(What’s Left of) Our Economy: The Case for Keeping it Simple with China Trade Just Got Stronger


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I haven’t been closely following the Labor Department’s import price data lately, and that’s been an oversight. As is clear from this morning’s figures (for August), they keep telling a fascinating and important tale about China’s ongoing manipulation of its currency and how it does and doesn’t impact U.S. trade with the People’s Republic. More specifically, examining the data over time reinforces a strengthens a point I’ve posted on previously – that as important as this currency protectionism is, it’s far from the only predatory Chinese practice that’s been shafting domestic companies and workers exposed either directly or indirectly to Chinese competition.

Just as a refresher, unlike most other trading countries and regions, China prohibits the free buying and selling of its currency. For most of the previous decade, Beijing’s aim has been to keep the value of the yuan artificially low versus most other currencies and especially the U.S. dollar – in order to give its goods and services price advantages over foreign rivals in markets everywhere. As a result, China’s exports got a government-aided boost worldwide, and its domestic industry was able to undersell imports in its home market – all for reasons having nothing to do with free trade or free markets generally.

Since the latter part of that decade, and especially earlier during the current economic recovery, the story has been more complicated. The main reason: China was getting worried about wealthy Chinese concerned about political stability or the economy’s future spiriting too much of their wealth out of the country, for stashing in countries (like the United States) considered a lot safer. These capital outflows began depressing the yuan’s value much faster than Beijing wanted, and even threatened to cause a worldwide crisis of confidence in the currency – and the broader Chinese economy. So for much of this latter period, China has been trying to prop up the yuan’s value to some extent – even as its wary that an overly strong yuan would jeopardize the exports on which its growth still heavily relies.

Trade policy critics have rightly focused much and even most of their anti-China ire on currency manipulation, and that’s been understandable for two main reasons. First, this policy affects the relative prices of everything sold back and forth between the United States and China; and second, currency manipulation is one of the few protectionist practices that even some of the globalization-happy economics and business establishment (and the latter’s political hired guns), can be convinced to combat. (Much of the rest of this group, though, will simply grandstand against this form of protectionism.)

Nonetheless, the import price numbers, coupled with the oscillation in China’s currency priorities, the consequent roller-coaster ride of the yuan’s value versus the dollar, and the actual trade flows, show that the cost of Chinese goods and services aimed for the American market stems from many other causes.

The Labor Department’s import price data for China goes back to 2004, and it shows that, in the 13 years since, on an August-to-August basis, the prices of purchases from China Americans can make has fallen in eight years and risen in five. As for the yuan’s value, it’s strengthened versus the U.S. dollar in nine of those 13 years, and weakened in four.

What happens when the two indicators are paired? The numbers reveal that in five of the 13 years, the prices of imports from China in the American market have fallen while the yuan has strengthened – which isn’t supposed to happen if you believe in currency uber alles. In another year, the prices of those imports rose while the yuan weakened – another counterintuitive result. In seven of the thirteen years, in other words, currency values and import prices seem to have behaved as they should have, but in six (nearly half the time), they didn’t.

Also important : In three of the four years when both import prices and the yuan went up, the yuan’s rise was much greater, most often by a factor of two to one. And in two of the three years when both indicators fell, the change in the yuan again was much greater. So at the very least, even when the relationship is looking like economists tell us it should, it takes a lot of yuan movement to generate significant import price changes. Clearly, therefore, other factors must be at work.

In this vein, the yuan’s value and the changes it undergoes doesn’t seem to have an especially strong relationship with the amount of goods that American imports from China. Of course, they have some effect. After all, all else equal, if U.S. customers buy a certain quantity of items and services from China one year, and the same quantity the next, and the price of those goods and services falls (for whatever reason), the value of those purchases will go down. And naturally, the converse is true as well.

This point matters because purchasing patterns rarely respond to price changes right away, and the lag can mean that the impact of currency changes on import values can take some time to materialize – and often more than a year. But even taking this reality into account produces a fuzzy picture. For example, between August, 2004 and August, 2005, U.S. goods imports from China (which make up the vast majority of American purchases from China) jumped by more than 24 percent even though import prices fell (by 1.10 percent) and the yuan rose versus the dollar (by 2.13 percent). The next year, Americans bought 19.14 percent more products from China, despite their prices falling yet again (by nearly as much – 1.01 percent), and the yuan rising again (also by nearly as much – 1.80 percent).

Between August, 2007 and August, 2008, import prices rose by a very large 4.95 percent and the yuan strengthened by an even greater 9.55 percent. Yet U.S. goods imports from the People’s Republic increased by double digits again (11.96 percent). The following year, however, import prices plummeted (by 3.08 percent), and the yuan weakened by 0.70 percent. And did American imports surge again? Not even close. They nosedived by 18.93 percent.

Sharp-eyed RealityChek readers will realize why: The Great Recession was intensifying in 2008 and lingered well into 2009. So Americans’ consumption of just about everything fell off a cliff for a while. Between the following Augusts, neither the prices of imports from China nor the yuan’s value moved much, and America’s goods imports from China nonetheless soared by more than 37 percent.

Yet you don’t need these kinds of extreme economic events for import prices, import amounts, and yuan movements to confound expectations, lag or not. From August, 2011 to August, 2012, both the prices of Chinese imports and the value of the yuan were up (both by a bit) and American imports from China dipped by 0.25 percent. Even stranger, the American economy grew by a pretty decent 2.39 percent (in inflation-adjusted terms) during that period.

The following year, U.S. growth was down to 1.69 percent, prices of imports from China dropped (by a meaningful 1.24 percent), the yuan rose (by a much greater 3.61 percent), and American purchases from China jumped from a small dip to more than five percent growth.

