The labor market continues to improve in 2019 as women surpass men in payroll employment, but wage growth slows [feedly]

The labor market continues to improve in 2019 as women surpass men in payroll employment, but wage growth slows
https://www.epi.org/blog/the-labor-market-continues-to-improve-in-2019-as-women-surpass-men-in-payroll-employment-but-wage-growth-slows/

Today's Bureau of Labor Statistics (BLS) jobs report provides the opportunity to look at 2019 as a whole and in comparison with previous years. As the recovery has strengthened over the last several years, we've generally seen improvements in most measures of the labor market: employment, unemployment, and wage growth. These measures tell a consistent story—an economy on its way to full employment, but not there yet. Wage growth continues to be the lagging indicator, which is not as strong as would be expected given the health of the labor market and actually slowed through much of 2019.

Payroll employment growth in December was 145,000, bringing average job growth in 2019 to 176,000. This is a bit softer than the 223,000 average for 2018, but still more than enough to keep up with growth in the working-age population and pull in thousands of workers off the sidelines every month.

Figure A

For the first time in nearly 10 years, women's share of payroll employment has just surpassed that of men's. The figure below shows payroll employment for both men and women since 2000. From 2000 to 2007, men's share of total employment was about 1–2% higher than women's. In the recession, employment fell markedly in male-dominated professions—notably manufacturing and construction—and women's share of employment rose in kind. Since 2010, women's and men's employment have both increased, with men's growing faster than women's initially. In the last couple of years, women's payroll employment has grown just a bit faster than men's.

We can turn again to a sector approach as one explanation for why women's employment has now just surpassed men's in December. Men make up 77% of employment in construction and manufacturing combined. Coincidentally, women make up 77% of employment in education and health services. Between 2018 and 2019, construction and manufacturing together increased by 356,000, but education and health services employment increased much more—by 603,000. Furthermore, manufacturing employment has faltered late in the year, helping women's employment eke ahead of men's in December.

It is important to note that in absolute terms the shares of men's and women's employment haven't changed that dramatically. But, it holds true that women's payroll employment is now 50.04% of the total, the first time it has been a majority since the depths of the (construction and manufacturing-led) Great Recession.

Figure B

Turning to the household survey, the labor market continues to not only absorb population growth, but also chip away at the slack remaining in the labor market—namely workers who continue to be sidelined and who I expect will enter or re-enter the labor market as opportunities for jobs and better pay expand. As the unemployment rate has continued to fall between 2018 and 2019, labor force participation has increased as people re-enter the labor market and find jobs. Since December 2018, the unemployment rate dropped 0.4 percentage points (3.9% to 3.5%) while the employment-to-population ratio, or the share of the population with a job, rose 0.4 percentage points (60.6% to 61.0%). This means the unemployment rate over the last year fell for the right reasons—not because workers gave up looking, but because more would-be workers actually found jobs.

The share of 25–54 year olds with a job, otherwise known as the prime-age employment-to-population ratio (EPOP), has now exceeded its immediate pre-Great Recession high point, hitting 80.4% in December. This is decidedly good news, but there's still room for improvement. As the figure below shows, the prime-age EPOP remains 1.5 percentage points below the high point it reached in the spring of 2000. And, other news from the household survey reminds us that different groups face a decidedly different labor markets than others. For instance, while the economy continued to chug along, we still see higher unemployment for black workers than white. In December, black unemployment rose to 5.9% while white unemployment held at 3.2%.

Figure C

After some improvement in 2018, slowing nominal wage growth in 2019, as shown in the figure below, is one of the key sticking points in the labor market today. After hitting a high point of 3.4% year-over-year wage growth in February, the growth rate has measurably decelerated and wage growth closed out the year at only 2.9% in December, its lowest point in 18 months. While wage growth was faster among production/nonsupervisory workers over the prior several months, this growth slowed markedly in today's data. These workers—roughly 82% of the private-sector workforce—saw wage growth of just 3.0% year-over-year in December, the slowest growth in over a year. As would-be workers become scarcer, we would expect employers to have to work harder to attract and retain the workers they want. Unfortunately, in lieu of stronger labor standards and worker bargaining power, it takes tighter and tighter labor markets for most workers to reap the rewards of a strong and growing economy. It remains to be seen whether the recent trends will continue or if the tighter economy will provide workers with the necessary leverage to bid up their wages.

