to see the real value of debt reduced. (The real interest rate is the nominal interest minus the inflation rate.)
Crossing zero means nothing, which should be obvious to anyone who has given the issue a moment's thought. The inflation rate is a sum of millions of different price changes. When it is near zero, many prices are already falling. When it crosses zero and becomes negative, that means a somewhat larger share of prices are falling. So what? Since prices are quality adjusted, the prices people pay may still be rising.
Anyhow, the NYT added to the silliness yet again when it told readers that price declines in the euro zone due to falling energy prices are a potential problem. Let's think this one through for a moment. Suppose that prices are rising at a 1.0 percent annual rate. Given the weakness of the euro zone economy that is lower than would be desirable, but let's use that as a starting point.
Now let's have energy prices fall at a 40 percent annual rate so that prices are now falling at a 1.0 percent annual rate. Let's assume that the rate of inflation for non-energy prices has not changed.
Now how does this make things worse? People used to be pay more for gas and heat, with most of that money ending up outside of the euro zone. With the lower prices, this money stays in their pocket for them to spend on other things. In terms of debt burdens, if wages are rising in step with inflation, then the real value of debt to workers is being eroded at exactly the same rate as before. And since non-energy prices are still rising at the same pace, the real interest rate for investment outside the energy sector has not changed.
So what is the problem? It would be great if the NYT could get someone other than deflation cultists to do their economic reporting.
The NYT apparently thinks this is a common practice. An article discussing a Supreme Court ruling that a second mortgage could not be discharged in a chapter 7 bankruptcy filing even when the homeowner's first mortgage vastly exceeded the value of the house, told readers:
"a ruling in favor of the homeowners might have made banks and other lenders less willing to extend second mortgages in the future."
In a foreclosure, a first mortgage must be paid in full before a dollar can be paid on a second mortgage. In the case before the court, the first mortgage was for $183,000, while the home was valued at $98,000. The homeowner therefore argued that the second mortgage was effectively unsecured debt that should be discharged in bankruptcy.
A ruling in favor of the homeowner would only affect banks' lending behavior if they think there is a substantial probability that a home will fall below the value of a first mortgage. If they do believe this risk to be large enough to affect their lending, then it is probably best for the homeowner and the economy more generally that the second mortgage not be issued.
Robert Samuelson used his Monday column to tell readers that the problem with the economy is that we are suffering the psychological fallout of the Great Recession:
"My main explanation for this — as I’ve argued before — is the hangover from the 2008-2009 financial crisis and the Great Recession. These events changed economic psychology, precisely because they were unanticipated and horrific. They transcended the experience of most Americans (that is, anyone who hadn’t lived through the Great Depression). Corporate executives and consumers alike became more defensive; they saved and hoarded a bit more. If a novel calamity struck once, it could strike again. They’d better prepare."
The problem is that the data refuses to agree with his psychoanalysis. As I pointed out yesterday, consumption is actually higher as a share of GDP than it was before the downturn, indicating that fear is not keeping households from consuming in any obvious way.
Samuelson also points to the rise in temporary employment as evidence that firms are scared to commit themselves to permanent employees. The problem with this one is that temporary employment as a share of total employment is just rising back to the levels of the late 1990s, a time when the economy was booming.
If we look at the narrow category of temporary employment agencies, the Bureau of Labor Statistics (BLS) reports the number stood at 2,880,000 in April. That compares to 2,605,000 in December of 1999. Measured as a share of total employment, it stood at 2.03 percent in December of 1999, compared with 2.04 percent of total employment in April.
If we use the somewhat broader category of employment services, BLS reports the number at 3,547,000 in April. That compared to 3,776,000 in December of 1999. Measured as a share of total employment, jobs at employment service agencies fell from 3.77 percent in December of 1999 to 3.55 percent in April.
In short, if employment in temporary agencies is supposed to be a measure of insecurity, it doesn't appear to be going in the right direction to make Samuelson's point.
The most obvious explanation for the continuing weakness of the economy is that there is nothing to fill the gap in demand created by a $500 billion annual trade deficit (@ 3 percent of GDP). In the last decade, the demand generated by the housing bubble filled the gap, while in the 1990s the demand from a stock bubble filled the gap. In the absence of another bubble and a refusal to run large budget deficits, there is no obvious source of demand to fill this gap.
Unfortunately this explanation is far too simple to be used by economists or those writing on economy.
Undoubtedly millions of readers are wondering about the NYT's use of the term when it told readers that one of the goals of the Trans-Pacific Partnership (TPP) is to, "protect intellectual property from theft." Actually one of the goals of the TPP is to strengthen and lengthen patent and copyright protections.