The point here is not that China’s currency policies don’t matter, but that the prices of Chinese goods and services, and therefore America’s trade performance with the People’s Republic, are influenced by a wide array of factors. Some are legitimate – for instance, if China keeps selling Americans greater amounts of relatively pricey advanced goods (like industrial machinery and high tech products), and less in the way of cheaper, simpler products (like clothing and toys), as has been the case, the price of the average import from China is going to rise. But many reasons are much less legitimate (e.g., changing levels of subsidies like value-added tax rates), and these can be so numerous, so fungible, and therefore so difficult to document that trying to isolate them and attack them piecemeal is a fool’s quest.

Far better is to decouple American tariff policy completely from specific items of evidence of individual predatory trade practices and impose these levies proactively, until they produce the desired effects on bilateral trade flows. In fact, the case for such a sweeping approach was made just yesterday, and is worth quoting at length:

“[T]here is one challenge on the current [trade] scene. It is substantially more difficult than those faced in the past, and that is China. The sheer scale of their coordinated efforts to develop their economy, to subsidize, to create national champions, to force technology transfer and to distort markets, in China and throughout the world, is a threat to the world trading system that is unprecedented.”

This speaker also argued that “The years of talking about these problems has not worked, and we must use all instruments we have to make it expensive to engage in non-economic behavior.”

His name is Robert Lighthizer, he’s President Trump’s chief trade negotiator, and the devilishly complex relationships between currency values, import prices, and trade flows just add to the case for the administration to start following this advice pronto.


Im-Politic: Why I’m Not a Think Tank Hypocrite


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Freelance journalist and author John B. Judis is a long-time professional friend. He’s also a pioneer in the study of think tanks and how they’ve added to the corruption of America’s policy-making process, especially in Washington, D.C., where so many of them are headquartered and concentrate their efforts.

So it’s with a double dose of regret that I write this dual-purpose post – which will aim to explain why he’s recently done me a not-trivial injustice in describing me and my relationship with the think tank complex, and in the process contributed to the mis-impression that all organizations that seek to influence policy are alike in their basics.

The problem was created last week in John’s otherwise insightful New Republic article on the uproar kicked up by the news last month that the New America Foundation think tank fired a prominent researcher (and his entire team at a particular program) because their work had begun threatened to antagonize a major donor to the Foundation – Google. You can read my take on this super-revealing incident here.

Because his work on the subject has been so important, I was initially pleased to see John cover the controversy, and even more pleased that he decided to quote me. Unfortunately, he mysteriously decided to use the passage (from that above RealityChek post) in a decidedly and unjustly unflattering way. As John wrote:

“The controversy over New America…has prompted hand-wringing among Washington’s policy community, but some of it seems self-serving. ‘Slowly, and not so surely, the American media is waking up to the pervasiveness of corporate corruption of the nation’s think tank complex,’ wrote Alan Tonelson, who did research for decades at the Business and Industrial Council, which got much of its funds from Roger Milliken and Milliken & Co.”

I don’t think I’m being overly sensitive in believing that this paragraph insinuates that I’m a hypocrite. That is, I’d belonged to that Think Tank World for decades, and now that it’s becoming fashionable, have decided to bite the hand that fed me.

What John didn’t seem to realize is that the work for my former long-time employer that he refers to was done for a business group, not a think tank. As a result, whereas I’ve criticized think tanks for their lack of transparency regarding their (corporate) funders, and accused them of “idea laundering” (that is, issuing materials that push the special interest agendas of their funders while garbing them in quasi-academic raiment), the U.S. Business and Industry Council (USBIC) can’t fairly be accused of this practice even it had been a think tank because its orientation has always been obvious from its name.

Unlike the case with the Brookings Institution or the Center for Strategic and International Studies or the Heritage Foundation or the Carnegie Endowment or the Peterson Institute, when a policymaker or journalist received some information from USBIC, it couldn’t have been clearer that it represented a particular perspective, rather than the work of some disinterested scholar esconced in a ivory tower.

Of course, we tried to be as accurate as possible – both because we were confident enough in the substance behind our viewpoints that we felt no need to exaggerate or soft-pedal or leave out context when such tactics might have strengthened our case, and because those who depart from the conventional wisdom nearly always receive greater and harsher scrutiny than those who stay comfortably inside it.

Moreover, we spent countless hours trying to publicize exactly who we were – an association of smaller manufacturers who had largely rejected an offshoring business model and sought to oppose its nurturing by government trade policies. The reason? We wanted to make sure that our audiences knew that not all businesses or manufacturers favored such policies.

In addition, because the organization wasn’t a household name, whenever we identified ourselves as authors of an article written for an outside publication, we included a brief description of USBIC – something on the order of “an association of small, mainly family-owned, domestically focused manufacturers.” The same went for whenever we were interviewed for an article or broadcast segment. And if we’d been given more space, we’d have been happy to go into more detail.

Now, to be completely accurate, I was employed by the Council’s think tank wing – which we called the USBIC Educational Foundation. And that doesn’t look like a terribly transparent name at first glance. But only at first glance, since even the most casual research effort will reveal the connection. 

Moreover, as with the Council, when the Foundation marketed materials and speakers (like me), it was made completely clear that the very purpose was to represent the views of this distinctive group of manufacturers. In other words, that was the point. I only wish we had been more successful in debunking the stereotype of all industrial companies as footloose multinationals that roamed the world in search of the lowest labor and other costs, heedless or uncaring about the impact on the domestic U.S. economy.

Much the same holds for the organization I worked for previously – the Economic Strategy Institute (ESI). Although the name was less transparent than USBIC’s, from the very start, founder Clyde V. Prestowitz, Jr. strove tirelessly to publicize ESI’s corporate backers, and for a reason very similar to USBIC’s – he wanted to inform policymakers and journalists that not all industries and companies that dissented from an orthodox free trade line were “losers” that were simply seeking government protection from superior competitors. Nothing made that point more clearly that noting that many of ESI’s supporters (like Intel and Motorola) were leaders in the world’s most advanced industries.

Indeed, John might have mentioned that I wound up leaving ESI after a few years precisely because these donors changed their tune on trade issues for various reasons – and unfortunately, the Institute for the most part changed with them, along with venturing into new areas. I was fortunate to find a more like-minded group in the form of USBIC precisely because the Standard Operating Procedure of the donor community have always ensured that organizations analyzing these international economic issues in unconventional ways would be few and far between.

As a result, the tale above should also make embarrassingly obvious that if an author like John wanted to use a policy analyst as an example of opportunistic tut-tutting about the system that long supported him and his family, I was anything but that guy. In that vein (as is clear from the above link), John might have mentioned that I have written about the practice of idea-laundering for more than ten years.

So I hope that John keeps training his eye on the think tank world and the troubling role it plays in the national policy and political worlds. I just hope that his next offerings make their points more carefully and precisely.

(What’s Left of) Our Economy: August US Manufacturing Output Joins List of Harvey’s Victims


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Hurricane Harvey’s devastation of the energy-rich Texas and Louisiana Gulf coasts slammed into America’s after-inflation manufacturing output in August as well, as the Federal Reserve’s new industrial production figures showed real manufacturing output down 0.26 percent on month due mainly to fall-offs in chemical industries that use oil and gas as feedstocks. As a result, constant dollar non-durable goods output fell in August by its greatest monthly total (0.86 percent) since January, 2014 (1.20 percent), and overall chemicals production sank by its greatest sequential amount (2.15 percent) since recessionary December, 2008 (4.85 percent).

After-inflation production was off by the greatest monthly totals since that time in basic chemicals; organic chemicals; and especially in resins, synthetic rubber, and artificial and synthetic fibers and filaments. The most affected industry was fibers and filaments, where price-adjusted output plummeted by 9.10 percent – the worst such performance in this volatile sector since November, 2008 (11.25 percent).

Among the bright spots in the August manufacturing production figures: The automotive industry saw its first real output improvement in four months (2.16 percent), and revisions for manufacturing were positive. All the same, America’s real industrial production levels remain 4.03 percent lower than their pre-recession peak – more than nine years ago in December, 2007.

Here are the manufacturing highlights of the Federal Reserve’s new release on August industrial production:

>Hurricane Harvey’s devastation of the energy-rich Texas and Louisiana Gulf coasts devastated enough of the nation’s chemicals industry to create a 0.26 percent monthly sequential drop in real manufacturing output in August.

>The decline was heavily concentrated in chemicals, and especially in sectors highly dependent on Gulf oil and gas as feedstocks.

>The Harvey effects could first be seen in the non-durable goods sector in which chemicals industries are found. Its August inflation-adjusted production decreased by 0.86 percent – the worst sequential performance since January, 2014’s 1.20 percent fall-off.

>The enormous chemicals industry suffered as well, with price-adjusted production down 2.15 percent on month in August – its biggest such decline since December, 2008’s 4.85 percent, at the nadir of the Great Recession.

>Similar multi-year worsts were registered in basic chemicals, organic chemicals, and the resin, synthetic rubber, and artificial and synthetic fibers and filaments grouping. The latter two segments – which often displays volatile production patterns – saw real output dive in August on month by 9.10 percent, the greatest drop since November, 2008’s 11.25 percent.

>The hit to oil refineries so far has been more modest – their constant dollar output was off on month by just 1.93 percent. Nonetheless, this represented the biggest such decline since June, 2014’s 2.06 percent.

>Better news in August was generated by the U.S. automotive sector. Since leading domestic manufacturing out of its deep recessionary slump during most of the recovery, combined vehicle and parts production has tailed off recently – including a July sequential production plunge that has now been revised down (to 4.16 percent) to the worst such performance since June, 2015 (4.48 percent).

>In fact, combined vehicle and parts production had worsened sequentially for three straight months.

>But in August, after-inflation automotive output advanced by 2.16 percent sequentially, and helped the durable goods super-sector grow by 0.30 percent on month.

>In addition, the Fed’s real manufacturing output revisions were positive, including an upgrade for July from a 0.06 percent dip to a 0.04 percent rise.

>In fact, largely because real manufacturing output was so weak in 2016, August’s fair results were enough to push price-adjusted year-on-year output up to 1.63 percent from July’s 1.49 percent.

>Nonetheless, the August Fed figures make clear that U.S. domestic manufacturing has still not full recovered from the Great Recession. In terms of real output, it remains 4.03 percent smaller than its pre-recession high – reached more than nine years ago, in December, 2007.

(What’s Left of) Our Economy: Real Wages Take a Step Back in August


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November is still the cruelest month – for real manufacturing wages. November, 2011, to be exact, when they plummeted sequentially by 0.95 percent. But this morning’s data from the government’s Bureau of Labor Statistics tells us that last month was no prize, either. Hourly price-adjusted pay for manufacturing workers fell on month by 0.91 percent – the worst such performance since that dreadful November nearly six years ago, and one that undercuts claims that the Trump administration has been delivering for America’s blue-collar workers.

Just as significant, August’s lousy performance (the figures might still be revised) mean that on a year-on-year basis, after-inflation pay in manufacturing is down. The decline is just 0.09 percent, but it’s the first annual decrease since September, 2014 (0.29 percent). Between the previous Augusts, inflation-adjusted manufacturing wages rose by 1.50 percent.

The manufacturing pay performance is especially puzzling since the sector’s hiring has been unusually strong lately, with the July and August monthly job gains the best back-to-back total (62,000) since December, 2011 and January, 2012 (68,000).

As a result, after-inflation manufacturing pay is just 1.03 percent higher than when the current U.S. economic recovery officially began in the middle of 2009 – more than eight years ago.

Real wage results for the private sector overall were better, but far from impressive. They fell, too, on month – but by only 0.28 percent. The drop was their biggest sequentially since June, 2015, when they sank by roughly the same percentage.

August’s year-on-year real wage increase of 0.56 percent was much smaller than the improvement between August, 2015 and August, 2016 (1.52 percent).

And these wages during the current recovery have advanced by 4.46 percent – meager by historical standards, but nearly four-and-a-half times faster than real manufacturing wages.

The only consolation American workers could possibly draw from these numbers is that the July improvement of 0.19 percent sequentially for inflation-adjusted private sector wages and the 0.37 percent monthly rise in real manufacturing wages were judged to be unchanged. But if the situation doesn’t change dramatically by the 2018 midyear elections, it’s hard to imagine them feeling especially grateful

Our So-Called Foreign Policy: A Narrow-Minded Wake-Up Call on China’s Tech Drive


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#SMH” (Shaking My Head) is one of my favorite Twitter hashtags, and it’s the perfect reaction to a new post on FOREIGNPOLICY.com on the growing technological challenge being posed to the United States by China, and on its frightening national security implications. The post has me shaking my head, and should have you shaking yours, because for all the useful information it contains on this critical subject, it completely misses the much bigger, much more important picture. And it misses it because the authors are so transparently determined to lionize former President Obama’s record in this regard, and vilify President Trump’s – though few of the facts warrant this conclusion.

The post is useful mainly for calling attention to China’s intensifying effort to establish global superiority in artificial intelligence, and to the Trump administration’s budget policies, which look oblivious to China’s efforts because they don’t provide adequate resources for federal research efforts capable of keeping the United States ahead.

I say “look” because the budget situation may not be as dire as strongly suggested by the authors. Specifically, it’s true that the administration has proposed cutting funding for the National Science Foundation’s artificial intelligence programs by 10 percent. At the same time, as made clear by the source they relied on, “the proposed budget does call for more spending on defense research and some supercomputing.”

Much more misleading is the post’s portrayal of the Obama administration as nothing less than Churchillian in sounding the tocsin. After all, the Obama reports the authors cite as evidence of his foresight on the subject came out at the very end of his presidency. At least as important, they gloss over major non-budgetary developments crucial to understanding China’s progress.

As they themselves admit, for instance, Chinese tech companies have established presences in Silicon Valley because they believe that “by rotating Chinese staff to Silicon Valley and American staff to Chinese campuses, they can accelerate the timeline for reaching parity with the United States in AI technology and depth of talent.” Under whose administration do the authors believe this practice started? And why do they think the Chinese were confident they were so free to proceed?

Also completely ignored: Throughout his presidency, Mr. Obama did absolutely nothing as American companies continued their longstanding efforts to transfer advanced technologies to Chinese partners voluntarily, or were forced to share this knowhow due to Chinese threats to shut them out of its market. Nor did he move to prevent these firms from investing in Chinese companies working on tech products and services with clear defense implications, or to help them cope with Beijing’s demands that they pony up or else.

And let’s not forget: The Obama administration made only the most token efforts to combat the predatory Chinese practices that enabled Beijing to amass immense trade surpluses with the United States; therefore to further fuel the growth of its market and make it that much more difficult for American companies to resist tech extortion demands; and to finance its own multi-billion technology development efforts with these handsome trade profits. Indeed, Mr. Obama staunchly opposed Congressional efforts to punish China for its most important mercantile policy:  currency manipulation.  

So I share the authors’ view that federal research and development efforts have been crucial to establishing America’s intertwined global technology and military leadership, and their hope that President Trump will reject the conservative anti-government dogma that justifies virtually every type of budget cut outside traditional defense or law enforcement spending. But the idea that America’s approach to the Chinese tech challenged was remotely up to snuff before Mr. Trump’s election not only fails the test of historical accuracy. It has blinded them to all the other policy changes needed to ensure that the United States stays Number One.

Im-Politic: A Chinese Cure-All for America’s Schools?


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Nothing would be easier to look at the headline of Leonora Chu’s Wall Street Journal column on lessons that American schools could learn from their Chinese counterparts and conclude that it’s a naive whitewashing – at best – of education in totalitarian countries. And nothing would be more off-base. For the headline is utterly misleading, and the author acknowledges that propagandizing even very young children with communist dogma is only one of the numerous major failures and shortcomings of Chinese schools.

Still, Chu comes off as an unmistakable admirer of many crucial features of the Chinese system, and especially its insistence that parents as well as students respect the authority of teachers, along with the academic results that this attitude produces.

I agree with Chu that too often, “Western teachers spend lots of time managing classroom behavior and crushing mini-revolts by students and parents alike”; that “Americans have arguably gone too far in the other direction, elevating the needs of individual students to the detriment of the group”; and that, “Educational progress in the U.S. is hobbled by parental entitlement and by attitudes that detract from learning: We demand privileges for our children that have little to do with education and ask for report-card mercy when they can’t make the grade.”

Not that even these reasonable propositions are bullet-proof. Principally, how many American teachers today truly deserve this absolute respect? How many are flat-out incompetent? How many are determined to push their own political beliefs on students, at all levels of education, and in public and private schools alike? It’s true that the nation collectively has caused much of this problem by underpaying teachers and thus preventing many individuals of real talent (and integrity) from choosing this profession. But we don’t solve the problem by indiscriminately entrusting our children’s future to the present teacher cohort.

Yet oddly, Chu seems to overlook what seems like potentially the most damning indictment of the Chinese educational system of all. And so have her Wall Street Journal editors: Chinese parents appear to abandon Chinese schools whenever they can. How do I know this? In part because I read The Wall Street Journal.

Indeed, the very same day that Chu’s article ran, the Journal ran a report titled “U.S. High Schools Picking Up More International Flavor.” In this case, the headline was completely accurate. And guess where the plurality of the foreign students streaming into American high schools are coming from? Pat yourself on the back if you answered “China.”

Indeed, correspondent Tawnell D. Hobbs cites a federally funded study finding that the foreign student population in American high schools more than doubled between 2004 and 2016, to just under 82,000. And fully 42 percent are Chinese. Just as intriguing: Three of the other top student-sending countries are known for hewing to Chinese-style, Confucianism-based educational values, too – Japan, South Korea, and Vietnam.

Moreover, why are so many students from these countries with China-like schools coming to America for secondary education? According to one of the study’s researchers, “For most of these students, the goal is to graduate with a high-school diploma. They’re really looking at seeing themselves as being more competitive to get into a U.S. university.”

On the one hand, the decision to try gaining entry into the (still world-class) U.S. higher education system may have nothing to do with any supposed advantage of American high schools. After all, foreign parents may assume that their children will benefit in terms of college admission simply from getting exposed to U.S. schools and their approaches, and to the broader society (including English speakers).

On the other hand, it’s surely no secret to foreign parents that American colleges and universities are turning cartwheels to attract foreign students – mainly for financial reasons. For both public or private institutions have taken to relieving cash crunches by welcoming students from overseas – who pay full freight. So especially if the family has the bucks, there’s no reason to think that junior can’t sail into an American institute of higher education without attending a U.S. high school. And still American secondary education is considered appealing.  

So it seems like the real takeaway here is that although there’s ample room and urgent need for improvement in American schools, and that although some foreign practices and attitudes no doubt can be imported, there’s no reason to think that some magic formula for success lies overseas. The main solutions for what ails U.S. education, as Shakespeare might have said, are “in ourselves.”

(What’s Left of) Our Economy: The Real Dreamer Fakeonomics


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If you’ve been following the heated national debate about President Trump’s decision to rescind former President Obama’s Deferred Action for Childhood Arrivals (DACA) program, you know that an economic conventional wisdom has been quickly established. It holds that, whatever you think about the legality, propriety, or morality of ending its legalization process for the young and young-ish residents of the country who arrived as the children of illegal immigrants, the impact on the nation’s growth, employment, and productivity would be disastrous.

Sadly – but not surprisingly – an examination of the data reveals this conclusion to be quintessential fakeonomics. Worse, these claims have been spread with techniques that have become all too typical in the nation’s political, policy, and media circles – by endlessly and credulously repeating assertions that are based either on no solid data whatever, or on unusually weak data.

Enough examples could be cited to fill a book, so let’s focus for now on one that’s just appeared in America’s leading newspaper (The New York Times) and by no less than a Nobel Prize-winning economist (columnist Paul M. Krugman).

As Krugman argued in this morning’s paper, the Trump administration’s position that DACA has “denied jobs to hundreds of thousands of Americans by allowing those same jobs to go to illegal aliens” is not only “junk economics.” But because it’s based on the (equally false, per Krugman) belief that “immigrant workers compete with less-educated native-born workers, driving their wages down and increasing income inequality,” it’s “irrelevant.”

The reason? “The Dreamers [as beneficiaries of DACA are often called] are a relatively well-educated group, very different from undocumented immigrants who came as adults.” Therefore, “letting Dreamers work is all economic upside for the rest of our nation, with no downside unless you have something against people with brown skin and Hispanic surnames.”

Needless to say, the argument that Dreamers actually tend be valuable economically on top of being young and young-ish, and slated to suffer for the sins of their parents, contributes to the image of Mr. Trump’s policy as a loser on all counts.

But the main evidence cited by Krugman doesn’t justify this conclusion at all. It comes from a Times feature posted on Tuesday that purports to show that “DACA-eligible immigrants have higher-skilled jobs” than other illegal immigrant workers. Two big problems here, however. First, the statistics presented in this post show that this standard represents an awfully low bar. Second, the differences revealed by these numbers between DACA-eligible illegals and other illegals is decidedly unimpressive.

For instance, what’s the occupation of the greatest percentage of workers in both groups? “Food preparation and serving” (16 percent). That sector of the economy sure isn’t known for creating great jobs. Number two for the Dreamers and those eligible for this designation? “Sales and related.” This category also features the biggest absolute occupation gap between the Dreamer-types and non-Dreamers, employing 15 percent of the former but only six percent of the latter. But these kinds of jobs sound pretty dead-end, too. Ditto for “Office and administrative support” (which employs the next greatest share of Dreamer-eligible workers). Worse, both the sales and the office jobs are being killed off left and right these days by automation.

Equally revealing: The next four biggest employers of Dreamer-eligible workers are the kinds of blue-collar-dominated categories that typically don’t require much education, and which therefore place Dreamer types in direct competition with their “less-educated native-born counterparts.” These categories – “Construction and extraction”; “Production”; “Transportation and material moving”; and “Building and grounds cleaning and maintenance” – employ fully 32 percent of the Dreamer types. An additional seven percent work in the comparable occupations of Personal care and service and Installation, maintenance, and repair.

It’s true that, in what’s officially considered a very low unemployment economy, the Dreamer-eligible workers may not be taking jobs from the native-born (or from legal immigrants). At the same time, their presence may well explain some of the nation’s nearly multi-decade low labor force participation rate. Moreover, the laws of supply and demand strongly indicate that the influx of Dreamers into these labor markets is holding down wages, all else equal.

This Times feature reveals something else fishy about the new Dreamer-nomics conventional wisdom. Much is based on a survey that should prompt considerable skepticism – and especially from reporters and editors, who are supposed to be professional skeptics. Here I’m talking about the insistence that DACA recipients (in the words of the liberal, pro-DACA Center for American Progress), thanks to their new status “are making significant contributions to the economy by buying cars and first homes, which translate into more revenue for states and localities in the form of sales and property taxes. Some are even using their entrepreneurial talents to help create new jobs and further spur economic growth by starting their own businesses” as well as earning higher wages.

