(What’s Left of) Our Economy: A Spot-On, if Belated, Warning About Experts

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conflicts of interest, economists, experts, Immigration, Mainstream Media, MSM, Robert Samuelson, The Washington Post, Trade, {What's Left of) Our Economy

If you’re a normal person – meaning someone who doesn’t follow the U.S. economy especially closely – you have no reason to care much about the news that long-time economics columnist Robert J. Samuelson announced his retirement this week. In fact, even though I follow the economy really closely, I don’t much care either about his departure as such, either.

Nonetheless, one point Samuelson made in his farewell piece in the Washington Post does deserve everyone’s attention, and that was the (reluctant) swipe he took at the character of economists. And this indictment presumably includes many of the discipline’s leading lights, because the observation was made in the context of his claim that they’ve taught him a lot, and because his position gave him regular access to so many of them.

But first, some full disclosure. I’ve dealt with Samuelson on a steady basis literally for decades, mainly because pundits like him have a powerful megaphone, and therefore convincing him that some finding made by me or one of my various colleagues was worth covering boosted the odds that policy makers would pay attention.

He’s been refreshingly respectful and reasonably open-minded, and occasionally took the bait. So I was grateful for that. Otherwise, he’s been a decidedly faithful transmitter of the national, and especially academic and think tank version of, economic policy conventional wisdom, including on trade policy. In that respect, I found him less impressive. The only exception that come to mind – he’s repeatedly, and quite emphatically, challenged the notion that the more immigrants the United States admits, legally or otherwise, the more prosperous the nation as a whole will be. (See, e.g.. here.)

As a result, although in his swan song Samuelson presented some major lessons he says he’s learned about the economy and life in general, they’re hardly gold mines of insight. But what he said about economists was a true shocker, and something to which everyone should pay attention – his fellow journalists first and foremost.

As implied above, Samuelson didn’t exactly relish being critical. For he began by insisting that “With some exceptions, most [of the economists in his Rolodex] are intelligent, informed, engaged and decent. In my experience, this truth spans the political spectrum.”

But in the very next sentences, he maintained that

“But it’s not the only truth. Another is this:  Economists consistently overstate how much they know about the economy and how easily they can influence it.  [Samuelson’s emphasis.] They maintain their political and corporate relevance by postulating pleasant policies.”

And a few column inches down, he added that “the quest for economic status and power pushes economists and their political sponsors toward exaggerated promises that lead to widespread public disappointment.”

In other words, according to Samuelson, the economists with whom he’s continually consulted (and who are mainstays for pretty much every other leading economic journalist and pundit you can think of) are generally nice people personally, but “consistently” they succumb to temptations to cast aside intellectual honesty. And the references to “political and corporate relevance” and “political sponsors” aren’t far from charges of outright corruption.

The 75-year old Samuelson closed this final column with an observation that hit particularly close to home for this 66-year old: “I am a man of the 20th century, but we are now facing the problems of the 21st century, which demand new policies and norms.”

I’m trying to keep up – how well I’m succeeding of course ultimately is up to you. But when it comes to identifying the need for new policies and norms, one area in which I think I’ve done a pretty good job has been pointing out that the economics and business press should do a much better job revealing the actual and potential conflicts of interests of the experts it repeatedly treats as dispassionate truth-seekers. (See, e.g., here.)

So it was gratifying to see someone as established as Samuelson reinforcing this case, however implicitly – even if he waited till he was walking out the door.

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(What’s Left of) Our Economy: Trade Myths That…Aren’t

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chemicals, China, competitiveness, consumer electronics, Employment, gross domestic product, inflation-adjusted growth, machinery, Matt O'Brien, recovery, Robert Samuelson, Trade, Trade Deficits, U.S. International Trade Commission, Washington Post, {What's Left of) Our Economy

To say it’s been a bad week at the Washington Post for trade policy coverage and commentary would be a gross understatement. As I pointed out over the weekend, columnist Colbert King on Sunday tried to sell the contemptible idea that many critics of job- and wage-killing American immigration and even trade policies are motivated by racism. Yesterday, no one at the Post sank nearly that low, but the economic ignorance put on full display by two of its leading lights was nearly as depressing.

First came the latest offering by economics columnist Robert Samuelson, describing as “myths” the claims that “Persistent U.S. trade deficits reflect recent free trade agreements” and that “The large trade deficit ($540 billion in 2015) is an important cause of the U.S. economy’s slow growth.”

It seems that Samuelson isn’t familiar with the Census Bureau’s data on America’s non-petroleum goods trade flows. These measure imports and export flows that strip out oil trade (which hasn’t been an issue in trade negotiations and, until recently, in any aspect of trade policy) and services trade (where trade agreements have made only modest liberalization progress.)

As a result, these non-petroleum numbers present the trade flows that are heavily influenced by not only trade deals but by related policy decisions like dealing (or ignoring) currency manipulation. And the Census data show that since the onset of the recovery, it’s up from As made clear by my new article for Marketwatch.com, it jumped from $263.78 billion after inflation on an annualized basis to $681.74 billion in the fourth quarter of last year.

Early in his article, Samuelson attributes this trend to the dollar’s existential strength, but in his conclusion, he also blames policy mistakes – specifically, Washington’s failure to “police” currency manipulation and illegal subsidies. So it seems that this myth is far from mythical.

And as made clear by my Marketwatch.com piece, this strong recovery-era non-oil trade deficit rebound has slowed the growth rate of the current sluggish expansion by more than $400 billion in inflation-adjusted terms. The absolute numbers involved, as suggested by Samuelson, are indeed smallish compared with the size of the U.S. economy (currently $16.46 trillion in constant dollars).

But in calculating the trade deficit’s impact on growth, that’s not the number that counts. What matters is the growth itself, which since the recovery began in the middle of 2009 has been a bit less than $2.1 trillion. So that $400-plus billion trade deficit growth figure amounts to a nearly 20 percent slice – which sure sounds like it deserves adjectives bigger than the “modest” used by Samuelson. In fact, had the real non-oil goods deficit simply remained stable during the recovery, last year’s American inflation-adjusted growth would have been just over three percent, not just under 2.40 percent. That rate of expansion – the U.S. post-World War II norm – hasn’t been achieved in a decade.

Comparably uninformed was Matt O’Brien’s post the same day contending that the threat China’s economic rise has posed to American employment and wages “is slowly starting to go away.” O’Brien cites by-now familiar claims that China’s cost advantage over the United States is quickly vanishing, largely because the PRC ostensibly faces a labor shortage after decades of glut.

I’ve already poked numerous holes in the “overpriced China” meme; if you’re curious, start with this post. But what’s also missed by O’Brien – and so many others – is the threat posed by surging Chinese competitiveness in capital- and technology-intensive industries where labor costs by definition are secondary. It’s easy to measure this rising competitiveness by examining the detailed U.S.-China trade data put out by the U.S. International Trade Commission. And for numbers showing astonishing catch-up – and more – there’s no need to go back to 2001, when China was admitted to the World Trade Organization. Even developments since 2009, the start of the current American recovery, have been stunning.

Here are how America’s trade balances with China in major advanced manufacturing industries have worsened from that point through the end of last year in pre-inflation dollars):

telecommunications equipment: 160.68 percent

farm machinery and equipment: 65.32 percent

construction equipment: $33 million surplus to $953 million deficit

search, detection and navigation instruments: 65.82 percent

semiconductors: 407.85 percent

iron and steel: 34.50 percent

relays and industrial controls: 182.42 percent

ball and roller bearings: 265.62 percent

turbines and turbine generator sets: 62.41 percent

electro-medical equipment: 313.40 percent

metal-cutting machine tools: $118.71 million surplus to $3.68 million deficit

plastics materials and resins: 20.87 percent

And P.S. to O’Brien: These sectors remain very important American employers.

Not that encouraging data is lacking. Here, for example, are some representative high value manufacturing sectors where the U.S. trade balance with China improved between 2009 and 2015, and the size of the improvement:

semiconductor manufacturing equipment: 297.66 percent

pharmaceutical preparation: 483,530 percent (not a misprint!)

analytical laboratory instruments: 106.18 percent

electricity measuring and testing devices: 528.43 percent

surgical and medical instruments: $90.44 million deficit to $248.80 million surplus

metal-forming machine tools: 75.68 percent

aerospace: 195.10 percent

One further problem, though, is that with the prominent exception of aerospace, the trade numbers of the worsening sectors are much bigger than those of the improving sectors. So surely the employment numbers are bigger, too.

Indeed, if you move out to broader manufacturing groupings, you find rapidly deteriorating American competitiveness in areas far removed from widely acknowledged Chinese areas of advantage like smart phones and other consumer electronics products, as well as electronics components. For instance, in non-electrical machinery, the U.S. bilateral deficit has risen by nearly 147 percent since 2009, and in chemicals, a $2-plus billion surplus is now a $468 million deficit. Curiously, the former have been described in the Wall Street Journal as “global champions” and the latter was thought destined for a huge competitiveness boost from cratering prices for natural gas, a key feedstock.

There may of course still be plenty of facts and figures to marshal on behalf of the case that American workers and voters have little to fear from and lots of reasons to support current trade policies. But if these two Post pieces are any indication, supporters of these strategies will need to work much harder to find them.

(What’s Left of) Our Economy: A Blame-the-Victim Theory of Trade Policy

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consumers, free trade, free trade agreements, lobbying, Mancur Olson, manufacturing, multinational corporations, productivity, retailers, Robert Samuelson, special interests, trade policy, Wall Street

Nationally syndicated economics columnist Robert Samuelson deserves a nice hand for identifying a possible cause for America’s pronounced productivity slowdown that’s been generally overlooked: the relentlessly growing power in national politics and policy of special interest groups. In a column earlier this week, he drew on the ground-breaking analysis of the late Mancur Olson to argue that the numerous successes achieved by smallish but narrowly focused and highly motivated lobbies in securing specialized favors for themselves from government have encouraged countless other interests to pursue the same strategies. The net effect is to diminish the total resources expended by the economy on production, and to increase the resources used for winning and keeping economically unproductive privileges.

I have several big problems with Samuelson’s discussion, though – and in fact with some of the leading examples used by Olson – and they all involve trade policy.

As Samuelson explains it, companies and workers pressing for protection from imports show exactly how the system now functions – and malfunctions. A winning campaign “saves jobs and raises prices and profits. But consumers — who pay the higher prices — don’t create a counter-lobby, because it’s too much trouble and the higher prices are diluted among many individual consumers. Gains are concentrated, losses dispersed.”

The problem is that, however compelling this sounds in theory, at least when it comes to trade policy, it produces a picture that is simply unrecognizable to anyone with any real familiarity with the subject. Perhaps the most important flaw is the implicit assumption that the freest possible trade always results in the best possible outcomes for the greatest number of Americans – and indeed for the economy as a whole – while calls for interfering with such trade flows always result from special interest pleading.

That’s a tough argument to make when you consider that the relentlessly rising trade deficits generated by the standard free trade approach have slowed the growth of this already sluggish recovery considerably. It’s even tough to make given that the income losses that can be blamed on this trade strategy – which were extremely broad-based – spurred Washington to fill the gap with easy money and the mammoth debt it brought, helping to trigger the financial crisis.

The big-small actor aspect of Olson’s theory doesn’t hold up, either in the trade policy sphere. For decades, the biggest winners by far in the nation’s leading trade policy fights have been big, offshoring-oriented multinational corporations and the often bigger Big Box retailers and Wall Street banks with which they’ve worked fist in glove. The ranks of smaller manufacturers were split, but those opposed to free trade agreements and related decisions were most often defeated. And the smaller companies that did indeed seek to throw sand in the fears of trade liberalization in fact were actually the ones trying to promote broader economic and national interests.

And the smaller retailers and other small service companies not directly affected by trade liberalization generally sided with the corporate giants – in order to win a few easy brownie and lobbying log-rolling points with them (as in “You scratch my back and I’ll scratch yours.”) So they were acting first and foremost on their own narrow interests as well.