After this is done, those who do not respect the new laws can be accused of "theft," however it makes no sense to accuse someone of theft for breaking laws that do not exist. The NYT may want strong and long protections, but a newspaper should not be calling people who do not adhere to its views of intellectual property "thieves."
As the world awaits the final word on the negotiations between Greece and its creditors, it's worth a quick flashback to 2010 and the report of Alan Simpson and Erskine Bowles, the co-chairs of President Obama's deficit commission. (This report is often referred to as a report of the commission. That is not true. The by-laws clearly state that to issue a report it was necessary to have the support of 12 of the 16 commission members. While no formal vote was ever taken, the co-chairs' report only had the support of 10 members.)
Anyhow, getting back to matters at hand, one of the Simpson-Bowles proposals was to raise the normal retirement age for Social Security to 69 from its current level of 66 (soon to be 67). The report recognized that many people work in physically demanding and/or dangerous jobs where it would be unreasonable to expect people to work this late in life. It therefore proposed having special lower retirement ages for certain occupations.
The reason this is relevant to Greece is that one of the sticking points at the moment is the reform of Greece's public pension system. One of the main issues is that the current system allows people in many occupations to start collecting benefits well before the normal retirement age. For example, hairdressers are apparently among this group because they are exposed to dangerous chemicals on the job.
While the Greek system was a universal target of ridicule among serious minded people everywhere, many of these same people embraced the Simpson-Bowles report as a gem of thoughtful, non-partisan, policy-making. The ability to ignore the fact that the supposedly thoughtful Bowles-Simpson gang were advocating the adoption of a pension system subject to universal ridicule is yet another example of the lack of seriousness of the serious people.
A NYT article reported on a turn to the right of politics in France and in much of the rest of Europe. Remarkably, the piece never once mentioned the decision by the European Central Bank (ECB) to impose a policy of austerity and high unemployment on the continent. Since the mainstream left parties do not want to challenge the ECB, this means they have few plausible routes for reducing unemployment and restoring wage growth for the bulk of the population.
This opens the stage for right-wing nationalist parties, which promise a better economic situation by blaming immigrants for the weak economy. It also forces the traditional left parties to the center since they must accede to the ECB's demand for austere budgets and labor market reforms.
The United States will be in the same situation if the Federal Reserve Board starts raising interest rates to slow the economy and keep the labor market so weak that most workers cannot get wage gains.
Economists may not be very good at understanding the economy, but they are quite good at finding ways to keep themselves employed, generally at very high wages. The Washington Post treated us to one such make work project as it reported on a change in consumer psychology due to the recession that has left:
"Americans of all ages less willing to inject their money back into the economy in the form of vacations, clothing and nights out.
"It’s a sharp contrast to the 1990s, when consumers spent freely as their wages rose robustly, and the 2000s, when Americans funded more lavish lifestyles with easy access to credit cards and home-equity loans."
Really? That sounds like a startling development. Let's see if we can find it in the data.
The chart shows consumption as a percentage of GDP. I went back to the late fifties so folks can see the longer term picture. People are spending far more today relative to the size of the economy than they did in the sixties, seventies, eighties, or even nineties. In fact, consumer expenditures are higher now relative to the size of economy than they were in the housing bubble days.
So, let's ask about that psychology story. Apparently the concern is that we fell from a ratio of 68.8 percent in the first quarter of last year all the way down to 68.6 percent in the most recent quarter. My guess is that modest decline is best explained by unusually bad weather in the first quarter that discouraged people from shopping and going out for meals. Also, extraordinarily strong car sales in the second half of 2014 probably let to some falloff in the first quarter since people who buy a new car in the fall generally don't buy another one in the winter.
But hey, I don't want to see a lot of unemployed economists. There should be lots of work in looking for a plunge in consumption that isn't there.
Many folks are dismissing the negative GDP number from the first quarter by arguing that the Commerce Department's seasonal adjustment is faulty. According to some estimates a correct seasonal adjustment could add as much as 0.8 percentage points, which would be enough to bring the first quarter GDP into positive territory.
However seasonal adjustments must sum to one over the course of the year. In other words, if weather and other regular seasonal factors are more of a drag on first quarter growth than the Commerce Department acknowledges in its current seasonal adjustment, then the Commerce Department must be understating the extent to which weather and other seasonal factors provide a boost to growth in other quarters. The cost of saying that the first quarters (this and prior years) is better than the data show is that it means the data for other quarters are worse than the current methodology indicate. In other words, this will not qualitatively change our assessment of how fast the economy is growing, even if it may shift the timing between quarters.
John Delaney, a Democratic congressperson from Maryland, argued against a "left-wing" Tea Party in a Washington Post column today. He gets many things badly wrong, like arguing:
"bipartisan tax reform that would free up the trillions of dollars of trapped overseas cash" which he says could be used for infrastructure spending. Sorry, corporations do have trillions in profits that they record as being overseas to avoid taxes, but the idea that we have some formula that would turn all this money into tax revenue for infrastructure is more than a bit loopy. He also seems to think that a modest expansion of Social Security, as proposed by people like Senators Elizabeth Warren and Bernie Sanders, would impose some impossible tax burden.
But my favorite part is when he denounces the opponents of the Trans-Pacific Partnership (TPP) as protectionists. I must confess to not knowing exactly what is in the agreement (it is secret), but we do know from Wikileaks that an important part of the TPP is increasing protectionism in the form of stronger and longer copyright and patent protection.
Since we already have trade agreements with most of the countries in the TPP, there will not be very much by way of tariff reduction in the TPP. In other words, the trade liberalization parts of the TPP will be relatively minor. Given this fact, it is entirely possible that the increase in copyright and patent protections will have more economic impact than the modest reductions in the remaining tariff barriers. (Remember patent protection can increase the price of a drug by a hundredfold, the equivalent of a 10,000 percent tariff barrier.)
Until it is shown otherwise, it is reasonable to call the TPP a protectionist pact. We know that it will increase protectionism in important areas. We don't know how much it will liberalize trade and therefore have zero basis for assuming that on net it moves in the direction of freer trade.
So Mr. Delaney, if it's name-calling time, right back at you. As a TPP supporter, you are a protectionist.
Morning Edition had a segment on computer tablets that many restaurants are now placing on dining tables which allow people to order and pay their bill without needing a waiter or waitress. The point of the piece is that these tablets are likely to cost the jobs of many table servers.
While this is true, we have always seen productivity growth. (That is what it means to displace workers with robots or computers.) Contrary to what you might believe from reports like this on NPR, productivity growth has actually been very slow in the last decade, as in the opposite of robots taking our jobs. Here's the data on productivity in the restaurant industry over the last three decades.
Productivity in the Restaurant Industry: 1987-2013
Source: Bureau of Labor Statistics.
As can be seen, productivity increased relatively rapidly in the restaurant industry from 1996 to 2006. Since 2006 productivity has actually fallen in the industry. That means that restaurants are getting less money for each hour of their employees' work. It might be interesting to hear a segment on why we seem to have such low productivity (i.e. negative) growth in sectors like restaurants rather than implying that we are seeing the opposite story.
Brendan Nyhan had an interesting piece in the NYT's Upshot section in which he discussed how "free trade" policies get pushed by presidents and approved by Congress even though most middle income and lower income people are opposed to them. Nyhan refers to research showing that wealthier people overwhelmingly support "free trade," and politicians are likely to act in ways that reflect their views even when this means going against the majority.
While this is interesting and important research, it misses an important part of the story. Our trade agreements have not been about liberalizing trade in all areas, as Nyhan asserts. While trade policy has been quite explicitly designed to put U.S. manufacturing workers in direct competition with low paid workers in the developing world, it has largely left in place or even increased the protections that keep doctors and other highly paid professsionals from other countries from working in the United States.
Trade theory predicts enormous economic gains from allowing freer trade in these professionals, but because trade policy is designed largely by and for wealthy people, removing barriers to foreign professionals working in the United States rarely gets on the agenda in trade deals. Unfortunately it also doesn't get mentioned in the media's discussion of the issue either.
Trade deals also increase protections in the form of patent and copyright protection. These are direct transfers of money from the bulk of the population to those who benefit from these royalties and licensing fee. Most of the people in the latter category are wealthy.
The fact that the trade deals do not conform to economists' definitions of "free trade," but are instead designed to redistribute income upward, likely explains much of the hostility of low and middle income people to "free trade." It is worth pointing out, that in responding to these polls, the public is not referring to the economic concept of "free trade," but rather real world policies that have little to do with the economic concept. It is understandable that the politicians pushing the trade deals would use the economic concept of "free trade" to promote their deals, it is less clear why reporters and commentators would adopt the same approach.
Today's culprit is National Public Radio. The point here is extremely simple. We know how fast robots and other technologies are replacing workers. In fact the Bureau of Labor Statistics measures it quarterly, it's called "productivity growth."
Productivity growth has actually been very slow in the last decade, as in the opposite of robots stealing our jobs. But hey, why should news outlets be limited by data?
