From Jared Bernstein Archive

A few folks have asked me about my friend Michael Strain’s recent Bloomberg piece where he argues against wage stagnation (it’s “more wrong than right”). It’s an old argument but one worth having, and Michael makes some important points and misses some big ones too (5, to be precise).

Larry Mishel and I counter a much shorter-term version of Michael’s case here but similar issues pertain. Certainly, the evidence he presents doesn’t change the basic wage story that I and many others carry around in our heads.

I think Michael’s most germane point is that nobody defines “stagnation.” If you think stagnation means real wages for low-wage workers have never gone up in the past four decades, you’re wrong. The figure below, from a recent piece I published (one I’ll get back to re a key point Michael misses), shows real wages for low and moderate wage workers stagnated through the 1970s, 80s, and 2000s.

But, in periods of very tight labor markets—the latter 1990s and now—they grew at a decent clip. This is key insight #1about real wage growth for too many workers. It’s not that they’ve never grown. It’s that their growth periods in recent decades have been few and far between. And it’s largely dependent of achieving persistent full employment, a condition that’s also been too rare in recent years (see this exciting new paper on precisely this point!).

Key insight #2 is that, sure, switching to a slower-growing deflator leads to faster wage growth and there are good arguments for various choices (see Mishel/Bivens’ cautions re Michael’s choice of using the PCE for wages). But it doesn’t wipe out long periods of stagnation. Here’s the real 20th percentile wage (2018 $’s) using both the CPI-RS (used in the figure above) and the PCE. Just like the above figure: periods of growth, but longer periods of stagnation.

One of the particularly frustrating, fact-free aspects of the conservative push to add (or ramp up) work requirements in anti-poverty programs like Medicaid or SNAP is that low-income people who can do so are already working hard. Moreover, as the job market tightens, they respond to tightening conditions.

Using the new Census data, Kathleen Bryant and I, with help from Raheem Chaudhry, used the 2017 microdata (the data on which the poverty and income numbers are based) to compare the employment rates of low-income single mothers (with incomes below twice the poverty threshold) with prime-age (25-54), non-poor adults. We found that between 2010 and 2017, the employment rates of the low-income single moms increased by 5.4 percentage points (67.7% to 73.2%), while those of non-poor adults increased by just 1.2 percentage points (87.8% to 89%).

It’s true that the single moms, by dint of their lower employment rate levels, have more room to grow, but the prime-age adults are not obviously hitting a ceiling on their rates.

At any rate, we believe this shows that a large and growing majority of low-income moms are already trying to both raise their kids and support their families through work, and that they’re actively taking advantage of the tight labor market. Adding work requirements will just give them one more needless, bureaucratic barrier to leap over, likely reducing their ability to maintain their benefits, even as they’re playing by the rules. Forgive me if I cynically suspect that such hassle-induced benefit losses are the point.

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Reposted from On the Economy

I’ve long hoped, probably naïvely, that one of the benefits of team Trump’s promotion of generally ineffective (or worse) solutions to the downsides of trade could engender a debate about better ideas. Of course, the debate will also generate some really bad arguments, like this one from economist Donald Boudreaux in this AM’s NYT.

Boudreaux argues that trade (and, implicitly, anything else) can’t be a problem for jobs because the US economy creates and destroys tons of jobs all the time. The nub of his case comes down to:

“…estimates of jobs destroyed by trade sound big, but they’re actually tiny. Relative to overall routine job destruction and creation — “job churn” — the number of American jobs destroyed by trade is minuscule.

In January alone, the number of American workers who were laid off or dismissed from their jobs was 1.8 million. The number of workers who quit their jobs that month was 3.3 million. Adding in workers who left their jobs for other reasons, such as retirement and disability, the number of job separations in January was 5.4 million. But there were 5.6 million hires in January, too. Those numbers are typical of most months.

Awareness of job churn should calm Americans’ fears about imports [good luck with that–JB]…Compared with the number of total annual job losses…job losses from trade shrink into insignificance.”

Payrolls rose 200,000 last month, the unemployment rate held steady at 4.1% and wage growth popped up to 2.9%, it’s the fastest year-over-year growth rate since mid-2009. In other words, here’s yet another strong jobs report.