As for consumers, who supposedly benefited from those lower prices, they have indeed been pretty disengaged from trade policy disputes. But their apathy powerfully enabled decisions that wound up backfiring on tens of millions of them disastrously, as the crisis increasingly cost them their jobs and their homes. So the Olson theory holds up in the sense that the gains from winning trade positions were highly concentrated – they overwhelmingly benefited the limited constituencies that worked so energetically and effectively to prevail. And the losses were indeed dispersed – among workers and especially among apathetic consumers. The results, however, so damaged the entire economy that its ability to recover fully remains in doubt.

There’s an especially crucial productivity angle that needs to be recognized as well: Surely one of the most effective ways to undermine an economy’s productivity growth is to send much of its most historically productive sector – manufacturing – overseas. So in that sense, the political and lobbying dynamics highlighted by Olson have backfired against the broad national interest as well.

In addition, these trends fed on themselves in a widely unrecognized way: The smaller domestic manufacturing’s physical footprint became, in terms of its share of the workforce and of economic activity, the fewer Americans directly experienced the damage caused by its shrinkage – and the clearer the path to victory for the offshoring/trade liberalization lobby. The latter also benefited from the increased concentration of manufacturing in smaller cities and towns and semi-rural areas. So factories and their workers literally became harder for the rest of the population literally to see and interact with.

Since I’m much less familiar with the lobbying and politics of numerous other economic issues, I don’t feel comfortable commenting on how well the Olson theory describes their workings. But if its tenets are as off-base in these areas as they are in trade policy, it’s easy to see how these ideas would be prized by business, political, and media elites with such a strong stake in blaming the victims for their own grievous policy blunders.

(What’s Left of) Our Economy: Why Increasingly Disposable Workers Become Increasingly Wary Consumers

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benefits, bubbles, consumers, debt, Employment, Federal Reserve, growth, incomes, Jobs, JPMorgan Chase, Robert Samuelson, salaries, savings, savings rate, spending, temporary jobs, volatility, wages, {What's Left of) Our Economy

After his last clunker attempting to debunk claims of a U.S. employment recovery led by lousy jobs, Washington Post columnist Robert Samuelson owed us a good piece. I’m pleased to say he’s delivered with this morning’s effort examining the roots of the consumer caution witnessed since the Great Recession ended.

First, however, let’s specify that “caution” is a relative concept here. Yes, Americans are spending much less of their income these days than they did during the bubble decade – when it hit all-time lows. In fact, in July, 2005, the personal savings rate, which measures that relationship, sank to 1.9 percent, and some news reports back in those days said that it actually went negative that whole year (though it seems that figure has been revised). All the same, even the 1.9 percent figure showing up in the government’s tables now is much lower than the 5.6 percent for last month reported this morning by the Commerce Department.

Yet although it’s clear that savings have been growing on a monthly basis since late 2013, they’re still not close to their highs earlier in the recovery, when the rate regularly hit high single digits. And for decades until the last massive spending and housing bubble, high single-digit savings rates were the American norm.  In other words, the nation knew how to expand the economy in ways other than launching shopping sprees.

Nonetheless, since U.S. growth is still so spending-heavy, any sign of slackening is at least a short-term cause for concern. And Samuelson’s column today presented a great explanation. On top of still being burdened by accumulated debts and understandably gun-shy after the worst economic downturn since the Great Depression, Americans are facing a labor market in which employers increasingly treat them as more disposable than ever before. Principally, more and more businesses are looking at their employees as variable costs, which they can and should reduce whenever possible even in normal times to boost profits, rather than as fixed costs, which they’re stuck with except when economic conditions worsen significantly.

The resulting move toward using temporary workers has lowered employers’ costs both by giving them more flexibility and by enabling them to use more workers who can’t command significant benefits. But as Samuelson observes, these trends also creates much more economic insecurity for those workers, and logically a greater reluctance to spend.

In addition, Samuelson points out, this insecurity is being reinforced by ever more flexible compensation practices. Fewer and fewer workers are earning wages and salaries that are regularly and predictably increased (when possible via some combination of their bargaining power and their employers’ finances). Compensation increases that are handed out increasingly consist of various one-time payments that don’t need to be added to base wage and salary structures, and therefore can be withdrawn at the drop of a hat.

