Paul Krugman:
Supply Chains and Trade War (Very Wonkish): ...last month the IGM Forum weighed in on the issue of supply chains and trade war — the issue that the current trade war, unlike previous trade conflicts, is taking place in a world where much trade consists, not of shipments of consumer goods, but of shipments of inputs used in production. The panelists more or less unanimously agreed that the prevalence of global supply chains increases the cost of trade war. But is the consensus right?
Well, although I yield to nobody in condemning the stupidity and corruption behind Trump trade policy, I'm a bit skeptical about the supply chain concern. Or maybe the best way to say this is that there are three possible stories about how supply chains might increase the costs of trade war, and while two of them are right, I suspect that many economists are buying into the third, which isn't.
So, what difference does a supply-chain trading system make?
One thing it does is create the possibility that protectionism will be bad mercantilism— that even in its first-round effects it will actually destroy more domestic jobs than it creates, because it creates a competitive disadvantage for domestic downstream producers. ...
Another thing the rise of global supply chains has done is to increase both total trade and the gains from trade. As a result, there is more to lose from a trade war than there was a generation ago.
But what I think many economists have in mind is something more than that.
Standard trade theory tells us that the costs of a tariff — the reduction in real income — may be calculated, approximately, as
Real income loss = 0.5*tariff rate*reduction in imports
This formula suggests only moderate costs even from a major trade war. Suppose that worldwide tariff were to rise to 40 percent, and world trade were to fall by 15 percent of world GDP, a 50% reduction. Even so, world real income would fall only 3 percent.
Now, what I think many economists are suggesting is that this kind of analysis understates the losses when much of that trade is in intermediate goods. But I'm pretty sure they're wrong, at least in the medium to long run.
Let me sketch out a model here....
That said, a trade war in a supply-chain world would cause a lot of disruption, because it would lead over time to a major restructuring of industry. This would create a lot of losers, as well as some winners, perhaps more than a trade war would have in the past. But I don't think the notion that the total loss in real income would be bigger than conventional analysis suggests holds up. Trump's policy moves are destructive, based on ignorance, but we shouldn't overstate their cost.
By Polly Cleveland
At a 1972 economics conference, at the height of the Vietnam war, Mason Gaffney presented an invited paper blandly entitled "The Benefits of Military Spending." The paper so shocked the conference organizer that he refused to include it in the conference volume. Gaffney couldn't find another publisher willing to touch it. Now, only 46 years later, here's that paper (draft version), updated by Cliff Cobb, and published in the American Journal of Economics and Sociology (March 2018). What so offended the economics establishment?
In dry economese laced with even drier humor, Gaffney laid out the fundamental land economics underlying U.S. military spending. The logic resembles that of urban sprawl: For a few bucks, John Bigshot buys Old MacDonald's farm way out in the boonies. Then he visits his pals on the city council of Anytown. They in turn vote to incorporate MacDonald Luxury Estates into greater Anytown, which means the town improves the road, extends water and sewer, police and fire protection, and other benefits to the property. With little personal investment (maybe a suitcase of cash), Mr. Bigshot has acquired a multimillion dollar parcel at the expense of Anytown taxpayers.
In similar fashion, multinational corporations go to third world countries where they acquire concessions for a song—mineral rights, broadcast rights, bank licenses, timber rights, harbor and airport rights, rights of way, or large tracts of agricultural land. Often they have bribed the local ruler, or "cacique" as Gaffney calls him. When angry locals threaten to overthrow the cacique, the multinationals can call in the U.S. government to protect their sacred property rights. The United States may provide guns and aircraft to the cacique, or establish a military base, or finance infrastructure like dams and ports and highways. Alternatively, the United States can support an opponent who promises to uphold those concessions. A small initial overseas investment can yield decades of lucrative return flows to the multinationals.
Documenting dozens of such arrangements, including the original deals for oil in Saudi Arabia and Iran, Gaffney takes a sly poke at the conventional economic treatment of "defense" spending as a benign "public good" equally benefitting all citizens of the homeland. The real-life benefits go to a small wealthy international minority with no particular loyalty to the United States, while ordinary U.S. citizens pay—as consumers, taxpayers, and especially as soldiers.