Our jobs-day smoother averages out some of the monthly noise in the payroll data by taking averages over 3, 6, and 12-month periods. As shown below, payrolls are up a strong 192,000, on average, over the past three months, a very nice job-growth pace at this point in the expansion. In fact, the slight acceleration in the figure suggests there may be more room-to-run in this economy than we previously thought, which—co-inky-dink!—happens to be the punchline of a new paper from our Full Employment Project.

As CNBC anchor Becky Quick pointed out this morning during their segment in which I joined, we may be entering that phase of the cycle where good news on Main St. is bad news on Wall St. That is, accelerating wage growth may lead the Federal Reserve to tighten faster, slowing overall growth more than currently expected. That certainly was the market reaction this morning, as the 10-year bond yield spiked on the report, suggesting concerns about future inflation and a more aggressive rate-hike schedule at the Fed.

However, as I note below, there are excellent reasons to embrace and welcome, not fear, faster wage growth.

First, here’s a rough typology of the lies upon which the sales job for the Republicans’ wasteful, regressive tax cut is based.

1. The tax cut won’t help the rich. 1a. It won’t help Trump.
2. The tax cut will generate enough growth to pay for itself. 2a. Sec’y Mnuchin’s now going beyond this, claiming that it will raise more revenue than it loses. (Here’s what I think’s going on there.)
3. Most of the benefits of the tax cut will go to the middle class.

Lies, lies, lies. And while it’s early days, and much could change, My impression is that a lot of people outside of DC Republicans aren’t buying them. The media and the Twitterverse is especially lit up with lies #1 and #2. In fact, here’s the NYT doing some calculations on lie 1b (“Trump could save more than $1 billion under his new tax plan”; that’s mostly due to eliminating the estate tax).

Also, on #1, see the Tax Policy Center’s take on the benefits to the wealthy:

• The top 1 percent of households (those with incomes above $730,000) would get about 53 percent of the framework’s net tax cuts, or roughly $130,000 a year on average.
• The top 0.1 percent of households (those with incomes above $3.4 million) would get roughly 30 percent of the framework’s net tax cuts, or about $720,000 a year, on average.

This analysis also applies to the reduction in the tax rate (from about 40 to 25 percent) for business pass-through income, which the R’s are trying to sell as helping small businesses. In fact, 86 percent of pass-throughs are already taxed at 25 percent or less. Chuck Marr reports that “79 percent of the benefit of this tax cut would flow to filers with incomes above $1 million.  The 400 households with the highest incomes would receive an average tax cut of $5.5 million from this provision alone.”

Re #3, since most of the cuts go to the top, there’s not much left to trickle down to the middle class, but the tax cutters are making a big deal out of how their plan to double the standard deduction (or, to increase the zero tax bracket) will help lower income families. And, no question, some will benefit from that.

The question I pose above came out of this piece I posted in today’s WaPo on confusion in the Trump camp about trade deals and trade deficits:

To hear President-elect Trump tell it, ripping up, repealing or renegotiating international trade deals will bring back lost factory jobs and restore the glory days of the American working class. Wilbur Ross, Trump’s nominee to run the Commerce Department, plans to work with his new boss to release America from “the bondage” of “bad trade agreements.”

Conversely, to President Obama, the for-now defunct Trans-Pacific Partnership trade agreement would have boosted America’s growth, raised living, environmental and labor standards in the 11 other signatory countries, and blocked China from dominating the global stage.

They can’t both be right, and the record shows that neither are. Those hoping that American industry will rise again if and when the president-elect whacks deals like the North American or Korea trade deals will be profoundly disappointed. Neither does the failure of the TPP pave the way for the rise of our new Chinese overlords.

The problem with this hyper-elevation of trade deals is that it conflates the deals with the trade. The real problem, as I’ll explain, is the persistent and economically large trade deficits that the United States has run with our trading partners since the mid-1970s, which at this point have little to do with trade deals.

If the Trump administration seriously intends to help the displaced manufacturing workers and communities that were instrumental in the president-elect’s upset victory, it will need to shift its line of attack from trade deals to the trade deficit.

I think it would be good economic policy, and probably good politics–though truth be told, I really have no idea anymore about what’s good politics–to help workers, families, and communities hurt by the downsides of globalization. For years, elites from all sides of the aisle have basically ignored these people’s loss of high value-added work, assuring them that globalization is always and everywhere a force for good, at least as long as the winners win enough such that they can compensate the losers.

Whether or not they do so–i.e., compensate the losers–well, that’s “outside the model.”

Chad Bown of the Peterson Institute sends me a link to a piece of his showing, he argues, a benefit we get from “free-trade” agreements (FTAs) that’s under-appreciated in a national debate that’s turned extremely hostile to FTAs. It’s about last year’s bird flu outbreak, and he makes the case that “a global trade framework kept this situation from becoming far worse.”

While our chicken exports declined due to the outbreak, Bown argues that they fell less than they would have absent FTAs. The trade deals set up a framework wherein scientists could assure our trading partners that certain regions of the US were unaffected by the bird flu and thus exports from those areas were safe. That led to a more geographically discriminate ban, and, Brown claims, boosted exports relative to a situation with no FTAs, wherein trading partners could just ban all US poultry exports.

“If a country can make the scientific case that a particular disease outbreak has been contained to a geographic region and limited set of products, then partners’ trade bans should not target unaffected products from other regions of the country.”

His evidence is a figure showing that poultry exports fell a lot more in non-FTA countries than in FTA countries. That’s certainly indicative of something but it’s hard to know what. It could be that we have better communication ties with our trading partners regardless of the trade deals. That’s certainly what Bown’s TPP evidence suggests. Remember, the TPP hasn’t been passed and is thus not implemented, so how could it be yielding these benefits? Perhaps this evidence shows that we should negotiate trade agreements, not ratify them!

Every morning these days I’m greeted by front-page articles explaining how Obamacare is seriously broken as private insurers are abandoning the exchanges. No question, that’s an important problem for the individual, or “non-group” market, though one with many good solutions (I’ll provide links in a moment).

But anyone who makes this point should also be required to make this other point: only 6 percent of health care coverage is provided through the non-group market. About half of those with coverage get it through their employers, another third through public sources, leaving about 10 percent without coverage, down from 13 percent a few years ago (see figure below from the Kaiser Family Foundation; these data are for 2014; the uninsured rate fell another point in 2015).

Source: Kaiser Family Foundation

Neither the Post nor the Journal made this point, and my concern is that its omission leads too many readers to assume that the thinning of providers in the individual market is a fatal flaw as opposed to a manageable problem amenable to fixes.

To be very clear, a 6 percent problem is still a problem, and Obamacare has led to an increase in that corner of the market. But absent the correct context re its minority share, these articles provide the health law’s opponents opportunities for over-heated rhetoric, claiming, for example, that we’re seeing “the latest piece of evidence that Obamacare is a failed law built on false promises.”

Imagine you live on a nice street with nice neighbors, but there’s a problem. Your teenage son recklessly speeds along the street, knocking down garbage cans and leaving skid marks on the well-kept lawns. The neighbors hold their tongues, expecting you to intervene and discipline the boy, at least insisting he obey the speed limits if not taking away his keys. But you’re unable to control him and finally, frustrated with your fecklessness, the neighbors take matters into their own hands and sic the authorities on him.

Do you thank them for taking the tough love parenting steps you should have already taken? Or do you castigate them for disciplining your darling, misunderstood boy?

If you’re the US Treasury and members of Congress from both parties, you do the latter.

I’m talking about Apple, Ireland, and the European Union, of course. The EU’s tax authorities are accusing Ireland of providing special tax breaks to subsidiaries of the US multinational tech company. Such alleged state subsidies are considered anti-competitive by the EU, which is thus demanding that Ireland claw back $14.5 billion in ten years’ worth of upaid taxes.

That’s a lot of overturned garbage cans. By allowing Apple to classify much of its profits booked abroad as “stateless”—Ed Kleinbard’s apt term for profits that are detached from where they’re earned and dispatched to where they’re untaxed—Ireland has, according the European Commission, “allowed the company to pay annual tax rates of between 0.005% and 1% on its European profits for over a decade to 2014, by designating only a tiny portion of its profit as taxable in Ireland.”

As you’ve probably seen, Donald Trump talked mostly tax policy yesterday in a big speech in Detroit. He’s amending his original tax plan, which I guess he no longer thinks is as awesome and amazing as when he first introduced it. Here are a few points which, amidst all the hoopla, you might not have picked up on.

Interestingly, the plan is pure, old-fashioned, supply-side, trickle-down orthodoxy. How that squares with Trump’s play for disaffected working class voters hurt by globalization is left as an exercise for the reader (because I don’t get it). Believe me, those voters benefit not one cent from eliminating the estate tax. I assume his motives are a) a sop to the top 1% who fund such campaigns, b) a way to shrink gov’t by starving it of revenues, and c) a signal to the Ryan wing of the party that “despite all the cray-cray, I’m really with you re the parts you care most about (eg, a and b).”

–He claims to close one loophole but opens up a much bigger one. This, to me, is a big deal that’s easy to miss. I’m talking about the Trump plan for a 15% tax rate on “pass-through” income.

His updated plan sets the top income tax rate at 33% but creates “a much lower rate than 33 percent for a substantial number of very-high-income households by allowing people to pay a new low rate of 15 percent on “pass-through” income (business income claimed on individual tax returns).  More than two-thirds of all pass-through business income flows to the top 1 percent of tax filers (see figure).”

In his oped out today, Larry Summers lands where I do in various recent posts. What he calls the “revolt against global integration” can lead to regressive Trumpian protectionism or to a new, more inclusive approach to expanded trade.

Larry lays out the benefits of expanded trade both in terms of consumer benefits and “economic integration as a force for peace and prosperity.” But, after suggesting people don’t always adequately recognize these upsides, he notes

The core of the revolt against global integration…is not ignorance. It is a sense — unfortunately not wholly unwarranted — that it is a project being carried out by elites for elites, with little consideration for the interests of ordinary people. They see the globalization agenda as being set by large companies that successfully play one country against another. They read the revelations in the Panama Papers and conclude that globalization offers a fortunate few opportunities to avoid taxes and regulations that are not available to everyone else. And they see the kind of disintegration that accompanies global integration as local communities suffer when major employers lose out to foreign competitors.

OK, maybe that’s a bit begrudging, but it’s essentially the same thing I’ve been saying for awhile now: many people believe their own well-being, along with that of their families and communities, are neither represented nor enhanced by the process by which we are expanding trade. And the politicians are listening to them.

In my work, I’ve associated this with the inadequately representative and non-transparent “free-trade agreement” (FTA) process, which, as Summers suggests, is too dominated by elite stakeholders here and abroad.

The question then becomes how can we move forward in a positive direction? How can we best tap the benefits of globalization in a more inclusive manner?

Neil Irwin over at the NYT has apparently drawn the unenviable job of explaining what’s wrong with Trumponomics. His latest entry, on trade deficits, is framed around an important, overlooked point, but he misses some important nuances, and his conclusion re trade deficits as conditionally benign seemed pretty far off to me. As this is such an important point to my work—the economically large and persistent US trade deficits have become both a source of damaging bubbles and a steep barrier to full employment—let me elaborate. (For way more then you bargained for on the issue, see Chapter 5 in the Reconnection Agenda.)

Irwin’s point is that trade deficits are not inherently bad, nor surpluses good.

Tru dat. As long as there’s been trade, there’s been imbalanced trade, as countries invariably produce more than they consume, i.e., they’re run a trade surplus, while others, like us, will do the opposite. To somehow insist on balanced trade for all would be a huge policy mistake, one that would preclude billions of people from the reaping the benefits of trade, both as consumers and producers.

Irwin’s piece is thus a good antidote to the current trade debate, which sometimes claims not simply that trade deficits are always bad, which is false, but that trade itself is bad for America. As Paul Krugman underscores, the protectionism of today’s conservative demagogues is as ill-founded as it is predictable. When your MO is “blaming the other,” why not extend that from Muslims and immigrants to our faceless trading partners? (I’ve argued that trade agreements have become problematic and non-representative of working people both here and abroad, but that’s a different point. I’ve stressed the benefits of expanded trade, which will continue apace either way.)

I have written extensively on this point: there’s a big difference between those magical words “free trade” that everyone invokes in this town whenever the topic comes up, and actual trade deals. But I think Rep. Sandy Levin thoroughly nailed this distinction in testimony before the International Trade Commission this morning:

We all recognize that trade can be beneficial. The issue is not whether Members of Congress such as myself could pass an Econ 101 class, as President George W. Bush’s Chair of the Council of Economic Advisers, Gregory Mankiw, recently put it. Instead, the issue is whether we are going to face up to the fact that our trading system today is much more complex than the simplistic trade model presented in an Econ 101 class.

What do David Ricardo and Adam Smith have to say about the inclusion of investor-state dispute settlement in our trade agreements? What do they have to say about providing a five-year or an eight-year monopoly for the sale of biologic medicines? About the need to ensure that our trading partners meet basic labor and environmental standards? How about the issue of currency manipulation? And what about trade in services on the internet or the offshoring of jobs that result from greater capital mobility? Does the theory of comparative advantage address these new issues?  No – and yet those are the kinds of issues at the crux of the debate over the TPP Agreement today.

Levin’s full testimony is here and looks very thoughtful.

In the words of that great Ph.D. of New Orleans funk, Dr. John, “Refried confusion is making itself clear” in this NYT piece about the impact of automation on manufacturing employment. The piece makes the common claim that robots are wiping out jobs in the sector, but if there was any evidence in there, I missed it. And I know of some pretty compelling evidence to the contrary, along with some key variables left out of this analysis.

It’s critical to be clear about what’s under the microscope re this question of jobs and automation. It is not whether or not machines replace humans. That of course has gone on since the Luddites of the early 1800s and well before. The claim today, whether its purveyors make it explicitly or not, is that the pace at which labor-displacing technology is entering the workforce is accelerating. Automation must be driving jobs out of a sector—in this case, manufacturing—at a pace that’s demonstrably faster than demand for manufactured goods can offset.

That is, if 10 workers could make 100 widgets in a week, and now 5 workers with a robot can generate that same output, the other five lose their jobs unless demand for widgets doubles such that the producer needs to keep the 10 workers to produce the 200 widgets the market will bear.

But you will note that I’ve embedded two key intervening variables within this example: productivity growth and demand.

First, if the pace of automation is accelerating, it should show up as faster productivity growth—more output per labor hour. Thus, any article making this claim must either show this trend or at least explain what’s wrong with my logic.

Now, we know that productivity growth has slowed economy-wide, and not just here in the US; it’s one of growth economists’ greatest contemporary concerns. But what about manufacturing productivity? The Times story—and I don’t mean to pick on this one; this is a very commonly held view—implies that manufacturing productivity must be speeding up. Is it?

Nope.

After years of negotiating, the Trans-Pacific Partnership, a 30-chapter, 12-country trade agreement that's been in the works for years, was signed yesterday by participating countries.

Trade negotiators from the U.S., Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam resolved long-standing differences on tariffs, dispute procedures, labor and environmental rights, intellectual property/patents, and much more, and agreed to the accord. That step alone does not make it the law governing trade practices between these nations; their governments, as well as our own, of course, must now ratify the treaty.

But what does this all mean? The deal has been negotiated in secret so we've largely had to rely on what negotiators tell us about it, and since the negotiators are tasked by their governments with selling the deal, such information tends to be pretty one-sided. Will it really herald "a wide range of change in the years ahead" for "consumers across the country," as the New York Times writes this morning?

I haven't seen it either, but I strongly doubt it. Trade and globalization have historically been a big, economic game-changer, reaping benefits for consumers and macro-economies from vastly increased supply chains. Trade deals, on the other hand, are nothing more than rules of the road for how trade is conducted between partner countries. Some of those rules are handshakes between investors across borders; other measures, often in opposition to the investor-favored ones, have the potential to benefit consumers, workers, and the environment.

And Jon sayeth unto the multitudes: “The best defense against bullsh__ is vigilance. So if you smell something, say something.”

This admonition came to mind, if not to nose, when I heard Fox’s Bill O’Reilly claim that the Affordable Care Act “has made it more difficult to create full-time jobs in America,” (around 2:30 in the video). The figure below, which indexes both full-time and part-time jobs to 100 in 2010, belies his claim. As ACA measures have been introduced, most notably the arrival of the subsidized exchanges and the Medicaid expansion in 2014, there’s been no noticeable change and certainly no Obamacare-induced shift to part-time work. Other data show that the number of involuntary part-time workers is down 18 percent—1.4 million fewer workers—since 2013.

No one’s claiming that the ACA is having miraculous effects on job growth, or even that it’s responsible for the full-time job growth you see above. Such outcomes are based on all the usual factors that drive labor demand, most notably the strength of the recovery.

My point is that while Obamacare is having its intended effect of making coverage more affordable and thereby lowering the uninsured rate, I’ve not seen any data that would lead an objective person to conclude it’s having a meaningful impact on the job market one way or the other.

Welcome to the first edition of a new On The Economy feature, dedicated to the parting admonition of the great Jon Stewart: when it comes to BS, "smell something, say something!"

To be clear, I'm not trying to emulate the fact checkers out there. Nor am I going to peruse the papers, like Dean does so effectively, to find errant economics reporting. Instead, I'm just going to occasionally pounce on a specific brand of assertion: a stylized, accepted fact that isn't a fact at all.

For example, conservative partisans (as well as many centrist Democrats) consistently assert that teachers' unions are bad for student outcomes, and if we want to improve such outcomes, we must diminish the impact of teachers' unions. Most recently, this negative role of unions was a featured assertion in a Republican primary debate.

That claim smelled bad to me, as in I know of no body of evidence to support it. I know it's a constant refrain, but I figured I'd have seen something from the deep academic community that runs analyses of such issues over the years to support it, and I haven't.

Maybe I missed it. So I asked some experts in this field and they confirmed my intuition.

One of the less defensible assumptions of microeconomics is that people get paid their “marginal product,” i.e., their wage equals the value of the output they produce. Thus, according to the theory, if the last worker hired is being paid an hourly wage less than the value of the firm’s output per hour, if would make sense to hire additional workers and vice versa, to the point where the value of the last unit of output equals the wage.

Now, it would be unduly persnickety to insist that this formulation holds exactly, and there’s certainly solid evidence that wages correlate positively with education, so the theory isn’t completely batty.

But it is way too easy to find egregious exceptions, as in this article for this AMs WaPo about the earnings and income of Jeb Bush and his family. To be clear, this is a non-partisan rant, as it’s extremely easy to find e.g.’s of people of all political stripes being paid in ways that have little to do with their marginal product.

But the article does an excellent job of taking you through the interaction of how Bush cashed in on his public service, brought his family along for the ride (as in added them to the payroll), gamed the tax code (by writing off generous pensions and compensation packages), with little evidence of “marginal product.” EG, there’s the part about advising Lehman which…um….arguably didn’t turn out so well.

Now, the boneheaded response to all this is that by assumption, he (and somehow his wife and kid) were being paid their marginal product, because if they weren’t, then they wouldn’t have been…paid their marginal product, that is (that’s supposed to be word salad, just to be clear).

Today’s jobs report was a bit weaker than expected, and a bit weaker than it looked at first blush. While payrolls were up 223,000 in June, in line with expectations, and the unemployment rate fell to a record low in this recovery of 5.3%, mitigating factors include:

–downward revisions in payrolls for April and May of 60,000 combined;

–the fall in unemployment was exclusively due to people leaving the labor force, not jobseekers finding work;

–thus, the labor force participation rate ticked down a significant 0.3 percentage points to 62.6%, its lowest level since the late 1970s, though see below re this important trend;

–hourly wage growth was flat in June, and is up 2% over the past year, a slight deceleration from last month’s report;

–average weekly hours worked were also unchanged, so weekly earnings were also up 2%;

–factory employment growth remains weak, up 4,000 and little changed over the past five months (construction was also a weak spot in June, adding no net new jobs).

I’ve got a longer piece up on PostEverything, but here are the key ‘grafs from the POTUS’s announcement on this tonight (my bold):

We’ve got to keep making sure hard work is rewarded. Right now, too many Americans are working long days for less pay than they deserve. That’s partly because we’ve failed to update overtime regulations for years — and an exemption meant for highly paid, white collar employees now leaves out workers making as little as $23,660 a year — no matter how many hours they work.

This week, I’ll head to Wisconsin to discuss my plan to extend overtime protections to nearly 5 million workers in 2016, covering all salaried workers making up to about $50,400 next year. That’s good for workers who want fair pay, and it’s good for business owners who are already paying their employees what they deserve — since those who are doing right by their employees are undercut by competitors who aren’t.

That’s how America should do business. In this country, a hard day’s work deserves a fair day’s pay. That’s at the heart of what it means to be middle class in America.

Just a brief note of confusion and befuddlement regarding a position on currency in the TPP that’s been uncritically picked up by news sources lately, including the WaPo today.

The position touted by the piece is that since China’s currency has floated down relative to the dollar in recent years (see figure), and their trade surplus is also significantly diminished, we don’t need to worry about them or other trading partners managing their currencies to get an export edge over us in the future.

This is wrong for at least three reasons.

First, as the title of this post suggests, just because something isn’t happening now doesn’t mean it won’t happen again later. The figure shows numerous periods of the yuan floating for awhile before a dollar peg again took hold.

If anything, I’m concerned that by announcing to the world that we can’t do anything about currency management without implicating our central bank, pro-TPP (and anti-currency-rule) forces are giving competitors the green light to revert to their old ways in this space with impunity.

Here’s a timely result from a new NBC/WSJ poll out today:

Which concerns you more: the income gap between the wealthiest Americans and the rest of the country or middle and working class Americans not being able to get ahead financially?

Income gap between the wealthy and the rest of the country: 28%
Middle and working class not being able to get ahead: 68%

That’s a big difference, though not a surprising one. To the extent that we share national values, they tend to lean more towards equal opportunities than equal outcomes.

The thing is, these two phenomena are linked, and likely not just through correlation, but through causation. That means that we can’t increase opportunity without reducing inequality.

Though I’ve made this point a lot lately, I’ve got good reason to do so.

First, there is a theme, if not a meme (not totally sure of the difference; maybe the latter is a theme amplified on the internet) developing among candidates for president, especially among the many R’s, that what matters is opportunity, not inequality. As the poll shows, they’ve got public opinion on their side, and it is congenitally discomforting for politicians of all partisan stripes to focus on inequality, as they can be seen by the donor class as fomenting class warfare that’s unfriendly to the top 1%. (Though I’m with Warren Buffet on this one: “…there’s been class warfare going on for the last 20 years, and my class has won.”)

As part of the administration’s ongoing full-court press to sell the Trans-Pacific Partnership trade deal, the Council of Economic Advisers released a report on the benefits of trade last week. It’s a good, substantive read as you’d expect from CEA chair Jason Furman and member Maury Obstfeld, one of the nation’s leading trade economists. International trade is a potentially positive force, and the CEA’s “10 facts about trade” showed that it is often associated with greater productivity, higher pay in jobs that produce exports, and lower prices for the goods and services that are more amply supplied in a world with more trade.

That said, trade in the real world is more complicated, and its benefits more varied, than their presentation would suggest. Here are three facts the CEA left out that provide a more balanced view of the impact of trade—and trade agreements—in the US and other economies.

Fact #11: The US has run large trade deficits for over three decades, and to look solely at the benefits from exports without considering the costs of negative net exports (imports>exports) is a partial analysis.

The figure shows the trade deficit as a share of GDP. Though there are always lots of moving parts at work in our macroeconomy, the trade deficit is definitionally a drag on growth, and in recent decades it has led to two problems. First, since our deficit is wholly in manufactured goods, it means that we’ve exported millions of better-than-average jobs in that sector by meeting much of our domestic demand for manufactured goods from foreign sources. Second, it means that to offset the trade deficit, we’ve had to increase other sources of growth, and that’s contributed to asset bubbles with stark consequences.

The median wage is a lot like what Mark Twain supposedly said about the weather: Everybody talks about it but nobody does anything about it.

This is ironic, because politicians are always going on about how much they want to help the middle class, and some of them actually mean it. But it’s harder than you think.

As you see in the figure above, the median, or 50^th percentile, real hourly wage for men is lower than it was decades ago. The median female worker has gained more over time, but her progress stalled over a decade ago. And the current recovery has not been good at all to the median wage earner.

Over at PostEverything, but here’s the figure–five wage/comp series ably smashed together by my colleague Ben Spielberg using principal components analysis (a useful way to avoid cherry-picking the series that tells the story you like, PC analysis pulls out the common, underlying trend on the combined series).

Update: 

The figure above is a weighted average of year-over-year wage growth for five different data series:

–Employment cost index: hourly compensation
–Employment cost index: hourly wages
–Productivity series: hourly compensation
–Median weekly earnings: full-time workers
–Average hourly earnings: production, non-supervisory workers

The data all come from the BLS and are non-seasonally adjusted, except for the productivity series.

What do we want?

A currency chapter!

When do we want it?

Now!

OK, maybe that’s not the stuff of protest movements, but it should be.

The issue at hand is the Trans-Pacific Partnership, a proposed set of rules governing trade between the US and 11 other countries. Here’s how the US Trade Representative, the agency within the Obama administration that’s trying to sell the deal to the Congress, describes it:

“…an ambitious, 21^st century trade agreement that the United States is negotiating with 11 other countries throughout the Asia-Pacific region…When complete, TPP will unlock opportunities for American workers, families, businesses, farmers, and ranchers by providing increased access to some of the fastest growing markets in the world.”

Just heard Fed chair Janet Yellen give this great talk on inequality of wealth, income, and importantly, opportunity. I’ll have more to say later, but do give this a read.

Some points that jumped out to me:

–It’s fundamentally important that she gave this speech, as it was when President Obama gave a speech elevating inequality as a serious challenge. The Federal Reserve is of course focused by mandate on employment and inflation, but of course inequality of opportunity is linked to economic conditions. In fact, while I thought her speech was excellent, Chair Yellen could have hit harder on this point, as I note below.

–While many of her slides will be familiar to those who follow the issue, figure 10 (below) packs in a lot of information about this issue of inequality of opportunity. It shows the inequality of debt associated with higher education by wealth class. It’s unequal, of course, but has become considerably more so over time. We also see the stable and low debt burden of the top 5%.

My CBPP colleague Chuck Marr flags something important from a recent press release by Rep. Dave Camp, the Republican Chair of the tax writing committee in the House.

In regard to their bill to patch the Highway Trust Fund through next May, Rep. Camp writes:

I certainly do not support permanent tax increases to pay for just 10 months of highway programs. Furthermore, it is inconceivable that the House would, as the Senate proposes to do, grant the IRS additional authority to audit and investigate taxpayers simply so Washington can spend more money.

Well, how about that? Cut taxes and you end up with less tax revenue. That's the punchline of this important piece by Josh Barro over at the New York Times on the outcome of recent tax cuts in the state of Kansas.

Barro does a fine job on the forensics at the crime scene, dissecting the ways in which tax cuts in Kansas have reduced revenue even more than projected, failed to generate the promised jobs boom, and in some cases, not even cut individuals' tax liabilities (this occurs in cases where the taxpayer no longer gets a credit for the tax that's been cut against some other tax still in place). But he misses the larger movement afoot in which Kansas is but one victim.

Thomas Piketty’s analysis of inequality through the ages kicked off an important debate about the causes of and solutions to the problem of the increased concentration of wealth and income.  Central to Piketty’s economic mechanics is his assumption that, barring some cataclysm, wealth will increasingly accumulate to those at the top of scale as long as its rate of return (the rate at which wealth holdings appreciate) exceeds the economy’s growth rate.  From this diagnosis, his prescription is redistribution through the tax code.  This certainly falls out of his model: once you accept the inevitability of narrowly held wealth accumulation, the only solution is to tax and redistribute.

Note, however, that this is not a onetime solution; it implies consistently ratcheting up the redistributive function to offset relentless accumulation.  Moreover, in most political systems I can envision, there’s a fatal flaw here: the increasingly wealthy and powerful won’t stand for it, a criticism Piketty himself of course recognizes (he’s not naïve).