Category: Equitablog

Should-Read: Martin Wolf: Asia’s dynamism at risk in US and China’s competing visions for global trade

Posted on by Brad DeLong

Should-Read: Martin Wolf: Asia’s dynamism at risk in US and China’s competing visions for global trade: “China is promoting a Regional Comprehensive Economic Partnership (RCEP)… https://www.ft.com/content/343e8300-0288-11e7-aa5b-6bb07f5c8e12

…exclud[ing] the US and other TPP members from the Americas. But it adds Cambodia, China itself, India, Indonesia, South Korea, Laos, Myanmar, the Philippines and Thailand. Including the world’s two most populous states, RCEP’s members generate some 31 per cent of world exports and its aggregate GDP is bigger than that of the TPP. Though less ambitious than the accord abandoned by President Trump, the RCEP could form the basis of a future free trade area of Asia and the western Pacific, but one with China, not the US, as the hub….

China’s “One Belt, One Road” initiative… might accelerate the emergence of such a market… us[ing] China’s capital and organisational abilities to enhance the supply of infrastructure…. The infrastructure needs of the Asia-Pacific region are so vast that additional Chinese resources should be helpful.

The world, and so Asia, is now in an unstable balance between globalisation and deglobalisation and between US and Chinese leadership. The US is turning its back on its postwar role, once so vital to Asia’s economic success. Will what takes its place be chaos and confusion or a new order built around China? Optimists might consider this a time of opportunity. Pessimists can consider it a time of danger. It is in fact both.

Some very worrying trends in U.S. lifetime income growth

Posted on by Emilie Openchowski
Job seekers join a line of hundreds of people at a job fair sponsored by Monster.com in New York.

Most measures of income—and therefore income inequality—are snapshots in time. They look at one year and treat everyone who earned the same amount of money in that year as similar. But the economic prospects of a recent college graduate and a person halfway through a career who both may earn the same amount in one year are quite different. Economists have long recognized this and have noted that measures of lifetime income would be helpful. Yet the lack of a dataset that tracks incomes over long periods of time presented problems.

A new paper uses such a dataset to present trends in lifetime income in the United States. The picture painted by the data is, unfortunately, a bleak one. The authors of this new paper—Fatih Guvenen of the University of Minnesota, Greg Kaplan of the University of Chicago, Jae Song of the Social Security Administration, and Justin Weidner of Princeton University—use data on individual incomes from the SSA spanning from 1957 to 2013. Using these data, they can look at how incomes for different cohorts of people (labeled by the year they turned 25) evolved over the years until they were 55. Given the length of time the data cover, the economists can look at 27 different groups with the youngest being those who turned 25 in 1983 and 55 in 2013.

The most striking findings in the paper relate to changes in lifetime income for men. The median lifetime income for men dropped between 10 percent and 19 percent between the group that turned 25 in 1967 and the group that hit the same age in 1983. (The wide range in the income drop is due to the use of different methods to account for inflation.) The lack of income growth wasn’t a problem for only the bottom 50 percent; more than 75 percent of men saw no increase in lifetime income during this period. The vast majority of U.S. men did not see any increase in income over their prime working years for several decades.

The trends for female lifetime incomes are less frightening. The median lifetime income for women increased by about 22 percent to 33 percent from the 1967 cohort to the 1983 group. But, as the authors point out, these increases are from quite low earnings levels for women in earlier periods. And data on the most recent groups (for which a full 31 years of data are not available) show a stagnation in lifetime income for women. The gains of past decades may not be replicable, as continued increases in the share of women working (and working full time) will be difficult to sustain.

The driving factor behind the declines in lifetime income for men seem to be driven by changes in incomes early in a working career. Incomes when men are 25 years old have declined, and income growth during the first decade after turning 25 are, according to the economists, the main reason why lifetime incomes for men have stagnated. And again, the trends in income growth for younger women in the youngest cohorts are starting to look similar to the trends for men.

The results of this paper, assuming they hold up to future scrutiny, would show that concerns about outright income stagnation for many Americans are not overhyped. For most men, in fact, income growth over the course of a working life has been negligible at best. Worries about the past may be the least of our concerns, as the trends appear to be continuing for men and changing in a negative direction for women. Policymakers who ignore such trends put at risk future U.S. economic growth and broad-based prosperity.

Must- and Should-Reads: May 3, 2017

Posted on by Brad DeLong

Interesting Reads:

Must-Read: Francis Wilkinson: Trade Is the Scapegoat for Political Failure

Posted on by Brad DeLong

Must-Read: Francis Wilkinson: Trade Is the Scapegoat for Political Failure: “Democrats have no viable plans to bring back sustainable, high-paying, blue-collar jobs… https://www.bloomberg.com/view/articles/2017-05-03/trade-is-the-scapegoat-for-political-failure

…Neither, it seems, does anyone else. And wages in the service economy don’t remotely compare with the best wages of industrial glory days. (Neither do most of today’s manufacturing wages.) The notion that “lousy trade deals” are responsible for the erosion of working-class prosperity is a common denominator in the rhetoric of Trump and Bernie Sanders…. At a panel discussion last week at the City University of New York, a handful of prominent economists grappled with “Trade, Jobs and Inequality.” None echoed the views of Sanders or Trump.