Yet there are no hard numbers behind this “finding.” Instead, it’s based on a widely cited survey conducted by a researcher employed by the Center and other pro-DACA groups that asks Dreamers about their experiences following the Obama decision. On the one hand, there can be little doubt that workers with some legal protections are going to do better than workers with none. On the other hand, how sustainable will these gains be, especially in an economy with poor recent economic and social mobility? Moreover, because DACA-style legalization is such a boon to recipients for reasons beyond economics, too, don’t the respondents have a strong incentive to play up their progress?

I’ve actually been moving toward the position that the Dreamers should be allowed to stay in the country permanently, and possibly get that proverbial “path to citizenship” – largely because they came out of the shadows and registered with the authorities based on a presidential promise. It’s not their fault that the promise’s legality was dubious at best. Best of all would be a Dreamer amnesty coupled with border security and other immigration policy measures smart enough to prevent yet another powerful illegal immigration magnet from being constructed.

But policy shifts based on clearly hyped and mis-interpreted data rarely turn out well. If Americans do decide to give the DACA recipients the blessings of legal residence in the United States, they should at least do it with their eyes wide open to the likeliest economic impact.

Im-Politic: Why Washington’s Latest Think Tank Scandal Should Matter – but May Not


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Slowly, and not so surely, the American media is waking up to the pervasiveness of corporate corruption of the nation’s think tank complex. I say “slowly” because revelations of the way these special interests – which include foreign governments – have used these supposedly quasi-academic institutions to promote and defend their own selfish agendas has tended to drip out in individual exposes usually separated by years (literally). And I say “not so surely” because these reports rarely connect any of the important dots. Worse, it’s ever clearer that the Mainstream Media itself is a big part of the problem.

The latest example: the uproar set off by revelations that the New America Foundation (NAF) recently fired a team of analysts because it started goring the ox of one of the organization’s main funders, Google.

It’s been gratifying to see that nearly everyone who has commented on this incident considers NAF and Google to be in the wrong, and no one whose work I’ve seen has given the slightest credence to the organization’s insistence that the team was canned because he wasn’t sufficiently collegial in his work habits.

Much less gratifying has been the almost equally widespread tendency to interpret the incident as a sign that Google itself has become way too powerful on America’s policy and intellectual scenes, and in underhanded ways. Or that Silicon Valley itself is now exerting way too much of this power just as sneakily, and without adequate checks.

That’s all true, and important. What’s been almost completely missed, however, is that Google’s muscle-flexing is anything but limited to Google or to the tech sector or to the New America Foundation. It is now Standard Operating Procedure in the think tank world, which has become what I’ve called an idea-laundering racket. That is, donors use the tanks they support to dress up various self-serving ideas in respectable-looking scholarly raiment that can be sold to policy-makers as the products of disinterested truth-seeking.

Not that special interests lack the right to bring their concerns to official-dom. But they should be correspondingly obligated to display some transparency – and where they’re determined to be secretive, or to capitalize on the general public’s understandable unwillingness to investigate the information they do need to disclose, the press needs to step in. Sadly, it’s almost unheard of for journalists to link think tank staff quoted in news articles as scholarly experts to the donors that pay them and the agendas they’re pushing.

Indeed, as I’ve documented, there’s a strong tendency on the part even of news organizations that have reported on think tanks’ corporate and other special interest connections to ignore their own findings and permit idea laundering as usual.

One big reason that’s become clearer to me than ever as I’ve been looking into the NAF scandal is the remarkable extent that journalists have formally been part of its operations and structure. The informal connections between journalists and think tankers have always been important, however neglected. Think tank staff and establishment journalists tend to come from the same kinds of fairly affluent backgrounds, have attended the same kinds of schools, graduate with the same kinds of ideas, and – since so many are clustered in Washington, D.C. – live in the same kinds of neighborhoods, send their kids to the same schools, and generally move in the same social circles.

Moreover, it’s been routine for media figures to take sabbaticals at think tanks to write books or just get some relief from the day-to-day grind and study subjects in depth. How realistic is it to expect any of them to turn around and then bite the hand that literally fed them?

The inevitable result is downright scary if you believe (as you should) that a robustly functioning democracy depends in large measure on individuals and institutions playing distinct roles that enable them to function as balancers and watchdogs or simply reinforcers of needed degrees of political and social pluralism. When they interact too closely and especially too systematically, temptations to scratch each other’s backs inevitably mushroom.

But perhaps more subtly, and therefore more importantly, these actors (especially the individuals) just as inevitably begin to know and understand each other too well, to like and admire each other too much, to recognize each other’s wants and needs too willingly, to agree with their legitimacy too thoroughly, to avoid any potential awkwardness or unpleasantness, and to cut them considerable slack when any kinds of trouble arise. And as these patterns emerge and consolidate, the lines separating these actors blur, their independent outlooks start dissolving, and they begin to merge into a genuine establishment (or “swamp,” if you will) with a common mindset, a consequent tendency toward group-think, and an increasing dedication to promoting and protecting its position – which tends to be pretty privileged.

In this vein, NAF’s journalistic connections are truly eye-opening. Its first board chairman was The Atlantic‘s James Fallows. An early president was Steve Coll, formerly with the Washington Post and The New Yorker. One of its board chairs today is National Review Executive Editor Reihan Salam, and he’s joined on this body by Fallows (still with The Atlantic), Steven Rattner (a New York Times columnist and financier), David Brooks (another New York Times columnist), and Washington Post columnist and CNN host Fareed Zakaria.

NAF also has developed a network of “media partners” that regularly publish its material via syndication deals. These news organizations include The Atlantic, Quartz.com (which is owned by The Atlantic‘s parent company), Slate, National Review (Salam’s publication), and TIME.  

The organization’s governmental connections are extensive as well. Like more and more think tanks, NAF also gets funding from the U.S. and foreign governments and international organizations. These official donors include the U.S. State Department and Agency for International Development, the U.S. government-funded U.S. Institute of Peace, the European Union, the European Commission, Norway’s foreign ministry, the Organization for Economic Cooperation and Development, and Germany’s Embassy to the United States. (See NAF’s latest Annual Report for documentation of current Board members and donors.)

