Robert Samuelson begins his argument for the Trans-Pacific Partnership (TPP) by telling readers:

"The trouble with our trade debates is that people assume they’re only about economics."

I suppose this means that the advocates of TPP think they are losing the economic argument so now it is a matter of national security. (Just out of curiosity, I wonder how many of the foreign policy experts arguing for the necessity of the TPP supported the Iraq war.)

Anyhow, we do get some economics in Samuelson's piece, which deserve comment. He refers readers to a study by the Peterson Institute which shows that the increase in U.S. GDP by 2025 could be $85 billion, a bit less than 0.4 percent. It's worth noting that this study took no account of the higher prices in drugs and other products due to stronger and longer patent and copyright protections.

The higher prices would be expected to slow growth in the same way that increases in protectionist barriers in general slow growth. The impact could be large. For example, if a country is forced to pay the $84,000 patent protected price for Sovaldi, the hepatitis C drug, rather than the $900 generic price, it will be a drain on its purchasing power and an impediment to growth.

The Peterson Institute analysis also does not take account of the costs that would result from rent-seeking behavior due to stronger and longer patent protection. A recent CEPR analysis found that the mismarketing of just five drugs imposed annual costs of $27 billion a year in the form of increased mortality and morbidity between 1994 and 2008. 

Samuelson also turns to a peculiar analysis by Robert Lawrence to question the widely accepted view among economists that trade has cost manufacturing jobs and lowered wages for workers without college degrees. The study argues that we have seen nothing unusual in the sharp loss of manufacturing jobs as the trade deficit exploded in the last 15 years, claiming that the manufacturing share of employment has continued to decline at a trend rate of 0.4 percentage points a year.

This is bizarre, because we might expect manufacturing to decline at constant rate, not a constant percentage of total employment. If manufacturing employment fell by 0.4 percentage points when manufacturing accounted for 20 percent of total employment, the drop would be 2 percent. If it declines by 0.4 percentage points when manufacturing is 10 percent of total employment, the loss of jobs is 4 percent of manufacturing. There is no reason we would expect this pattern to hold. The implication is that if manufacturing employment were 4 percent of total employment then we would see 10 percent of total manufacturing employment to disappear in a single year.

Lawrence also criticizes Paul Krugman's analysis showing that trade with China has lowered wages by complaining that his model is "simplistic." He seems unaware of the research by David Autor and others that support this assessment.

 

Recent comments

  • Guest - Peter Principle

    By arguing for an alleged trade deal on "geopolitical" grounds, Samuelson simply proves (once again) that he is an imperial ideologue, not an economics writer.
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  • I am mystified by the mental gymnastics required to reconcile the dogma of those on the right that profess such strong "State's Rights" arguments when the Federal Government supposedly oversteps it's bounds but yet are so willing to give up all rights to corporate rule. To those of you out there th...
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  • Guest - skeptonomist

    Economic projections are rarely worth the paper they are written on (or the electric power used to read them electronically), but the actual economic record is unambiguous - there have been no economic benefits from globalization for most people in the US. There have obviously been no wage gains si...
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A NYT piece analyzing White House efforts to push the Trans-Pacific Partnership (TPP) began with the sentence:

"When President Obama defends the Trans-Pacific Partnership, a far-reaching agreement to tear down trade barriers between the United States and 11 other nations, he often argues it would cure the ills inflicted on American workers by trade pacts of the past, particularly the North American Free Trade Agreement."

The problem with this sentence is that the TPP is not obviously, "a far-reaching agreement to tear down trade barriers." The barriers to trade in most cases are already low. The main focus of the TPP is putting in place a new regulatory structure, which is likely to be very business friendly. The most obvious evidence of the business friendly nature of this structure is that the TPP would establish an extra-judicial legal system for enforcing the agreement. This system can only be used by foreign investors to sue governments; it is not open to governments, workers, or communities to sue foreign investors.

The deal also does much to increase barriers in the form of stronger patent and copyright protection. These barriers will raise prices and reduce trade.

For these reasons, it is a major distortion of reality to describe the TPP as "a far-reaching agreement to tear down trade barriers." While the proponents of TPP may like to characterize the deal this way in order to appeal to the principle of "free trade," it is not an accurate description of the agreement. 

Recent comments

  • Guest - Bill Mantis

    I'm waiting for a fuller explanation from Obama on what he's referring to when he declares, "some past trade agreements have not lived up to their hype." Which deals? What hype, specifically, coming from where or from whom? And then maybe we can get an itemized list on how this trade deal is differ...
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  • Guest - John Wright

    Per http://www.huffingtonpost.com/2015/04/30/hillary-clinton-trans-pacific-partnership_n_7173108.html, Hillary Clinton is opposed to ONE part of the the TPP, "which would give corporations the right to sue sovereign nations over laws or regulations that could potentially curb their profits. " So it...
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  • Guest - pieceofcake

    'This is not a full analysis but a challenge.' You don't need a full analysis to understand that by giving up so much of manufacturing the US commited the major economical mistake - and all these ridiculous efforts of money machinists to somehow even it out with monetary tricks -(like low interest ...
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Actually, I don't know that he is, but he would be if he were consistent. Earlier in the week, he complained that I thought there should be rules on currency manipulation in the Trans-Pacific Partnership (TPP). The gist of his argument is that if another country wants to deliberately under-value its currency, so that we can buy their exports at a lower price, our response should be "thank you very much." In effect the currency manipulator is subsidizing our consumption.