“No, lousy trade deals are not a primary cause” of working-class despair, said panel member David Autor of MIT in a follow-up email to me. “It is the case that China’s accession to the WTO in 2001 was a big shock to U.S. manufacturing. This was not really a trade deal, however. This was China becoming a member of an existing trade agreement. And this was an inevitable long-term result of China’s spectacular development.”…

Bradford DeLong of the University of California at Berkeley, pointed out that technological evolution steadily drove down manufacturing’s share of U.S. labor for half a century before the China shock. The demonization of trade deals, DeLong wrote to me in an email, is off target. “NAFTA was supposed to kill the U.S. auto industry,” he wrote. “It didn’t — the auto industry loved it.”

It might not matter whether trade, automation, globalization or some combination is at fault. But it matters greatly that American politics has proved incapable of mitigating the damage, helping to open the path to power for Trump…. Ann Harrison, a former director of development policy at the World Bank who is now a professor at the University of Pennsylvania, said: “The idea behind globalization is the winners, the exporters, the consumers, are so much richer that it is easy and straightforward to redistribute some of the winnings to compensate the losers. That turned out not to be true.” That failure of redistribution is a failure of politics more than economics.

It’s in part a function of the consistent devotion of the Republican Party to lowering tax rates on the most successful while resisting virtually all efforts to help the economy’s losers. But the resistance is also rooted in powerful social attitudes…. “Our package for helping the losers, Trade Adjustment Assistance, helped only about half those that it should have helped,” Harrison said at the CUNY event. “But, much more important than that, Americans do not want handouts. What they really want are jobs.”

Good jobs bestow dignity as well as wages. Concepts such as a universal basic income are controversial in part because they promise to separate income from work…. [But] as DeLong said at CUNY, wealthy heirs don’t seem to suffer a loss of dignity when they cash their trust checks.

“Back in the 1920s ‘welfare’ was a good word,” DeLong said. “When Edward Filene in the 1920s talked about ‘welfare capitalism’—firms providing health, accident, and pension benefits to their workers—the ‘welfare’ was in there to make his readers think that the idea was a good thing. But because people want respect, over the past century the word ‘welfare’ has been poisoned.”…

Trump’s attacks on trade always implied that the old factories would materialize in their old haunts once the trade regime went away…. Abandoning nostalgia for the glory days is long overdue. Indulging it misleads voters and allows politicians to remain complacent. Trump’s extravagant promises changed U.S. politics. Perhaps his all-but-certain failure to redeem those promises will be a preface to a new and better deal for workers.

Where US Manufacturing Jobs Really Went

Posted on by Brad DeLong

Project Syndicate: J. Bradford DeLong: Where US Manufacturing Jobs Really Went: In the two decades from 1979 to 1999, the number of manufacturing jobs in the United States drifted downward, from 19 million to 17 million. But over the next decade, between 1999 and 2009, the number plummeted to 12 million. That more dramatic decline has given rise to the idea that the US economy suddenly stopped working–at least for blue-collar males–at the turn of the century…

Should-Read: Ernest Gellner (1990): The Civil and the Sacred

Posted on by Brad DeLong

Should-Read: Ernest Gellner (1990): The Civil and the Sacred: “The bourgeois fantasy lay in its doctrine that work was the very essence of man… http://www.bradford-delong.com/2017/02/weekend-reading-from-ernest-gellner-1990-the-civil-and-the-sacred.html

…that productive institutions and processes were crucial… and that this domination of historic development by the productive process would in due course lead to total human fulfillment through free, spontaneous, unconstrained labor… no state to enforce order and no civil society to check the state…. [But] in a domination-prone world, economic rationality is not rational: those who work hard see themselves deprived of the fruits of their labor only by those in power. It could be brought about only by cunning and reason, as an unintended consequence of religious anguish. Those who sought wealth were not to be granted it: those who merely sought to escape despair had wealth bestowed upon them.

But Marxism credits this distinctively bourgeois trait to the human soul as such, not to some men under the impulsion of a special torment: work is, it claims, our genuine essence and our time fulfillment…. In consequence, of course, Marxists simply possess no language in which to express their central political problem: their theory precluded the very existence of the problem and eliminated any tools for handling it. As long as political circumstance constrained them to remain within Marxist language, they simply could not even discuss their main problem…

Must-Read: Larry Summers: Steven Mnuchin’s big claims show him in a poor light

Posted on by Brad DeLong

Must-Read: On this one, I agree 100% with Larry. A U.S. Treasury Secretary needs to make it clear that he (or, I hope, someday she) knows that his (or her) ultimate, long-run principals are the voters of the United States and the people of the world. There will come a point where the Treasury Secretary will need to say: “You know that I work for you—you need to trust me on this.”