Again, it’s been encouraging to see NAF take its lumps. But real progress toward breaking up the Washington swamp won’t be made until journalists and policymakers start treating the think tanks with the skepticism they deserve, and if not ignoring the information they generate, at least considering the source much more exactingly before internalizing and further propagating it.

And all RealityChek readers will easily be able to tell whether the NAF scandal brings genuine change. Check your favorite news sources to see whether NAF staff keep appearing as founts of scholarly wisdom – and when they are used, if the reporters or anchors in question tell you whose signing their paychecks, and what stakes these donors have in the issue in question. And look for the same treatment for all the other major think tanks. Even better? Start giving them heck in their comment sections and on social media when they don’t.

(What’s Left of) Our Economy: Productivity Growth Improves – A Bit


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Some more hard U.S. economic data came in this morning, and it looked pretty good. Even better, the news concerned productivity growth, which is widely viewed as the key to ensuring that the nation’s living standards can rise acceptably on a sustainable – as opposed to a bubble-ized – basis.

According to the Labor Department, America’s labor productivity in the second quarter of this year rose somewhat faster than was initially reported. Unfortunately, though, the economy still has a long way to go before it returns to the productivity growth rates it’s generated historically.

As RealityChek regulars know, labor productivity is the narrowest of the two gauges used by the U.S. government to measure this key indicator; it tells us how much output each American worker generates per hour on the job. Multifactor productivity (also called total factor productivity) shows output as a product of many more inputs (such as capital and energy and materials), but these numbers are more difficult to calculate, and come out with a greater time lag.

And although most intellectually honest economists admit that measuring productivity is one of their most challenging tasks, even these statistics are probably more reliable than “soft data” – the various private sector surveys that purport to measure business and consumer sentiment.

Today’s report judges that labor productivity for the non-farm business sector (the Labor Department’s main proxy for the entire economy) grew sequentially in the second quarter at an annualized rate of 1.53 percent. That’s better than the 0.99 percent first estimated and the strongest result since the 2.46 percent achieved in the third quarter of last year.

Second quarter labor productivity growth for manufacturing was upgraded, too – from 2.44 percent annualized quarter-to-quarter to 2.82 percent. And those are the best quarterly manufacturing results since the 3.20 percent spurt in the first quarter of 2012.

The Labor Department left unrevised the first quarter’s miserable 0.13 percent annualized non-farm business sequential productivity growth, and slightly downgraded manufacturing’s comparably poor first quarter improvement to 0.19 percent annualized. But the second quarter numbers are genuinely encouraging.

Still, do they signal the strong productivity revival the U.S. economy urgently needs? My crystal ball is no clearer than anyone else’s. All I can do is point out what a heavy lift this would be. Here are the non-farm business productivity growth performances for the last three economic recoveries (including the current expansion). As always, the best apples-to-apples data comes from measuring economic performance during similar phases of the business and economic cycle:

2Q 1991 to 1Q 2001: +23.25 percent

4Q 2001 to 4Q 2007: +16.03 percent

2Q 2009 to present: +8.65 percent

And here are the same figures for manufacturing:

2Q 1991 to 1Q 2001: +46.81 percent

4Q 2001 to 4Q 2007: +41.23 percent

2Q 2009 to present: +22.33 percent

So even with the latest improvements, labor productivity is advancing during this recovery at only roughly half the rate of its most recent predecessors. And the current expansion has been considerably longer than the previous recovery, and nearly as long as the 1990s recovery.

I’m not saying that no one should be optimistic about the United States significantly closing this gap going forward. But it’s still big enough that, so far, this expectation does seem to be a leap of faith.

(What’s Left of) Our Economy: A Great Oil Month and Still the July Trade Deficit Worsened


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The combined U.S. goods and services rose sequentially in July (by just 0.33 percent) for the first time in three months even though America’s oil trade improved so much that in inflation-adjusted terms, oil exports set a new record high ($10.87 billion), and the oil trade deficit set a new record low ($6.80 billion). Moreover, in current-dollar terms, July’s $3.09 billion oil trade deficit was a 30.78 percent drop from June and the smallest since May, 2016’s $3.03 billion.

Nonetheless, not only did the monthly overall trade deficit worsen slightly; the seven-month year-to-date total ($319.10 billion) is up 9.60 percent from last year’s level, and the highest such figure since 2012 ($324.83 billion). Moreover, most of the bilateral goods shortfalls with countries that have drawn President Trump’s ire on trade rose on month, including Canada (where it more than doubled), South Korea (up 4.26 percent, partly on a 3.71 percent U.S. exports drop), and China (up 2.99 percent to a post-August, 2016 high). In addition, America’s goods sales to Canada sank on month in July by 13.85 percent – their biggest such decline since July, 2006’s 20.38 percent. The merchandise deficit with Mexico, however, fell steeply for the second straight month.

The huge, chronic manufacturing trade deficit rebounded sequentially by 4.61 percent as both exports and imports fell, but stayed 6.19 percent ahead of last year’s record pace, and although the volatile high tech goods gap tra and the volatile high tech goods trade gap dropped on month by 7.51 percent, it’s running 31.12 percent of last year’s rate and looks poised to reach an all-time annual high as well. The trade drag on the current, still sluggish American economic recovery dipped through the second quarter of this year, but has still cut its cumulative real growth by 17.31 percent, or nearly $463 billion.

Here are selected highlights of the latest monthly (July) trade balance figures released this morning by the Census Bureau:

>July saw record U.S. monthly real high oil exports ($10.87 billion), a record low real oil trade deficit ($6.80 billion), and the smallest current-dollar oil trade deficit ($3.09 billion) since last August ($3.03 billion). But none were enough to prevent the combined July goods and services trade deficit from rising slightly on month – by 0.33 percent, to $43.69 billion, from a downwardly revised $43.54 billion.