This is of course true and the same logic applies to export subsidies. If Japan, Australia, or some other country wants to provide a 20 percent subsidy on exports of cars, computers, or other goods and services, then they are making those items cheaper for U.S. consumers. Worstall would presumably want us to say "thank you very much" and leave it at that.

But those dunderheads negotiating the TPP are banning export subsidies. They will make it a trade violation if Australia wants to subsidize our consumers. I assume Worstall is very angry about this.

There are two points here. First there is a small one about optimal allocations in the economists' perfect world of full employment. Even though U.S. consumers may benefit in this world from the stupidity of other countries subsidizing our consumption through their export subsidies, this is not an optimal allocation. In principle, the world economy would be larger if governments did not subsidize exports and instead let the market make allocations. Note, this argument applies with equal force to currency values that are deliberately set below market rates by governments seeking trade advantages.

The other more important point is that we're typically not living in the economists' perfect world of full employment, and certainly have not been there lately. In a context of an economy that is below full employment, both an export subsidy and under-valued currency have the effect of increasing the U.S. trade deficit and reducing U.S. employment. (There appears to be some serious confusion on trade and jobs by Worstall and his friends. If foreigners use the dollars they get from their exports to buy U.S. government bonds, shares or U.S. stock, or real estate, it does not create jobs in the United States, except for the small number of people involved in the sale of financial assets.)

Anyhow, in the world where we live there can be, and is now, a very direct link between the trade deficit and jobs. If we run a larger trade deficit, neither Worstall nor his friends have some magic formula that can fill the gap in demand that would be created. This is why it is important to have rules in the TPP on currency values. We simply have no mechanism for replacing the demand we are losing through a $500 billion plus annual trade deficit.

 

Addendum:

I see Tim has responded. I think I see the problem. Tim seems to believe the economy is always at full employment so that lack of demand is not a problem. If the economy were always at full employment, he would of course be right. There is no obvious reason we shouldn't be happy if other countries are willing to subsidize our consumption. (There may still be some issues about market power and potential monopolization, but we can skip those for now.)

However in the world I live, the economy is often nowhere near full employment. This means that anything that reduces demand (like a larger trade deficit due to a rise in the value of the dollar) reduce output and employment. We can offset this loss of jobs and output through larger government budget deficits, but as a practical matter, we don't. This is why I am concerned about an over-valued currency, but if I thought unemployment wasn't a problem, I'd be with Tim.  

Recent comments

  • Guest - Gerry Flaychy

    Dean, I understand that. But what I want to say is that peoples in USA do also have the choice to spend their money in local goods and services, or, in assets, say, Treasuries. If they choose Treasuries rather than goods, than the demand for consumer goods is diminished, and in consequence, the lack...
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  • Guest - Dean Baker

    Gerry, when people spend money on goods and services produced in the United States it directly generates demand here. The people who get this money may respend it creating more demand. When China buys bonds or stocks, it does not directly create demand, but there can be the same indirect effect of ...
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  • Guest - chmoore

    It seems to me there's a lot of false equivalence going on. If trade subsidies (whether direct or currency based) result in benefiting mostly the owners of the supply chain for foreign goods and services, along with throwing a bone to the low wage workers who work there; that is NOT the same as cre...
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In the United States it's considered fine to just make crap up when talking about the government, especially when it comes to programs for poor people. That is why Ronald Reagan ran around the country telling people about the welfare queen who drove up to the welfare office every month in her new Cadillac to pick up her check. 

Today, David Brooks does the welfare queen routine in his NYT column, telling readers:

"Since 1980 federal antipoverty spending has exploded. As Robert Samuelson of The Washington Post has pointed out, in 2013 the federal government spent nearly $14,000 per poor person. If you simply took that money and handed it to the poor, a family of four would have a household income roughly twice the poverty rate."

Of course if NYT columnists were expected to be accurate when they talked about government programs, Brooks would have been forced to tell readers that around 40 percent of these payments are Medicaid payments that go directly to doctors and other health care providers. We pay twice as much per person for our health care as people in other wealthy countries, with little to show in the way of outcomes. We can think of these high health care costs as a generous payment to the poor, but what this actually means is that every time David Brooks' cardiologist neighbor raises his fees, David Brooks will complain about how we are being too generous to the poor.

The other point that an honest columnist would be forced to make is that the vast majority of these payments do not go to people who are below the poverty line and therefore don't count in the denominator for his "poor person" calculation. The cutoff for Medicaid is well above the poverty level in most states. The same is true for food stamps, the Earned Income Tax Credit (EITC), and most of the other programs that make up Brooks' $14,000 per person figure. In other words, he has taken the spending that goes to a much larger population and divided it by the number of people who are classified as poor.

If Brooks actually wants to tell readers what we spend on poor people, it's not hard to find the data. The average family of three on TANF gets less than $500 a month.  The average food stamp benefit is $133 per person. If low income people are working, they can get around $5,000 a year from the EITC for a single person with two children at the poverty level. (They would get less at lower income levels.)

These programs account for the vast majority of federal government payments to poor people. It won't get you anywhere near David Brooks' $14,000 per person per year, but why spoil a good story with facts?

 

Addendum:

Folks seem anxious to count Medicaid spending as spending on the poor. That's fine by me. The point I was making is that we pay twice as much as people elsewhere in the world for care that is no better because doctors and other providers get paid twice as much.

That seems worth noting in an assessment of how generous we are to the poor. To take an overblown analogy, suppose terrorists took some number of poor people hostage and demanded tens of millions of dollars for their release. We can include our ransom payments as money spent on the poor and say again how generous we are.