On the whole, as we look to 2020, the labor market should continue on its path to full employment as long as nothing throws it off the tracks.

Figure D

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Dan Shaviro (NYU) and Tim Smeeding (WISC) on NPR's Detroit Today Show [feedly]

Linda Beale is a Prof at Wayne State, and a knowledgeable blogger on tax law and tax bills.

Dan Shaviro (NYU) and Tim Smeeding (WISC) on NPR's Detroit Today Show
https://ataxingmatter.blogs.com/tax/2020/01/dan-shaviro-nyu-and-tim-speeding-wisc-on-nprs-detroit-today-show.html

For those of you who may not have the opportunity to tune into Stephen Henderson's radio program Detroit Today on NPR, it might be useful to have a short summary of the January 9 discussion of the "wealth gap" from that program.

Background 

Tax lawyers have traditionally talked of the "tax gap"¹  and frequently mentioned the growing "income gap" between the top 1% of the income distribution and the remaining 99%, but the "wealth gap"²discussion among tax lawyers, tax policy thinkers, economic analysts and indeed progressive legislators about the relative net assets of different segments of the population has become increasingly important as people have recognized the trend of increasing wealth for the top 0.1% in the US and stagnating wealth for most of the US population.  The wealth gap is even more significant when race/ethnicity is taken into account: the 400 wealthiest families in 2015 owned as much as the country's entire African-American population plus 1/3 of the Latino population.⁴  The median white household in 2011 had about $111 thousand in wealth, while the median black household had $7 thousand and the median Latino household had $8 thousand, with the impact of slavery and post-WWII homeownership policies being the underlying source of most of the disparities.³ See also How Ameria's Vast Racial Wealth Gap Grew: By Plunder, New York Times, Aug. 14, 2019.  The generational wealth gap is also worrisome: older Americans' wealth grew between 1989 and 2013 but all other age groups had their wealth decline.³  The gender wealth gap underlies the power distinction that lies at the bottom of the MeToo movement: women earn less than men for the same work at the same level, and they save less and are more likely to live in poverty in old age.

That means that children in this country born to families in the top 10% of the wealth distribution have enormous advantages from birth:  they are essentially guaranteed the best medical, educational, and institutional support imaginable, with every opportunity for learning and advancement laid before them.  Their parents can afford to ensure they are able to get into top colleges (e.g., Harvard alumni preferences for their children), meet the "right" people for success in their preferred field (the "connections" that wealthy families build), take a preferred non-paying internship in another city with family funds supporting living expenses and more, all the way up the ladders of success.  Children born into families in the bottom half of the wealth distribution face a struggle at every point along that ladder:  schools that are inadequately funded after decades of Republican concentration on assessment and hurdles rather than support and educational opportunities; lack of exposure to different possibilities and the people who can open doors into those possibilities; lack of funding to make it possible to accept an opportunity when it presents itself.

These wealth disparities don't just impact these choices--they also affect aging parents who have inadequate retirement savings, young adults who have inadequate resources to deal with sudden medical emergencies, or aspiring students who get tangled in the payday loan vicious cycle of ever-escalating interest payments. And the wealth gap is compounded by at least three key components of the US federal tax system: 

1. the income tax system that claims to be progressive yet has income tiers that ignore the escalating heights of the highest paid corporate managers, university presidents, and other high-income labor and a capital gains preference that privileges ownership over labor;
2. the estate tax system that has been a GOP target for decades that has too low a rate on too little income of the dynastic estates that the run up in wealth over the last four decades has created while passing the estate along to heirs without taking any tax bite because of the absurd step-up in basis rule;
3. the cap on the social security tax that requires even the poorest laborer to pay in while letting the CEO earning a $10 million annual salary pay on only a pittance of the total compensation.

The wealth gap has in some sense always existed, but it is increasing⁵and today begins to look like the Gilded Age before the Great Depression.  While the tax system isn't solely responsible for the increasing wealth gap in this country, it has played a significant role in aggravating the problem and thus deserves focussed attention as a matter of tax policy.

