Krugman: Debacle in Quebec [feedly]

Debacle in Quebec
https://www.nytimes.com/2018/06/09/opinion/debacle-in-quebec.html

For all their pomp, most multilateral summit meetings are boring and of little consequence. I once spoke to a State Department official who had a role in putting these meetings together; he described his job as "policing the nuances," which gives you an idea about how much is normally at stake.

Occasionally, however, such meetings do have real consequences, good or bad. The 2009 G20 summit, at which nations agreed to provide economic stimulus and loans to troubled countries in the face of the financial crisis, played at least some role in helping the world avoid a full replay of the 1930s. The 2010 summit, by contrast, effectively endorsed a turn to austerity that significantly delayed recovery and, arguably, partially set the stage for the rise of political extremism.

Still, there has never been a disaster like the G7 meeting that just took place. It could herald the beginning of a trade war, maybe even the collapse of the Western alliance. At the very least it will damage America's reputation as a reliable ally for decades to come; even if Trump eventually departs the scene in disgrace, the fact that someone like him could come to power in the first place will always be in the back of everyone's mind.

What went down in Quebec? I'm already seeing headlines to the effect that Trump took a belligerent "America first" position, demanding big concessions from our allies, which would have been bad. But the reality was much worse.

He didn't put America first; Russia first would be a better description. And he didn't demand drastic policy changes from our allies; he demanded that they stop doing bad things they aren't doing. This wasn't a tough stance on behalf of American interests, it was a declaration of ignorance and policy insanity.

Trump started with a call for readmitting Russia to the group, which makes no sense at all. The truth is that Russia, whose GDP is about the same size as Spain's and quite a bit smaller than Brazil's, was always a ringer in what was meant to be a group of major economies. It was brought in for strategic reasons, and kicked out when it invaded Ukraine. There is no possible justification for bringing it back, other than whatever hold Putin has on Trump personally.

Then Trump demanded that the other G7 members remove their "ridiculous and unacceptable" tariffs on U.S. goods – which would be hard for them to do, because their actual tariff rates are very low. The European Union, for example, levies an average tariff of only three percent on US goods. Who says so? The U.S. government's own guide to exporters.

True, there are some particular sectors where each country imposes special barriers to trade. Yes, Canada imposes high tariffs on certain dairy products. But it's hard to make the case that these special cases are any worse than, say, the 25 percent tariff the U.S. still imposes on light trucks. The overall picture is that all of the G7 members have very open markets.


So what on earth was Trump even talking about? His trade advisers have repeatedly claimed that value-added taxes, which play an important role in many countries, are a form of unfair trade protection. But this is sheer ignorance: VATs don't convey any competitive advantage – they're just a way of implementing a sales tax — which is why they're legal under the WTO. And the rest of the world isn't going to change its whole fiscal system because the U.S. president chooses to listen to advisers who don't understand anything.

Actually, though, Trump might not even have been thinking about VATs. He may just have been ranting. After all, he goes on and on about other vast evils that don't exist, like a huge wave of violent crime committed by illegal immigrants (who then voted in the millions for Hillary Clinton.)

Was there any strategy behind Trump's behavior? Well, it was pretty much exactly what he would have done if he really is Putin's puppet: yelling at friendly nations about sins they aren't committing won't bring back American jobs, but it's exactly what someone who does want to break up the Western alliance would like to see.

Alternatively, maybe he was just acting out because he couldn't stand having to spend hours with powerful people who will neither flatter him nor bribe him by throwing money at his family businesses – people who, in fact, didn't try very hard to hide the contempt they feel for the man leading what is still, for the moment, a great power.

Whatever really happened, this was an utter, humiliating debacle. And we all know how Trump responds to humiliation. You really have to wonder what comes next. One thing's for sure: it won't be good.

 -- via my feedly newsfeed

The Elephant in the Room: The International Arms Trade and the G7 [feedly]

The Elephant in the Room: The International Arms Trade and the G7
https://www.globalpolicyjournal.com/blog/09/06/2018/elephant-room-international-arms-trade-and-g7

International Media Centre – G7 Charlevoix Summit. This year's G7 Summit in Charlevoix had promised to be a thoroughly feminist affair, with gender equality, development and security all central to the Canadian presidency. In an attempt to mirror his own feminist foreign policy, Justin Trudeau has created an agenda that aims to promote women's empowerment globally, proclaiming gender equality central to economic advancement and extreme poverty reduction. Despite one of the most ambitious G7 agendas we have seen for some time, the impact of international arms sales on the developing world is not up for discussion at all.

The adoption of the Sustainable Development Goals (SDGs) in 2015 marked a universal call to action to end poverty, protect the planet and ensure all people enjoy peace and prosperity, and has been reflected in subsequent G7 agendas. Conflict and violence often contribute to, and intensify poverty in developing countries, with women and children suffering disproportionately during and after war. More people than ever are thrown into poverty by war, conflict and persecution, with 65 million people displaced worldwide in 2016.  Meanwhile global military spending is currently booming, exceeding $1.7 trillion in 2017. 

However, many of the G7 leaders continue to ignore the connection between the arms trade and the development failures that it can provoke and which they claim to want to overcome.

Even though the Arms Trade Treaty (AAT) was adopted by the UN General Assembly in 2014, several of the G7 leaders supply arms to Saudi Arabia, the second biggest importer of major arms worldwide. The AAT prohibits the transfer of arms that could be used to commit or facilitate genocide, crimes against humanity, or war crimes. However, Canada, the US, the UK and France all have billion-dollar deals with the Kingdom. 

All four countries have furiously defended these deals, even though the Saudi regime has faced intense international criticism surrounding the war in Yemen, and is considered to be one of the most repressive regimes towards women worldwide. Trudeau in particular has struggled to obtain support for his deal. However, if he wants Canada's G7 presidency to be defined by a commitment to gender equality, development and global security, surely he should be looking to follow Germany's example, and halt arms sales to Saudi Arabia. 

India is currently the largest importer of weapons, having spent more than $100 billion in the last 10 years. It also has more of the world's abject poor (280 million) than any other country.  Spending a huge amount on expensive arms imports automatically means that there is less to invest in human development. 

In short, the world's leading economies are profiting from arming poor countries and in the process are reducing spending that would, otherwise, be directed towards poverty alleviation and meaningful development.

The US, Germany, France, the UK and Italy are all in the top ten countries for global arms exports in the world. It is therefore not surprising that arms trade regulation has not made it onto previous agendas.  

However, with the SDGs 2030 deadline looming ever nearer, it is time for the G7 to take charge and start a serious conversation about arms trade transparency and regulation.  Indeed, in order to take steps towards a more peaceful and secure world, it is time they prioritised morality over money. 

 -- via my feedly newsfeed

Economic Update - Standing Up - 06.08.18 [feedly]

Economic Update - Standing Up - 06.08.18
https://economicupdate.podbean.com/e/economic-update-standing-up-060818/

Updates on China's life expectancy, Ireland's vote, US unemployment, Amazon's quitting bonus, Johnson and Johnson put profits before public health, die-ins at Publix succeed, Macron gets union backlash, Poor People's Campaign exposes US poverty, Canada races to the bottom, super-rich spend wildly. Interview with Dr Harriet Fraad on metoo# movement and its economic and social effects.

Announcement:  Economic Update is moving to 30 minutes   Democracy at Work is pleased to announce a change in the format of our program Economic Update with Richard D. Wolff from 60 to 30 minutes.  For the last 7 years, the 60-minute format has worked well for our audience, and us, and we have successfully managed to deliver a new show each week with hardly any interruption in schedule.    By streamlining our program, we expect to deliver a more focused and impactful message to our loyal, longtime listeners, as well as satisfy a growing demand for the type of perspectives Professor Wolff provides. We believe the new format will be well received and increase engagement with our audience.   The first 30-minute show will be distributed to radio stations on June 14, 2018.  Please be sure to make the necessary adjustments to your schedules.   Note that the show's format will still have short updates for the first half of the program, and interviews when possible during the second half.    Thank you.   Sincerely, The Democracy at Work Team

 -- via my feedly newsfeed

Q&A on that crazy G7 meeitng: Trump, Trade, Tariffs, and Trouble [feedly]

Q&A on that crazy G7 meeitng: Trump, Trade, Tariffs, and Trouble
http://jaredbernsteinblog.com/qa-on-that-crazy-g7-meeitng-trump-trade-tariffs-and-trouble/

Trump at the G7 meeting? What could go wrong?