In this case, the folks playing the role of the terrorists in making big money demands are the doctors and other health care providers. In other words, they are David Brooks' cardiologist neighbor who gets well over $400,000 a year in large part due to payments from the government. You're welcome to see this as generosity to the poor, I see it as generosity to David Brooks' cardiologist neighbor.

 

 

Recent comments

  • Guest - Ogden Wernstrom

    In the US, there's a big difference between what many specialties earn and what a family physician or general practitioner earns. A cardiologist is the second-highest paid of the specialties in the Medscape Physician Compensation Report 2014. The cardiologist average was $351,000, almost-exactly ...
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  • Guest - Josh

    I'm not sure Brooks even read the David Simon interview. What had a rather concrete cause in the actions of Martin O'Malley is then somehow attributed to the "invisible bonds of relationships" breaking down. What a joke this guy is...
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  • Guest - Robert F

    So a poor person with bipolar illness has a psychotic break and is hospitalized on an involuntary commitment for 2 weeks at a cost of $30,000.Is he $30000 better off than he would have been if he never had a psychotic break?I don't think so.
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E.J. Dionne and Harold Meyerson both had interesting columns in the Post this morning, but they suffer from the same major error. Both note the loss of manufacturing jobs and downward pressure on the wages of non-college educated workers due to effects of trade. But both speak of this as being the result of a natural process of globalization.

This is wrong. The downward pressure on wages was the deliberate outcome of government policies designed to put U.S. manufacturing workers in direct competition with low-paid workers in the developing world. This was a conscious choice. Our trade deals could have been designed to put our doctors and lawyers in direct competition with much lower paid professionals in the developing world.

Trade deals could have focused on developing clear standards that would allow students in Mexico, India, and China to train to U.S. levels and then practice as professionals in the United States on the same terms as someone born in New York or Kansas. This would have provided enormous savings to consumers in the form of lower health care costs, legal fees, and professional services more generally. The argument for free trade in professional services is exactly the same as the argument for free trade in manufactured goods. 

The big difference is that doctors and lawyers have much more power than autoworkers and textile workers, therefore the politicians won't consider subjecting them to international competition. However that is no reason for columnists not to talk about this fact.

More generally, the heavy hand of government is all over the upward redistribution of the last three and a half decades. We have a Federal Reserve Board that has repeatedly raised interest rates to keep workers from getting jobs and bargaining power. A tax system that directly and explicitly subsidizes many people getting high six or even seven-figure salaries at universities, hospitals, and private charities and foundations. We have government subsidies for too big to fail banks.

Anyhow, inequality, like the path of globalization, is not something that happened. It was and is the result of conscious policy. We won't be able to deal with it effectively until we acknowledge this simple fact.

Recent comments

  • Guest - Eric377

    I don't know if D. baker has ever expressed an opinion on it, but I read this plus the comments and wonder why something like E-Verify isn't thought of as a no brainier, bipartisan quick policy change. So long as it is the poor unfortunate sods who used to make doo-dads in Rome, NY, the current sys...
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  • Guest - Bob Hertz

    Seems to me that for every auto worker who makes less money today, there is a government or health care or educational worker who makes more money. In other words, the new high paying jobs are coming out of the protected sectors. Tyler Cowen makes this point, and he is not alone among economists. Ac...
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  • Guest - liberal

    pete blithered, Think of globalization as a push toward a more fair distribution of capital and labor, a process which was hindered until recently by foreign mercantilist ideas. That's pretty rich coming from someone who's opposed to land value taxation. It's the same old same old---I'm all for r...
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I hate to be picking on Matt O'Brien again, but come on, this is setting the bar pretty goddamn low. He began a piece reporting on a consulting gig that Bernanke will have the bond fund Pimco by telling readers:

"If anyone deserves two seven-figure sinecures, it's Ben Bernanke."

I won't go over the full indictment of Ben Bernanke and will give him credit for a reasonably good job trying to boost the economy post-crash in the wake of the outraged opposition of the right-wing, but let's get real. The housing bubble and ensuing crash were not natural disasters like Hurricane Katrina.

The bubble was the result of bad policy. It is the Fed's responsibility to prevent harmful bubbles whose crash will disrupt the economy. While Bernanke only took over as Fed chair in January of 2006, after the bubble had already grown to very dangerous levels, he was sitting at Greenspan's side at the Fed through most of the process. (He did head over for a brief stint as head of President Bush's Council of Economic Advisers.) Through this whole period was completely dismissive of those who raised concerns about the bubble and junk loans that were fueling it.

This incredible negligence has had a devastating cost for tens of millions of people in the United States and around the world. And for this he deserves two-seven figure sinecures? This sounds like a case of the soft bigotry of incredibly low expectations.  

Recent comments

  • Guest - liberal

    JSeydl wrote, Anyway, Chicago Econ got a lot wrong, but one big thing it got right is that people ultimately respond to incentives. If they "got it right," they'd apply the theory about incentives to economists themselves, which they haven't done AFAICT.
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  • Guest - Sherparick

    I wonder if you had comments about Professor Feldstein who is going on about the Fed not raising interest rates to choke off the current "risky" recovery because of "bubbles" (he suggests the bubbles are to be found in the stock market and long term Government bonds). http://www.marketwatch.com/st...
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  • Guest - Dean Baker

    Joe, he makes many good points in the piece, but I really have a hard time stomaching Bernanke as a hero. Again, he helped get the economy back on its feet with QE, against a lot of political pressure, but to overlook his responsibility for the collapse is kind of a serious oversight....
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I usually confine my comments to economic reporting, but I can't let my blog sit idle when the Washington Post commits major journalistic malpractice on a story of national importance. The Post ran a major front page story with the headline, "Prisoner in van said Freddie Gray was 'trying to injure himself' document says." As the article indicates, the basis for the story is a document which includes the statement by another prisoner, presumably someone still in police custody. The Post tells readers:

"The Post was given the document under the condition that the prisoner not be named because the person who provided it feared for the inmate’s safety."