Key Points from Dan Shaviro's Interview

Dan noted that the wealth gap had its beginning in the 19th century when the government didn't respond to increasing disparities.  The progressive era under Roosevelt and Wilson, then the New Deal era under FDR did see some reduction in the wealth gap, much of which could be attributed to the reduction in wealth because of the stock market crash and the Great Depression.

As wealth increases, power increases.  Even proposals that have huge public support are rejected by Congress--including the idea that corporations and the wealthy should be taxed more.

Finding policies to ameliorate this current situation is not easy.  There are a variety of ideas--Warren and Sanders have proposed wealth taxes, though there are  constitutionality concerns that might defeat such a tax given the current conservative Supreme Court.  And a wealth tax won't solve all the problems of inequality. Other ideas include more progressive income taxes or a mark-to-market system of taxing appreciation of capital assets.

The reasons for attempting to address the wealth gap are many, and include the need for better transportation, health care, education, end of life and geriatric care, etc. 

We live in a capitalist system, but markets don't work well for addressing all problems.  In particular, they don't work well for the kinds of things that are so important like health care and education. 

Any transition, of course, will be very difficult.  The top 10% own 77% of the wealth while the bottom 50% own less than 2%.  Those with financial wealth live very well indeed, since that wealth isn't taxed til it is used and may never be taxed.

 

Key Points from Timothy Smeeding's Interview

Understanding the wealth gap is critical, because wealth provides a "cushion for consequential life moments" such as when a parent covers a child's tuition or supports the child in their first apartment in a different city.

Deciding how to respond to the wealth gap is difficult, but various possibilities exist, including a wealth tax, a reinvigorated estate tax, elimination of the capital gains preferential rate compared to ordinary income, elimination of the carried interest provision that allows private equity managers to be compensated with capital gains at a 23.8% rate rather than a 38% plus 3.8% rate and avoid paying social security taxes, elimination of the one-time exclusion for capital gains on sales of residences, etc

There are many important institutional advantages that can better lives as well, especially providing access to health care and to university education.

Responding to a question about labor, Smeeding notes that unions will be important in areas such as the public sector, nursing, education.  But in the corporate context, an important change might be to consider bringing a labor voice to corporations' Boards of Directors.  Other possibilities are to reward corporations that reward their employees:  a tax break that goes only to corporations that raise their employees' wages, for example.

¹ Generally speaking, the tax gap is the difference between the tax burden owed and tax liabilities acknowledged and paid and thus provides some understandable standard for judging trends in compliance by taxpayers with their federal tax obligations. It is calculated periodically by the IRS and published on the website.  See The Tax Gap;  IR 2019-159 (Sept 26, 2019),  The 2019 document provides estimates for tax years 2011 through 2013 and shows an estimated average gross tax gap of $441 billion per year which, after enforcement efforts and late payments, yields a fibure of $381 billion a year.

² See, e.g.,  Lola Fadulu, Study Shows Income Gap between Rich and Poor Keeps Growing, With Deadly Effects, New York Times (Sept. 10, 2019) (summarizing research from the U.S. Government Accountability Office in August 2019 entitled Retirement Security: Income and Wealth Disparities Continue Through Old Age);  St. Louis Federal Reserve Bank Open Vault Blog, What Wealth Inequality in America Looks Like: Key Facts and Figures (Aug 14, 2019) (showing income distribution from 1989 to 2016 (before the impact of the highly distortive 2017 tax legislation) skewed to favor the top 10% of income earners at the expense of the bottom 90%).

³ See, e.g., Amelta Josephson, What is the Wealth Gap?SmartAsset.com (Jul 23, 2019) (noting that the CBO's 2013 wealth data showed a figure of $67 trillion for total family wealth, with the top 10% of families holding 76% of that total wealth (and having incomes of $942,000 a year or more).

⁴ See, e.g., Institute for Policy Studies, 2015.

⁵ See, e.g.,  Pedro Nicolaci da Costa, America's Humongous Wealth Gap is Widening Further, Forbes (May 29, 2019). Noting that "distribution is everything" in response to proclamations that the economy is healthy because of stock market trends or eomployment numbers, the article states that "a steady economic expansion and historically low jobless rate can mask deep inequalities in income and wealth that leave American families in vastly different financial situations."  It relies on a recent Federal Reserve Bank (Fed) report that shows that the poorest 50% are "getting crushed" by "rising inequalities."  The increase in net worth since 1989 (growing almost 4X the prior figure) has accrued mostly to the top of the distribution, with the bottom 50% seeing essentially zero net gains in wealth over 30 years.   Figure 2 from the article is duplicated below.

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Larry Summers: Do Americans really need to be more thrifty? [feedly]

There is progressive/moderate common ground...

Larry Summers: Do Americans really need to be more thrifty?
http://larrysummers.com/2020/01/07/do-americans-really-need-to-be-more-thrifty/

Few economic virtues are more universally applauded than thrift.

Going back at least to Ben Franklin, Americans have equated greater thriftiness with greater worthiness. Progressives decry the limited saving and wealth accumulation of middle-income families and express alarm over the widely reported "fact" that 40 percent of Americans cannot come up with $400 in an emergency. Conservatives applaud thrift as an aspect of self-reliance and propose ideas such as health-savings accounts to help families prepare for emergencies. Moderates believe universal social insurance programs such as Social Security and Medicare, which they label as entitlements, should be modest or even curtailed out of fiscal prudence.

In the current economic context of extremely low interest rates, however, these views are more wrong than right. The federal government should provide more, not less, social insurance. If it did, the result would be reduced inequality, a more secure middle class and a stronger economy.

The immediate financial insecurity of the middle class has been exaggerated. That frequently cited 40 percent figure comes from a Federal Reserve survey asking how individuals would meet an unexpected $400 expense. About 60 percent said they would meet the expenditure by dipping into cash or its equivalent, which in turn is the basis for the claim that 40 percent of families would have to borrow on credit cards or from family members. But the same Fed survey found that 85 percent of adults could meet a $400 expense while still paying all their bills.

The real challenges that keep middle-class families up at night are retirement, economic dislocation and supporting their children as they go to college and then buy a first home. These cost far more than $400 and are not best met by personal saving. Rather, a generous and well-functioning society in which Social Security meets retirement needs, appropriate unemployment and wage insurance programs cushion economic shocks, adequate public funding holds down college costs, and health insurance has generous coverage would greatly reduce the need for most households to save.

It is highly inefficient to rely on individual saving rather than universal public programs to deal with life's contingencies. Social Security, for example, pays out close to 99 percent of the revenue it collects in benefits. In contrast, individuals saving for retirement or the proverbial rainy day can over a lifetime dissipate as much as 20 percent of their savings in commission payments to financial institutions. Similar, and probably greater, efficiencies are associated with government provision of other forms of insurance.

There is the further point that self-reliance is an especially implausible way to deal with catastrophes such as disability or the loss of a good-paying job without the availability of an alternative. Genuinely preparing for such contingencies would involve building up a large nest egg at a substantial cost in terms of current consumption. Meanwhile, the feared contingencies never arise for most people. That's why pooling risk through insurance is the best strategy.

All of this has always been true. What makes this an especially propitious time to expand, rather than contract, government-provided social insurance is the current macroeconomic environment. After adjusting for inflation, the interest rate on safe debt securities is essentially zero.

Suppose the government expands Social Security by raising taxes on payrolls by, say, 2 percentage points and pays the proceeds to the retired generation, then continues this policy indefinitely. The generation currently retired would get a windfall gain. And each subsequent generation would earn a return on the taxes it pays equal to the economy's growth rate, which is well above rates of interest.

The combination of the economies available from having the government provide insurance services, plus the return premium made available by such pay-as-you-go finance, makes public programs the right way to strengthen the middle class. This becomes even more true once it is recognized that, as long as initiatives are financed at least in substantial part from highly progressive taxes, the result will be to reduce inequality.

And finally there is the observation that more social insurance, even if fully paid for by contributions, will raise demand in the economy by reducing households' need to save. By increasing normal interest rates, this will push the economy forward and contribute to financial stability.

The clear verdict: We don't need fewer entitlements for the American middle class. We need more.

VISIT WE
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Another sign of the deepening social crisis: The decline in US life expectancy [feedly]

Another sign of the deepening social crisis: The decline in US life expectancy
https://economicfront.wordpress.com/2020/01/02/another-sign-of-the-deepening-social-crisis-the-decline-in-us-life-expectancy/

US life expectancy is on the decline, falling from 2014 to 2017—the first years of decline in life expectancy in over twenty years.  And according to Steven H. Woolf and Heidi Schoomaker, authors of the recently published "Life Expectancy and Mortality Rates in the United States, 1959-2017" in the Journal of the American Medical Association, "A major contributor has been an increase in mortality from specific causes (e.g., drug overdoses, suicides, organ system diseases) among young and middle-aged adults of all racial groups, with an onset as early as the 1990s and with the largest relative increases occurring in the Ohio Valley and New England."

Declining life expectancy

In 1960, the US had the highest life expectancy of any country in the world.  By 2017 US life expectancy significantly trailed that of other comparable countries, as illustrated below.

In 1980, the difference between average life expectancy in the US and that of comparable countries was not large–73.7 years versus 74.5 years.  However, as we can see in the next figure, the gap steadily grew over the following years.  The US gained 4.9 years in average life expectancy from 1980 to 2017; comparable countries gained 7.8 years on average.

As researchers for the Kaiser Family Foundation point out, "The U.S. and most comparable countries experienced a slight decline in life expectancy in 2015. By 2016, life expectancy for these comparable countries rebounded to pre-2015 numbers, but in the US, such a bounce back did not occur."  After averaging 78.9 years in 2014, averaged life expectancy in the US fell to 78.7 years in both 2015 and 2016, and then dropped again in 2017 to 78.6 years. These declines mark the first decreases in US life expectancy in more than 20 years.

Moreover, this growing gap and outright decline in average life expectancy holds for both US males and females, as we see from the following figure.

The growing social crisis

Woolf and Schoomaker drew upon 50 years' worth of data from the US Mortality Database and the US Centers for Disease Control and Prevention's WONDER database in an attempt to explain why US life expectancy has not kept pace with that of other wealthy countries and is now falling.  Their primary finding, as noted above, is that US life expectancy is being dragged down by "an increase in mortality from specific causes (eg, drug overdoses, suicides, organ system diseases) among young and middle-aged adults of all racial groups."

More specifically, while over the period 1999-2017, infant mortality, mortality rates among children and early adolescents (1-14 years of age), and age-adjusted mortality rates among adults 65-84 all declined, individuals aged 25-64 "experienced retrogression" beginning in 2010, as we can see in the following figures taken from their article.  Between 2010 and 2017, these midlife adults experienced a 6 percent total increase in mortality rate. This increase overwhelmed gains experienced by the other age cohorts, dragging down overall US average life expectancy.

Woolf and Schoomaker concluded that there were multiple causes for this rise in mortality rates among individuals 25-64.  However, they highlighted drug overdose, alcohol abuse and suicide as among the most important.  This age cohort experienced a nearly four-fold increase in fatal drug overdoses between 1999 and 2017.  Their suicide rates went up nearly 40 percent over the same period. The rate of alcohol-related disease deaths soared by almost 160 percent for those 25-34 years.

In an interview with BusinessInsider, Woolf wrestled with why the country is experiencing such a dramatic rise in mortality rates among young and middle aged adults. "It's a quandary of why this is happening when we spend so much on healthcare," Woolf said, adding: "But my betting money is on the economy."

That seems like a pretty safe answer.  It also raises the question: how do we help working people understand the increasingly toxic nature of the workings of the US economy and build the ties of solidarity necessary to advance the struggle for system transformation.

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The Decline of Global Value Chains [feedly]

This article is interesting in many ways, but I would change its conclusion, which reads: "Ultimately, the Chinese government must recognize that Sino-American tension is rooted in the differences in their political systems. Without some willingness on China's part to liberalize its authoritarian model, the transformation of the world economy is unlikely to be smooth."

I submit one must counter: "Without some willingness on the US part to modify its imperial model (e.g. "there shall be NO "socialism""), the transformation of the world economy is unlikely tobe smooth."