Apparently, his Orangeness gave the leaders of the free world a heavy dose of peak Trump this Saturday at the G7 meeting.

Basically, nothing newsworthy is supposed to happen at these meetings. The leaders spend a day or two together discussing mutual interests, and at the end of the summit, they release an anodyne statement renewing their vows to work together to promote cooperation and trade.

Not this time. The summit was quickly tagged the G6 plus 1 and you can guess the identity of the (very) odd guy out. Perhaps the NY Times headline can give you a flavor of how this played out: Trump Refuses to Sign G-7 Statement and Calls Trudeau 'Weak;' Tells Abe "Sushi Sucks!" [OK, I made up that last bit, but the rest is there in black and white.]

I can't speak to the diplomatic screw-up herein, though this outcome was predictable given the escalation of trade disputes in recent months, like Trumping up national security risks as a reason to put tariffs on imports from Canada and the EU.

But a number of trade issues came up in the summit, so here's a brief Q&A on the issues to which I pay attention.

Q: Is the global trading system as broken as team Trump says it is?

A: Not at all. Global trade flows have grown steadily over time, tariffs and non-tariff barriers have come down (though all the G7 countries, including our own, maintain many tariffs; see below). Exports and imports were 25 percent of GDP back in the 1960s; now they're 60 percent. These flows have introduced robust supply chains that support international commerce in goods, services, and finance. They contribute to lower prices and faster growth than would otherwise occur. Views may certainly differ as to the upsides and downsides of this evolution, but you'd be hard pressed to find an economist outside of the Trump administration who'd argue the system is broken.

Q: So, is Trump just over-emphasizing trade's downsides?

A: Perhaps he is, but for decades before he came on the scene, too few politicians acknowledged the reality that trade engendered benefits and costs. Before Trump, from the center-left to the center-right, politicians' answer to people's complaints about the damage from foreign competition to their livelihoods and communities was yet another trade deal with the false promise that this one would really help them. Trump recognized the political power of a populist attack on elites' refusal to acknowledge the downsides and he continues to press that attack.

Q: Is that why, after the meeting, he said, "We're like the piggy bank that everybody's robbing!"?

A: That's Trump making a fundamental mistake that he won't stop making: arguing that winning at trade means getting rid of our trade deficit. He views our trade deficit as a scorecard, and no one's going to convince him otherwise.

And yet, the vast majority of economists, who view our long imbalanced trade accounts as either wholly benign—"hey, if foreigners want to support our consuming more than we produce, let 'em!"—or as evidence of hyper-acquisitive Americans under-saving, are also wrong about the trade deficit. As Ken Austin and Michael Pettis explain, such thinking "is an egregious error of both logic and mathematics."

In other words, once again, Trump is onto something, but is distorting its importance and attacking the problem in a way sure to do more harm than good.

In strong economies, like today's, our trade deficit—a hefty -3.2 percent of GDP ($640 billion)—clearly isn't preventing us from closing in on full employment. Still, even in a strong job market, a deficit of that magnitude does mean fewer jobs in export sectors, as consumers' demands for manufactured goods are met with imports instead of out of domestic production. And in weak economies, the trade deficit can be a further drag on growth.

It's not that our trading partners are "robbing the U.S. piggy bank" as much as jamming it full of their excess savings. World trade must balance, so when those with whom we trade produce more than they consume, or save more than they invest, other countries must do the opposite: consume more than they produce and spend more than we save, i.e., run trade deficits. And because the U.S. dollar dominates other currencies in global commerce, "other countries" are us.