Yet Steve Mnuchin is rapidly blowing up that credibility:

Larry Summers: Steven Mnuchin’s big claims show him in a poor light: “Last week… I felt sorry for… Mnuchin… https://www.ft.com/content/e5ad91fa-9409-384e-aaa1-ea0e81bf62b4

…forced by circumstance and his president to say and do things that undermined his and Treasury’s credibility…. [But] the secretary’s comments on Monday… look from the outside like unforced errors…. He crowed to the bankers present that “you have me to thank for the increases in your stock prices”. I cannot conceive of any of the 11 other secretaries I have known making such a statement. Leave aside the question of whether whatever credit is to be claimed should be done so on behalf of the president. Since when is the stock price of banks the objective or the standard of success for economic policy? And when, as will inevitably occur, bank stock prices decline, will Mr Mnuchin accept the blame? It was quite a day.

The secretary also… predict[ed] that within years the economy will be regularly growing at above 3 per cent…. not the view of mainstream forecasters… slow growth in the adult population… reduced immigration… it would require a productivity growth miracle. He cited no evidence to support…. Mnuchin claimed that Donald Trump’s tax cuts would be the largest in history. Relative to any relevant denominator… Ronald Reagan’s were far larger…. Mnuchin has made the claim that Mr Trump has given more financial disclosure than anybody else. This is ludicrous….

There will likely come a time when the Treasury secretary will need to invoke his credibility to support confidence in the economy, to stabilise markets, or to mitigate an international crisis. Let’s hope that when that moment comes, Secretary Mnuchin will retain some credibility. This will require an end to days like Monday.

Should-Read: Kevin Drum: Paul Ryan Isn’t Even Trying to Pass a Health Care Bill Anymore

Posted on by Brad DeLong

Should-Read: Kevin Drum: Paul Ryan Isn’t Even Trying to Pass a Health Care Bill Anymore: “They just want to be able to tell their base that they tried… http://www.motherjones.com/kevin-drum/2017/04/paul-ryan-isnt-even-trying-pass-health-care-bill-anymore

…And President Trump wants to erase the taste of defeat…. If House Republicans were serious, they’d engage with the health care industry. They haven’t. If they were serious they’d care about the CBO score. They don’t. If they were serious they’d be crafting a bill that could pass Senate reconciliation rules. They aren’t even trying. If Senate Republicans were serious they’d be weighing in with a bill of their own. They aren’t wasting their time.

In the beginning, I think Paul Ryan really did want to pass something…. But he’s given up on that. At this point he just wants a piece of paper that gets 218 votes and demonstrates that the Republican caucus isn’t hopelessly inept. He knows it will be DOA in the Senate, but at least it will get health care off his plate once and for all…

What’s going to reduce U.S. corporate savings?

Posted on by Emilie Openchowski
Customers look at the Apple MacBook Air and the iPad 2 at the Apple Store in San Francisco.

Apple, Inc. has quite a bit of cash on its hands. The company has around a quarter of a trillion dollars in savings these days, with about 90 percent stashed overseas. The company saved cash at a rate of $3.6 million per hour in the final quarter of 2016. As The Wall Street Journal points out, this pile of savings has extra resonance these days, as the Trump administration and U.S. Congress consider reforms to corporate taxation. Apple is not alone in increasing its cash savings recently. In fact, there’s been a significant uptick in corporate savings over the past several decades. But what’s behind this trend? And would tax reform do much about it?

Research by economists Peter Chen and Brent Neiman at the University of Chicago and Loukas Karabarbounis at the University of Minnesota shows that the trend is global in nature. Corporations across high-income countries have increased their savings rates and are now lending more to the global economy than they are investing in their own operations.

How would a reduction in the corporate income tax change this situation? Potentially, a lower rate could induce some companies to boost their investments. Greg Ip at The Wall Street Journal looks at some international evidence on corporate tax cuts and finds that they seem to have boosted investment, though the effects on total growth are more muted. But note that not all corporate tax reforms or cuts are created equal. A pure rate cut isn’t going to have the same effect as a reduction in the dividend tax rate or a change in the treatment of business expenses.

But it’s worth noting that the tax cuts examined in these studies happened during a period of rising corporate savings. Those tax cuts may have done something to reduce the amount of corporate savings by boosting investment, but the overall trend is still upward. And in the United States, it appears that when corporations do spend money, they are increasingly using funds for buying stocks from shareholders or increasing dividends.

What, then, is behind the rise in corporate savings? Looking at research on the trend in the United States, the corporate savings problem seems to be caused less by a corporate tax rate that is “too high” and more by increased consolidation within industries and among shareholders. In the U.S. economy, both industry consolidation and “common ownership” of companies by institutional investors and mutual funds are more and more prevalent. Interestingly, the research by Chen, Karabarbounis, and Neiman finds that declines in corporate taxation actually pushed corporate savings up.

This research, in conjunction with the fact that corporate savings are up in parts of the world where policymakers did reduce corporate tax rates, signals the underlying lack of business investment is not due to the tax system. A tax cut may or may not boost investment, but it alone seems unlikely to unleash this stash of corporate cash in the long run toward more productive investments in the U.S. economy.

Must- and Should-Reads: May 2, 2017

Posted on by Brad DeLong

Interesting Reads: