Economy

What If Brexit Was Only the Beginning?

A must-read piece from the Boston Consulting Group:

“In polls, sizable majorities in the United States and key European countries now demand a reorientation around narrow national interests, proclaiming, ‘Let other countries deal with their own problems.’ As more people feel left behind by economic progress, this sentiment could grow and percolate into politics and then policy. And such policies could prove to be contagious across nations.”

“Firms could soon find themselves in an environment of escalating political risk in terms of trade, access to talent, regulatory rules and constraints, and restrictions on new technologies. Political uncertainty could become the major business risk, compromising firms’ ability to innovate, to access markets and talent, and to invest and create wealth.”

“In short, it appears that many are so dissatisfied with the current game that they are threatening to end it, even at significant cost to themselves, thereby jeopardizing two major drivers of global economic prosperity: globalization and technological progress.”

Economic Myths from the Presidential Campaign

New York Times: “If you want to learn about the economy, there are good and bad places to go. Probably the worst source of reliable information is the current crop of presidential candidates. Dissembling and exaggeration are no strangers to politics, but this year’s campaigns have been particularly egregious.”

“Here are six economic myths that underlie much of the recent rhetoric.”

Reversing Trade Deficit Could Make America Less Great

New York Times: “Donald Trump believes that a half-trillion-dollar trade deficit with the rest of the world makes the United States a loser and countries with trade surpluses like China and Mexico winners.”

“The reality is different. Trade deficits are not inherently good or bad; they can be either, depending on circumstances. The trade deficit is not a scorecard.”

“What’s more, eliminating the trade deficit would not, on its own, make America great again, as Mr. Trump promises. And in isolation, the fact that the United States has a trade deficit does not prove that trade agreements are bad for Americans, a staple of Bernie Sanders’s campaign in the Democratic presidential primary. In fact, trying to eliminate the trade deficit could mean giving up some of the key levers of power that allow the United States to get its way in international politics.”

“Getting rid of the trade deficit could very well make America less great. The reasons have to do with the global reserve currency, economic diplomacy and something called the Triffin dilemma.”

It’s About the Economy, Stupid

Gallup: “More than six in 10 Republicans and independents who lean Republican say Donald Trump would be best at dealing with the economy/jobs and the federal budget deficit as president, compared with less than 20% who pick either Ted Cruz or Marco Rubio.”

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“Republicans choose Donald Trump, who promises to “make America great again” — as the best GOP candidate for handling the economy and federal budget deficit as president. These strengths appear to be at the core of his support, tying in with the persistent economic anxiety Republicans express on a host of Gallup measures, such as confidence in the economy and their own economic progress.”

“At the same time, Republicans — including many who favor his nomination — seem to be well aware that Trump has weaknesses. They implicitly acknowledge Trump’s unusual brashness, giving Rubio the most credit for having the right temperament to be president. Republicans also acknowledge that Trump is not the most conservative candidate, giving Cruz credit for the conservatism that has become his signature message. Given that Republicans in this poll favor Trump to win their party’s nomination, they appear to be willing to overlook the front-runner’s deficiencies.”

U.S. Adds 242,000 Jobs in February

Wall Street Journal: “U.S. employers picked up the pace of hiring in February, a sign of steady economic growth despite financial-market turmoil and weakness abroad.”

“Nonfarm payrolls increased a seasonally adjusted 242,000 in February, the Labor Department said Friday. The unemployment rate, which is obtained from a separate survey of U.S. households, held steady at 4.9% in February.”

“Economists surveyed by The Wall Street Journal had expected payrolls to rise by 200,000 and the jobless rate to remain at 4.9%.”

“Revisions showed employers added 30,000 more jobs in December and January than previously estimated … Average hourly earnings of private-sector workers fell 3 cents last month to $25.35. Wages were down 0.1% from the prior month but have climbed 2.2% from a year earlier. Economists had expected wages to rise 0.2% from the prior month.”

“Meanwhile, the share of Americans participating in the labor force rose to 62.9% in February, the highest level in a year.”

Is the Unemployment Rate an Accurate Measure of the Economy?

Ben Casselman in Five Thirty Eight asks: “Is the unemployment rate, now at 4.9 percent, an accurate reflection of the health of the economy?”

The latest annual Economic Report of the President, released Monday, President Obama’s top economic advisers “said that the people who gave up looking for work during the recession have by now largely returned to the labor force.”

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“The White House, of course, has an incentive to make the economy look as good as possible. So as a check on their number, I built my own simple model (an updated version of the one I used in this story a few years ago) to estimate how many people are still missing from the official unemployment rate … My model estimates there are as many as 1.5 million people who should be included in the unemployment rate. That’s triple the White House’s estimate, but it still implies the ‘real’ unemployment rate is down to 5.8 percent.”