So, when they send us their excess savings (capital inflows), our trade deficit goes up. It makes no more sense to yell at Americans for dis-saving than it does to yell at the Chinese, Germans (and the Taiwanese, the Koreans, and others) for saving too much.

Sometimes those capital inflows get put to good use, sometimes they just inflate bubbles. But they always strengthen the dollar and thus put competitive pressures on our exporting sector.

Q: Wait up. So, now you're saying Trump's right, and he should be getting up in everybody's grill like he just did at the G7? Couldn't you please stop with the "on-the-one-hand-on-the-other-hand" for a minute and give it to us straight?

A: Sorry, and I hear you, but the topic is nuanced. Here it is as straight as I can put it.

Our persistent trade deficits remain a problem, both in terms of job quality and excess, bubble-inducing financial flows. But they won't be and never have been solved by tariffs. Instead, we must a) not allow the dollar to be overpriced, b) invest in our export sector, and c) really help the people and places who've been hurt by trade. Details here and here.

Q: So, Trump's wrong on tariffs? Are you saying his assertion that those seemingly mild-mannered Canadians place a 270 percent tax on milk imports is false?!

A: He's right about that! But again, he's missing the bigger picture and his tariff war will backfire.

This is another way in which team Trump on the policy community are talking past each other. Economists will tell you all day, correctly, that average tariffs in G7 economies have come down a great deal and are all in the low single-digit percentages. I myself recently made that argument to a senator from a big exporting state. He immediately countered with a long list of examples like the milk one above.

The fact is that all countries, including our own, protect certain sectors. We do less of it than others, but we have tariffs of "350 percent on smoking tobacco, 130 percent on peanuts and 99 percent on prepared groundnuts" and 25 percent on imported light trucks.

So, when Trump rails, as he did at the meeting, between proposing a "tariff-free G7" versus "we're going to stop trading with them," he's way out of his depth. Every tariff has a lobby behind it, if not a culture (the French countryside is dotted with lovely family farms that could not survive without protective tariffs and subsidies). They are an ingrained part of the trading system, they're not a problem on average, and the realistic play here is to accept that reality and try to negotiate them down in trade deals.

As for postponing trade with G7 or any other large trading partner, it's a meaningless claim. This is his standard "Art of the Deal, You're Fired" crap that is great fun on TV (if that's your thing), but meaningless in this context.

Moreover, his steel and aluminum tariffs, along with similar threats and actions will only hurt the many more Americans in industries that use these metals as inputs than those that produce them, while at the same time inviting retaliation in the form of higher tariffs on U.S. imports.

Q: So, where does this go next?

A: Nowhere good, I'm afraid. To circle back to the top, the system isn't broken, so misguided attempts to fix it will likely backfire. That could mean higher trade deficits and higher prices, but I'd guess these are marginal impacts, given that none of this bluster will majorly disrupt ongoing trade flows, and given our relatively low exposure to trade (we do a lot less of it than the other G7 countries; imports are just 15 percent of our GDP and only about 10 percent of consumer spending, less than half that of other G7 economies).

The worst thing about all this, aside from the diplomatic disruptions, is that Trump identified a real problem and was elected, at least in part, to do something about it. But neither he nor his team knows what to do.

And now they're headed for North Korea…

 -- via my feedly newsfeed

Matthew Yglesias on Marxism: Capitalism is looking pretty shabby: (Late) Monday DeLong Smackdown/Hoisted

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Matthew Yglesias on Marxism: Capitalism is looking pretty shabby: (Late) Monday DeLong Smackdown/Hoisted // Grasping Reality with Both Hands: The Semi-Daily Journal Economist Brad DeLong
http://www.bradford-delong.com/2018/05/matthew-yglesias-on-marxism-capitalism-is-looking-pretty-shabby-late-monday-delong-smackdownhoisted.html

This is what I want when I call for a better class of DeLong Smackdowns! How do we think this looks not just nine years after my optimism in 2009 back at the end of the American century but five years after Matt wrote?:

Hoisted from the Archives: Matthew Yglesias (2013): May Day Marxism: Capitalism is looking pretty shabby: "DeLong reposted a very interesting 2009 talk... "Understanding Karl Marx"... that I would have enthusiastically endorsed in 2009 but which look weaker four years later...

