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Saturday, October 19, 2019

China’s Liu Confirms Phase One of U.S. Trade Deal is in Progress [feedly]

Looks like Trump has made some concessions.....we will see.

China's Liu Confirms Phase One of U.S. Trade Deal is in Progress

China's top trade negotiator offered positive signals that talks with the U.S. are making progress and both sides are working toward a partial trade deal.

"China and the U.S. have made substantial progress in many aspects, and laid an important foundation for a phase one agreement," Vice Premier Liu He said at a technology conference in Nanchang, Jiangxi, on Saturday. He reiterated that China is "willing to work in concert with the U.S. to address each other's core concerns on the basis of equality and mutual respect."

The comments come as the U.S. and China work toward getting some sort of agreement ready for presidents Donald Trump and Xi Jinping to sign at the Asia-Pacific Economic Cooperation summit next month in Chile. The U.S. has said China will buy as much as $50 billion in U.S. agricultural goods in exchange for the suspension of additional tariffs, though Bloomberg has reported that the Chinese want more talks and would need existing tariffs rolled back in order to reach that amount of imports.

Read More: China Ties Agriculture Binge to Trump Reducing U.S. Tariffs

The "phase one" deal described by Washington may not address many of the larger issues that initiated the trade war which has dragged on for more than a year, such as forced technology transfers and industrial subsidies. The White House is also looking at rolling out a previously agreed currency pact with China, people familiar said earlier. The agreement would be similar to commitments China has already made in accordance with International Monetary Fund standards, they said.

Liu did not address any specifics in his speech, though he reiterated that China would boost intellectual property protection, especially for small and medium enterprises.

U.S. Treasury Secretary Steven Mnuchin said that lower-level talks would take place by phone this week. Chinese officials are working on the text of an agreement on trade in close contact with U.S. negotiators, and have begun discussions on the next stage, Ministry of Commerce spokesman Gao Feng said on Thursday.

China's economic growth slowed further to 6% in the third quarter, according to data released on Friday, increasing pressure on Beijing to put an end to the trade conflict. With a drop-off in exports to the U.S. expected to continue as long as tariffs remain, the economy is likely to keep struggling as deflationary pressures hit company profits.

China is targeting 6% to 6.5% gross domestic product growth this year. Liu said the fundamentals of China's economy remain unchanged, even as it goes through a significant re-balancing, and the nation is "confident" of reaching its economic targets.

 -- via my feedly newsfeed

Friday, October 18, 2019

Krugman: Democrats, Avoid the Robot Rabbit Hole [feedly]

Provocative post on automation from PK

Democrats, Avoid the Robot Rabbit Hole

Paul Krugman


One of the less discussed parts of Tuesday's Democratic debate was the exchange that took place over automation and how to deal with it. But it's worth focusing on that exchange, because it was interesting — by which I mean depressing. CNN's Erin Burnett, one of the moderators, asked a bad question, and the debaters by and large — with the perhaps surprising exception of Bernie Sanders — gave pretty bad answers.

So let me make a plea to the Democrats: Please don't go down the robot rabbit hole.

Burnett declared that a recent study shows that "about a quarter of U.S. jobs could be lost to automation in just the next 10 years." What the study actually says is less alarming: It finds that a quarter of U.S. jobs will face "high exposure to automation over the next several decades."

But if you think even that sounds bad, ask yourself the following question: When, in modern history, has something like that statement not been true?

After all, in the late 1940s America had about seven million farmers and around 12 million production workers in manufacturing. Machinery could and did take over much of the work those Americans were doing — and people at the time wondered where the new jobs would come from. If you think that concerns about automation are somehow new, bear in mind that Kurt Vonnegut's novel "Player Piano," envisioning a dystopian future in which machines have taken away all the jobs, was published in … 1952.

Yet the generation that followed was a golden age for American workers, who saw dramatic increases in their income, with many entering a rapidly growing middle class.

You might say that this time is different, because the pace of technological change is so much faster. But that's not what the data say. On the contrary, worker productivity — which is how we measure the extent to which workers are being replaced by machines — has lately been growing much more slowly than in the past; it rose less than half as much from 2007 to 2018 as it did over the previous 11 years.

Which makes you wonder what Andrew Yang is talking about. Yang has based his whole campaign on the premise that automation is destroying jobs en masse and that the answer is to give everyone a stipend — one that would fall far short of what decent jobs pay. As far as I can tell, he's offering an inadequate solution to an imaginary problem, which is in a way kind of impressive.

Let me also give a shout-out to Joe Biden, who echoed Yang's talk about a "fourth industrial revolution." More on that in a minute.

[For an even deeper look at what's on Paul Krugman's mind, sign up for his weekly newsletter.]

Elizabeth Warren questioned Burnett's premise, saying that the principal reason we're losing jobs is trade policy that has encouraged jobs to move overseas. This claim was slammed by the fact-checkers at The Associated Press, who declared that automation was the "primary culprit" in manufacturing job loss between 2000 and 2010. As it happens, Warren was more right than the supposed fact-checkers; reasonable estimates say that trade was responsible for a large share of manufacturing job loss in the decade before the Great Recession.

Warren was surely wrong to suggest, however, that changing trade policy would do much to bring good jobs back. She got onto much sounder footing when she moved on to her wider agenda of tackling inequality and the power of the wealthy.

The best answer, as I said, came from Sanders. No, I don't support his proposed job guarantee, which probably isn't workable. But he was right to say that there's plenty of work to do in America, and right to call for large-scale public investment, which even mainstream economists have been advocating as a response to persistent economic weakness.

Why? Because the persistent weakness — yes, we have low unemployment at the moment, but thanks only to extremely low interest rates, and we're very poorly prepared for the next recession — isn't about automation; it's about inadequate private spending.

So what's with the fixation on automation? It may be inevitable that many tech guys like Yang believe that what they and their friends are doing is epochal, unprecedented and changes everything, even if history begs to differ. But more broadly, as I've argued in the past, for a significant part of the political and media establishment, robot-talk — i.e., technological determinism — is in effect a diversionary tactic.

That is, blaming robots for our problems is both an easy way to sound trendy and forward-looking (hence Biden talking about the fourth industrial revolution) and an excuse for not supporting policies that would address the real causes of weak growth and soaring inequality.

So harping on the dangers of automation, while it may sound tough-minded, is in practice a sort of escapist fantasy for centrists who don't want to confront truly hard questions. And progressives like Warren and Sanders who reject technological determinism and face up to the political roots of our problems are, on this issue at least, the actual hardheaded realists in the room.

Other Democrats should follow their lead. They should focus on the real issues, and not get sidetracked by the pseudo-issue of automation.

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Paul Krugman has been an Opinion columnist since 2000 and is also a Distinguished Professor at the City University of New York Graduate Center. He won the 2008 Nobel Memorial Prize in Economic Sciences for his work on international trade and economic geography. @PaulKrugman
 -- via my feedly newsfeed

Wednesday, October 16, 2019

Piketty: Towards a circular economy [feedly]

A  compelling graphic picture of the real story behind growth and progressive taxation....and a discomforting correlation that confirm "long wavers" theories about tech financial cycles deeper than supply and demand in capitalism.

Thomas Piketty: Towards a circular economy

The idea of the circular economy frequently brings to mind issues of recycling waste and materials and making moderate use of natural resources. But if a new system is to emerge which is sustainable and equitable the whole economic model will have to be re-thought. With the differences in wealth which exist at the moment, no ecological ambition is possible.  Energy saving can only come from economic and social restraint and not from excessive fortunes and life-syles. We will have to construct new norms of social, educational, fiscal and climate justice through democratic discussion. These norms will have to say no to the present hyper concentration of economic power. On the contrary, the economy of the 21st century must be based on the permanent circulation of power, wealth and knowledge.

It is the spread of property ownership and education which enabled social and human progress to become a reality in the 20th century. A powerful movement of reduction in social inequality and increased mobility  (the first intellectual signs of which were already visible in the 18th and 19th centuries) gained momentum from 1900-1910 and into the years 1970-1980, thanks to an unprecedented level of investment in education. A new equilibrium was established with the rights of shareholders being matched by those of the wage-earners (particularly in Northern Europe) – the circulation of incomes and wealth was accompanied by progressive taxation (in particular in the USA), and so on.

This movement was interrupted in the decade 1980-1990 following the change in direction in the wake of the post-communist disillusion and lapse into the Reagan approach. Post-communism then became hyper-capitalism's best ally. Natural resources were over-exploited and privatised to the advantage of a minority, legal systems were systematically circumvented via fiscal paradises, any form of progressive taxation was completely eliminated. In Poutine's Russia, income tax is 13% whether your income is 1000 roubles or one billion roubles. The same excesses can be seen in China, where those close to those in power, have carved out empires for themselves which they transmit to their heirs with no inheritance tax. Hong Kong is thus an astonishing example of a country which has become even more unequal b submitting to the authority of a supposedly communist regime.

The Reagan approach in the 1980s was less radical: it lowered the rate of taxation applied to the wealthiest from 70% to 30%. Reagan intended to put an end to what he exposed as excessive redistribution and egalitarianism resulting from the New Deal and which, in his opinion, had weakened America's entrepreneurial spirit and anti-communist crusade. By liberating the energies of the entrepreneur, Reagan promised a new phase of unprecedented growth. Of course, the inequalities were going to increase, the number of millionaires would rise and they would be wealthier but all that would provide a degree of innovation which would benefit the masses meaning that everyone would gain thereby. In fact, the hold of billionaires over the American economy has grown considerably since the 1980s, with a concentration of property in the approaching the levels witnessed in Europe at the beginning of the 20th century.

The problem is that the dynamic increase in growth has not taken place: the national per capita income has witnessed its progression divided by two (2.2% per annum between 1980 and 1990, 1.1% between 1990 and 2020). Salaries have stagnated and a growing percentage of the population are beginning to doubt the benefits of globalisation. The hardening of Trump's nationalism is directly linked to this failure in Reaganism: since economic liberalism is not enough, the Mexicans and the Chinese are now accused of stealing the hard labour of white America.

In reality, the failure of Reaganism mainly demonstrates that the hyper-concentration of property and power does not correspond to the requirements of a modern and circular economy. It is not because a person has made a fortune at the age of  30 that they should continue to concentrate power as a shareholder at the age of 50, 70 or 90 years. The decrease in growth is also explained by a worrying stagnation in educational investment since the 1990s as well as by the immense inequalities in access to education and training in both the United States and in Europe.

The challenge of global warming and the international awareness of the growing inequalities do act as leverage for change but we are still far from the goal. The OECD projects for the taxation of the profits of multinationals only concerns a small fraction of the latter and the scale of the contribution proposed is much more favourable to the rich countries than to the poor ones (as is demonstrated by the work of ICRICT. The Triumph of  Injustice, a book published this week in the United States by Emmanuel Saez and Gabriel Zucman, demonstrates that there are more ambitious solutions  with the key element being financial transparency and the return to fiscal progressivity in order to finance health and education for all, and the ecological transition.  The success of these ideas amongst the American democrats (in particular Warren and Sanders) does allow for optimism.

But Europe cannot simply stand by and wait for change to come from America. If we are to go beyond merely taking a stance, and finally give substance to the Green New Deal, it is urgent that strong measures for social and fiscal justice be taken in Europe. This may also be the price to pay for the hope of bringing the British Labour Party back into the European orbit and avoiding a disastrous Conservative victory in the forthcoming elections. Thirty years after the fall of the Berlin Wall, it is time for the march towards equality, the circular economy and participatory socialism to get back on track.

 -- via my feedly newsfeed

IMF: The World Economy: Synchronized Slowdown, Precarious Outlook [feedly]

IMF Cuts growth estimates  from declines in mfg and trade.

The World Economy: Synchronized Slowdown, Precarious Outlook

 -- via my feedly newsfeed

Branko Milanovic: Why it is Not the Crisis of Capitalism [feedly]

Why it is Not the Crisis of Capitalism
Branko Milanovic ( ) is a bit like the Eeyore of the economist Left.  He is conversant with the classics of socialism, and a heavy hitter in the world of real policy and real inequality as well. Compared to some on the Left, however, he is not impressed with the "anti-capitalist", "crisis of capitalism" screeds. Below is his slightly downer (for some) take on what exactly is, and is not, in crisis.  One might lighten the downer the downer effect by amending the apparently objective and external expansion of capitalist relations with the different but nonetheless compelling examples of Norway and China as arguments for "socialist-led" over "billionaire led" market relations. :)

Branko Milanovic on why the 'crisis of capitalism' is really about its own rapid expansion. 
There has recently been an avalanche of articles and books about the ¨crisis of capitalism" predicting its demise or depassement. For those old enough to remember the 1990s, there is a strange similarity with the then literature arguing that the Hegelian end of history has arrived. The latter literature was proven wrong. The former, I believe, is factually wrong and misdiagnoses the problem.
The facts show not the crisis, but on the contrary, the greatest strength of capitalism ever, both in terms of its geographical span and the expansion to the areas (like leisure time, or social media) where it has created entirely new markets and commodified things that historically were never objects of transaction.
Geographically, capitalism is now the dominant (or even the only) mode of production all over the world whether in Sweden where the private sector employs more than 70% the labor force, the United States where it employs 85% or in China where the (capitalistically-organized) private sector produces 80% of the value added.[1] This was obviously not the case before the fall of communism in Eastern Europe and Russia, nor before China embarked on what is euphemistically called "transformation" but was in reality replacement of socialism by capitalist relations of productions.
In addition, thanks to globalization and technological revolutions, a number od new, hitherto non-existent markets have been created: a huge market for personal data, rental markets for own cars and homes (neither of which was capital until Uber, Lyft, Airbnb etc. were created), market for housing of self-employed individuals (which did not exist before WeWork) and a number of other markets such as those for taking care of the elderly, of children, or pets, market for cooking and delivery of food, market for shopping chores etc.
The social importance of these new markets is that they create new capital, and by placing a price on things that had none before transform mere goods (use-value) into commodities (exchange value). This capitalist expansion is not fundamentally different from the expansion of capitalism in the 18th and 19th century Europe, the one discussed both by Adam Smith and Karl Marx. Once new markets are created, there is a shadow value placed on all these goods or activities. This does not mean that we would all immediately run to rent our homes or drive our cars as taxis, but it means that we are aware of the financial loss that we make by not doing so. For many of us, once the price is right (whether because our circumstances change or the relative price increases), we shall join the new markets and thus reinforce them.
These new markets are fragmented, in the sense that they seldom requite a sustained full-day of work. Thus commodification goes together with gig economy. In a gig economy we are both suppliers of services (we can deliver pizza in the afternoons), and purchasers of many services that used to be non-monetized (the already mentioned: cleaning, cooking, nursing). This in turn makes it possible for individuals to satisfy all their needs on  the market and in the longer term raises big issues such as the usefulness and survival of the family.
But if capitalism has spread so much in all directions, why do we speak of its crisis? Because the malaise which is limited to rich Western countries is supposed to afflict the entire world. But this is not the case. And the reason why this is not the case is because the Western malaise is the product of uneven distribution of the gains from globalization, an outcome not dissimilar to what happened in the 19th century globalization when the gains were however disproportionally reaped by the Europeans.
When this new bout of globalization began, it was politically "sold" in the West, especially as it came on the heels of "the end of history", on the premise that it will benefit disproportionately rich countries and their populations. The outcome was the opposite. It benefited especially Asia, populous countries like China, India, Vietnam, Indonesia. It is the gap between the expectations entertained by the Western middle classes and their low income growth, as well as their slide in the global income position, that fuels dissatisfaction with globalization. This is wrongly diagnosed as dissatisfaction with capitalism.
There is also another issue. The expansion of market-like approach to societies in all (or almost all) of their activities, which is indeed a feature of advanced capitalism, has also transformed politics into a business activity. In principle, politics, no more than our leisure time, was not regarded as an area of market transaction. But both have become so. This has made politics more corrupt. It is now considered like any other activity, where even if one does not engage in explicit corruption during his political tenure, one uses the connections and knowledge acquired in politics to make money afterwards. That type of commodification has created widespread cynicism and disenchantment with mainstream politics and politicians.
Thus the crisis is not of capitalism per se, but is the crisis brought about by the uneven effects of globalization and by capitalist expansion to the areas that were traditionally not considered apt for commercialization. In other words, capitalism has become too powerful and has in some cases come into collision with strongly held beliefs. It will either continue with its conquest of more, yet non-commercialized, spheres, or it would have to be controlled and its "field of action" reduced to what it used to be. 

 -- via my feedly newsfeed

Tuesday, October 15, 2019

Dean Baker: Trump Has Been Giving Up Ground in His Much-Vaunted "Trade War" [feedly]

Trump Has Been Giving Up Ground in His Much-Vaunted "Trade War"

Dean Baker
Truthout, October 14, 2019

See article on original site

With all the attention on the impeachment investigation against Donald Trump, his trade war is getting ignored by the media. Since the trade war is not going very well, that is probably a good thing for Trump.

Just to remind people, Trump made the trade deficit a major issue in his campaign. He claimed that our trading partners were ripping the U.S. off because of lousy trade deals crafted by stupid negotiators. He assured the public that he would use his negotiating skills to bring the trade deficit down. Now that he has been in office for more than two and a half years, it's worth seeing how the fight is going.

So far, it looks like Trump has been giving up ground. In 2016, the last year of the Obama administration, the trade deficit was $518.8 billion, or 2.8 percent of GDP. The trade deficit expanded in both 2017 and 2018, reaching $638.2 billion in 2018, or 3.1 percent of GDP. And it looks to come in slightly higher in 2019, with the deficit averaging $648.3 billion in the first half of 2019. This is clearly going the wrong way.

There are many factors behind the rise in the trade deficit. Growth in the U.S. has been somewhat faster than in major trading partners like the EU and Japan. The dollar has also risen in value, although most of that rise predates Trump. But we know that Trump wouldn't be interested in excuses. The bottom line is the trade deficit has gotten worse on Trump's watch.

The story does not look any better if we look at his major nemeses. Starting with China, in the last year of the Obama administration, the trade deficit in goods with China was $346.8 billion. This had increased to $419.6 billion last year. It looks like the trade deficit is coming down somewhat in 2019, with the deficit for the first eight months at $231.6 billion, compared to just over $260.0 billion over the first eight months of last year. Nonetheless, we are still likely to end up with a higher deficit with China in 2019 than we had in the last year of the Obama administration.

It is also worth remembering that it is difficult to calculate bilateral trade deficits with rigor. Suppose that iPhones, which had previously been assembled in China, are instead assembled in Thailand. If we imported the iPhone from China, the full value of the iPhone would have been recorded as an import from China, even though the assembly may have counted for less than 10 percent of the value added.

When the assembly shifts to Thailand, the reduction in our reported imports from China is equal to the full cost of the iPhones that we previously imported from China. The actual hit to China is just the small share of the value added that is attributable to assembly.

If Trump's battle with China is not going well, he seems to be doing even worse with other trade combatants. The trade deficit with Mexico was $63.3 billion in 2016. It hit $80.7 billion last year and is virtually certain to come in even higher in 2019. The trade deficit with the European Union was $146.7 billion in 2016. It had risen to $168.7 billion last year and is on a path to come in $10-$15 billion higher in 2019. The deficit with Canada rose from $11 billion in 2016 to $19.1 billion last year. It is likely to be roughly $1 billion higher in 2019.

It doesn't look like Donald Trump has had many successes in his trade war. That might be bad news for him politically, but it is probably good news for the country and the world.

While Trump made currency values a major issue in his campaign, yelling about "currency manipulation" by China and other countries, currency has largely fallen off his agenda in his trade disputes. Instead, he has put protecting the intellectual property of U.S. corporations front and center.

This is not a battle that most of us should want to see Trump win. Ordinary workers have no real interest in making people in China and elsewhere pay more for drugs, medical equipment, software, and other items to which US companies have intellectual property claims.

In fact, they would benefit from having these items sell in a free market without patent and copyright monopolies. They would also benefit from a system that facilitated the free flow of knowledge and technology, especially in the areas of clean technology and medicine. Since China has a considerably larger economy than the United States, a reasonable trade policy would be more focused on getting access to their innovations rather than protecting the intellectual property claims of US corporations.

So the report from the front is that Donald Trump is losing his trade war badly, and that is a good thing for people in the United States and the world.

 -- via my feedly newsfeed

Monday, October 14, 2019

Thomas Piketty: What is a fair pension system? [feedly]

Piketty on the French pension reforms -- but with some good principles that apply to the US retirement system as well.

What is a fair pension system?

Even if the timing remains vague and the conditions uncertain, the government does seem to have decided to launch a vast reform of the retirement pensions system, with the key element being the unification of the rules applied at the moment in the various systems operating (civil servants, private sector employees, local authority employees, self-employed, special schemes, etc).

Let's make it clear: setting up a universal system is in itself an excellent thing, and a reform of this type is long overdue in France. The young generations, particularly those who have gone through multiple changes in status (private and public employees, self-employed, working abroad, etc.,), frequently have no idea of the retirement rights which they have accumulated. This situation is a source of unbearable uncertainties and economic anxiety, whereas our retirement system is globally well financed.

But, having announced this aim of clarification and unification of rights, the truth is that we have not said very much. There are in effect many ways of unifying the rules. Now there is no guarantee that those in power are capable of generating a viable consensus in this respect. The principle of justice invoked by the government seems simple and plausible: one Euro contributed should give rise to the same rights to retirement, no matter what the scheme, and the level of salary or of earned income. The problem is that this principle amounts to making the inequalities in income as they exist at present sacrosanct, including when they are of mammoth proportions (under-paid piece work for some, excessive salaries for others), and to perpetuating them at the age of retirement and dependency which is in no way particularly "fair".

Aware of the difficulty, the High Commissioner Jean-Paul Delevoye's Plan stipulates that a quarter of the contributions will continue to be allocated to "solidarity', that is to say, for example, to subsidies for children and interruptions of career, or to finance a minimum retirement pension for the lowest salaries. The difficulty is that the way this calculation has been made is highly controversial. In particular, this estimate purely and simply takes no account of social inequalities in life expectancy. For example, if a low wage earner spends 10 years in retirement while a highly-paid manager spends 20 years, we have forgotten to take into account the fact that a large share of the contributions of the low wage earner serves in practice to pay the retirement of the highly-paid manager (which is in no way compensated for by the allowance for strenuous and tedious work)

More generally, there are naturally multiple parameters to be fixed to define what one considers to be "solidarity". The government's proposals are respectable but they are far from being the only ones possible. It is essential that a broad public debate take place and that alternative proposals should emerge. The Delevoye Plan for example provides for a replacement rate equal to 85% for a full career (43 years of contributions) at Minimum Wage level. This rate would then very rapidly fall to 70%, to only 1,5 Smic (Minimum Wage) before stabilising at this precise level of 70% until approximately 7 Smic ( 120,000 Euros gross annual salary). This is one possible choice, but there are others. One could thus imagine that the replacement rate would go gradually from 85% of the Smic to 75%-80% around 1.5 – 2 Smic, before gradually falling to around 50%-60%, approximately 5-7 Smic.

Similarly the government's project provides for a financing of the system by a retirement contribution of which the global rate would be fixed at 28.1% on all the gross incomes below 120,000 Euros per annum, before falling suddenly to only 2.8% beyond this threshold. The official justification is that retirement rights in the new system would be capped at this wage level. The Delevoye Report goes as far as congratulating themselves because the super-managers will nevertheless be subject to this contribution (which will not be capped) of 2.8%, to mark their solidarity with the older generations. In passing, once again no account is taken of the salaries between 100,000 Euros and 200,000 Euros which usually correspond to very long life expectancies and which benefit greatly from the contributions paid by the lower waged with shorter life expectancies. In any event, this contribution of 2.8% to solidarity by those earning over 120,000 Euros is much too low, particularly given the levels of remuneration; their very legitimacy is open to challenge.

More generally it is perhaps time to abandon the old idea according to which reduction of inequalities should be left to income tax, while the retirement schemes should content themselves with reproducing them. In a world in which fabulous salaries and questions of retirement and dependency have taken on a new importance, the most legible norms of justice could be that all levels of salary (including the highest) should finance the retirement scheme at the same rates (even if the pensions themselves are capped) while leaving to income tax the task of applying higher levels to the top incomes

To be clear: the present government has a big problem with the very concept of social justice. As everyone knows, it has chosen from the outset to grant huge fiscal gifts to the richest (suppression of the wealth tax (the ISF), the flat tax on dividends and incomes). If today it does not demand a significant effort from the most privileged it will have considerable difficulty in convincing the public that its pension reform is well-founded.

 -- via my feedly newsfeed

Friday, October 11, 2019

We no longer share a common lived experience [feedly]

Larry Summers: more arguments that structural (in this case economic geography inequalities) changes are demanding change.

We no longer share a common lived experience

October 9, 2019

The economic geography of the United States is central to our most serious economic social and political problems. And yet it is a subject that receives only the episodic attention of federal policymakers and initiatives that are far too small to have a meaningful chance of success.

By almost any measure, U.S. citizens no longer share a common lived experience. Men age 25 to 54 in Arlington, Va., have a 5 percent chance of being without work. Men in Flint, Mich., have more than 35 percent chance of that. Life expectancies across states differ by more than five years — more than the impact of doubling all cancer rates. Intergenerational mobility differs by a factor of more than two across regions of the country. Areas with high rates of joblessness also have high rates of depression and pessimism about the future, and low rates of confidence in U.S. institutions.

The regional economies that comprise the United States used to be converging. Mississippi is still the poorest state, but its relative income is much higher than it was a decade ago. Studies done toward the end of the 20th century often found that city and state unemployment rates were not correlated from one decade to the next. No longer. Recent work suggests that in regions where work was in short supply in 1980, joblessness may have gotten even worse over the subsequent generation. The same is true of all the various indices of social distress.

Why? Part of the answer is migration between cities and states has fallen sharply in recent decades, in part because of problems in the housing market. It may also be that migration has become less effective in fostering economic mobility than economists suppose. Outmigration from troubled areas tends to disproportionately remove those area's most able and catalytic residents. There is also the consideration that outmigration reduces the demand for new construction and the value of housing wealth, which in turn reduces spending.

Perhaps most important, weak economic performance coupled with outmigration sets the stage for what might be called fiscal-space death spirals. Just when the need to train and retrain workers for jobs outside traditional industries expands, the capacity to fund community colleges and other training institutions declines. Just as it comes to seem most important to attract new businesses, the capacity to fund first-rate schools and necessary specialized infrastructure is most circumscribed. It cannot be an accident that Northern Virginia, one of the most economically vibrant areas in the United States, could afford to attract Amazon (Amazon founder and chief executive Jeff Bezos owns The Washington Post), or that Rust Belt cities, with their many pension and other liabilities, struggle to hold on to the businesses they have.

A look at an economic and political map of the United States, or that of almost any other industrial country, for that matter, points up the political stakes in deteriorating economic geography. The areas where distress is greatest and opportunity is least provide disproportionate support for candidates advocating populist nationalist policies that seek to close off the rest of the world, to demonize immigrants and to resist the inclusion of minority groups.

What is to be done? Traditional approaches have involved tax incentives for investments in distressed places. It hasn't worked well, as the tax incentives have often gone to projects with little real development content or that would have happened anyway. In any event, the investment has been small relative to the scale of the problem.

Here are some larger ideas that should be thought through carefully. Perhaps the federal government should levy punitive taxes on the receipts from targeted local tax incentives. This would stop the zero-sum competition between localities, and give more disadvantaged communities a fairer chance to compete.

The federal government could also announce plans to provide extra support to public education and community colleges in areas where joblessness is high or has recently risen. There is no reason investment in the next generation should suffer most where current pain is greatest.

Because interest rates are so low that there is limited room for them to be reduced, the response to the next recession will inevitably be focused on fiscal policy. Policymakers should design it keeping clearly in mind that the economic multiplier will be greatest, and the inflationary impact least, where the economy lags most.

These may or may not be the best ideas for enabling people wherever they live to share in U.S. economic progress, and they are no substitute for addressing inequality more directly. But it is hard to see how we can bring about enduring improvement in the nation's condition without addressing the needs of the tens of millions of Americans who live in places that are failing to catch up with the rest of our country.

 -- via my feedly newsfeed

The Jobs Problem in India [feedly]

Interesting commentary on global economic development strategies.

The Jobs Problem in India

One of India's biggest economic challenges is how new jobs are going to be created. Venkatraman Anantha Nageswaran and Gulzar Natarajan explore the issue in "India's Quest for Jobs: A Policy Agenda" (Carnegie India, September 2019). They write:
The Indian economy is riding the wave of a youth bulge, with two-thirds of the country's population below age thirty-five. The 2011 census estimated that India's 10–15 and 10–35 age groups comprise 158 million and 583 million people, respectively. By 2020, India is expected to be the youngest country in the world, with a median age of twenty-nine, compared to thirty-seven for the most populous country, China. In the 2019 general elections, the estimated number of first-time voters was 133 million. Predictably, political parties scrambled to attract youth voters. It is therefore not surprising that, according to several surveys, the parties' primary concern was job creation. The burgeoning youth population has led to an estimated 10–12 million people entering the workforce each year.6 In addition, the rapidly growing economy is transitioning away from the agricultural sector, with many workers moving into secondary and tertiary sectors. Employing this massive supply of labor is, perhaps, the biggest challenge facing India
India's jobs in the future aren't going to be in agriculture: as that sector modernizes, it will need fewer workers, not more. A common assumption in the past was that India's new jobs would be in big factories, like giant assembly plants or manufacturing facilities. But manufacturing jobs all around the world are under stress from automation, and with trade tensions high around the world, building up an export-oriented network of large factories and assembly plants doesn't seem likely. As Nageswaran and Natarajan point out, most of India's employment is concentrated in very small  micro-firms in informal, unregulated business. The challenge is to add employment is small and medium formal firms, sector often in industries with a service orientation.
The Sixth Economic Census of India, 2013, which combines all types of enterprises, shows that India had 58.5 million enterprises, which employed 131.9 million workers. Nonemployer, or own account firms, constituted 71.7 percent of these enterprises and 44.3 percent of workers. Further, 55.86 million (or 95.5 percent) of all the enterprises employed just 1–5 workers, 1.83 million (3.1 percent) employed 6–9 workers, and just 0.8 million (1.4 percent) employed ten or more workers ... Further, comparing India's formal and informal manufacturing establishments to Mexico and Indonesia reveals the true scale of India's challenge within this sector. Enterprises with fewer than ten workers make up nearly 70 percent of the employment share in India, compared to over 50 percent in Indonesia and just 25 percent in Mexico.
To put this in a bit of context, India's Census is finding employment of 131.9 million workers, mostly in very small firms. But India as a country has a workforce of over 500 million, and it's growing quickly. The other workers are either working for subsistence, in agriculture or cities, or in the informal economy. 

Why has India had such a hard time in creating new small- and medium-sized firms? Part of the answer is a heavy hand of government regulation. 
India is often considered one of the most difficult places to start and run a business. ... One of the biggest hurdles that potential enterprises in India face is the complexity of the registration system—all enterprises must register separately with multiple entities of the state and central governments. Under the state government, the enterprise has to register with the labor department (Shop and Establishment Act), the local government (municipal or rural council acts), and the commercial taxes department for indirect tax assessments. There are also several state-specific legislations—the labor department alone has thirty-five legislations. 
Under the central government, enterprises must register with the Ministry of Corporate Affairs for incorporation (Companies Act), the Central Board of Direct Taxes for direct tax assessments, and the labor department's Employees' Provident Fund Organization (EPFO) and Employees' State Insurance Corporation (ESIC). Further, there are registrations specific to sector or occupational categories—for example, manufacturing enterprises with more than ten employees must register with the labor department under the Factories Act.
Based on the application or software employed for each registration, employers also must possess a multitude of numbers: for example, a labor identification number—used to register on the Shram Suvidha Portal, the Ministry of Labor and Employment's single window for reporting compliances; a company registration number; and a corporate permanent account number. Employees must possess an Aadhaar biometric identity number, an EPFO member number, an ESIC identity number, and a universal account number.
According to current labor laws, service enterprises and factories must maintain twenty-five and forty-five registers, respectively, and file semi-annual and annual returns in duplicate and in hard copy. Furthermore, regular paperwork tends to be convoluted; salary and attendance documents should be simple but instead require tens of entries. In addition to the physical requirements of complying with these regulations—making payments, designing human resource strategies, or meeting physical infrastructure standards—enterprises also have onerous periodic reporting requirements. All these requirements add up to impose prohibitive costs that reduce the success of
these businesses.
This regulatory environment offers a powerful incentive for small firms to remain informal, off-the-record, under-the-radar. A related issue arises because payroll taxes in India are very high--for workers in the formal sector, that is.
Manish Sabharwal, the chairman of TeamLease Services, a staffing company, wrote that salaries of 15,000 rupees a month end up as only 8,000 rupees after all deductions, from both the employer and employee sides. The employer makes deductions for pensions, health insurance, social security, and even a bonus, which are statutorily payable in India and would otherwise increase costs to companies. Consequently, the take-home pay for a worker earning less than 15,000 rupees a month is only 68 percent of their gross wages. Lower-wage workers are far more affected than higher-wage workers, who are protected by the maximum permissible deductions, which lowers the amount of deductions from their gross salary. Further, though international comparisons are often difficult and misleading, a cursory examination suggests that India's deductions are among the highest in the world and are a deterrent to businesses starting or becoming formal.
Yet another issue is that there are many programs providing support and finance to very small firms. An unintended result is that these firms have an incentive to remain small--so they don't have to give up their incentives. 
Gursharan Bhue, Nagpurnanand Prabhala, and Prasanna Tantri point out that firms are willing to forgo growth in order to retain their access to finances. That is, when certain easier financing access is provided to firms below a certain threshold (say, SME firms), they prefer to forgo growth opportunities that would allow them to cross this threshold: "firms that near the threshold for qualification slow down their investments in plant and machinery, other capital expenditure" and experience slower growth in manufacturing activity and output. The authors also point out that when banks are put under pressure to lend to micro, small, and medium enterprises, they fear the fallout of not meeting those lending targets and consequently encourage their borrowers to stay small.
Nageswaran and Natarajan argue that most of India's informal firms are "subsistence" firms, unlikely to grow. They cite evidence from Andrei Shleifer and Rafael La Porta that few informal firms ever make a transition to formal status. Instead, the goal needs to be to have more firms that are "born formal," and which are run by entrepreneurs who have a vision of how how the firm can grow and hire.  In India, this doesn't seem to be happening.   They write:

Chang-Tai Hsieh and Peter Klenow's latest work, "The Life Cycle of Plants in India and Mexico," is instructive in its exploration of the life-cycle dynamic of firm growth across countries. They find that, in a sample of eight countries including the United States and Mexico, India is the only  ountry where the average number of employees of firms (in the manufacturing sector) ages 10–14 years is less than that of firms ages 1–5 years. It is generally expected that, as firms remain in business for longer periods, they would naturally employ more workers. In India, however, the inverse has proven true—employment in older firms is less than in younger firms. Hsieh and Klenow also find that the typical Indian firm stagnates or declines over time, with only the handful that reach around twenty years of age showing very slight signs of growth.
What's to be done? As is common with emerging market economies, the list of potentially useful policies is a long one. Reforming government regulations, payroll taxes, and financial incentives with the idea of supporting small-but-formal businesses, and not hindering their growth, is one step. Nageswaran and Natarajan also point out that the time needed to fill out tax forms is especially onerous in India.

Ongoing increases in infrastructure for transportation, energy, communications matters a lot. Along with overall support for rising education levels, it may be useful to take the idea of an agricultural extension service--which teaches farmer  how to use new seeds or crop methods--and create a "business extension service" that helps teach small firms the basic managerial techniques that can raise their productivity. India's government might take steps to help establish an information framework for a national logistics marketplace, which would help organize and smooth the movement of business inputs and consumer goods around the country: "Amounting to 13 percent of India's GDP, the country's logistics costs are some of the highest in the world."

But in a broad sense, the job creation problem in India comes down to a more fundamental shift in point of view. Politicians tend to love situations where they can claim credit: a giant new factory opens, or a new power plant. Or at a smaller scale,  politicians will settle for programs that sprinkle subsidies among smaller firms, so those firms that receive such benefits can be claimed as a success story. But if the goal for India's future employment growth is to have tens of millions of firms started by well-educated entrepreneurs, this isn't going to happen with firm-by-firm direction and subsidies allocated by India's central or state governments. Instead, it requires India's government to be active and aggressive in creating a general business environment where such firms can arise of their own volition, and it's a hard task for any government to get the right mix of acting in some areas while being hands-off in others.

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Waste and Worse in US Health Care Spending [feedly]

Waste and Worse in US Health Care Spending

About 25% of all US health care spending is wasted, according to an article just published in the Journal of the American Medical Association by William H. Shrank, Teresa L. Rogstad, and Natasha Parekh ("Waste in the US Health Care System Estimated Costs and Potential for Savings," October 7, 2019). They write: 
In this review based on 6 previously identified domains of health care waste, the estimated cost of waste in the US health care system ranged from $760 billion to $935 billion, accounting for approximately 25% of total health care spending ...  Computations yielded the following estimated ranges of total annual cost of waste: failure of care delivery, $102.4 billion to $165.7 billion; failure of care coordination, $27.2 billion to $78.2 billion; overtreatment or low-value care, $75.7 billion to $101.2 billion; pricing failure, $230.7 billion to $240.5 billion; fraud and abuse, $58.5 billion to $83.9 billion; and administrative complexity, $265.6 billion.
This isn't a new problem. For a few decades now, I've been seeing estimates that up to one-third of US health care spending is wasted. Also, the US estimate isn't actually all that different from international estimates: an OECD study a couple of years ago estimated that "around one-fifth of health expenditure makes no or minimal contribution to good health outcomes."  But since the US spends about 18% of GDP on health care, while other high-income countries spend about 11% of GDP on health care, wasteful health care spending hurts even more in the US.

JAMA also offers some comments on these results. I was struck by Donald M. Berwick's essay: "Elusive Waste: The Fermi Paradox in US Health Care." 

In 1950, at lunch with 3 colleagues, the great physicist Enrico Fermi is alleged to have blurted out a question that became known as "the Fermi paradox." He asked, "Where is everybody?" referring to calculations suggesting that extraterrestrial life forms are abundant in the universe, certainly abundant enough that many of them should have by then visited our solar system and Earth. But, apparently, none had.
Health care in the United States has its own version of the Fermi paradox. It involves the strong evidence of massive waste ... With US health care expenditures exceeding $3.5 trillion annually, 25% of the total would amount to more than $800 billion per year of waste (more than the entire 2019 federal defense budget, and as much as all of Medicare and Medicaid combined). Even 5% of the total cost is more than $150 billion per year (almost 3 times the budget of the US Department of Education).
That is worth repeating: by many pedigreed estimates, annual waste in US health care equals or exceeds the entire annual cost of Medicare plus Medicaid.
But, to paraphrase Fermi, "Where is it?" ... The paradox is that, in an era of health care when no dimension of performance is more onerous than high cost, when many hospitals and clinicians complain that they are losing money, when individuals in the United States are experiencing financial shock at absorbing more and more out-of-pocket costs for their care, and when governments at all levels find that health care essentially confiscates the money they need to repair infrastructures, strengthen public education, build houses, and upgrade transportation—in short, in an era when health care expenses are harming everyone—as much as $800 billion in waste (give or take a few hundred billion) sits untapped as a reservoir for relief. Why? ... 
What Shrank and colleagues and their predecessors call "waste," others call "income." People and organizations (for-profit and not-for-profit) making big incomes under current delivery models include very powerful corporations and guilds in a nation that tolerates strong influences on elections by big donors. Those donors now include corporations whose "right" to "free speech" as "persons" has been certified by the US Supreme Court, conferring on them an unlimited license to support political candidates financially. When big money in the status quo makes the rules, removing waste translates into losing elections. The hesitation is bipartisan. For officeholders and office seekers in any party, it is simply not worth the political risk to try to dislodge even a substantial percentage of the $1 trillion of opportunity for reinvestment that lies captive in the health care of today, even though the nation's schools, small businesses, road builders, bridge builders, scientists, individuals with low income, middle-class people, would-be entrepreneurs, and communities as a whole could make much, much better use of that money.
I was also struck by the comments from Karen E. Joynt Maddox and Mark B. McClellan in their short essay, "Toward Evidence-Based Policy Making to Reduce Wasteful Health Care Spending."  They argue that various "incentive-based" or "value-based" systems that purport to provide incentives to reduce wasteful health care spending don't work all that well. These schemes have been complicated, not aligned across providers, without buy-in from clinicians, costly to implement--and in general have not led to any broad redesign of care. They sketch an alternative path to health care reform that looks like this:

The current piecemeal approach, which imposes complexity and additional implementation costs on clinicians, hospitals, and health systems, should evolve to a simpler and more holistic approach to value-based payment. Primary care should move toward a capitated payment system, with a streamlined set of quality measures and financial supports for keeping people healthy and out of the hospital. Specialty care will likely need a combination of a primary care–like chronic disease management track and add-on "bundles" for procedures, with quality measures relevant to specialized care comprising the core of quality measurement. Hospital care should be structured within such bundles where feasible, with clear quality measures around safety, and the move of accountable care organizations from fee-for-service–based models to organizations paid on a person level should continue.
Finally, although it's not part of this set of JAMA articles, I'll add that the issues of the US health care system go beyond wasted opportunities to make better use of resources. There have been prominent studies for a couple of decades now suggesting that medical errors in the US lead to the deaths of either tens of thousands or even several hundred thousand people every year. As one partial measure, the Agency for Healthcare Research and Quality (which is part of the US Department of Health and Human Services) publishes a "scorecard on hospital-acquired conditions." The AHRQ scorecard issued in January 2019 offers this good news/bad news report on "hospital-acquired conditions," or HACs:
The 2014 rate started at 99 HACs per 1,000 hospital discharges and is estimated at 86 HACs per 1,000 discharges for 2017. ... Based on the HAC reductions seen in 2015, 2016, and 2017 compared with 2014, AHRQ estimates a total of 910,000 fewer HACs occurred than if the 2014 rates had persisted through 2017. These HAC reductions lead to estimates of approximately $7.7 billion in costs saved and approximately 20,500 HAC-related inpatient deaths averted from 2015 through 2017. Data reported in 2016 estimated that from 2011 through 2014, HAC reductions totaled 2.1 million, and these reductions resulted in approximately $19.9 billion in cost savings and 87,000 fewer HAC-related inpatient deaths. 
So the good news is 87,000 fewer deaths along with other prevented health and monetary costs since 2010. The bad news is that the US health care system was causing those deaths and costs up through 2010, and with 86 hospital-acquired conditions per 1,000 discharges in 2017, it's still causing high costs. Of course, one could also add other costs with a close linkage to health care, like prescription drug overdoses.

A huge amount of US public attention has focused on the issue of providing health insurance coverage and health care to all, and rightly so. But there should be enough space in our brains to also consider the issues of high costs and wasteful healthcare spending and reducing the health costs that are being created by the US healthcare system.  

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What Economists (Including Me) Got Wrong About Globalization [feedly]

Krugman: What Economists (Including Me) Got Wrong About Globalization

This column is adapted from a chapter in "Meeting Globalization's Challenges" (Princeton University Press), a collection of papers by scholars who contributed to a conference at the International Monetary Fund on Oct. 11, 2017. The book will be published on Nov. 4.

Concerns about adverse effects from globalization aren't new. As U.S. income inequality began rising in the 1980s, many commentators were quick to link this new phenomenon to another new phenomenon: the rise of manufactured exports from newly industrializing economies.

Economists took these concerns seriously. Standard models of international trade say that trade can have large effects on income distribution: A famous 1941 paper showed how trading with a labor-abundant economy can reduce wages, even if national income grows.