The Decline of Global Value Chains
https://www.project-syndicate.org/commentary/china-trump-global-value-chains-by-erik-berglof-2020-01

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Apocalypse Becomes the New Normal [feedly]

there does not seem to be a market solution....

Apocalypse Becomes the New Normal
https://www.nytimes.com/2020/01/02/opinion/climate-change-australia.html

text only:

The past week's images from Australia have been nightmarish: walls of flame, blood-red skies, residents huddled on beaches as they try to escape the inferno. The bush fires have been so intense that they have generated "fire tornadoes" powerful enough to flip over heavy trucks.

The thing is, Australia's summer of fire is only the latest in a string of catastrophic weather events over the past year: unprecedented flooding in the Midwest, a heat wave in India that sent temperatures to 123 degrees, another heat wave that brought unheard-of temperatures to much of Europe.

And all of these catastrophes were related to climate change.

Notice that I said "related to" rather than "caused by" climate change. This is a distinction that has flummoxed many people over the years. Any individual weather event has multiple causes, which was one reason news reports used to avoid mentioning the possible role of climate change in natural disasters.

In recent years, however, climate scientists have tried to cut through this confusion by engaging in "extreme event attribution," which focuses on probabilities: You can't necessarily say that climate change caused a particular heat wave, but you can ask how much difference global warming made to the probability of that heat wave happening. And the answer, typically, is a lot: Climate change makes the kinds of extreme weather events we've been seeing much more likely.

And while there's a lot of randomness in weather outcomes, that randomness actually makes climate change much more damaging in its early stages than most people realize. On our current trajectory, Florida as a whole will eventually be swallowed by the sea, but long before that happens, rising sea levels will make catastrophic storm surges commonplace. Much of India will eventually become uninhabitable, but killing heat waves and droughts will take a deadly toll well before that point is reached.

Put it this way: While it will take generations for the full consequences of climate change to play out, there will be many localized, temporary disasters along the way. Apocalypse will become the new normal — and that's happening right in front of our eyes.

The big question is whether the proliferation of climate-related disasters will finally be enough to break though the opposition to action.

There are some hopeful signs. One is that the news media has become much more willing to talk about the role of climate change in weather events.


Not long ago it was all too common to read articles about heat waves, floods and droughts that seemed to go to great lengths to avoid mentioning climate change. My sense is that reporters and editors have finally gotten over that block.

The public also seems to be paying attention, with concern about climate change growing substantially over the past few years.

The bad news is that growing climate awareness is mainly taking place among Democrats; the Republican base is largely unmoved.

And the anti-environmental extremism of conservative politicians has, if anything, become even more intense as their position has become intellectually untenable. The right used to pretend that there was a serious scientific dispute about the reality of global warming and its sources. Now Republicans, and the Trump administration in particular, have simply become hostile to science in general. Hey, aren't scientists effectively part of the deep state?

Furthermore, this isn't just a U.S. problem. Even as Australia burns, its current government is reaffirming its commitment to coal and threatening to make boycotts of environmentally destructive businesses a crime.

The sick irony of the current situation is that anti-environmentalism is getting more extreme precisely at the moment when the prospects for decisive action should be better than ever.

On one side, the dangers of climate change are no longer predictions about the future: We can see the damage now, although it's only a small taste of the horrors that lie ahead.

On the other side, drastic reductions in greenhouse gas emissions now look remarkably easy to achieve, at least from an economic point of view. In particular, there has been so much technological progress in alternative energy that the Trump administration is trying desperately to prop up coal against competition from solar and wind.

So will environmental policy play a role in the 2020 campaign? Most Democrats seem disinclined to make it a major issue, and I understand why: Historically, the threat posed by right-wing environmental policy seemed abstract, distant and hard to run on compared with, say, Republican attempts to dismantle Obamacare.

But the wave of climate-related catastrophes may be changing the political calculus. I'm not a campaign expert, but it seems to me that campaigns might get some traction with ads showing recent fires and floods and pointing out that Donald Trump and his friends are doing everything they can to create more such disasters.

For the truth is that Trump's environmental policy is the worst thing he's doing to America and the world. And voters should know that.

The Times is committed to publishing a diversity of letters to the editor. We'd like to hear what you think about this or any of our articles. Here are some tips. And here's our email: letters@nytimes.com.