...DeLong says that Marx the political activist was too pessimistic about the idea that the ruling class would agree to make economic growth pareto optimal within the context of a market economy:

[T]hat even though the ruling class could appease the working class by using the state to redistribute and share the fruits of economic growth it would never do so. They would be trapped by their own ideological legitimations--they really do believe that it is in some sense "unjust" for a factor of production to earn more than its marginal product. Hence social democracy would inevitably collapse before an ideologically-based right-wing assault, income inequality would rise, and the system would collapse or be overthrown. The Wall Street Journal editorial page works day and night 365 days a year to make Marx's prediction come true. But I think this, too, is wrong...

To me that unquestionably looked wrong as of 2009. But in the interim, those Wall Street Journal editorial page tendencies have grown much stronger... Rand-inflected moralism about market outcomes... reduced... Friedman-style pragmatism.... a sharply reduced emphasis... in... stabilization policy, in favor of a "let them eat cake/move to North Dakota" moralism about unemployment. Last but by no means least, it really has become the conventional wisdom among American elites that the appropriate policy response to fiscal imbalance in a time of high and rising income inequality is to restore balance by reducing the scope and generosity of social insurance programs.

Second:

Marx believed that capital is not a complement to but a substitute for labor. Thus technological progress and capital accumulation that raise average labor productivity also lower the working-class wage. Hence the market system simply could not deliver a good or half-good society but only a combination of obscene luxury and mass poverty. This is an empirical question. Marx's belief seems to me to be simply wrong...

This is an empirical question and I continue to believe that Marx's belief is wrong. But the fact is that profit margins are high and rising while wages are at best stagnating. My view is that this is a cyclical phenomenon that represents a failure of the technocratic apparatus of macroeconomic stabilization. But... I hear more and more people disagreeing... not only on the left but on the right.... The growing popularity of... ["]no this isn't a massive policy failure it just reflects the inevitable forces of technology/globalization["]... ties in to the first point about the apparatus of ideological legitimation.

In summary, I'm not a Marxist. But I worry that political conservatives are going to turn me into one.... The collapse of the Soviet Union, a good thing on its own terms, has had the bad consequence of breeding massive complacency among the upper classes in the West. It used to seem important to people in the rich countries to prove that market economies not only could but in fact would lead to broadly rising living standards. But today we're living in a 401(k) world...

#shouldread


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Read in my feedly.com

The big markups

https://growthecon.com/blog/Paradox/

Bernanke Says US Economy Faces a 'Wile E. Coyote' Moment in 2020 [feedly]

Bernanke Says US Economy Faces a 'Wile E. Coyote' Moment in 2020
https://www.bloomberg.com/news/articles/2018-06-07/bernanke-says-u-s-economy-faces-wile-e-coyote-moment-in-2020

U.S. economic growth could face a challenging slowdown as the Trump Administration's powerful fiscal stimulus fades after two years, according to former Federal Reserve Chairman Ben Bernanke.

Bernanke said the $1.5 trillion in personal and corporate tax cuts and a $300 billion increase in federal spending signed by President Donald Trump "makes the Fed's job more difficult all around" because it's coming at a time of very low U.S. unemployment.

"What you are getting is a stimulus at the very wrong moment," Bernanke said Thursday during a policy discussion at the American Enterprise Institute, a Washington think tank. "The economy is already at full employment."

The stimulus "is going to hit the economy in a big way this year and next year, and then in 2020 Wile E. Coyote is going to go off the cliff," Bernanke said, referring to the hapless character in the Road Runner cartoon series.

Ben Bernanke

Photographer: Andrew Harrer/Bloomberg

Sorry, Mr. President, But Best Economy Was Eisenhower's (1)

The timing of Bernanke's possible slowdown would line up badly for Trump, who has called the current economy the best ever and faces reelection in late-2020.

 -- via my feedly newsfeed