By contrast, if the Fed starts raising interest rates, it can prevent millions of people from getting jobs over the next few years. This will also keep tens of millions from getting pay raises since a weak labor market will reduce their bargaining power. But hey, why bother listeners and readers with this stuff, let's have another piece on those nifty robots.
Given the obsession with the government budget deficit that NPR shares with most major news outlets, you would think they would find some room to mention a drop in the defcit of $20 trillion (yes, that's "trillion" with a "t"), but no, apparently they didn't think it was important.
If this sounds very strange to you, it's because the decline is in a bizarre measure of the deficit known as the "infinite horizon" budget deficit. Its originator was Boston University professor Lawrence Kotlikoff. The idea is to make projections of spending for the infinite future, compare them to projections of revenue, and then calculate the shortfall.
This can lead to some very large figures. For example, when NPR chose to report on the number back in 2011, the figure was $211 trillion (measured in 2011 dollars). I criticized the network at the time because this number was mentioned with absolutely zero context. Not only is there the problem that we are making projections for decades and centuries into the future (hey, will 2108 be a good year?), there is also the problem that almost no one hearing this number would have any idea what it means.
NPR has a well-educated listenership, but I would be quite certain that less than one in a thousand of their listeners would be able to tell much difference if the number was cut in half or doubled. $211 trillion is a really big number, but so is $106 trillion or $422 trillion. If the point is to convey information rather than just scare people then the number could at least have been expressed as share of future income. (It would have been just under 13 percent.)
It also would have been helpful to note that the main factor driving this large deficit was a projected explosion in health care costs. Under the assumptions used in the deficit calculations, the average health care costs for an 85-year old would be over $45,000 a year in 2030 and over $110,000 a year in 2080 (both numbers are in 2015 dollars). If these numbers prove accurate, we would face an enormous problem regardless of what we did with Medicare and Medicaid. Almost no seniors would be able to afford health care (nor would most other people). By just reporting the deficit numbers, NPR was implying that the problem was one of public spending as opposed to a broken health care system. (No other wealthy country is projected to experience a similar explosion of health care costs, which suggests the obvious solution of having people use more efficient health care systems elsewhere, but public debate is controlled by ardent protectionists.)
But there is a further point worth making about whether NPR's intentions were to scare or inform their listeners. By Kotlikoff's own calculations the deficit fell by more than $20 trillion between 2012 and 2013, a decline of just under 9 percent.
Source: Kotlikoff, 2015. Numbers adjusted for inflation using CPI-U.
If it was important for the public to know that the deficit by Kotlikoff's measure was over $200 trillion back in 2011, presumably it would also have been important for the public to know that Kotlikoff's infinite horizon deficit had fallen by $20 trillion two years later. Why no coverage?
Billionaire Peter Peterson is spending lots of money to get people to worry about the debt and deficits rather than focus on the issues that will affect their lives. National Public Radio is doing its part to try to promote Peterson's cause with a Morning Edition piece that began by telling people that the next president "will have to wrestle with the federal debt." This is not true, but it is the hope of Peter Peterson that he can distract the public from the factors that will affect their lives, most importantly the upward redistribution of income, and obsess on the country's relative small deficit. (A larger deficit right now would promote growth and employment.)
According to the projections from the Congressional Budget Office, interest on the debt will be well below 2.0 percent of GDP when the next president takes office. This is lower than the interest burden faced by any pre-Obama president since Jimmy Carter. The interest burden is projected to rise to 3.0 percent of GDP by 2024 when the next president's second term is ending, but this would still be below the burden faced by President Clinton when he took office.
Furthermore, the reason for the projected rise in the burden is a projection that the Federal Reserve Board is projected to raise interest rates. If the Fed kept interest rates low, then the burden would be little changed over the course of the decade. Of course the Fed's decision to raise interest rates will have a far greater direct impact on people's lives than increasing interest costs for the government. (The president appoints 7 of the 12 voting members of the Fed's Open Market Committee that sets interest rates.)
The reason the Fed raises interest rates is to slow the economy and keep people from getting jobs. This will prevent the labor market from tightening, which will prevent workers from having enough bargaining power to get pay increases. In that case, the bulk of the gains from economic growth will continue to go to those at the top end of the income distribution.
The main reason that we saw strong wage growth at the end of the 1990s was that Alan Greenspan ignored the accepted wisdom in the economics profession, including among the liberal economists appointed to the Fed by President Clinton, and allowed the unemployment rate to drop well below 6.0 percent. At the time, almost all economists believed that if the unemployment rate fell much below 6.0 percent that inflation would spiral out of control. The economists were wrong, inflation was little changed even though the unemployment rate remained below 6.0 from the middle of 1995 until 2001, and averaged just 4.0 percent for all of 2000. (Economists, unlike custodians and dishwashers, suffer no consequence in their careers for messing up on the job.)
