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Home Publications Blogs Beat the Press Steven Rattner Has Another Confused Piece About the Economy in the NYT

Steven Rattner Has Another Confused Piece About the Economy in the NYT

Saturday, 25 January 2014 22:51

Steven Rattner took up large chunks of the NYT opinion section to express confused thoughts on manufacturing. Rattner sorts of meanders everywhere and back. The government should help manufacturing, but not like Solyndra and Fisker. Right, we don't want help the losers, we just want to help all the companies that got loans and were successful. Does Rattner want to tell us how we would determine in advance which ones those will be?

We want better education. Sure, that's great, any ideas on how we should do that?

It's hardly worth going through all the silliness in Rattner's piece, rather I will just mention the incredible bottom line. Rattner never once mentions the value of the dollar. This happens to be huge. If Rattner has access to government data he would know that manufacturing employment first began to fall in the late 1990s, even as the economy was booming, after the dollar soared due to the botched bailout from the East Asian financial crisis. The run-up in the dollar had the equivalent effect of placing a 30 percent tariff on our exports and giving a 30 percent subsidy for imports. Under these circumstances, it is hardly surprising that manufacturing employment fell and the trade deficit soared.

Rattner's confusion about trade and the value of the dollar extends to his endorsement of new "trade" deals. Of course agreements like the Trans-Pacific Partnership have little to do with trade barriers, they are about imposing corporate friendly regulations on the U.S. and our trading partners.

Among the top priority for U.S. negotiators is increasing the strength of patent protection for prescription drugs. Insofar as they succeed it will mean that foreigners will have to pay more money to Pfizer and Merck, which means that they will have less money to buy U.S. manufactured goods. That is hurting, not helping U.S. manufacturing . That one should be simple enough even for Steven Rattner to understand.  


Comments (10)Add Comment
Where's Obama's speech?
written by Dave, January 25, 2014 11:07
Obama needs to give a speech on the TPP! He needs to explain to the people what HIS goals are regarding this treaty. He cannot get away with claiming this is industry's agreement or whatever B* he might try to give the people.

I want a clear speech explaining Obama's position on the TPP.

I'm pretty sure he doesn't have one. He's just going with the flow. That is sad.
written by urban legend, January 25, 2014 11:08
Actually, BLS manufacturing jobs data was virtually flat (in the low 17 millions) throughout the late 90s through the end of 2000. However, exports flattened out beginning in 1998 after growing steadily and significantly from 1985 through 1997. The shift in 1998 from steady growth in exports is dramatic, but it didn't show up in job declines until 2001. The real collapse came in 2001-2004 (from low 17 to low 14 millions), and again beginning in late 2006 through early 2010 (to mid-11 millions). There has been a small recovery since then.

These are raw numbers. As percentage of work force, manufacturing employment is a continuing decline of greater or lesser amounts.
Big Pharma and Corporate Taxes
written by Stuart Levine, January 26, 2014 5:08
Dean-You failed to note in your posting what one perceptive observer has noted: Due to tax loopholes, the pharmaceutical industry pays just 5.6 percent of its profits in taxes. http://nyti.ms/1bqdsQU

Oh, wait: That perceptive observer was you. In other words, you, the perceptive observer, should have noted that the pharmaceutical industry is simultaneously (i) subsidized via unwarranted patent and (ii) subsidized via extraordinarily low corporate tax rates.
Rattner is Not a Dummy, Except for the Big Picture
written by Last Mover, January 26, 2014 5:43

Rattner does a good job of explaining how the comeback of manufacturing is a myth, popping up as desperate accounts of spotted returns of new jobs but as he clarifies, always with way below par wages from the past buried somewhere or not even in the report.

But then there's this:
For the United States to remain competitive against countries like Mexico, productivity must continue to rise. But unlike past gains in productivity, these improvements in efficiency are not being passed along to workers.

Rattner is even right about productivity gains not passed to workers. It's the comment about being competitive with Mexico with more productivity that misses the elephant in the room explained by Dean Baker:
... after the dollar soared due to the botched bailout from the East Asian financial crisis. The run-up in the dollar had the equivalent effect of placing a 30 percent tariff on our exports and giving a 30 percent subsidy for imports. Under these circumstances, it is hardly surprising that manufacturing employment fell and the trade deficit soared.

What Rattner misses completely is the connection between one country's productivity and its effect on the value of its own global currency, compared to changes in the relative value of that currency to other countries not necessarily associated with changes in the internal productivity of the respective trading countries.

In this case it is huge and furthermore, driven by the very austerian policies advocated by Rattner claimed
necessary to restore manufacturing jobs to America - the same ones applied to the East Asian countries that drove up the value of the dollar in the first place.