“If there are really hundreds of thousands or even millions of willing workers just waiting to get back into the labor market, that means there is room for job growth to continue without driving up inflation. The participation rate has edged up in recent months, suggesting that the stronger economy is drawing workers off the sidelines. Next week’s jobs report will give the latest sign of whether that trend is continuing.”

Economic Recovery is not as Rosy as it Seems

Lydia dePillis in The Washington Post examines whether the recent uptick in high-wage jobs indicates that the U.S. job market has made a full recovery.

“First of all, the economy is digging out of a big hole. This graph, from a 2014 paper by MIT economist David Autor, shows how in the period between 1999 and 2007 the share of low-wage occupations increased a lot, while middle and high-wage occupations were basically flat. Over the next five years represented by the green line, there was large growth in both low and high-wage occupations, while middle-wage occupations lost ground.”

More Money Equals Less Work, Unless You’re an American

Christopher Ingraham: “The American work ethic can basically be boiled down to one well-worn phrase: “Work hard, play hard.” But new research from a pair of Stanford University economists suggests we are failing, miserably, at the latter half of that maxim.”

“As countries get wealthier, their annual hours worked per capita tend to decrease, at least in the sample examined here by economists Charles Jones and Peter Klenow. They measure GDP in fractions of U.S. GDP, because they’re most interested in how other countries stack up to the United States in terms of economic well-being. For instance, Russia’s GDP per capita is less than half of that in the United States, so it lands halfway down the chart’s X axis.”

“We didn’t trade our productivity gains for more time, we traded them instead for more stuff.”

“The Stanford economists make the latest contribution to the genre with their measure that “combines data on consumption, leisure, inequality, and mortality.” They find that when you throw these other qualities into the mix, the economic well-being gap between the United States and other wealthy countries shrinks — but it doesn’t disappear completely.”

Is Charles Koch Feeling the Bern?

Charles Koch contends that he and Bernie Sanders agree on the fact that “the political and economic system is often rigged to help the privileged few at the expense of everyone else, particularly the least advantaged.”

“Democrats and Republicans have too often favored policies and regulations that pick winners and losers. This helps perpetuate a cycle of control, dependency, cronyism and poverty in the United States. These are complicated issues, but it’s not enough to say that government alone is to blame. Large portions of the business community have actively pushed for these policies.”

“That’s why Koch Industries opposes all forms of corporate welfare — even those that benefit us.”

“The United States’ next president must be willing to rethink decades of misguided policies enacted by both parties that are creating a permanent underclass.”

“I applaud the senator for giving a voice to many Americans struggling to get ahead in a system too often stacked in favor of the haves, but I disagree with his desire to expand the federal government’s control over people’s lives. This is what built so many barriers to opportunity in the first place.”

“It is results, not intentions, that matter. History has proven that a bigger, more controlling, more complex and costlier federal government leaves the disadvantaged less likely to improve their lives.”

Welfare for the Wealthy

John Sides of The Washington Post interviews Syracuse University political scientist Chris Faricy on his newly published book “Welfare for the Wealthy.”

Faricy cites a few examples of how tax expenditures disproportionately benefit the wealthy: “One example is the collection of tax subsidies for private pensions. In 2015, the average household in the top 1 percent received pensions subsidies worth over $13,000 while the average benefit for a middle-class family was only $1,000. The main reason for this discrepancy is the progressive federal income tax structure.”

Faricy’s book shows the correlation between the growing polarization of the Democratic and Republican parties and the rise in private welfare spending like tax expenditures: “Political polarization relates to increased tax subsidies in three ways. First, polarization has increased the difficulty of passing new spending through the normal budget process and therefore privileges subsidies with fewer legislative veto points.”

“Second, as polarization has reduced the public trust in government, legislators have had to find a way to fund their policy priorities without being perceived as growing the government.”

“Finally, polarization has been asymmetric — with Republicans becoming more conservative than Democrats have become more liberal. Because of this, periods of divided government favor political compromises that use tax expenditures.”

“Most citizens, even educated ones, do not understand who primarily benefits from tax subsidies. The complexity of tax expenditures makes it easier to distribute federal money to unpopular groups such as the wealthy and corporations.”

The Economy Finally Takes Center Stage In the Primaries

Five Thirty Eight: “The presidential race is at last shifting to two states — Nevada and South Carolina — that are actually experiencing the economic turmoil that has often dominated the campaigns of both parties. The results there might provide a clearer window into which candidates are most successfully tapping into voters’ economic anxieties.”

“The first two nominating contests played out in states that are, as commentators have repeatedly noted, far whiter than the country as a whole. Less noticed has been that Iowa and New Hampshire are also extremes economically. Both are small, rural and — especially in the case of New Hampshire — relatively wealthy states with strong local economies. Both states have unemployment rates below 3.5 percent, significantly better than the national mark of 4.9 percent. Neither experienced the worst of the Great Recession, and both are among the most equal states in terms of household income.”

“The next two states on the primary calendar, by contrast, much more closely embody the economic issues that polls show are at the top of voters’ minds.”

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