There are two big problems with this sentence. The Post does not know that the person who provided the document actually feared for the inmate's safety. The Post knows that the person who provided the document said that they feared for the inmate's safety. News reporters know that people sometimes do not tell the truth. This is why they report what people say, they do not tell readers that what people say is necessarily true, unless they have an independent basis for this assessment.

The other problem with this sentence is that it does not tell us why the person who provided the document is not identified. Did he/she also fear for their safety? A simple explanation would go a long way here.

It is possible that the document accurately reflects what another prisoner heard and his comments in a sworn statement, but it is also possible that this is largely fabricated. The story is obviously very helpful to the Baltimore police and since it likely originated in a context where the Baltimore police completely controlled the situation (presumably there were no independent observers when the prisoner was giving his statement) and this unidentified person controlled what was given the Post, it must be viewed with considerable skepticism.

Making this statement the basis of a front page story and not indicating to readers the need for skepticism, given the source, is incredibly irresponsible.

 

 

Recent comments

  • Guest - Who got cought blowing bubbles by the pond ?

    And further more would you like to explain the incentive for keeping people OUT of prisons, when they are on the STOCK EXCHANGE ??? So, prison = people = human trafficking, = PROFIT = you vile incomprehensible companies that quite literally profit from another's suffering. The most vile, incompre...
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  • Guest - Blowing bubbles

    Hmmm so this vile newspaper owns Amazon ? That's very interesting. Goodbye Amazon. Any company or origination that could add insult to injury of such a vile case is beyond human comprehension. Is a company I want no association with any corporations that make bold life changing statements before tho...
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  • Guest - Procopius

    Oh, yeah, Freddie Gray had his eye on the big bucks he could get from suing Baltimore as a paraplegic. Also, too, his larynx was "crushed." I don't see how he could intentionally do that to himself.
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The NYT has a column today by Uki Goni, warning of the bad things that will face Greece if it defaults. The default by Argentina in December of 2001 provides the basis for his warnings.

"Economic activity was paralyzed, supermarket prices soared and pharmaceutical companies withdrew their products as the peso lost three-quarters of its value against the dollar. With private medical insurance firms virtually bankrupt and the public health system on the brink of collapse, badly needed drugs for cancer, H.I.V. and heart conditions soon became scarce. Insulin for the country’s estimated 300,000 diabetics disappeared from drugstore shelves.

"With the economy in free fall, about half the country’s population was below the poverty line."

There is no doubt that the people of Argentina suffered serious hardship due to the default. However it is important to recognize that they were suffering severe hardship even before the default. The economy contracted by 8.4 percent since its peak in 1998, and contracted by 4.4 percent in 2001 alone. The unemployment rate had risen to more than 19.0 percent. Even worse, there was no end in sight. 

There is no doubt that 2002 was worse for the people of Argentina as a result of the default, but by the second half of the year the economy returned to growth and grew strongly for the next seven years. (There are serious issues about the accuracy of the Argentine data, but this is primarily a question for more recent years, not the initial recovery.) By the end of 2003 Argentina had made up all of the ground loss due to the default and was clearly far ahead of its stay the course path.

 

Book2 19771 image001

                         Source: International Monetary Fund.

This raises the question of whether the pain associated with the default was justified by the subsequent recovery. Clearly Mr. Goni thinks it is not. In this respect it is worth bringing in a hero among American policy wonks, Paul Volcker. Volcker is given enormous praise by economists (not me) for bringing on a recession in 1981 that brought inflation down from near double digit levels. This recession caused enormous pain of the sort described by Mr. Goni (people lost their houses and farms and couldn't pay for necessary health care, unemployment rose to almost 11.0 percent), but the economy did bounce back in 1983. The vast majority of policy types think this pain was well worth it as a price to bring down inflation. 

For further background, it is worth noting that the economy had been growing prior to Volcker's decision to bring on a recession. Argentina's economy was already contracting and virtually certain to continue to contract prior to the decision to default. In other words, there was no pain free path available to Argentina, whereas the U.S. economy likely would have continued to grow, albeit with higher inflation, without Volcker's actions. (For cheap fun look at this paper showing the I.M.F. consistently over-projecting growth prior to default and then hugely under-projecting growth post default.)

Clearly Greece looks much more like Argentina than the United States in 1981. Its economy has already contracted by more than 20 percent, with unemployment now over 25 percent. And, there is little hope for improvement any time soon under the stay the course scenario. This should make the default route look more attractive, since the country has little to lose.

That doesn't mean default will be pretty. People will suffer as a result, but at least default offers a better path forward. The striking takeaway from Goni's piece is how the notion of short-term pain for long-term gain can be made to look so appalling in a case where it was almost certainly necessary, whereas a similar choice is widely applauded in the United States in a case where it almost certainly was not. (For any Brits reading this, plug in "Thatcher" for Volcker.) It would probably be rude to point out that the 1981-82 recession was associated with a sharp upward redistribution of income away from workers at the middle and bottom of the wage distribution.

 

Note: Typos fixed, thanks folks.