Anyhow, if the Fed raises interest rates to keep the labor market from tightening as it did in the late 1990s, this would effectively be depriving workers of the 1.0-1.5 percentage points in real wage growth they could expect if they were getting their share of productivity growth. This is like an increase in the payroll tax of 1.0-1.5 percentage points annually. Over the course of a two-term president, this would be the equivalent of an 8.0-12.0 percentage point increase in the payroll tax.
That would be a really big deal. But Peter Peterson and apparently NPR would rather have the public worry about the budget deficit.
It is also worth noting that the five think tanks mentioned in this piece that prepared deficit plans were paid by the Peter Peterson Foundation to prepare defict plans. They did not do it because they considered it the best use of their time.
Last week I noted the gift from the gods that the re-authorization of the Export-Import Bank is coming up at the same time as the Trans-Pacific Partnership (TPP). The great fun here is that the TPP proponents are running around being sanctimonious supporters of free trade. However the main purpose of the Export-Import Bank is to subsidize U.S. exports (mostly those of large corporations). Subsidizing exports is 180 degrees at odds with free trade, it's sort of like having sex to promote virginity, but naturally many of our great leaders in Washington support both.
We got another treat this week along the same lines in a Politico piece by Michael Grunwald arguing against breaking up the too big to fail (TBTF) banks. There is much in the piece that is wrong (e.g. he asserts that the biggest banks were not at the center of the financial crisis) but the key section for these purposes is when he tells readers:
"There’s much to dislike about America’s financial sector, but it is America’s financial sector. It’s actually much smaller as a percentage of the economy than its counterparts in Asia and Europe, and it’s much less concentrated at the top . Unilaterally enforcing size limits on domestic banks would put the U.S. at a real competitive disadvantage in financial services."
Almost all of Grunwald's argument is completely wrong (breaking up J.P. Morgan doesn't reduce its components and competitors to "community banks"). But the key point is that this is yet another example of an Obama-type (he collaborated in writing Timothy Geithner's autobiography) arguing for a government subsidy to help a favored interest group. Allowing the implicit guarantee of TBTF insurance is a massive government subsidy that the I.M.F. recently estimated to have a value of up to $70 billion a year for the United States. So once again we have a free trader arguing for government subsidies when something really important to them is at stake, in this case the survival of the Wall Street banks.
Given all the money and power on the side of the proponents of TPP, they are likely to get their deal through Congress. At least the rest of us can enjoy the spectacle of all these elite types making incredibly silly arguments.
There are two additional reasons that a vacant property tax is a neat idea. First, we already have a tax assessment on file for properties, so it doesn't require additional work. Second, even if people try to game the system by claiming a vacant property is actually occupied, we still have succeeded in imposing higher costs on leaving a property vacant. This means that owners are less likely to do so.
Washington Post economics writer Jim Tankersley took it upon himself to explain to Bernie Sanders, the senator from Vermont and candidate for the Democratic presidential nomination that "deodorant is not starving America's children." My guess is that Senator Sanders is aware of this fact.
The context for Sanders' deodorant comment was a statement about the irrelevance of GDP growth as a measure of well-being when the bulk of the gains go to the wealthy. Tankersley was good enough to include the whole quote:
"If 99 percent of all the new income goes to the top 1 percent, you could triple it, it wouldn't matter much to the average middle class person. The whole size of the economy and the GDP doesn't matter if people continue to work longer hours for low wages and you have 45 million people living in poverty. You can't just continue growth for the sake of growth in a world in which we are struggling with climate change and all kinds of environmental problems. All right? You don't necessarily need a choice of 23 underarm spray deodorants or of 18 different pairs of sneakers when children are hungry in this country."
The point appears to be one about income distribution not deodorant. In other words, when the rich have even more money they are likely to focus on relatively frivilous ways of spending it, like new types of deodorants and sneakers. The problem isn't that the rich are spending their money on deodorants, the problem is that they are the only ones who have money to spend, as opposed to hungry people having money to spend on food.
Even if Tankersley didn't get this one exactly right, it is encouraging to see economics writers trying to educate presidential candidates. Perhaps Tankersley or one of his colleagues will use their columns or blog posts to explain the basics of Keynesian economics, so that candidates will understand that in the current economic context plans to cut the deficit are in fact plans to reduce economic growth and throw people out of work. Or, maybe they could explain that our bloated financial sector is a drag on growth, so that measures that reduce the size of the financial sector (like the financial transactions tax proposed by Sanders) would actually be a boost to the overall economy.