EPIC Radio Podcasts:Paris on the Potomac podcast welcomes Law Enforcement Against the War On Drugs

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Post: Paris on the Potomac podcast welcomes Law Enforcement Against the War On Drugs
Link: http://podcasts.enlightenradio.org/2017/02/paris-on-potomac-podcast-welcomes-law.html

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The Global Economy Today, Part 2 [feedly]

http://triplecrisis.com/the-global-economy-today-part-2/
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The Global Economy Today, Part 2
// TripleCrisis

Arthur MacEwan is professor emeritus of economics at the University of Massachusetts Boston and a co-founder and associate of Dollars & Sense magazine. This is the part two of a three-part series on the era of economic globalization, the distribution of power worldwide, and the current crisis. It was originally published in the January/February issue of Dollars & Sense, commencing the magazine's year-long "Costs of Empire" project. Part 1 is available here.

Arthur MacEwan

Financialization and Crisis

There is also the international financialization phenomenon— the rising role of financial markets and financial institutions in the operation of the economy. The global amount of debt outstanding grew from $45 trillion in 1990 to $175 trillion in 2012, increasing from almost 2¼ times global GDP to almost 2½ times. (The most rapid growth took place before the Great Recession, followed by a slow-down in subsequent years.)

The economic instability associated with financialization became apparent in the Asian financial crisis of 1997. The rapid exodus of capital from countries where economic problems were developing greatly exacerbated the downturn. The financial crisis that emerged in the United States in 2008 and 2009, then spread to Europe and elsewhere, exposed the full and devastating force of global financial activity. The great size and extensive web of connections among financial institutions created a severe threat to the world economy. "Free market" ideology was put aside, and the U.S. government intervened heavily—with a huge bailout of the banks— to keep the economy from imploding.

Financialization created, and continues to create, a vast increase in debt levels in many counties. "Debt … is an accelerator," notes University of Massachusetts economist Gerald Epstein, "that enables the financial system to generate a credit bubble." The bubble allows financial institutions (banks, hedge fund, private equity firms, etc.) to extract wealth form from non-financial firms and individuals, and can also quicken the pace of economic activity more generally. Bubbles, however, burst, leading to economic distress, deflation, and bankruptcies.

Beyond instability and crises, financialization appears to impede economic growth by diverting resources from productive activity into financial speculation. Also, financialization harms economic growth by contributing to extreme income inequality, which is increasingly recognized to have a negative impact on growth. Furthermore, though perhaps in a more extreme form, large financial firms present the same problems that arise with other large firms operating internationally, namely that the many options created by their global operations— to say nothing of their political influence— make them difficult to tax and regulate.

Free Trade? Only in the Rhetoric

Even with U.S. trade-and-investment agreements, reduction in restrictions on international commerce, technological changes, and the WTO rules of operation, many aspects of world commerce remain contested terrain. U.S. financial and nonfinancial firms, along with firms from other countries, want not only trade and investment access, but also as much assurance as they can get for the right to access. So under the banner of "free trade" the United States pushed forward to establish the Trans-Pacific Partnership Agreement (TPP), with eleven other countries along the Pacific Rim, and the Transatlantic Trade and Investment Partnership (TTIP), with the European Union. These agreements would expand the share of U.S. trade and investment taking place within realms where the "rules of the game" are firmly established—and those rules would essentially be rules promoted by large U.S. firms and the U.S. government, but of course with the cooperation of large firms and governments elsewhere. With the ascendancy of Donald Trump to the presidency, however, the TPP now seems dead, and the future of the TTIP and other agreements is unclear. A key to understanding these and earlier tradeand- investment pacts is to recognize that they are not "free trade" agreements. These agreements, while removing some barriers to international trade and investment, have focused on creating protections. This is most clear in regard to patents and copyrights—so-called "intellectual property rights." As Dean Baker, the co-director of the Center for Economic and Policy Research has written:

The TPP is not about free trade. It does little to reduce tariffs and quotas for the simple reason that these barriers are already very low. [See Table.] …In fact, the TPP goes far in the opposite direction, increasing protectionism in the form of stronger and longer patent and copyright protection. These forms of protection for prescription drugs, software and other products, often raise the price by a factor of a hundred or more above the free market price. This makes them equivalent to tariffs of several thousand percent.

Patents and copyrights are alleged to encourage innovation, but there is no reason to think that the particular—especially high—U.S. system of protections promoted in these agreements is a good way to accomplish this end. There are more effective ways to promote innovations, but few more effective ways to promote profits for large pharmaceuticals and software firms.

Furthermore, while these agreements assure the unrestrained movement of capital—establishing rights for foreign investment in the participating countries—they do not provide for the movement of labor. People are inherently less mobile than capital, regardless of immigration restrictions. Yet, removing restrictions on capital mobility and doing nothing to facilitate the movement of labor or protect labor increases the power of firms over workers. Power depends on the availability of options. These agreements give greater options— and therefore greater power—to businesses. This power shows up in the stagnation, and in many cases the decline, of workers' wages, as their jobs are shifted to lower-wage countries and they are forced to accept lower wages in other employment. Even when firms do not actually move abroad, the threat of movement is sufficient to weaken workers' bargaining power.

Power to businesses is also provided—in these agreements, in NAFTA and the more recently proposed agreements—through provisions that give foreign investors the right to sue governments in private international arbitration (not the courts). These provisions are known as "investor-state dispute settlement," or ISDS. ISDS allows a firm to sue, claiming that new financial regulations, environmental laws, worker protections, food and health safety standards, or other laws and regulations threaten their profits. A recent example of the use of ISDS is the case filed in 2016 by TransCanada, claiming that the U.S. government's blocking construction of its Keystone XL pipeline violated its rights under NAFTA and seeking $15 billion in compensation. The danger of these agreement provisions is not only that the suits will be costly, but that they will inhibit the establishment of important laws and regulations. (There is, by the way, no provision for workers to sue when new laws or regulations harm their livelihoods.) The ISDS provisions and the patent and copyright protections in these various international agreements belie the rhetoric that they are free trade agreements.

In reality, there is no such thing as free trade, if the term is taken to mean international commerce without any impact from government actions. Governments' involvement in economic activity is ubiquitous and their impact on their countries' international commerce is affected by far more than tariffs, import quotas, and direct subsidies for export activity. Perhaps the best example is government expenditures on education and research. If these expenditures are high relative to other countries', the country has a trade advantage in goods and services that rely on highly skilled labor. These expenditures are, in effect, an indirect, though important, subsidy to certain kinds of exports. A particular and historically important case is that of government support of agricultural research and extension activity, which has long-placed U.S. agriculture in a strong position in international trade. More recent examples are the U.S. Defense Department's grants for information technology development and the National Science Foundation's support for activity biotechnology. Clearly, such expenditures, as well as the broad government support of public education, have profound effects on countries' international commerce.

The point here is not that governments should stop all economic engagement that affects international commerce, an impossible task that even celebrants of free trade themselves do not advocate. Instead, we should recognize that choices must be and are being made regarding the nature of a country's trade. Those choices are bound up with all sorts of other choices about governments' engagement with their economies. The matter of how international commerce should be organized cannot hidden behind the rhetoric of free trade.

Triple Crisis welcomes your comments. Please share your thoughts below.

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JB on Brad DeLong’s Vox piece on trade deals and trade [feedly]

http://jaredbernsteinblog.com/jb-on-brad-delongs-vox-piece-on-trade-deals-and-trade/
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JB on Brad DeLong's Vox piece on trade deals and trade
// Jared Bernstein | On the Economy

A number of people have asked me to react to this recent Vox piece by economist Brad DeLong. Therein, Brad argues that trade agreements have a lot less to do with manufacturing job loss than a lot of people say and think they do.

My first reaction is that Brad is saying some things that needed to be said, and doing so with a persuasive, muscular argument. My second reaction is that when most people, including politicians and voters, are talking about trade agreements, they're conflating them with trade itself. As far back as I've been involved in this debate, which is decades, I've argued that this is a mistake. There's trade deals and there's trade, and they're not the same thing. But I've lost that fight, and if we want to understand the political dynamics in play here, we need to recognize this conflation and its implications. To fail to do so risks misunderstanding those dynamics in a way that will only strengthen the forces of protectionism, anti-globalization, and Trump's faux populism.

Let me start by asserting my firm belief, shared with Brad and many others, in trade's positive net benefits, and not just for us but for our trading partners, especially emerging economies who raise their living standards by trading with rich countries.

But as Brad recognizes, there is also a lot wrong with US trade policy—as distinct from trade deals (about which I'm less favorable than he is). We run persistent trade deficits, our highest office holders mindlessly argue for a strong dollar (though Trump has already broken with that), and most importantly, persistent trade imbalances have delivered concentrated negative impacts to some communities across the land.

Here the problem is worse than DeLong suggests. It's not just that the winners fail to compensate the losers. It's that they use their winnings to buy the politics and policies that further hurt the losers. When Trump and Bernie and even Hillary said "the economy's rigged," this is what they meant: the benefits of growth (including those from globalization) are going largely to the rich, who then use those resources to advance more inequality-inducing government policies (real time examples include ACA repeal and the big, nasty, regressive tax cut that's coming). The fact that Trump pulled this message off may seem remarkable, but history is littered with carnival barking faux populists tapping this play.

So when politicians inveigh against NAFTA, a non-trivial group of people/voters hear them saying "you've been screwed by globalization," and that resonates with them.

Why is that? I doubt it's because they didn't like the TPP's rules-of-origin chapters or Chapter 7 on "Phytosanitary Measures."

It's probably true that many fail to appreciate the linkages between trade and cheap goods. But my strong impression is that there's a way in which a lot of people have been hurt by globalization that the trade deals vs. trade angle overlooks, and that's the story of widespread real wage stagnation.

To be clear, that story isn't a trade deal story either, but it's likely more of a trade story, as "Stolper-Samuelson effects" put downward pressure on wages—real wages, including everyday low prices at Walmart—of the majority of the workforce that's non-college educated (these economists derived the common-sense theory that lower-skilled workers in rich countries will be the ones who get hurt by expanded trade with poorer countries).

Of course, trade is but one factor driving wage stagnation. Changes in technology favoring more highly educated workers, low unionization rates, the absence of full employment (which provides middle- and low-wage workers with more bargaining clout), eroding minimum wages, and excess profits in the finance sector are all factors are in play. But if we want to understand why NAFTA and China-WTO resonate so negatively, my bet is that it's because there really are far too many people who've been hurt by all those structural changes, including persistently imbalanced trade.

And while all that was going on, elites were not only failing to address the existing wage and income pressures, they (we; I worked on selling the Korean FTA during Obama's first term) were working on the next trade agreement, assuring those on the wrong side of the inequality divide that this time will be different—"this time, the FTA's gonna really create tons of jobs and hey, if not, there's Trade Adjustment Assistance" or as Brad aptly calls it, "burial insurance."

Or, as Brad also says, "…those whose jobs vanish usually find something else to do that does not involve too much downward mobility, whether in income or status." OK, but man, that's some cold comfort!

The scariest part of all of this is that the virtual ignoring of the downsides of global competition (along with the other stuff in that list of wage-suppressors above) by well-meaning technocrats has provided an opening for isolationist racist xenophobes that delivered unto us President Trump, and he's just the US version.

So, while I appreciated Brad's clarifying the minor role of trade deals (vs. trade), I wasn't sure where to go with that insight. Brad seems to argue that trade deals had little impact on jobs but they've really been pretty great. But how so?

Brad wants policy makers to tell it like it is on the NAFTA, KORUS, CAFTA, TPP, but if so, what does he want them to say to the median household whose real market income is about where it was in 2000? What is in these deals that he'd like them to know about so that they'd feel as good as he does about them?

I'm with Brad in believing that we should neither eviscerate trade deals nor freight them up with so much meaning and import.

But neither should we romanticize them. These trade deals aren't wonderful innovations brimming with great ideas. They're just legal, technical rules by which countries agree to trade—how to adjudicate disputes; how to determine domestic content; how to deal with patents; how to decide what constitutes food safety; how to harmonize around logistical constraints (on this, see TPP chapter 5 on Customs Administration and Trade Facilitation, one of my personal favorites; Oh, and here's a neat, inside-DC tip: a lot of people who talk about trade deals haven't read trade deals).

That's not a critique—we need such rules. But it matters who gets to write them, and I think I can make a strong case, one with which Brad might agree, that the whole negotiating process now suffers from excessive corporate capture. Brad correctly elevates concerns about protectionist (patents, IP) and other inequitable provisions in the TPP, like the Investor State Dispute Settlement system, that many feared would have distorted prices and power. To this list of concerns about contemporary trade deficits, I'd add the absence of chapters with enforceable rules against currency manipulation.

So while I again stress that Brad's making a useful contribution here, my punchline response to his piece is: Given persistent trade deficits that have contributed to long-term wage stagnation, along with corporate capture and the absence of consumer, labor, and environmental voices at the trade-negotiating table, perhaps it's not so crazy that these trade deals have become code for a lot of other stuff that's gone wrong for many in the working class.

That's my main political economy point, but here are a few other reactions to other points in the piece.

Brad argues that those who analyzed the TPP concluded "it was on the whole very profitable for the US." He may well have stuff in mind, but here's what the International Trade Commission report found for the US, by 2032 (and I'd argue the ITC was one of the less thumb-on-the-scale studies around on this).

Increase real GDP by $42.7 billion, or 0.15 percent;Increase employment the equivalent of 128,000 full-time jobs, or 0.07 percent;Increase exports by $27.2 billion (1 percent) and imports by $48.9 billion (1.1 percent);Have the biggest sectoral impact on agriculture and food, increasing employment in that industry by 0.5 percent;Decrease employment in the manufacturing, natural resources, and energy sector by 0.2 percent

FTR, that's one month of 2032 GDP growth. Maybe other models back up Brad's claim, but I think we should heavily discount modelling of a 6,000 page trade agreement on what GDP will be 15 years from now! Any honestly derived confidence interval around such an estimate would be likely to swamp them.

On the other hand, as those who know his work would expect, Brad's macro critique of our persistent imbalances and the role of the strong dollar was spot on and important. I would have added how they contribute to credit bubbles, as per Bernanke's savings glut arguments.

Finally, Brad argues, without evidence, that "By and large, the jobs that we shed as a result of NAFTA and China-WTO were low-paying jobs that we did not really want." Isn't that inconsistent with the wage outcomes in the sector? Real blue collar manufacturing compensation has been virtually flat since the early 1980s. A lot of moving parts here, so maybe I'm wrong, but that didn't sound right, at least without proof.

 


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Data and Inequality [feedly]

Data and Inequality
https://blog-imfdirect.imf.org/2017/02/02/data-and-inequality/

 -- via my feedly newsfeed

by iMFdirect

Policymakers need good data to help them make good decisions.

Ravi Kanbur says producing statistics on inequality is never just a technical act; it has political consequences.  Kanbur is a Professor of Economics at Cornell University and delivered the keynote speech at the Fourth IMF Statistical Forum on Statistics for Inclusive Growth.

In this podcast, Kanbur says data doesn't always reflect reality when it comes to poverty and inequality.

"The statistical office in a country may come out and say poverty has gone down, but the people on the ground say they feel it hasn't." Kanbur also says the conventional methods used to collect household data can lead to an underreporting of inequality and poverty of up to 30%.

The interview includes an interesting historical look back at the British collection and use of data during colonial times in India.  The India office would prepare an annual report to the British parliament on economic and moral progress in India.

Fun economist party fact: John Maynard Keynes' first job out of university was in the statistical office that produced the report.  He never went to India but knew a lot about it because he managed the report's production in 1906-1907.

Kanbur says it's quite remarkable that in the last five years a leading voice on the detrimental effect of inequality on growth has been research from the IMF.

Watch the podcast:

 

Eastern Panhandle Independent Community (EPIC) Radio:Paris, Labor Beat and Resistance Radio Friday, Feb 3, 2017 Lineup

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Blog: Eastern Panhandle Independent Community (EPIC) Radio
Post: Paris, Labor Beat and Resistance Radio Friday, Feb 3, 2017 Lineup
Link: http://www.enlightenradio.org/2017/02/paris-labor-beat-and-resistance-radio.html

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Eastern Panhandle Independent Community (EPIC) Radio:Wonk City -- Most of Thursday on Economics -- Feb 2, 2017 -- 7:00 AM EST

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Blog: Eastern Panhandle Independent Community (EPIC) Radio
Post: Wonk City -- Most of Thursday on Economics -- Feb 2, 2017 -- 7:00 AM EST
Link: http://www.enlightenradio.org/2017/02/wonk-city-most-of-day-on-economics-feb.html

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Eastern Panhandle Independent Community (EPIC) Radio:Health and Food Programming on EPIC for Wednesday, Feb 1

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Blog: Eastern Panhandle Independent Community (EPIC) Radio
Post: Health and Food Programming on EPIC for Wednesday, Feb 1
Link: http://www.enlightenradio.org/2017/02/health-and-food-programming-on-epic-for.html

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