Recent comments

  • Guest - Bill Mantis

    The axes on the graph are not labeled.
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  • With private medical insurance firms virtually bankrupt and the public health system on the brink of collapse, badly needed drugs for cancer, H.I.V. and heart conditions soon became scarce. Insulin for the country’s estimated 300,000 diabetics disappeared from drugstore shelves. In case someone ot...
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  • Guest - RabidGandhi

    Dean, thanks for your excellent blog. There is a small sector here in Argentina for whom the crisis was 2001, and not the previous decade of mass poverty and unemployment that ended in 2001, so I appreciate you pointing out the flaws in Goñi's OpEd. Even so, Greek FinMin Yanis Varoufakis has rep...
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Takeda, a Japanese drug company, agreed to pay $2.4 billion to settle suits claiming it concealed evidence that its diabetes drug, Actos, increased the risk of cancer. Concealing evidence of a drug's dangers is a predictable result of government-granted patent monopolies. Since patent monopolies allow drug companies to sell their products at prices that are often several thousand percent above the free market price, they provide drug companies an enormous incentive to mislead the public about the safety and effectiveness of their drugs. The damage caused as a result of these misrepresentations is likely comparable to the amount of research financed through patent monopolies.

 

Typos corrected, thanks to Robert Salzberg.

Yes folks, hold on to your hats, Thomas Friedman supports the Trans-Pacific Partnership (TPP). Friedman fans will recall his famous comment:

"I was speaking out in Minnesota — my hometown, in fact — and a guy stood up in the audience, said, 'Mr. Friedman, is there any free trade agreement you’d oppose?' I said, 'No, absolutely not.' I said, 'You know what, sir? I wrote a column supporting the CAFTA, the Caribbean Free Trade initiative. I didn’t even know what was in it. I just knew two words: free trade.'"

Actually, Friedman does provide useful insight into the issue when he cites President Obama referring to the TPP as a "effort to expand trade on our terms." The key question is who is "our." In these remarks President Obama made a point of mentioning the effort to increase the prices U.S. drug companies get for their drugs. That's great news for people who own lots of stock in Merck or Pfizer, but not good news for anyone else. In addition to paying more for drugs, workers in the United States are likely to see their exports crowded out by higher royalty payments to Merck and Pfizer. This form of protectionism is likely to be a drag on growth and jobs.

In addition, the Obama administration decided not to include rules on currency values. This could have helped to address the problem of an over-valued dollar. This is the main cause of the U.S. trade deficit which remains an enormous drag on growth and obstacle to full employment. If the "our" referred to workers in the United States, currency rules likely would have been at the top of the list of items to be included.

And the investor-state dispute settlement tribunals, which will allow corporations to sue governments in the U.S. and elsewhere, is also a big triumph for corporate interests. These extra-judicial tribunals could penalize any level of government for consumer, safety, labor, or environmental regulations that are deemed harmful to foreign investors.

So Friedman may be right about "our terms," but his "our" is likely not the "our" that includes most people in this country or the world.

Recent comments

  • Guest - John Wright

    This is a reposting/cleanup of a comment I made to the incorrect post. It is probably time to re-post the link to "Thomas Freetrademan" from December 19, 2001 https://prospect.org/article/datsun-and-shoe-tree Note, this is credited to Nicholas Confessore of the NYTimes, so employees of the Times...
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  • Guest - John Wright

    I meant to post a comment to the Tom Friedman commentary but it showed up in the previous "Trans-Pacific Partnership is Secret, not "Secret" " column.
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  • Guest - Dave

    We know Thomas is a wanker, and we know that Thomas is one of Obama's favorite columnists on trade and economics. Obama and Friedman share the top title of the long defunct, "Worst economist in the world" contest. He's suggesting a policy that increases the divide between rich and poor at the same...
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That is an important correction to the David Ignatius' Washington Post column touting the Trans-Pacific Partnership (TPP) as a way to revive Japan's economy. Unlike President Bush, who published a draft text of the Free Trade of the Americas Agreement before requesting fast-track authority, President Obama has chosen to keep the draft text of the TPP secret. This is not an allegation of TPP critics, it is a fact in the world.

Another point worth mentioning in this context is that when President Obama argued that he was pushing the TPP to help U.S. drug companies, he was effectively saying that he was hurting U.S. workers. There are two reasons this is likely to be the case. Several provisions of the deal will likely raise drug prices in the United States, for example by extending the period of data exclusivity for biosimiliar drugs (12 years in the leaked draft chapter, versus 7 years now). A decision by a future Congress to have Medicare negotiate drug prices may also be a violation of rules that effectively limit countries' ability to put in place new price controls.

The other issue is that the more money that foreigners pay Pfizer, Merck and other U.S. drug companies for their patents, the less money they will have to buy airplanes and other items produced in the United States. Unless a worker in the United States owns stock in a drug company, they would be better of if foreigners paid less for drugs rather than more. (The drug companies do employ workers, but the marginal increase in employment from higher company profits is likely to be very small.)

In terms of the effort to revive Japan's economy, it is worth noting that OECD reports that Japan's employment to population ratio among people between the ages of 16-64 has risen by 3.1 percentage points since 2012. The ratio in the United States has only increased by 1.4 percentage points over the same period.