Follow The New York Times Opinion section on Facebook, Twitter (@NYTopinion) and Instagram.

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

A version of this article appears in print on Jan. 3, 2020, Section A, Page 22 of the New York edition with the headline: Apocalypse Becomes the New Normal. Order Reprints | Today's

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Dean Baker: Donald Trump’s Big Trade Deals: More Reality TV [feedly]

Donald Trump's Big Trade Deals: More Reality TV

Dean Baker

http://cepr.net/publications/op-eds-columns/donald-trump-s-big-trade-deals-more-reality-tv

As he faced impeachment, Donald Trump touted his trade deals as evidence of the great success of his presidency. Specifically, he touted his revised North American Free Trade Agreement (NAFTA), which the Democratic leadership agreed to, and a first-round trade agreement with China. In both cases, people are more likely to hear Trump's boasts than to see any economic benefit from these deals.

In the case of the new NAFTA (called the United States-Mexico-Canada Agreement), it is essentially the old NAFTA, with some minor twists, both positive and negative. On the positive side, congressional Democrats forced Trump to include some serious language on labor rights in Mexico. While it remains to be seen how enforceable these will be, they are definitely stronger than the provisions in the original NAFTA.

It also helps that Mexico's current president, Andres Manuel Lopez Obrador, is its most labor-friendly leader in more than half-century. In most cases, Obrador will likely be happy to improve labor standards in Mexico in accordance with the agreement.

While provisions that can improve the living standards of Mexican workers should be seen as good, this is unlikely to make much difference in terms of the number of manufacturing jobs going from the U.S. to Mexico. Even if the labor provisions of the deal are fully enforced, wages will still be far lower in Mexico than in the United States.

The one positive aspect of this picture for U.S. workers is that most of the jobs that are likely to be transferred to Mexico have already moved there. Some jobs are undoubtedly still threatened with being moved going forward, but for the most part, the big transfer of manufacturing jobs has already taken place.

A big plus, for which congressional Democrats deserve considerable credit, was the removal of provisions that would have lengthened patent protections for prescription drugs. This provision would not only raise drug prices in our trading partners, it would lock in high prices in the United States. Democrats insisted that the patent-lengthening provisions be removed as a condition of reaching an agreement.

The major downside of the revised NAFTA was that it left in place wording that will make it more difficult to regulate the internet. There is a whole range of internet concerns on issues such as privacy, ownership of data, and the spreading of false information that has been raised in the United States and elsewhere.

The revised NAFTA will make it more difficult to impose new regulations in any of these areas. Of special concern is that the deal locks in, and applies to our trading partners, Section 230 of the Communications Decency Act. This protects internet intermediaries, like Facebook, from facing the same sort of liability for knowingly spreading false information that print and broadcast outlets face.

This means, for example, that if someone falsely alleges that a person committed a horrible crime, Facebook has no responsibility to remove the allegation, even if it can be shown to be false. Since the intention of the administration and Congress is to treat the revised NAFTA as a model for other trade deals, this special treatment of internet intermediaries is a very bad story.

It is harder to pass judgment on the "phase one" China deal, since we don't really know what is there. The Trump administration and the Chinese government are making different claims about what was agreed to.

One thing that we can be reasonably sure of is that the deal will not fundamentally alter the U.S. trading relationship with China. The U.S. is likely to continue to be a large net importer of manufactured goods from China.

China is also not about to restructure its entire economy in accordance with Donald Trump's vision. This fact was obvious to arithmetic fans everywhere. Our imports from China come to less than 4.0 percent of China's GDP. Much of the value added of these imports comes from other countries. For example, most of the value of an iPhone imported from China comes from the U.S. The value added of the items we import from China is almost certainly less than 3.0 percent of its GDP.

Even if Trump's tariffs reduced this by half (they have not come close), that is still only a hit of 1.5 percent of GDP. That would slow China's growth, but not be the sort of thing that would get it to restructure its economy. In fact, it likely would not even cause a recession. In short, Trump was fighting a trade war without any ammunition.

So, enjoy the celebration of Donald Trump's big trade deals, but don't expect to see any benefits for the economy. You won't find them.

 -- via my feedly newsfeed