>The new inflation-adjusted oil exports record represented their second straight all-time high, beating June’s $10.35 billion mark by 4.95 percent.

>The new record low monthly after-inflation oil deficit bested the previous low of $7.56 billion, set in May, 2016, by 9.98 percent. It also represented a 14.10 percent drop from the June total.

>The July current-dollar oil deficit was 30.78 percent lower than June’s $4.47 billion level.

>July current-dollar oil exports rose 4.45 percent on month, to $10.24 billion. That was their highest level since November, 2014 ($11.14 billion).

>July current-dollar oil imports fell 6.58 percent, to $13.33 billion. That was their lowest level since last December ($13.82 billion).

>July also generally saw rising sequential trade deficits with countries identified by President Trump as difficult U.S. trade partners.

>As the second round of talks to redo the North American Free Trade Agreement (NAFTA) concluded, the U.S. merchandise trade deficit with Canada more than doubled on month, from $461 million to $1.01 billion. This represented the biggest percentage worsening of the deficit since July, 2016 – when a $25 million U.S. surplus turned into a $716 million shortfall.

>U.S. goods exports to Canada sank sequentially by 13.85 percent, to $21.88 billion – the biggest such decrease since July, 2006 (20.38 percent).

>It’s true that the July monthly surge in the merchandise trade deficit Canada followed a June plunge of 66.29 percent. But on a year-to-date basis, the American shortfall has nearly quadrupled, to $11.35 billion.

>A contrast was provided by the American trade ledger with Mexico, where the goods trade deficit fell significantly on month for the second straight month. The 17.37 percent sequential decrease drove the shortfall down to $4.92 billion – its lowest level since January’s $3.95 billion.

>U.S. goods exports to Mexico fell by 7.55 percent, to $19.74 billion, from a June level of $21.35 billion that was the second highest ever. But imports fell even faster – by 9.70 percent, to $24.66 billion. That was the biggest such drop since November, 2015’s 15.06 percent.

>All the same, the on a year-to-date basis, the U.S. merchandise trade deficit with Mexico is 11.94 percent higher than last year’s figure.

>All told, the total U.S. merchandise deficit with its NAFTA partners is 32.30 percent higher over the first seven months of this year than during the first seven months of last year.

>President Trump is also seeking to revise the 2012 U.S. bilateral trade agreement with South Korea, where the American merchandise deficit expanded by 4.26 percent on month in July, to $1.93 billion.

>U.S. goods exports to South Korea dropped by 3.71 percent sequentially, to $4.07 billion, and imports fell by 1.29 percent, to $6.00 billion.

>Year-to-date, the merchandise trade shortfall with South Korea is down by an impressive 30.31 percent so far in 2017. But on a monthly basis, it’s nearly 3.5 times greater than in March, 2012, when the trade agreement went into effect.

>Despite the rise of the yuan in recent months, the American merchandise trade deficit with China continued on its long-time upward track. In July, the shortfall set its second straight post-August, 2016 high – $33.56 billion – as it grew 2.99 percent on month.

>U.S. merchandise exports to China increased by 3.45 percent in July, to $10.05 billion. Goods imports from China rose by 3.10 percent, to $43.60 billion. That figure represented the highest such level since October, 2016’s $43.79 billion.

>Year-to-date, the U.S. merchandise deficit with China is up 6.80 percent as of July.

>More bad July trade news came from America’s commerce with the European Union (EU). The U.S. merchandise trade deficit rose by 7.90 percent on month to $13.45 billion – its highest monthly level since last November ($14.80 billion).

>U.S. goods exports to the EU tumbled by 9.80 percent, to $21.44 billion. That’s the lowest such total since January’s $21.29 billion, and the biggest decrease in these sales since July, 2016 (10.01 percent).

>America’s merchandise imports from the EU were off on month by only 3.71 percent. The resulting $34.89 billion total was the lowest since February’s $32.39 billion, and the biggest such drop since January’s 6.68 percent.

>At the same time, on a year-to-date basis, the U.S. merchandise trade deficit with the EU is only 0.95 percent higher than its comparable 2016 level.

>American manufacturing had another poor month in July as well. Its massive and chronic trade deficit rebounded sequentially by 4.61 percent to $79.64 billion.

>Manufacturing exports plummeted by 8.24 percent on month, from $95.41 billion to $87.54 billion. But imports were off only 2.54 percent, from $171.54 billion to $167.18 billion.

>Year-to-date, the manufacturing trade shortfall has widened by 6.19 percent, from $482.13 billion to $512 billion – indicating that it will set yet another annual record. (Last year’s was $853.07 billion.)

>High tech merchandise trade generated some goods news for the United States in July, at least over the short term. The deficit – which can be volatile on month – fell sequentially by 7.50 percent, from $8.82 billion to $8.16 billion.

>High tech goods exports fell by 5.13 percent, to $29.23 billion, while imports decreased by 5.66 percent, to $37.38 billion.

>Year-to-date, however, the high tech goods trade shortfall is up by 31.12 percent, and seems headed for a new annual record of its own.

>Thanks to revisions in a separate data series kept by the Census Bureau, the drag on U.S. growth during this so-far weak recovery created by the Made in Washington portion of the U.S. trade deficit dipped as of the second quarter of 2017.

>This deficit consists of U.S. trade flows heavily influenced by trade agreements and other trade policy decisions – thus omitting services and oil trade – that are then adjusted for inflation.

>Between the second quarter of 2009 – when the current recovery officially began – and the second quarter of 2017, the increase in this Made in Washington deficit has cut cumulative U.S. growth by 17.31 percent, or $462.82 billion out of $2.6744 billion in real GDP expansion.

>The previous calculable trade drag figure was $463.97 billion (17.47 percent) cut from $2.6551 trillion in cumulative real recovery era growth.