Recent comments

  • Guest - John Wright

    It is probably time to re-post the link to "Thomas Freetrademan" from December 19, 2001 https://prospect.org/article/datsun-and-shoe-tree Note, this is credited to Nicholas Confessore of the NyTimes, so employees of the Times do make light of TF. And TF makes the usual genuflection before the Alt...
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  • Guest - Bertie

    Here's what they're doing about "transparency" in Europe. http://www.euractiv.com/sections/trade-society/us-open-ttip-reading-rooms-across-eu-314175 The US government will open “reading rooms” in its embassies across the European Union, so that national politicians can read secret documents relate...
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  • The TPP is SO GOOD for us, Our President can't let us know what's in it. We'd be too happy! / sarcasm ~
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That is the only possible conclusion that an informed reader can reach. After all, we all know that Representative Ryan is a huge champion of fiscal responsibility, balanced budgets, and sound money. We also remember how he denounced Ben Bernanke and the Fed for their policy of quantitative easing. He issued strong warnings about the debasement of the currency and hyperinflation.

There is no way that this celebrated fiscal hawk and sound money proponent could praise a country for running large deficits and printing money like there is no tomorrow. But there it is on the Washington Post's oped page, someone claiming to be Paul Ryan is praising Japan for having a large stimulus and the fact that they "cranked up the printing presses" in reference to the policy of quantitative easing by Japan's central bank.

For those keeping score, Japan's ratio of net debt to GDP is more than 50 percent higher than in the United States. The ratio of gross debt to GDP is more than twice as high. The I.M.F. projects that Japan's deficit for 2015 will be 6.2 percent of GDP, which would be more than $1.1 trillion in the United States.

To say this applause for Japan's economic policy is inconsistent with Ryan's past pronouncements on economic policy would be the understatement of the century. If we had a serious press corps in the United States, reporters would be pressing Ryan over this colossal flip flop. Of course Ryan wrote this column in the hope of advancing the Trans-Pacific Partnership, and we know that the media have a policy that inanities in the advancement of trade pacts are not subject to scrutiny.

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  • Guest - quantity63

    Once again, the radical liberal press (whatever the hell that means) is persecuting a good, honest, godly feller who is just trying to making a living by using his position as "representative of the people" to advance the interests of the oligarchy.
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  • Guest - djb

    abe is great!!!, he is a real leader!! he is a once in a generation leader who can prove his worth by passing tpp "But the structural reform Abe promised has been slow to arrive. And no surprise, the lack of reform has meant a lack of results. Over the past six years, the United States has learned ...
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The economist Barbara Bergmann died last week. There is a memorial service on Tuesday which I will not be able to attend because of another commitment, but I did want to say a few words.

Barbara was an extraordinary person. She got her PhD in economics in the early 1960s; a time when virtually no women entered the profession. She made extensive contributions to the field, most of them in the area of gender economics.

I first encountered Barbara back in the 1980s when I was a grad student at the University of Michigan. She gave a talk in which she explained testimony she had given in a case on gender discrimination in annuities. Prior to this case, insurance companies usually made lower annual payouts to women than men, based on the fact that women had longer life expectancies. The case in which Barbara gave her testimony overturned this practice after the Supreme Court ruled it was illegal discrimination.

Barbara explained the nature of her argument by pointing out that there was huge overlap in the distribution of longevity between men and women. Women had longer life-spans on average mostly because a relatively small number of women lived very long lives. She argued that it didn't make sense to give lower annuities to all women because of these long-lived women.

During the question period, many of the faculty were upset by the nature of this argument. After all, women did on average live longer than men, why shouldn't insurers adjust for this fact in their annual payouts?

Barbara responded by making the case more extreme. She suggested a scenario in which the distribution of lifespans was identical for men and women, except for one person (I believe Barbara referred to her as a "pest") who refused to die. We then check the DNA of this person and it turns out that she is a women. Would it then make sense to reduce the annuities for all women based on this fact?

After the lecture, a number of the grad students were arguing over this issue. Most seemed to share the view of our faculty, that the differences in annuities was justified by women's longer life expectancies. Then someone suggested that African Americans should get larger annuities than whites, since they have shorter life expectancies. Several of the advocates of lower payments for women immediately jumped on this as race discrimination. (Yes, everyone was white.)

This episode taught me a lot about economists, if not economics. Barbara will be missed.

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  • Guest - Dean Baker

    I'm sure self-selection is a big part of the story, but economics does tend to cultivate these attitudes.
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  • Guest - JSeydl

    do you think the arrogance of economists is because of self selection? Or do you buy the Robert Frank research showing people become arrogant after studying economics?
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Yeah, that was a joke. However that would be the case if the paper was consistent. Its lead editorial today complained about the people arguing that currency rules should be included in a trade deal. It told readers:

"And, yes, the International Monetary Fund has developed criteria for currency ma­nipu­la­tion — including prolonged current account surpluses and excessive foreign exchange reserve accumulation — that could, in theory, be incorporated into the agreement.

"The problem is that the definitions of these terms are subject to endless lawyerly disputation, and they could well be interpreted to rule out legitimate economic measures, including some — such as the Federal Reserve’s recent quantitative easing — that the United States itself might pursue. As Kemal Dervis of the Brookings Institution has argued, pretty much any aspect of macroeconomic policy could be construed to affect a country’s trade balance and, by extension, its exchange rate. It is therefore far better to keep such sensitive matters out of trade deals and leave them to existing, separate, diplomatic processes."

Guess what? Almost any policy that we might put forward to improve the economy to help the economy can be seen as an unfair export subsidy. This list would include items such as vocational training to give workers more skills, improved infrastructure to facilitate the transportation of goods to ports, low interest loans (i.e. the export-import bank), implicit government backing for too big to fail banks (i.e. TARP), and publicly funded research like the $30 billion a year that finances the National Institutes of Health and provides many of the breakthroughs eventually harnessed by our drug companies. 