And so during the 1990s, a number of economists, myself included, tried to figure out how much the changing trade landscape was contributing to rising inequality. They generally concluded that the effect was relatively modest and not the central factor in the widening income gap. So academic interest in the possible adverse effects of trade, while it never went away, waned.

In the past few years, however, worries about globalization have shot back to the top of the agenda, partly due to new research and partly due to the political shocks of Brexit and U.S. President Donald Trump. And as one of the people who helped shape the 1990s consensus — that the contribution of rising trade to rising inequality was real but modest — it seems appropriate for me to ask now what we missed.

The 1990s Consensus

There was confusion and debate during the mid-1990s over how to use data on trade to assess wage impacts. Most studies focused on the volume of trade and the amount of labor and other resources embedded in imports and exports. Some economists objected to this approach, preferring to focus on prices rather than quantities.

What eventually emerged was a "but for" approach: asking how different wages would have been but for the rise of manufactured exports from developing countries — increases that were minimal in 1970 but higher by the mid-1990s. It turned out that imports of manufactured goods from developing countries, while much larger than in the past, were still small relative to the size of advanced economies — around 2% of their gross domestic products. This wasn't enough to cause more than a modest change in relative wages. The effect wasn't trivial, but it wasn't big enough to be a central economic story, either.

These assessments of the impact of trade made around 1995, inevitably relying on data from a couple of years earlier, were probably correct in finding modest effects. In retrospect, however, trade flows in the early 1990s were just the start of something much bigger, or what a 2013 paper by economists Arvind Subramanian and Martin Kessler called hyperglobalization.

Until the 1980s, it was arguable that the growth of world trade since World War II had mainly reflected a dismantling of the trade barriers erected before the war; world trade as a share of world GDP was only slightly higher than it had been in 1913. Over the next two decades, however, both the volume and nature of trade moved into uncharted territory.

This chart shows one indicator of this change: manufactured exports from developing countries, measured as a share of world GDP. What seemed in the early 1990s like a major disturbance in the trade force was just the beginning.

Something Was Happening

What caused this huge surge in what was, in the 1990s, still a fairly novel form of trade? The answer probably includes a combination of technology and policy. Freight containerization was not exactly new, but it took time for businesses to realize how the reduction in transshipping costs made it possible to move labor-intensive parts of the production process overseas. Meanwhile, China made a dramatic shift from central planning to a market economy focused on exports.

Since manufactured exports from developing countries, measured as a share of the world economy, are now triple what they were in the mid-1990s, should we conclude that the effect on income distribution has also tripled? Probably not, for at least two reasons.

First, a significant part of the increase in developing-country exports reflects the rapid growth of trade among the modernizing economies of Asia, Africa and Latin America. That's an important story, but it's not relevant to the impact on advanced-country workers. Even more important, though, the nature of this trade growth — involving goods made by both unskilled and highly skilled workers — means that the value of the labor involved in North-South trade hasn't risen nearly as fast as the volume.

Consider two cases: imports of apparel from Bangladesh and imports of iPhones from China. In the first instance, we are in effect importing the services of less educated workers, putting downward pressure on the demand for such workers in the U.S. In the second case, though, most of the value of the iPhone reflects work done in high-wage, high-education countries like Japan; we are in effect importing skilled as well as unskilled labor, so the impact on income distribution should be much smaller.

Despite these qualifications, it's clear that the impact of developing-country exports grew much more between 1995 and 2010 than the 1990s consensus imagined possible, which may be one reason concerns about globalization made a comeback.

Trade Imbalances

One contrast between the way scholars measure globalization's impact and the way the broader public looks at it — the approach taken by Trump, for example — is the focus on trade imbalances. The public tends to see trade surpluses or deficits as determining winners and losers. But the economic trade models that underlay the 1990s consensus gave no role to trade imbalances at all.

The economists' approach is almost certainly right for the long run, both because countries must pay their way eventually, and because trade imbalances mainly affect the relative shares of traded and nontraded sectors in employment, with no clear effect on the overall demand for labor. Yet rapid changes in trade balances can cause serious problems of adjustment — a broader theme that I'll return to shortly.

Consider, in particular, the comparison between the U.S. non-oil trade balance (which is overwhelmingly manufactured goods) and U.S. manufacturing employment:

The 2000 Import Shock

Until the late 1990s, employment in manufacturing, although steadily falling as a share of total employment, had remained more or less flat in absolute terms. But manufacturing employment fell off a cliff after 2000, and this decline corresponded to a sharp increase in the non-oil deficit.

Does the surge in the trade deficit explain the fall in employment? Yes, a lot of it. A reasonable estimate is that the deficit surge reduced the share of manufacturing in GDP by around 1.5 percentage points, or more than 10%, which means that it explains more than half the roughly 20% decline in manufacturing employment between 1997 and 2005.

This is over a relatively short time period and focuses on absolute employment, not the employment share. Trade deficits explain only a small part of the long-term shift toward a service economy. But soaring imports did impose a shock on some U.S. workers, which may have helped cause the globalization backlash.

Rapid Globalization and Disruption

The pro-globalization consensus of the 1990s, which concluded that trade contributed little to rising inequality, relied on models that asked how the growth of trade had affected the incomes of broad classes of workers, such as those who didn't go to college. It's possible, and probably even correct, to think of these models as accurate in the long run. Consensus economists didn't turn much to analytic methods that focus on workers in particular industries and communities, which would have given a better picture of short-run trends. This was, I now believe, a major mistake — one in which I shared a hand.

It should have been obvious that the politics of globalization were likely to be much more influenced by the experience of individual sectors that gained or lost from shifting trade flows than by big questions of how trade affects the global blue-collar/white-collar wage gap or the broad statistical measure of inequality known as the aggregate Gini coefficient.

This is where the now-famous 2013 analysis of the "China shock" by David Autor, David Dorn and Gordon Hanson comes in. What they mainly did was shift focus from broad questions of global income distribution to the effects of rapid import growth on local labor markets, showing that these effects were large and persistent. This represented a new and important insight.

To make partial excuses for those of us who failed to consider these issues 25 years ago, at the time we had no way to know that either the hyperglobalization that began in the 1990s or the trade-deficit surge a decade later were going to happen. And without the combination of these developments, the China shock would have been much smaller. Still, we missed a crucial part of the story.

A Case for Protectionism?

What else did the 1990s consensus miss? A lot. Developing-country exports of manufactured goods grew far beyond their level at the time that consensus emerged. The combination of this rapid growth and surging trade imbalances meant that globalization produced far more disruption and cost for some workers than the consensus had envisaged.

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