(What’s Left of) Our Economy: Why Trump’s Not Down on the Farm

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agriculture, Alan Rappeport, American Farm Bureau Federation, election 2020, farmers, Greg Sargent, Mainstream Media, regulation, tariffs, taxes, The New York Times, Trade, trade war, Trump, Washington Post, {What's Left of) Our Economy

For anyone with any sympathy for President Trump’s China and other trade policies (like yours truly), one of the great pleasures of following the news coverage has been reading the bushel of stories that conform to the following pattern: a Mainstream Media reporter jets out to farm country expecting to find the nation’s agricultural community – which voted strongly for Mr. Trump in 2016 – up in arms about lost export sales due to foreign tariffs and other restrictions imposed in retaliation to new U.S. levies. And selfsame reporter winds up grudgingly writing that farmers and ranchers are by and large sticking with the President.  (See this classic example.)

This morning, such coverage took a turn that’s new and especially important given the approach of the next presidential election. In the process, the journalists involved unwittingly demonstrated how ignorant they continue to be about the full relationship between Trump administration policies and American agriculture.

The new turn was made clear by this claim today in a New York Times report: After “remaining resolute” in support of Mr. Trump, the difficulties faced by U.S. Farmers is finally “becoming a political problem” for the President. Indeed, wrote correspondent Alan Rappeport, “as the trade fight gets uglier, farmers are beginning to panic.”

And following a recent, increasingly incestuous trend in which reporters and pundits from one news organization breathlessly (and often instantly) hype the findings of a rival, a Never Trump-er Washington Post columnist based an entire essay today on the Times piece, declaring “There are indications that they are now getting genuinely angry over Trump’s efforts to gaslight them so shamelessly over the impact of his trade war with China.”

Or are they?

The original (long) Times article – in the next to last paragraph – informed readers that

“many farmers continue to support Mr. Trump and express hope that the president knows what he is doing in his dealings with China. A July survey from Farm Journal found that 79 percent of 1,100 farmers still back Mr. Trump despite the lack of progress in negotiations with China.”

Similarly, Post columnist Greg Sargent wrote: “Let’s stipulate up front [actually, this insight didn’t come until the middle of the article] that there is zero chance that farmers — or rural voters — break with Trump in 2020.”

At the same time, there’s no doubt that American farm exports, especially to China, are down this year. So what gives? Two major developments, both of which have been almost completely neglected:

First, the Trump administration has done very well by American farmers and ranchers by way of tax policy. And second, it’s done just as well by them by way of regulatory policy. At least, that’s what the biggest U.S. agricultural lobbying group has said, in reports here and here. P.S. The American Farm Bureau Federation is no fan of the Trump tariffs.

I could add that American farm prices and incomes began falling years before Mr. Trump’s inauguration – and have actually been leveling off recently. And that, when it comes to trade, farmers are strongly in favor of the U.S.-Mexico-Canada-Agreement – the Trump administration’s rewrite of the North American Free Trade Agreement (NAFTA). But that would be piling on.

It’s not that everyone shouldn’t be heartened by the upsurge in national press corps interest in American agriculture. But that’s only Step One in generating accurate coverage. Step Two is actually learning something.

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Im-Politic: Will Trump Let Trump be Trump on Issues?

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Congress, conservatism, conservatives, Democrats, deregulation, establishment, Im-Politic, infrastructure, John McCain, Marco Rubio, midterm elections, Nancy Pelosi, Obamacare, Populism, regulation, Republicans, tax cuts, Trade, Trump

Ever since Donald Trump made clear his staying power in presidential politics, his more populist supporters have tried to beat back efforts of more establishment-oriented backers to “normalize” him by insisting that they “Let Trump be Trump.” The results of Tuesday’s midterm elections tell me that the populists’ arguments on substance (as opposed to the President’s penchant for inflammatory and/or vulgar rhetoric) are stronger than ever, but that the obstacles that they’ve faced remain formidable.

The “Let Trump” argument contends that the President’s best hope to attract the most voters has always been his willingness to reject positions that for decades have been conservative and Republican hallmarks, but that have become increasingly unpopular outside the realms of most national GOP office-holders, other Washington, D.C.-based professional Republicans and conservatives, and the donors so largely responsible for their power, influence, and affluence. These maverick Trump positions have included not only trade and immigration; but the role of government and the related issues of entitlements, healthcare, and infrastructure spending; and Wall Street reform.

But since his election, as I’ve argued, Mr. Trump’s willingness to embrace the full maverick agenda has been blunted by his vulnerability on the scandals front. Specifically, he’s seemed so worried about impeachment threats from Democrats that he’s been forced to shore up his support with the conventional Republicans that dominate the party’s ranks in Congress. Why else, I’ve written, would his first two years in office have so prominently featured strong support for right-of-center standbys like major tax and federal discretionary spending cuts; curbs on regulation; repeal of Obamacare; and bigger military budgets, rather than, say a massive push to repair and retool America’s aging or simply outdated transportation, communications, energy, and other networks?

It’s true that Trump remained firmly in (bipartisan) populist mode on trade (notably, withdrawing from the Trans-Pacific Partnership agreement and slapping tariffs on metals imports and many Chinese-made products), and just as firmly in (conservative) populist mode with various administrative measures and proposals to limit and/or transform the makeup of legal immigration – though many of his most ardent backers accuse him of punting on his campaign promise to build a Border Wall.

Yet this Trump populism strongly reflected the views of the Republican base – a development now not lost on conventional conservatives when it comes to immigration, even though they’ve been slow to recognize the big shift among Republican voters against standard free trade policies. By contrast, the President has apparently feared that Congressional Republicans would draw the line on the rest of their traditional agenda – or at least that he could curry favor with them by pushing it.

The midterm results, however, might have brought these political calculations to a turning point. On the one hand, there’s no doubt that most House and Senate Republicans, along with the donors and most of the party’s D.C.-based establishment, are still all-in on their tax, spending, regulatory, and Obamacare positions.

On the other hand, according to the exit polls and other surveys, the tax cuts didn’t even greatly impress Republican voters (let alone independents). And most Americans aren’t willing to risk losing Obamacare benefits they already enjoy (especially coverage for pre-existing medical conditions) by supporting Republican replacement ideas that may be less generous.

The message being sent by all of the above trends and situations is that President Trump may have even more latitude than he’s recognized to cut deals with Democrats. At the same time, the Democrats’ capture of the House of Representatives on Tuesday and signs that they’ll ramp up the scandal investigations could keep preventing him from “being Trump” on such issues and possibly antagonize most Republican lawmakers.

Of course, my political neck isn’t on the line here. But I’d advise Mr. Trump to follow his more unconventional instincts. The Congressional Republicans still uncomfortable with him ideologically must be aware that his personal popularity with GOP supporters has grown significantly since mid-2017, and that this surge owes almost nothing to their own priorities. So if they don’t help staunchly resist any intensified Democratic probes, their political futures could look pretty dicey, too.

One big sign that ever more establishment Republicans are getting “woke” on the obsolescence of much establishment conservatism: the efforts by long-time mainstream conservative/Republican favorites like Senator Marco Rubio of Florida to develop a Trump-ian agenda that can survive Mr. Trump’s presidency. Further, resistance in Washington to their efforts is likely to continue weakening, since so many of the President’s ideological opponents on the Republican side are leaving the House and Senate. (And of course, their spiritual leader, veteran Arizona Senator and 2008 Republican presidential nominee John McCain recently passed away.)

To be sure, Mr. Trump yesterday (rhetorically, anyway) erected his own obstacle to deal-cutting – his declaration that he won’t be receptive if investigations persist and broaden. House Democratic leader (and still favorite to become Speaker again) Nancy Pelosi has pretty clearly, however, signaled that she herself is not impeachment-obsessed, even if those exit polls say most of the Democratic base is.

As a result, I can’t entirely blame the President for still feeling spooked by the Democrats – at least this week. But what an irony if the most important opponent “letting Trump be Trump-ism” – whose broad popularity could well combine with the advantages of incumbency to outflank the Democrats, win the President a second term, and pave the way for a truly earth-shaking, lasting realignment of American politics – turned out to be President Trump himself.

(What’s Left of) Our Economy: Both Trump and Critics Could be Wrong About the Business Spending Rebound

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Barack Obama, business spending, Center for Economic and Policy Research, Dean Baker, energy, recession, regulation, Trump, {What's Left of) Our Economy

Economist Dean Baker of the Washington, D.C.-based Center for Economic and Policy Research has just performed a valuable service. He’s looked under the hood of U.S. economic data and found a major, under-reported feature of the economy’s business spending performance under President Trump so far: A lot of the improvement has come in the energy sector, and therefore stems from energy price increases that have little to do with Washington policy decisions.

And if the story ended there, Baker would be justified in dousing “Trump capex (capital expenditures) rebound” claims with lots of cold water. But it doesn’t.

As Baker points out, energy-related capital spending accounted for more than 40 percent of the total increase in all capital spending recorded in the official government data since last year. That is indeed big-time out-performance, and there’s no doubt that (like the energy-related business investment bust that began in late 2014) it’s largely due to energy price changes. When the price of oil and natural gas goes up, businesses (understandably) conclude that demand is rising, drill more, and need more drilling equipment and the like. When energy prices fall, this spending just as understandably tends to sink.

Even so, if you look at the policy landscape, there’s a case for giving the administration some credit for the energy investment recovery. Specifically, it’s rolled back some important regulations in the industry, and has spoken repeatedly of eliminating more. And interestingly, this latest increase in energy-related business spending has taken place much faster than the previous surge, under former President Barack Obama – who was not exactly a fossil fuels booster.

Yet developments outside the energy sector indicate even more powerfully that the economy could be seeing a Trump effect on capex. The key is examining spending on equipment. Whatever the effect of energy-related spending on the business investment totals, equipment’s is much bigger. Even after the latest spurt in energy, it still represents less than four percent of the business spending total (officially called non-residential private fixed investment). The latest figures show the equipment share is more than ten times larger – nearly 48 percent.

So although equipment spending has increased by only 5.93 percent during the Trump era, that rise amounts to just over $62 billion – much more than the energy-related spending increase. And more telling, this advance follows a 3.38 percent yearly drop in this spending category in 2016. In fact, equipment capex was down on net from the third quarter of 2014 through the fourth quarter of last year. The last time it fell for that long a stretch was during the last (historically terrible) recession (when the plummet was much greater and lasted considerably longer).

All the same, let’s not forget that the Trump administration is still only one year old. So a wait-and-see attitude is probably best for both sides of the Trump effect capex debate. And to the extent that any patterns can be discerned, not surprisingly, the truth so far seems to lie somewhere in between.

(What’s Left of) Our Economy: Trump & Workers, by the Numbers

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blue-collar workers, construction, healthcare services, Helaine Olen, inflation adjusted wages, Jobs, manufacturing, mining, real private sector, real wages, regulation, Steven Greenhouse, subsidized private sector, The Nation, The New York Times, Trump, unions, wages, workers, {What's Left of) Our Economy

Since Donald Trump first declared his presidential candidacy, he’s been dogged by charges that he’s a phony populist, and that his working class supporters have long been hoodwinked by his promises of restoring factory and other blue collar jobs and living standards. And this past Labor Day inspired the President’s critics to double down, as evinced by this piece by long-time labor reporter Steven Greenhouse in The New York Times and this one by economist Helaine Olen in The Nation.

So it seems appropriate for RealityChek‘s slightly delayed analysis of the latest monthly jobs report to include some data bearing on these questions. The verdict? Whatever anti-union and deregulatory measures the Trump administration has backed, its first months in office overall have been just about as good for blue-collar industries and blue-collar employees as during the latest comparable period during the supposedly worker-friendly Obama administration.

First, the manufacturing highlights of last Friday’s August jobs report:

>August saw the best month of net new job creation in U.S. industry since August, 2014 (36,000 in each month.

>Although the August and July totals are still preliminary, their combined sequential employment increase of 62,000 was the highest such figure since the 68,000 improvement in December, 2011 and January, 2012. This back-to-back total reduces the odds that the August numbers are a fluke.

>On a year-on-year basis, manufacturing’s August gain of 138,000 contrasts strikingly with the 5,000 net job loss in industry between the previous Augusts. In fact, this new annual advance was manufacturing’s strongest since the 139,000 yearly gain in August, 2015.

>Reenforcing this conclusion are the strong upward revisions for monthly manufacturing job growth in June (from an upwardly revised 12,000 to 21,000) and for July (from 16,000 to 26,000)

>Manufacturing has now regained 1.027 million (44.79 percent) of the 2.293 million jobs it lost from the onset of the last recession (at the end of 2007) through its jobs bottom in February and March, 2010.

>Yet manufacturing employment is still down 9.21 percent since the downturn’s beginning. During that period, overall private sector employment is up by 7.23 percent.

>Manufacturing’s wage performance, however, slumped notably in August. Pre-inflation wages sank sequentially by 0.56 percent – the worst such drop since May, 2012’s 0.63 percent.

>It’s true that manufacturing wages have been volatile this year, with July recording a strong month-on-month gain of 0.53 percent. But the yearly August manufacturing wage rise of 1.76 percent not only trailed the previous August-to-August rise of 2.68 percent. It was also the smallest annual increase since July, 2015’s 1.57 percent.

>By contrast, August current dollar wages in the private sector overall were up by 0.11 percent sequentially and 2.53 percent year-on-year. The latter total was just slightly below the 2.55 percent increase achieved between August, 2015 and August, 2016.

>Since the current recovery began, in mid-2009, pre-inflation manufacturing wages have risen by only 15.25 percent total. For the private sector overall, they’ve increased by 19.20 percent.

>As a result, the gap between private sector pre-inflation wage increases and those gains in manufacturing stood at 20.57 percent in August. One encouraging development for manufacturing workers: Last August, the gap was much wider: 27.92 percent.

>On an after-inflation basis, manufacturing’s wage performance remains mixed compared with the rest of the private sector. The latest data are from July, and show a monthly gain of 0.37 percent for manufacturing workers and 0.19 percent for the private sector overall – barely half as much.

>Year-on-year, however, manufacturing’s real wage gains slightly lagged those of the private sector in toto in July – 0.74 percent versus 0.75 percent.

>And the gap is even wider during the current recovery – inflation-adjusted wage gains of only 1.96 percent for manufacturing workers during this more than eight-year period, versus an improvement of 4.75 percent for the entire private sector.

But what about the Trump-Obama comparison? Here are the main numbers, using February as the first plausible month of “Trump-onomics”:

>From this past February through August, total net new U.S. job creation is up by 0.66 percent, versus 0.83 percent from last February through last August – the final such period during Mr. Obama’s presidency. So score one for the previous administration? Maybe. But the economy is also deeper into the recovery, and just about at the official definition of full employment. So it’s natural that job-creation should slow down some.

>Interestingly, the difference is much smaller when looking at private sector job creation. Last February through last August, it grew by 0.84 percent. During the comparable Trump period, it’s increased by 0.79 percent. That’s one sign that the Trump employment performance has been healthier, and therefore more sustainable, because it’s been more private-sector driven, than the late Obama version.

>This difference becomes even more pronounced when looking at trends in the subsidized private sector – those industries traditionally considered private sector (notably healthcare) that nonetheless depend heavily on government subsidies. Hence my decision to place them in a separate category.

>So far this year, under President Trump, subsidized private sector jobs have indeed increased strongly – by 0.95 percent. But that’s a much slower rate of growth than the 1.29 percent recorded during the comparable Obama months.

>As a result, employment growth in the “real” private sector has been faster under Mr. Trump – by 0.76 percent to 0.74 percent – and this, again, despite the arrival of full employment.

>Continuing sector by sector, the statistics show that the some of the biggest employment gains during President Trump’s tenure have taken place in blue-collar heavy industries that performed poorly during the comparable final Obama period.

>Principally, net employment from this past February through August is up by 0.83 percent in manufacturing, by 4.96 percent in mining and logging, and by 0.68 percent in construction.

>The comparable Obama administration numbers: -0.27 percent, -6.90 percent, and +0.63 percent, respectively.

>More broadly, blue-collar employment throughout the entire economy (defined by the Bureau of Labor Statistics as production and non-supervisory workers) has increased at the same pace during the two time periods in question (0.70 percent), though in absolute numbers, the Trump administration gains are a bit larger (714,000) than the corresponding Obama administration advances (701,000) – again, despite the arrival or near-arrival of full employment.

>Where blue-collar workers fared better so far during the Obama period than during the Trump period is on the wage front. But they haven’t fared massively better.

>For all private sector production and non-supervisory workers, pre-inflation wages were up by 1.36 percent during those Obama months, and 1.19 percent during the Trump months.

>The same trends have been visible in the blue-collar industries. During the Obama months in 2016, current-dollar wages rose by 1.78 percent in manufacturing, 0.82 percent in mining and logging, and 2.60 percent in construction.

>The Trump results? 1.26 percent, 0.87 percent, and 1.98 percent, respectively.

>In other words, the only blue-collar sector in which blue-collar workers have outperformed under President Trump has been in the mining sector – which has seen by far the biggest employment outperformance.

Of course, the Trump administration is still pretty young, and any or all of these trends could change, and change dramatically, in the months ahead. But until they do, it’s clear that Mr. Trump’s presidency has neither devastated the workers who supported him so ardently or made their lives Great Again. And any analysts denying that the truth so far lies somewhere in between – including the administration’s own grandstanders – have some explaining to do.

Following Up: Where Trump on Trade Falls Short

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2016 election, advanced manufacturing, apparel, Donald Trump, Follwing Up, Hillary Clinton, inflation-adjusted growth, Made in Washington trade deficit, multinational corporations, NAFTA, North American Free Trade Agreement, offshoring, offshoring lobby, recovery, regulation, Rust Belt, steel, subsidies, taxes, The Race to the Bottom, Trade, Trade Deficits, trade law, World Trade Organization, WTO

Donald Trump has just given a deadly serious, detailed, and common-sensical speech about the need for overhauling American trade policy, and the establishment media has decided to respond largely by dredging up the fatuous observation that the presumptive Republican presidential nominee himself produces his name-brand apparel overseas.

Before dealing with some of the genuine – though anything but fatal – shortcomings of Trump’s trade speech, let me (again) dispose of this ignorance-based cheap shot: The very trade policies that Trump has been attacking have practically destroyed the domestic U.S. apparel industry. When Trump claims that it’s nearly impossible to make garments in this country profitably anymore, he’s absolutely right. Indeed, the Federal Reserve’s industrial production data show that, since the North American Free Trade Agreement went into effect in January, 1994, and launched the current, offshoring-focused stage of U.S. trade policy, domestic garment output is down nearly 83 percent in real terms. That’s a bloodbath.

Yes, that means that some companies still produce clothing in the United States. But it also means that the biggest money in the industry has taken the hint that opening the American market to competition from penny-wage developing countries with no meaningful environmental or worker safety regulation has been an invitation to shut down or join the party and offshore. Any journalist who fails to mention these facts is either clueless or trying to sell you a bill of goods.

At the same time, since most of the public isn’t well informed about trade and manufacturing specifics, either. And since a torrent of such slanted coverage – which has been echoed by Trump’s presumptive November rival, Hillary Clinton – can definitely affect voter judgment, Trump needs to make it as difficult as possible for opponents to portray him as a know-nothing or a hypocrite on what he clearly sees as a core issue. This is where his Tuesday speech – which overall, I liked – fell somewhat short. Here are some important examples:

>Trump deserves a lot of credit for pointing out that misguided policies have killed not only employment – especially in trade-sensitive manufacturing – but growth throughout the economy. But he left off the table eye-opening figures on just how great the trade toll has been. As I’ve documented, during this feeble economic recovery alone, the growth of that portion of the trade deficit directly influenced by trade policy (what I call the Made in Washington trade deficit) has so far slowed this already feeble expansion by some 20 percent. That’s more than $400 billion after inflation, and he should have defied anyone to insist that huge numbers of jobs haven’t been destroyed as a result.

>The likely GOP standard bearer also rightly blasted American political and business elites for pushing these damaging policies. But explaining exactly why will not only educate the public – it will further infuriate voters. As I’ve written repeatedly, and most comprehensively in my book, The Race to the Bottom, the offshoring focus that has dominated U.S. trade policy since the early 1990s resulted from American multinational corporations realizing that expanding commerce with low-income countries would enable them to improve their own (though not the nation’s) competitiveness and boost profits by supplying the high-price American economy from super-low cost and largely unregulated production sites.

In other words, for all the talk about gigantic, rapidly growing third world markets, post-NAFTA trade deals weren’t mainly about expanding American exports – and therefore growth, employment, and wages. They were mainly about expanding U.S. imports from the multinationals’ new foreign production sites. That is, big American business wanted Americans to keep playing their roles as consumers of the products they made. They just didn’t want them to keep playing their roles as producers of these products. You don’t think a critical mass of voters would be outraged to hear this?

>Trump’s vow to file suits in the World Trade Organization to open foreign markets to U.S.-origin goods and services and halt predatory foreign trade practices is completely inadequate. As I’ve also written, the WTO is far from a U.S.-like trade court where objective magistrates render impartial justice. It’s an anti-American kangaroo court numerically dominated by foreign trade powers whose overwhelming interest lies in keeping the U.S. market much more open to their goods and services than their markets are to U.S. exports. That’s largely why even when the United States does win WTO cases, the process takes so long that American interests have been dealt decisive setbacks.

In fact, that’s also why the Offshoring Lobby pushed so hard back in the 1990s for U.S. Entry into the WTO. They knew that it would give predatory foreign trade powers substantial legal immunity from American efforts to deal with illegal subsidization, dumping, currency manipulation, and the like – and that the factories they moved and built abroad would benefit from these market-distorting practices at the expense of domestic American producers and their workers.

In other words, Trump shouldn’t be arguing for working through the WTO. He should be promising to seek an American withdrawal.

>Trump’s related promise to file more suits against predatory foreign traders in the U.S. trade law system is sorely inadequate for three main reasons. First, as suggested above, the WTO nullifies most of America’s legal authority to use such unilateral mechanisms. Second, the domestic trade law system is almost as slow-moving as the WTO. And third, this legalistic set of procedures is by definition piecemeal and reactive. If Trump thinks that American trade law can help make the U.S. economy great again in his lifetime, he’s dreaming.

>I recognize that the steel industry has acquired iconic status in American culture and politics. It also remains incredibly important economically. But Trump’s exclusive reliance on steel’s recent woes to illustrate what’s wrong with American trade policy unfortunately reinforces the wrongheaded conventional wisdom that trade policy critics are naively obsessed with reviving so-called Rust Belt industries.

What Trump should have added is that manufacturing sectors running sizable trade deficits also include semiconductors, electro-medical devices, all categories of machine tools, farm machinery, construction equipment, ball bearings, telecommunications equipment (not including smartphones), and pharmaceuticals. Believe me, I could go on. And that’s not your classic Rust Belt stuff. Are all these domestic producers hopelessly uncompetitive, Trump should ask? Or are global trade markets unmistakably rigged even against American-made products falling into any knowledgeable definition of advanced manufacturing?

>Trump clearly felt the need to throw some red meat to traditional Republicans and conservatives by also promising to boost the productive sectors of the American economy by getting rid of “wasteful rules and regulations” and cutting taxes in order to “make America the best place in the world to start a business, hire workers, and open a factory.”

Of course, there’s an important, legitimate debate about the proper scope of regulations and the proper level of taxation for both corporations and individuals. Think though, of the outreach potential to independent and even many Democratic voters had Trump added something along these lines:

“But we also have to remember that many of our regulations also serve the vital purpose of protecting us from dangers like polluted air, water, and land; and unsafe food and workplaces. By freeing America’s domestic companies of the need to compete against rivals free to ignore these goals, we preserve regulations reflecting values we should be proud of, and ensure that we remain a genuine first world country.”

And let’s not forget arguments made in Trump’s tax plan (though in a form that’s surely vastly overstated) but neglected in this speech: All else equal, the faster the economy’s real (as opposed to bubble-ized) growth, the stronger its ability to generate the tax revenues that are both politically acceptable and needed to finance true national needs and popular national desires in a responsible way.

Again, I really do believe that this Trump speech was the best Americans have heard on trade in decades. But that bar has been abysmally low. If Trump wants to make America “Greater Than Ever Before” ensuring that his trade positions fit this description will help a lot.

Our So-Called Foreign Policy: What You Really Need to Know About Brexit

Tags

Brexit, Donald Trump, EU, European Union, geopolitics, globalization, Immigration, internationalism, Obama, regulation, self-sufficiency, sovereignty, Trade, United Kingdom, Walter Lippmann, {What's Left of) Our Economy

“Brexit” – the possibility that Thursday, the United Kingdom (UK) will vote to leave the European Union (EU) – deserves every bit of the exhaustive media coverage and commentary its received. Although there’s major (and understandable) disagreement over the economic and geopolitical impact of a “Leave” victory, there’s no doubt that the effects could be seismic on both fronts. Especially momentous would be a post-Brexit decision by other members of the floundering EU to follow suit, producing the breakup not only of the world’s biggest integrated market, but of a genuinely historic experiment in political integration and transnational governance.

I have no particular dog in this hunt – but strongly believe that the British have every right to decide whether to continue its EU membership, and that foreigners, and particularly foreign leaders, should tread carefully in offering their opinions. I’m also agnostic on the reverberations for Britain– in part because I haven’t studied the UK economy very closely.

Something I am sure of, however, is that contrary to much of the flood of Brexit-bred pontificating (notably from President Obama), Britain’s decision won’t hold important lessons for the United States either way. The reason: The UK’s economic and geopolitical situation is nothing like America’s.

This observation may sound obvious, but as I’ve written, since U.S. foreign policy’s (current) internationalist era began at the outset of World War II, American leaders and strategists practically across the board have justified non-stop, all-but-limitless global engagement by pointing to the nation’s acute exposure to all manner of threats and opportunities generated abroad. Their reasoning – which was articulated best by pundit, philosopher, and adviser to presidents Walter Lippmann – sprung from the belief that the United States was best seen as a big version of Britain.

That is, geographically it’s an island that floats in “an immense oceanic lake of which the other great powers control the shores” and therefore (my phrasing) enjoy “an unbeatable combination of geographic advantage, boast combined military potential far greater than America’s, and in an age of long-range air power, are located much closer [to the United States]” than Lippmann’s historically complacent countrymen realized.

I explained that Lippmann, and other internationalists, couldn’t be more off-base, because the United States and Britain couldn’t have less in common economically and geopolitically. Especially relevant to the Brexit debate and its implications for the United States, America boasts all the major resources and other assets needed for all the economic independence it genuinely needs – including a domestic market more than large enough to support production of the full range of goods and services at scales large enough to be profitable.

Conversely, Britain overwhelmingly lacks these advantages. This hardly means that leaving the EU is sure to be an economically foolhardy choice for the UK. In principle, the benefits of Brexit could exceed the costs of EU membership (like excessive pan-European regulations and Open Borders immigration policies). Britain could also boost its long-term productivity – and chances for greater prosperity – with a “Leave”-inspired burst of reform. But there can’t be any legitimate doubt that the UK is in a much weaker position than the United States to pursue such a go-it-alone strategy.

It’s also important to note that the British people could decide – as is their sovereign right – that restoring what they see as their pre-EU degree of political independence matters more than any conceivable economic risks they might run.

But the vote and whatever consequences it produces for Britain is not, as widely portrayed, a universal test of the pluses and minuses of free trade and the current version of globalization. As such, it should have no bearing on U.S. decisions on integrating more extensively with the global economy (as President Obama and the rest of the political and economic establishment seek), or starting to back away (as presumptive Republican presidential nominee Donald Trump seems to favor).

Clearly, the United States has longstanding historic and cultural ties with the UK, along with close economic and security relations. But the superior economic choices it faces are in a class by themselves – and they’ll remain so as long as Americans remember that their country isn’t Britain.

(What’s Left of) Our Economy: Bernanke Flunks Crisis History 101

Tags

Ben Bernanke, bubble decade, bubbles, Federal Reserve, finance, Financial Crisis, Great Recession, Lehman Brothers, monetary policy, recovery, regulation, Wall Street, zero interest rate policy, ZIRP, {What's Left of) Our Economy

Because America is unlikely to avoid a rerun of the last financial crisis and recession without recognizing why they broke out in the first place, it can’t be good news that former Fed Chair Ben Bernanke still apparently hasn’t learned the main lesson of this near-catastrophe (and its still punishing aftermath): The crisis was rooted ultimately not in failures of the American financial system, but in weaknesses in the real economy that remain largely neglected.

I say “apparently” because this judgment is based on interviews Bernanke has granted to tout his new memoir on the crisis, and I haven’t read the volume. But it must be significant that both Bernanke and the leading financial journalists who questioned him have concentrated exclusively on the role played by Wall Street’s behavior and structures on the one hand, and lax regulation on the other, in nearly destroying the global economy. No attention whatever has been paid to the deteriorating ability of the Main Street economy to generate adequate levels of real wealth and income; to decisions made going back to the early 2000s to mask these deficiencies with crackpot credit-creation practices; or to the reckless lending and investment patterns to which this artificial credit glut led.

Not that Bernanke is the last word in crisis-ology. Yes, he spearheaded Washington’s efforts to contain the meltdown and spark recovery. But since his tenure at the central bank began in 2002, just about when the bubbles began inflating, and his Chairmanship began in 2006, just before they started bursting, he clearly was as much part of the problem as he’s been part of what’s so far passed for a solution. So his memoir is obviously an opportunity for reputation-burnishing. But finance has so completely dominated America’s views of the crisis and its origins that Bernanke’s perspective can’t simply be dismissed as self-serving.

Here’s a typical Bernanke comment presenting his view that the crisis was rooted in a panic in the unregulated, uninsured non-bank portion of the financial system that had grown so large that it became capable of endangering an otherwise healthy non-financial economy:

“The previous six months [before Lehman Brothers failed], the economy had been growing, house prices had fallen moderately. After Lehman, the economy just went into a death spiral. The fourth quarter of 2008 and the first quarter of 2009 was among the sharpest declines in the economy in U.S. history. Once the crisis went into a new gear, house prices started falling more quickly, and that had a feedback mechanism. Absent the broad-based panic that froze credit markets, caused asset prices to drop sharply and punctured confidence, we wouldn’t have had nearly so bad a recession.”

Bernanke has even appeared to deny that the economy during the previous decade was bubble-ized by overly easy Fed monetary policy. Asked whether the central bank had kept interest rates too low for too long – in fact long after the shallow recession of 2001 had ended – Bernanke responded:

“The first part of a response is to ask whether monetary policy was, in fact, a major contributor to the housing bubble and all that happened. Serious studies that look at it don’t find that to be the case. People such as Bob Shiller [a Nobel laureate currently serving as a Sterling professor of economics at Yale University], who has a lot of credibility on this topic, says that: it wasn’t monetary policy at all; it came from a mania, a psychological phenomenon, that took off from the tech boom and moved into housing.”

Here’s the immensely big picture that Bernanke is missing. The 2001 to 2007 economy was indeed growing, but the growth was energetically propped up by artificial – and, as it turned out, completely unsustainable – government stimulus. In fact, as shown in this (admittedly complicated) chart I made up while that previous recovery was proceeding, the federal funds rate – the short-term rate directly controlled by the Fed – had been plunged to multi-decade lows during that period, whether in inflation-adjusted or current dollar terms. At the same time, within a few short years, George W. Bush’s administration and the Congresses it worked with drove the federal budget from its biggest surplus in decades as a share of the total economy into deep deficit.

But did this unprecedented peacetime stimulus result in unprecedented peacetime growth? As the chart shows, anything but. And the discrepancy between Washington’s herculean efforts and the the economy’s mediocre results could not have made clearer that the nation’s engines of real (not financial) wealth creation, and thus real prosperity, had broken down.

As I’ve written repeatedly, American leaders could have responded with programs to strengthen that real economy, and therefore the real spending power of American workers. Instead, they tried to create the illusion of prosperity by enabling consumer spending that was not remotely justified by consumer incomes.

Fast forward to 2015, and despite the literally trillions of dollars of stimulus poured into the economy by the Fed under Bernanke and his successor, Janet Yellen, U.S. incomes continue to lag and the current recovery has seen even weaker growth than that of the bubble decade. It’s true, as Bernanke and others have argued, that expansion today is being slowed by a significant reduction in federal deficits. But it’s even more important to recognize that the economy will never truly heal unless the private sector leads. And let’s not forget that, thanks to the zero interest rate policy put in effect by Bernanke’s Fed in December, 2008, credit in America has never been cheaper.

Bernanke by no means deserves all or even most of the blame for the nation’s recent economic malaise. The last time I checked, the president and Members of Congress have been cashing paychecks all this time as well. But since leaving the Fed last year, Bernanke has been outspoken enough to make clear his ambition to remain a major economic voice. Judging from his take on why the financial crisis broke out, however, he doesn’t have much of value to teach.

(What’s Left of) Our Economy: Gallup Survey Shows No Public Consensus on Boosting Recovery

Tags

2016 elections, balanced budget, budget deficits, economy, education, executive pay, Immigration, infrastructure, minimum wage, recovery, regulation, Social Security, spending, taxes, Trade, training, {What's Left of) Our Economy

I’m a strong believer the American people’s ability to understand policy clearly enough to govern themselves wisely, and an equally strong believer in viewing opinion polls skeptically. But some new Gallup findings on economic issues are so contradictory and confusing that it’s enough to make the most dedicated populist think twice.

You can see the full results here. (And Gallup says it will expand upon this exercise throughout the rest of this presidential cycle.) But here are some that are especially head-scratching:

> Of the 47 policy ideas presented to voters, only nine were judged likely to be “very effective” at improving the economy by half or more of respondents, and of these, four were so rated by 50 percent even. That’s no doubt in part a function of the large number of proposals (which would tend to fragment preferences – as we seem to be seeing for the Republican presidential field). But the diversity of popular responses strongly points to less comforting explanations.

> The only two proposals cracking the 60 percent “very effective” mark were “Ensuring that women receive equal pay for equal work” and “Improving job training for veterans.” Trailing close behind, at 58 percent, was “Giving small businesses easier access to loans to start or expand their businesses.” Nothing else exceeded 55 percent.