It's one thing to go on and on about the relative real prices internal to one country's productivity in an austerian context.

It's quite another to ignore entirely the impact of a much larger force - relative value of global trading currencies - that can swamp those internal effects so much it's actually the primary driver of matters like manufacturing jobs and need not be directly related to differences in real productivity, just changes in nominal value easily manipulated.
"Confused" is right
written by Jennifer, January 26, 2014 9:10
"we should be careful to avoid raising false hopes (like Mr. Obama’s unrealistic second-term goal of creating a million manufacturing jobs) and pursuing ill-conceived policies (such as special subsidies for manufacturing).

"Special subsides" is such a funny term, especially when people speak fondly of China, which engages in extensive "subsides" i.e. state planning. The fact is, nearly all corporations in the US get government "subsides" of some kind, of which any "left over" go directly to the pockets of corporate executives.

Dean wouldn't the late 90s be the time NAFTA kicked into full gear, and therefore cause a US manufacturing decrease as well?
written by skeptonomist, January 26, 2014 9:16
"manufacturing employment first began to fall in the late 1990s". Not according to FRED data (MANEMP). This shows a peak around 1970 and a slight irregular decline until 2000, when there was a huge drop (and no recovery in the aughts). The share of manufacturing in the economy has declined steadily
since around 1950.

Dean is right that currency plays a role, but it hardly explains everything - his chronology is all wrong. The trade deficit started increasing in 1991 and didn't turn around until 2006. The dollar didn't start rising until 1995, then started dropping rapidly in 2002. The increase in the value of the dollar after the Asian crisis in 1997 was not great and could account for only a small fraction of the increase in the trade deficit.
written by skeptonomist, January 26, 2014 9:22
Graph showing decrease of manufacturing in GDP:

The Bureau of Labor Statistics Says Manufacturing Employment Was Rising Prior to the East Asian Financial Crisis
written by Dean, January 26, 2014 9:48
Sorry Skeptonomist,

you're going to have to argue with BLS. They show manufacturing employment rising (Dec-Dec) in 1993, 1994, 1995, 1996, and 1997. It then begins to fall in 1998.

In terms of trade and the dollar, the data show a pretty solid relationship as I've noted many times. Here's a chart for the period showing the relationship between the non-oil deficit and the real value of the dollar.
written by skeptonomist, January 26, 2014 10:23
The data I referred to on manufacturing employment is accessible at FRED:MANEMP but it comes from the BLS current employment statistic survey - I just retrieved the same data from the BLS site.

Yes, manufacturing employment increased in the early 90's and decreased in the late 90's but these changes are tiny compared to other changes over the whole time range. Anyone who takes the trouble to look at the data at either FRED or BLS (their site is harder to use) will see this.
written by jm, January 26, 2014 2:43
Just before the Reagan tax cuts that drove interest rates on US Treasuries so high that they became highly attractive to Japanese investors, resulting in the Japanese buying so much US debt as to drive the dollar to about a 25% over-valuation versus the yen, US trade was about in balance.

Indeed, in the last few years before Reagan, the Japanese company at which I was then working set up a plant in Georgia to take of lower manufacturing costs in the US, and was losing sales in international markets due to a pricing disadvantage relative to US competitors.

But Reagan's deficits put paid to that situation, such that ever thereafter US manufacturers faced the same exchange-rate-based handicaps we see today. (But Dean's 30% figure is an underestimate -- the handicap is much worse, especially versus China.)

The rise of manufacturing employment in the mid-90s was a direct consequence of a return to a favorable yen-dollar exchange rate. In my frequent travels to Japan in 1995 and 1996, I found that how to profit through import of cheap American products was a big topic in the business press.

But the Reagan-era dollar overvaluation (and the extreme Japanese stock-market bubbble at the end of the 80s) had so munificently subsidized Japanese investment in manufacturing technologies and automation (and so discouraged American investment) that the yen had to rise much higher than its November-1978 peak to bring the US back into a competitive position.

Dean actually understates the importance of these exchange rate issues. They have a long-term pernicious effect. My recollection is that in the 80s, even in the 90s, our local community college offered many more courses in manufacturing-related technologies, but a few years ago offered hardly any. In 2012 they announced with much fanfare a new set of manufacturing technology courses, probably reflecting the fact that US companies have been having increasingly serious issues with the reliability of Chinese suppliers, and that rapidly rising wages have reduced Chinese pricing advantages (simultaneously encouraging corner-cutting, exacerbating quality issues) such that sourcing from China is increasingly not worth the trouble. But the destruction wreaked on US manufacturing infrastructure -- both physical and human -- in the past decade as a result of Chinese exchange-rate manipulation (which forced other Asian countries to likewise manipulate their exchange rates to compete) will take a long time to overcome.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.