Similarly, a wide range of consumer and environmental policies can be seen as restrictions on imports. And labor policies that applied to foreign investors can be seen as unfair takings under the TPP or TTIP. As the Post editorial says, "the definitions of these terms are subject to endless lawyerly disputation."

If the Post's editorial board were being consistent it would reject trade pacts in general as too complicated. But as we know, when it comes to trade policy, the Post cares little for consistency -- or the facts.

Remember, this is the paper that claimed Mexico's GDP had quadrupled between 1987 and 2007 in a lead editorial condemning the Democratic presidential candidates for pledging to renegotiate NAFTA. According to our good friends at the I.M.F, the actual increase was just over 83 percent.   

One more point, the Post was upset at the fast-track critics for complaining about the trade deal's secrecy. There is a very simple point here. President Obama could release a draft text of the deal indicating where issues are still being negotiated. The Post's editors are probably too young to remember, but President George W. Bush did this back in 2003 before asking Congress to vote for fast-track authority on the Free Trade of the Americas Agreement.

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  • Guest - sd

    The new website is not at all readable on an iPad.
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  • Guest - Procopius

    Obviously, President Obama thinks he has already published a draft copy of the treaty. From a story at MSNBC by Alex Seitz-Wald:And on Friday, Obama made a surprise appearance on a conference call with reporters and Labor Secretary Tom Perez. Obama took what seemed to be a shot at liberal lawmakers ...
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  • Guest - Last Mover

    Your text to link See this for best takedown yet of TPP by Ralph Nader, "Obama, Corporate 'Free Traitors' and You!
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Lydia DePillis had a short piece in the Post on the workers who currently make the federal minimum wage. This is interesting, but it should not be confused with an analysis of who would be affected by an increase in the minimum wage. Because the minimum wage has fallen so far behind inflation in the last four decades, there are relatively few workers who earn exactly the federal minimum wage.

John Schmitt and Janelle Jones did an analysis a few years ago of the workers who earned less than what the minimum wage would have been if it had kept pace with inflation since its peak in 1968. This much larger group workers is far more educated, older, and more likely to be supporting children than the group who earn exactly the minimum wage. Of this larger group, 33.3 percent have at least some college, and an additional 9.9 percent are college grads. If the federal minimum wage were raised back enough so that it had the same purchasing power as it did in 1968, all of these workers would see pay increases, as would many others who currently earn just above the new minimum.

Recent comments

  • Guest - skeptonomist

    Yes, the minimum wage has fallen behind inflation, but so have all wages. This plot shows yearly real wages for production workers from Table B-8 of the BLS. The minimum wage (for a 40-hour week) at the bottom has actually followed a trajectory which is very similar to the average for all wage-earn...
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  • I wonder if Dean thinks that minimum wage laws are good way to raise low income workers' standard of living. Also I know of a lot of people who have worked for much less that minimum wage (like selling Cutco knives, Amway, AL Williams, selling pot, picking up cans etc.) Does Dean think that people ...
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  • Guest - Faithful Reader

    With the new Web design, please change the text color to something darker. Gray text on a light background is really hard to read.
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The Washington Post had a front page story in the Sunday business section headlined, "The Great Unraveling of Globalization," which told readers that the overseas profits of U.S. corporations are not growing in line with their expectations from two decades ago. Among the main complaints is that consumer markets have not developed as expected.

"Those vast new consumer markets in globalized nations have not emerged either. For example, Chinese household consumption accounts for about 34 percent of GDP — down four points in the past decade — compared to a healthier 70 percent in the United States. And Chinese consumer diffidence is not an outlier."

Okay, we will need Mr. Arithmetic to help with this one. Mr. Arithmetic points out that a relatively small share of the pie in China goes to consumption, but because of its rapid growth, this is now a very large pie. Since 1994 China's economy has grown by more than 520 percent. By comparison Mexico's economy, which was the beneficiary of NAFTA and the basis for many Post articles on a rising middle class, has grown by just 66 percent over this same period. Mr. Arithmetic tells us that if China's economy had grown at the same rate as Mexico's, but its consumers spent 70 percent of GDP instead of the current 34 percent cited in the article, its consumer market would be just over half the current size.

This means that even if consumption is a relatively small share of GDP in China, because of the economy's extraordinary growth, the consumer market has probably increased by at least as much as anyone could have reasonably expected. It is also worth noting that the small share of consumption in GDP is directly related to growth. In general, countries that invest more grow more rapidly. (In addition, some of the companies discussed in this piece, like Caterpillar and IBM, largely sell investment goods. They would be helped by the large share of investment in China's GDP.

If U.S. companies are not faring well in international markets it likely means that they are losing ground to foreign competitors. This could reflect the quality of the highly paid CEOs at U.S. companies. Perhaps some of the much lower paid CEOs at companies in Europe and Asia are better at their jobs.

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  • Guest - djb

    How much of their gdp is exports minus imports.... meaning consumption by other countries
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The Washington Post has long been known for its willingness to ignore the distinction between news and editorial pages in pushing the case for deficit reduction in the United States. Today it took its drive for austerity overseas. In an article on public attitudes on the eve of national elections in the United Kingdom it discussed the likelihood that military spending would be cut to "pay down a still-burdensome deficit."

The Post doesn't explain how it has determined that the deficit [it may mean "debt," since countries can't really pay down an annual deficit] is burdensome. The usual signs of a debt being burdensome are not present. The interest rate on 10-year government bonds is just 1.65 percent, much lower than at any point in the four decades before the collapse of the U.K.'s prior housing bubble in 2007. Its overall inflation rate over the last year has been virtually zero.