> The 50 percent neighborhood is where the fun really starts. Principally, budget deficit hawks will be heartened by roughly this level of enthusiasm for “Reducing federal government spending”; “Requiring a balanced budget”; and, arguably, “Reforming Social Security to ensure it remains solvent.”

> But spending doves will be just as pleased to see that roughly half of respondents saw great potential in “Spending more government money to improve U.S. schools and education”; “Providing free community college education for all Americans who want it”; and “Providing new federal government programs designed to increase manufacturing jobs.” Perhaps tipping the balance in the doves’ favor is the near-majority backing for increased public sector funding for pre-school education, more government loans for small businesses, and tax incentives to encourage business to train workers. These results also seem to signal fairly high public confidence that more educational opportunity is needed for spurring and spreading prosperity.  

> Some of the measures most prominently touted by politicians in both major parties haven’t lit raging fires under American voters, according to Gallup. “Increasing the minimum wage” was described as a “very effective” way to strengthen the economy by a solid but not spectacular 44 percent of respondents. Generating even less excitement were “Reducing income tax rates for all Americans” and “Reducing government regulations on small businesses,” which both came in at the 40 percent mark.

> However much Americans complain about the quality and quantity of their infrastructure, only 39 percent regard “Developing federal, state, and private partnerships to invest” in such systems as a great way to spur better economic performance. And for all the animus against Wall Street and the rest of Big Business, only 38 percent registered great confidence in “Setting a limit or ceiling on corporate executives’ salaries.”

> Immigration and trade issues were gauged by Gallup, too, but here the results look less reliable, thanks to some dubious wording choices. One possible reason: The polling firm received input on the entire survey from, among others, “economists, academics and economic and political observers” – groups where orthodox, establishmentarian views (of both liberal and conservative varieties) reign supreme.

> The immigration questions seemed unexceptional, and showed the public saw relatively little economic payoff from encouraging more immigration either by “high-skill” foreign nationals who graduate from American universities, by skilled workers generally, or by their low-skill counterparts. But respondents were never asked about the potential of limiting or reducing legal immigration flows, much less about cutting off illegal immigrants’ access to jobs and public benefits.

> Much more problematic were the trade questions, which gave respondents two choices: “Negotiating trade and economic agreements designed to enhance trade with other nations” and “Increasing tariffs and taxes in order to make it more expensive to import goods into the U.S. from overseas.” The former was seen as a very promising growth engine by 29 percent of respondents, the latter by 24 percent. But if you think about it, why should anyone intrinsically doubt the benefits of “enhancing trade,” especially if no drawbacks are listed? Conversely, including the word “tax” in the question suggesting trade barriers was bound to reduce this option’s popularity. What kinds of results would Gallup have gotten, for example, if its question mentioned something on the order of “Increasing tariffs to replace goods in our stores made by foreign workers with goods made by American workers”?

I’ll keep monitoring Gallup’s efforts on this score – and hope that the company does a better job framing the debate on the globalization-related hot button issues that seem to be generating an unusual number of political headlines.

By the way, it’s important to recognize that this survey doesn’t measure public backing for or opposition to these economic ideas. Instead, it measures how well the public believes these measures will or won’t improve the economy.  These questions are similar, but not identical.      

 

(What’s Left of) Our Economy: Setting the Record Straight on Trade, TPP, and Sovereignty

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ISDS, Jeffrey Zients, meat labeling, Mickey Kantor, Obama, regulation, sovereignty, TPP, Trade, Trans-Pacific Partnership, U.S. Trade Representative, World Trade Organization, {What's Left of) Our Economy

President Obama and supporters of his trade agenda have spread so much misinformation that it’s hard to single out the most pernicious falsehood. But their claims that new trade deals won’t undermine U.S. sovereignty must be among the worst. Moreover, the specific arguments they make have muddied American debates on trade since the Uruguay Round multilateral trade agreement created the World Trade Organization in 1995.

According to the current administration, critics of Mr. Obama’s Trans-Pacific Partnership (TPP) in particular have no basis for warning that the deal will enable foreign tribunals unaccountable to the American people to rewrite or nullify any U.S. laws and regulations, whether they concern environmental protection, financial regulation, worker safety, or any social, ecological, or cultural priorities.

No less than the president himself has promised, “No trade agreement is going to force us to change our laws.” National Economic Council chief Jeffrey Zients has stated, “It is an often repeated, but inaccurate, claim that ISDS [a provision of the TPP] gives companies the right to weaken labor or environmental standards, for example, suggesting that a trade agreement could result in the United States having to lower its minimum wage. The reality is that ISDS does not and cannot require countries to change any law or regulation.”

The most comprehensive rebuttal to TPP sovereignty concerns comes from the U.S. Trade Representative’s office – complete with underscored text:

“The United States has taken important steps to ensure that our agreements are carefully crafted both to preserve governments’ right to regulate and minimize abuse of the ISDS process….In an effort to safeguard against potential abuses of ISDS, TPP will have state-of-the-art protections.  It will recognize the inherent right to regulate and to preserve the flexibility of the TPP Parties to protect legitimate public welfare objectives, such as public health, safety, the environment, and the conservation of living or non-living exhaustible natural resources.  The investment chapter will include carefully defined obligations and exceptions designed to ensure that nothing in the chapter impinges on legitimate regulation or provides foreign investors with greater substantive rights than those already available under U.S. law.  It will also reaffirm the right of any TPP government to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental, health, or other regulatory objectives.”

These arguments are correct in the sense that trade treaties create no agency, legal or otherwise, that can dictate to the sovereign governments that have signed them. The judges that participate in the dispute-resolution systems typically created by these agreements do not issue orders to these governments, and they certainly command no constabulary that can physically enforce their writs.