I’d just add two points. First, it looks very much like increasingly flexible employment and pay practices by business are showing up in statistics on how much Americans are earning. According to a recent major study from JPMorgan Chase, between October, 2012 and December of last year, 84 percent of Americans saw their incomes change by more than five percent month-to-month. Even year-to-year, when smaller fluctuations would be the norm, 70 percent of Americans still experienced such large income swings.

Even more noteworthy, 26 percent of the 2.5 million Americans examined by JPMorgan Chase saw their incomes rise or fall (mainly rise, fortunately) by more than 30 percent between 2013 and 2014. Forty-four percent experienced swings of between five and 30 percent. And this volatility was somewhat greater among higher income Americans than among lower.

Second, although U.S. businesses may see their workers are increasingly disposable, the American economy can’t afford nowadays to see consumers – most of whom are workers – in this dismissive light. Indeed, as I’ve just written, personal consumption is just about as great a share of the economy these days as it was during the bubble decade.

Combine an economy that remains consumption-heavy with income sources that are becoming less and less reliable, and it’s no mystery why what meager growth the nation can still generate remains so greatly fueled by ever greater indebtedness – and why the Federal Reserve is so reluctant to end America’s addiction to easy money.

(What’s Left of) Our Economy: This Isn’t a Low-Wage Recovery – If You Use a Low Bar

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Employment, Great Recession, Jobs, Labor Force Participation Rate, productivity, recovery, Robert Samuelson, wages, {What's Left of) Our Economy

Given all the economic subjects syndicated columnist Robert Samuelson could be outraged about, the claim that the current U.S. recovery is creating mainly low-wage jobs seems a strange choice. In his May 20 column,  he writes emphatically, “It turns out that this is wildly misleading and that the economy’s employment profile — the split between high- and low-paying jobs — hasn’t changed much since the recession or, indeed, the turn of the century.”

Even if you look at the numbers more closely than the recent research cited by Samuelson, you find that he’s correct – but only in the most technical sort of way. Much more important, though, a detailed examination of wage data shows that low-wage jobs represent a share of total U.S. employment with which no one should be happy, and that this percentage has been growing steadily over time. Moreover, this increase is especially disturbing considering some other labor force developments that have hardly been secrets.

Samuelson reports that he asked Elise Gould of the progressive Economic Policy Institute to “examine whether the recession has shifted the economy’s job distribution.” Her main finding: Hardly at all. According to Gould, in 2000, low-wage jobs (those that paid less than today’s average wage of $25 per hour, made up 24.4 percent of American workers. In 2007, the year the recession officially began (at the very end), this figure had risen to only 25 percent. And this year’s latest numbers show it only increasing to 25.7 percent. So the trend is going the wrong way, but as Samuelson emphasizes, “It’s striking how little has changed.” Moreover, he rightly observes that the recession can’t be the only cause.

To his credit, Samuelson mentions another economist who comes up with considerably larger absolute numbers for the low-wage share of total jobs (about 40 percent) but who contends that their increase has been “somewhat greater.”

I was pretty confident that Gould’s figures for absolute levels of low-wage employment were too low mainly because the categories she examined were too broad. As I’ve pointed out, even super-categories like “professional and business services,” which overall pays better than average, contains a large share of low-paid workers (in its case, 43 percent as of the latest – April – Labor Department monthly jobs report). I also suspected that much the same held for health-care services, which Gould and Samuelson regard as middle-wage.

When I ran my own numbers, breaking out some of the obvious low-wage sectors of health-care services (like home health-care aides), I did get higher absolute numbers of low-wage jobs than Gould – 36.55 percent of private sector workers as of April. But I was surprised to find that this share hadn’t risen much over the last few economic cycles.

In December, 2001, when the previous decade’s economic expansion began, low-wage workers comprised 34.38 percent of all private sector workers. By November, 2007, when that (bubble-y) expansion officially ended, percentage had actually dipped to 34.33 percent. When this recovery began, it stood at 35.50 percent. And by this April, low-wage workers represented 36.55 percent of the private sector workforce.

My numbers, therefore, also indicate that the current recovery has indeed seen outsized employment growth in low-wage industries, but that this problem has not gotten significantly worse.