Given that it has extremely low interest rates and zero inflation, it would seem that neither the deficit or debt in the U.K. is now burdensome. A real newspaper would have referred to a deficit that "politicians claim is burdensome."

That's what millions are asking after reading the front page piece in the NYT on the state of the National Health Service in the United Kingdom in the context of upcoming elections there. The piece discusses the widespread public support for the system, but notes some of the issues that have been raised concerning the quality of care in recent years.

It would have been useful to tell readers that the U.K. spends 9.1 percent of its GDP on health care. By comparison, the United States spends 17.1 percent of its GDP on health care. The difference in costs between the U.S. and U.K. comes to $5,900 per person per year, or $23,600 for a family of four. This information should have been included in the piece to give readers a better understanding of the relative efficiency of the two systems.

Recent comments

  • And 1. The USA is richer so we spend much more than on dollars that they do in the UK. 2. Most other things are cheaper in the USA that in the UK so it is even worse than that. The USA Government should easily be able to cover all USA citizens for what it spends now. My preferred system and why....
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  • Guest - Shawn Wilkinson

    I think the health expenditure, public spending is an interesting metric for comparison as well (same as your source). As a percent of GDP, both countries give roughly equal percent (and interestingly, our GDP per capita is ~equal if my napkin math is right). So basically the UK government spends ab...
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  • Guest - B

    It's also worth pointing out on the Commonwealth Fund's international comparison of 11 nations' healthcare systems, the UK ranked #1 on every metric of quality of care. The US ranked 5th. http://www.commonwealthfund.org/publications/fund-reports/2014/jun/mirror-mirror...
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I apologize to those disgruntled over Beat the Press's new format. I adhere strongly to the view that website makeovers are everywhere and always for the worse. But CEPR had to change its website because the old one was becoming increasingly dysfunctional at the back end. One of the great things about software innovation is that it forces people to upgrade their software simply to preserve compatibility. That was the main motivation for the change.

Being forced to get a new website, we did try to make it as user friendly as possible. There are many kinks that our crew here is still working on and hopefully will get resolved soon. And then those reporters will really have to worry about a beating.

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  • Guest - leofromChicago

    What also might help for viewing on PC monitors is a "max-width: 800px;" for the "container" div.
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  • Guest - Bart

    I like the photo at the new top, but the rest is New Cokeish.
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  • Guest - Leo from Chicago

    Note, text doesn't enlarge through a 'pinch' on my android phone. This may -- may! -- be due to the fact that the css for paragraphs (known to cognoscenti as 'p') is "font-size: 12px;" -- or in other words, fixed as opposed to something like "font-size: 1em;". Not sure but worth a check.
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Greg Mankiw joined the parade of prominent people saying silly things to help push fast-track trade authority through Congress. He headlined a column:

"Economists actually agree on this point: The Wisdom of Free Trade." 

The piece then goes on to argue for fast-track trade authority to allow for the passage of the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Pact (TTIP).

It's nice that Mankiw has apparently gotten out his bag of economist's holy water and blessed them both as free trade agreements, but that doesn't make it true. (Hey, I want to have the Congress Gives $1 Trillion to Dean Baker Free Trade Act. As an economist in good standing, Mankiw will have to support this free trade measure.)

The basic story here is a very simple one. There are merits to reducing trade barriers, but traditional trade deals will have winners and losers. If this is hard to understand, imagine that we had a free trade deal in physicians' services so that a flood of foreign doctors cut the pay of doctors by 50 percent (@$125,000 a year on average). This would make most of us winners, since we will pay less for health care, but doctors would be big losers. Most traditional trade deals have this character. So people, including economist people, may reasonably oppose them if they think the losers will be hurt so much that it offsets the gains from the deal. (Yes, we can do redistribution, but that is a children's story. We don't.)

But the key point here is that neither the TPP or TTIP is a traditional trade deal. The formal trade barriers between the parties to these deals are already low, which means there is not much room to lower them further. These deals are mostly about putting in place a business friendly structure of regulation. Some of this business friendly regulation involves increasing barriers in the form of stronger and longer patent and copyright protection. (Yes, that is "protection," as in protectionism.)

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  • Guest - George Balella

    You should address these guys claims; http://econlog.econlib.org/archives/2015/04/dean_baker_on_s.html
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  • Guest - martman1

    Would a cheaper dollar versus the Yuan (ending of currency manipulation) make the purchase by Americans of Chinese produced products of U.S. chartered multinationals more expensive?..i.e would they be more likely to produce here what they sell here if the currency exchange rate changed enough? I do...
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  • Guest - djb

    (Yes, we can do redistribution, but that is a children's story. We don't.) Really, because thats what the right wing talks about all the time, preventing ANY redistribution from rich to poor and middle class Its part of the science of macroeconomics that redistribution, properly done will help t...
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Glenn Kessler, the Washington Post fact checker, gave four Pinocchios this morning to Ohio Senator Sherrod Brown for for mis-attributing a claim on lost jobs from the trade deficit to George W. Bush. Since I may have played a role in the Pinocchio warranting comments, let me try to clear up some possible confusion on the issue.

At the most basic level there are two different ways to view trade based on two different views of the overall economy. The conventional view is that trade affects the allocation of output (i.e. we produce more of some goods and services and less of others) but has little impact on the overall level of output. This is because the economy is assumed to be at or near full employment. The other view is that trade can have a large impact on employment and output because the economy is often not near full employment. In this case, the size of the trade deficit can make a big difference.


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