But what supporters of these deals leave out is that these tribunes can authorize member states to punish governments that fail to change adequately or eliminate laws and regulations that are found to interfere with trade. The punishments entail trade sanctions against the guilty country’s exports, and even in the case of the United States, they have been severe enough to prompt changes in the statutes in question. Indeed, Americans just got an object lesson when the World Trade Organization struck down U.S. regulations creating certain labeling requirements that identify beef as imported. Mr. Obama’s Agriculture Secretary, Tom Vilsack, urged Congress to change the law precisely to avoid reprisals that the WTO said could affect billions of dollars worth of American-made products.

But it’s impossible to avoid the conclusion that Washington has engaged in this double-talk for the simple reason that it works. Indeed, when the World Trade Organization itself was created, President Bill Clinton’s U.S. Trade Representative Mickey Kantor declared that “Nothing could be further from the truth” than the charge that the WTO’s authority would put American laws at risk. In fact, Kantor noted, “The first sentence of this [implementing] legislation {holds that] in any conflict between U.S. law and anything with the GATT or the Uruguay Round or the WTO, U.S. law prevails. Nothing done by the WTO or dispute settlement can alter or change any U.S. law. In fact, it says specifically in the Uruguay Round that you can maintain higher standards, as California does, under various California laws, including Prop 65, in terms of protection of human, animal or plant life. “

The Senate’s approval last week of fast track negotiating authority that makes TPP’s passage more likely indicates in part that the Executive Branch has “fooled it twice” on sovereignty. It’s now up to the House to show that American lawmakers still have a learning curve on trade and sovereignty.

Im-Politic: Mainstream Conservatives’ Sovereignty Concerns are Way too Selective

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American Enterprise Institute, Buy American, Constitution, COOL, Financial Stability Board, food safety, free trade agreements, G-20, Im-Politic, NAFTA, regulation, sovereignty, The Wall Street Journal, TPP, Trade, Trans-Pacific Partnership, Wall Street, World Trade Organization

Ever since the NAFTA negotiations launched the current era of U.S. trade policy 20 years ago, critics on both the left and right-wing fringes (and I’m not using the word pejoratively) of American politics have complained that many new trade deals have threatened American sovereignty. Joining this chorus over the years have been voices from the far right that have detected the same danger from international organizations like the United Nations. These critics, who typically finger one-world-er American officials as co-conspirators, invariably are dismissed by mainstream journalists and pundits as a paranoid “black helicopter crowd.”

So imagine how strange it is to see a member of the U.S. government’s Securities and Exchange Commission (SEC) co-author an op-ed for The Wall Street Journal claiming that Washington has secretly outsourced some key financial regulatory authority to a little-known international body called the Financial Stability Board (FSB). According to SEC Commissioner Daniel Gallagher and former senior Treasury Department official Peter Wallison, the Obama administration :

“has consistently moved to implement the FSB’s decisions without telling Congress, or the public, that it regards the FSB’s decisions as binding. There’s a reason for this lack of candor. Congress has never endorsed the idea that FSB decisions are binding on U.S. agencies. The FSB’s authority, if any, flows from the G-20 [a grouping of the world’s 20 biggest economies]. Allowing its decisions to dictate U.S. policy means that an American president can create authority to issue domestic regulations simply by making an agreement with the G-20 or other foreign leaders.”

The purpose of this post isn’t to evaluate whether Gallagher and Wallison are right in contending that “This is a dangerous precedent. The FSB’s decisions cover the financial system. But there is nothing to stop similar agreements about the environment, telecommunications and other crucial matters if the precedent is allowed to stand. The result would unravel the separation of powers and the role of Congress in the U.S. constitutional system.”

Rather, the point is to ask where these two, and other establishment conservatives, have been for the last two decades – during which nearly any American laws and regulations having any effect on U.S. trade flows have been vulnerable to the decisions of the World Trade Organization (WTO). And to wonder whether they will finally take off their blinders?

The WTO technically cannot strike down U.S. policy decisions. But it can bring about their elimination, and prevent their enactment, by authorizing countries claiming to be victimized by these measures to respond with tariffs versus American goods and services aimed at their markets.

Nor is this a theoretical possibility. For example, the WTO right now is ruling on whether Washington can require food producers to tell U.S. consumers whence their products come.  And its rules helped President Obama and the offshoring lobby defeat proposals to broaden the Buy American requirements governing federal purchasing policies – which would have greatly increased U.S. production of real world goods and services, and employment in those sectors, at the depths of the Great Recession, when they were desperately needed. (In fact, they still are.) Stronger and wider Buy American rules would have limited multinationals’ ability to supply the U.S. government from their foreign factories and other facilities – at U.S. taxpayer expense.

Moreover, other U.S. trade agreements have generated the same dangers, thanks to dispute-resolution systems that give all signatories equal say and votes, even though the American market is invariably the largest single national market at stake.

In principle, Washington’s submission to these global organizations is constitutional, because American membership and participation were expressly approved by Congress. But how many legislators do you suppose actually read the full texts? And how many do you suppose believed then-U.S. Trade Representative Mickey Kantor, who championed the WTO’s creation with a classic piece of Clinton-style parsing: “[T]he WTO does not require the United States to change any law, regulation at the federal or state or local level as the result of any decision made under this use — dispute settlement process. That’s up to the Congress or other legislative bodies, whether or not they wish to take that act. We’ve not given up any sovereignty in that regard.”

Now of course, President Obama is asking Congress to approve another major trade agreement – the Trans-Pacific Partnership (TPP) – that because of its sweeping regulatory scope arguably contains more threats to America’s sovereignty than the WTO. Yet both the Wall Street Journal editorial page staff that published the Wallison-Gallagher piece, and the American Enterprise Institute that employs Wallison, strongly favor TPP ratification. Which makes it hard to avoid concluding that they think it’s more important for the Constitution protect Wall Street than to protect American workers and the rest of the nation’s productive economy.