So what’s the problem? I can think of two big ones, neither of which should have escaped Samuelson’s notice . First, since the Great Recession struck, American workers have been dropping out of the workforce like flies. As widely noted, the Labor Force Participation Rate – the share of Americans either employed or actively looking for work – fell sharply during the downturn and through the recovery, and now stands at near-four-decade lows.

Although that’s just as widely – and correctly – seen as economically damaging, one logical byproduct should be a greater share of Americans holding better jobs. Unless we really think that most of those who have exited the labor force are enjoying cushy retirements? As a result, even the modest rise that’s been witnessed in the low-wage share of total private sector jobs should be alarming given how few Americans relatively speaking are still working.

Second, a large, growing (even modestly) share of U.S. workers in low-paying jobs would make sense in an economy with strongly growing productivity. In principle, the better-paying sectors, which tend to be the most productive, would see their job gains at least restrained by dint of being able to generate ever more output with ever smaller payrolls. But America’s labor productivity (the type of productivity for which we have the timeliest data) has been growing weakly throughout the current recovery, and has actually fallen for the two straight quarters. 

Moreover, even the traditionally high productivity manufacturing sector has been faring poorly lately in this critical respect – meaning that if its output keeps expanding (which has been the case), its employment increases should be especially robust. Yet job-creation in the low-wage sectors – which tend to be low-productivity, too – continues to outperform.

So let’s give a cheer-and-a half to Samuelson for dispelling the belief that America has lost the ability to create meaningful numbers of jobs that don’t involve asking “May I take your order?” or something similar. But as a result, we’re entitled to ask why he – and others – aren’t investigating why these jobs remain so prevalent, especially when so many other economic indicators tell us that the labor market should be looking much healthier.

(What’s Left of) Our Economy: The Laughable Claim of No Alternative to (This) TPP

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currency manipulation, economic growth, environmental standards, geopolitics, gross domestic product, intellectual property, labor standards, Robert Samuelson, TPP, Trade, Trans-Pacific Partnership, {What's Left of) Our Economy

Only in 21^st century America could a leading pundit who is not brain dead look at a policy that’s completely failed and dare those criticizing similar measures to explain, “Compared to what?”

Of course, I’m talking about Washington Post columnist Robert Samuelson’s article this morning on President Obama’s proposed Trans-Pacific Partnership (TPP) trade agreement. The record plainly shows that trade flows shaped by the deals on which this planned pact is based, and similar trade policies, have cut U.S. economic growth by nearly 16 percent in real terms during the current – historically feeble – economic recovery. So I guess Samuelson hasn’t heard of the maxim, “First, do no harm.”

In addition, the author inexplicably overlooks the current TPP debate both inside and outside Congress – which centers not on killing the agreement completely, but on adding measures the critics believe will improve it. So his question “Compared to what?” is easily answered by pointing to proposals to strengthen TPP’s labor and environment provisions, add enforceable curbs on currency manipulation, and change or eliminate a host of controversial new non-trade rules covering intellectual property rights, legal relations between business and government, and many other issues. It’s legitimate to debate the wisdom of these ideas. It’s completely bogus to pretend that they don’t exist.

Unless Samuelson is neglecting these recommendations because he’s one of those viewing them as ploys whose only purpose is killing the chances of any agreement? Leave aside the inconvenient truth that confidence in this position logically requires clairvoyant abilities denied to most of our species. We’re still left with the question of why the United States shouldn’t be able to secure these changes to TPP.

After all, as I’ve demonstrated, America’s economy represents nearly two-thirds of the output of the initial TPP zone, it’s growing faster than those of most other TPP countries, and even those TPP countries with relatively high growth rates depend heavily on selling to the United States to sustain their expansions. A negotiator who can’t exploit this leverage – and in fact, win special enforcement authority for Washington – should be fired for incompetence.

In fact, these obvious points could explain why Samuelson spent so much of his column on the supposed geopolitical case for TPP (which is transparently silly in its own right, since the China whose rise TPP is supposed to counter has already attracted most of the prospective TPP members into its own infrastructure bank). He knows the economic arguments are losers.