When I first read an unpublished version of the paper in 1992, 20 years after Gaffney wrote it, I felt a jolt of recognition. I was a Foreign Service brat. My dad served as Economics Officer; what was he doing? Arranging deals for U.S. investors. Everywhere we were posted or traveled there were U.S. military bases. What were they doing? (We FS types looked down on the military, because they didn't try to learn the local language or culture, and shopped only at the PX.)
I felt the same jolt years later reading John Perkins' Confessions of an Economic Hit Man. Perkins' employers sent him out to convince local third world rulers to undertake wildly overambitious, environmentally destructive infrastructure projects to be built by multinational engineering companies like Bechtel and Haliburton. These projects usually failed to deliver the promised economic benefits, leaving the locals in hock to U.S. and European banks and subject to U.S. control. The original excuse for U.S. intervention on behalf of such caciques was that they provided us with a bulwark against "Communism." Today they provide us with a bulwark against "Terrorism," but it's the same pattern.
The United States has dominated this game since World War II, taking over from Great Britain. The Chinese are now bent on doing us one better with military bases in the China Sea, rail and road systems across Eurasia, seaports around the world, and vast soy plantations in Latin America, Southeast Asia, and Africa. It's the same pattern.
Looking back to 1972, I think Gaffney's analysis so shocked conventional economists precisely because his method was so conventional. No hint of Marxism. Just good old-fashioned marginal analysis applied deadpan to an array of undisputed historical facts. Even worse, Gaffney poked subtle fun at received economic wisdom. No way could such subversion see the light of print—until now.
August 7th is Black Women's Equal Pay Day, the day that marks how long into 2018 an African American woman would have to work in order to be paid the same wages her white male counterpart was paid last year. On average, in 2017, black women workers were paid only 66 cents on the dollar relative to non-Hispanic white men, even after controlling for education, years of experience, and geographic location. A previous blog post dispels many of the myths behind why this pay gap exists, including the idea that the gap would be closed by black women getting more education or choosing higher paying jobs. In fact, black women earn less than white men at every level of education and even when they work in the same occupation. But even if changing jobs were an effective way to close the pay gap black women face—and it isn't—more than half would need to change jobs in order to achieve occupational equity.
Figure A plots the "Duncan Segregation Index" (DSI) for black women and white men, overall and by education, based on individual occupation data from the American Community Survey (ACS). This is a common measure of occupational segregation, which, in this case identifies what percentage of working black women (or white men) would need to change jobs in order for black women and white men to be fully integrated across occupations. Values of the DSI can range from 0 percent (complete integration) to 100 percent (complete segregation).
As shown in Figure A, there has been little progress on reducing occupational segregation between black women and white men since 2000. From 2000 to 2016 (latest data year available), the DSI only changed from 59 percent to 56 percent. This means that on average, 56 percent of black women (or white men) would need to change occupations in order to achieve occupational equity, or full integration of these two groups in the workforce.
Given that differences in education and skills influence the sorting of workers into specific jobs, we also present estimates of the DSI by education level in Figure A. These estimates reveal that there is less occupational segregation between black women and white men at higher levels of education. In 2016, the DSI for black women and white men with a high school diploma or less was 62 percent, while for those with 1–2 years of college the index decreases marginally to 60 percent. Although the DSI is 19 percentage points lower for those with advanced degrees than for those with a high school education or less, no matter how much education a black woman invests in, there is still an extremely high probability that she will not be employed in the same job as a similarly educated white man. Half of working black women (or white men) with a bachelor's degree and 43 percent of those with an advanced degree would need to change jobs in order to fully integrate black women and white men in the workforce at those levels of education.
Moving toward a more integrated workforce would not just create social benefits of greater racial and gender diversity in the workplace, but also narrow wage gaps and create greater economic mobility for black women. When occupational segregation occurs, it typically imposes an economic penalty on black women because, on average, they are segregated into lower-paying jobs while white men are segregated into higher-paying jobs.
Based on estimates of median annual wages reported in the ACS, pay disparities are fairly consistent across different levels of education. In 2016, black women with a high school degree or less earned 57.5 percent of what their white male counterparts with the same level of education made. Similarly black women with advanced degrees earned 59.6 percent of what white men with advanced degrees made. We note that since these pay ratios are based on annual wages reported in the ACS, they differ from the hourly wage ratios available from the State of Working America Data Library and other EPI publications (which are based CPS-ORG data). Nonetheless, the pattern is the same. The gap remains large even as the two demographic groups become more educated, and as suggested by our estimates of the Duncan Segregation Index, more integrated in the workplace.
