Tag Archives: jobs

Trump Jr.’s Pants-on-Fire Allegation of Manipulated Jobs Numbers

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When asked July 24 about US unemployment numbers, which have fallen steadily since 2010, Donald Trump Jr., replied “These are artificial numbers. These are numbers that are massaged to make the existing economy look good, to make this administration look good when, in fact, it’s a total disaster.”  His father has made similar statements.

PolitiFact asked a variety of experts about the quote.   Their bottom line:  the quote from the younger Trump was a “Pants on Fire” lie.  The truth is that presidents don’t and can’t manipulate the jobs numbers.  No White House has even tried — at least not since Richard Nixon made a heavy-handed attempt in 1971 to interfere with BLS staffing.  After that, extra firewalls were put in place.

Here is my own full response to PolitiFact’s question regarding the Trump claim:

The statement is 100% false. The employment numbers come from the Bureau of Labor Statistics (part of the Labor Department).  In this administration, like every administration, those who produce the employment statistics are long-time nonpolitical professionals. The Secretary of Labor does not even know what the numbers are going to be when they are announced every month (the morning of the first Friday of the month).

Allegations that the official government numbers understate unemployment are sometimes based on a claim that some higher measure (which, for example, includes discouraged workers who have given up looking for a job, or part-time workers), should be used in place of the ones that get the most attention in the press.  But these other measures are also made publicly available by the BLS and the press is free to write about them as much as they want.

The important thing, of course, is to be consistent across time in which measure you use.  It wouldn’t be right to switch from looking at the conventional rate to a measure that includes discouraged workers just because you don’t like the incumbent president and want to make things look bad for him.

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New Improved Trade Agreements

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In marketing the Trans Pacific Partnership (TPP), President Obama has been emphasizing some of the features that distinguish it from earlier free trade agreements such as NAFTA.  They include commitments by Pacific countries on the environment and expansion of enforceable labor rights.  Also new is the geopolitical argument for the much-discussed “pivot to Asia.”   (Detractors, for their part, focus on some partly new features as well, such as investor protection, which is said to benefit only big corporations.)

The White House political strategy is understandable. As with commercial products, the advertising slogan “New and Improved!” evidently attracts attention.  Previous trade agreements are not very popular.  This is especially true of NAFTA. Furthermore, longstanding concerns about trade are probably now exacerbated by a deterioration of the trade balance numbers this year.

President Obama’s argument is apparently, “Yes, the earlier agreements fell short in many ways. But we have learned from those mistakes and this one will fix them.”  The truth, however, is that the previous agreements did benefit the US, as well as partners.  The most straightforward argument for TPP is that similar economic benefits are likely to follow.

The economic arguments for the gains from trade of course go back to David Ricardo’s classic theory of comparative advantage.  Each country benefits from producing and exporting what it is relatively best at, and importing what other countries are relatively better at making.  Modern theories are more realistic, in allowing for imperfect competition, returns to scale, changing technology, and heterogeneity across firms; but they don’t change the bottom line that trade contributes to economic prosperity.

These standard theories are bolstered by recent statistical studies.

  • Trade boosts productivity, by specialization in production, access to larger markets, learning about new products and new techniques through trade, and importing inputs to the manufacturing process.
  • Exporters on average pay higher wages than other companies, an estimated 18% higher in the case of US manufacturing.
  • The purchasing power of income is enhanced by the opportunity to consume imported goods that are available at lower prices and in greater variety than if households could only buy domestic goods.  The cost savings are especially large in food, clothing, consumer electronics and other manufactured goods, purchases that make up a higher proportion of middle class households’ income than of wealthy households.   (Trade boosts the purchasing power of the median income American household by an estimated 29%.)

Trade debates in Washington have long been framed as arguments over whether a policy will raise or lower the number of jobs.  This is unfortunate.

The jobs debate is first cousin to the old mercantilist language focusing on whether a policy will improve or worsen the trade balance.  A “mercantilist” could be defined as one who believes that gains go only to the country that enjoys a higher trade surplus, mirrored by losses in the trading partner that runs a correspondingly higher trade deficit.

Even by the mercantilist sort of reasoning, one could make an American case for the ongoing trade negotiations.  The US market is already rather open; such TPP participants as Vietnam, Malaysia, and Japan have higher tariff and non-tariff barriers against imports of products that the US would like to be able to sell them than the US does against their goods.  Liberalization would thus mean more of a reduction in barriers to US exports to Asia than Asian exports to the US.   (The same was true of NAFTA, as Mexican barriers to imports from the US had traditionally been much higher than American barriers to trade in the other direction.)

But economic theory says that trade balances and employment levels are not determined by trade measures.  They are, rather, determined by macroeconomic factors (national saving, investment, labor force participation, etc.).  The gains from trade show up in the quality of jobs, as reflected in real wages, more than in the quantity of jobs.

Have these ivory-tower-sounding propositions held in practice?  The late-1990s are a good illustration of the theory.  The volume of trade increased rapidly, in part due to trade negotiations that put NAFTA into force in 1994 and the World Trade Organization (WTO) into force in 1995.   For the United States, imports grew (even) more rapidly than exports:  the trade deficit widened.  Did this have a negative effect on output and employment?   No.  Real growth averaged 4.3% during 1996-2000; productivity increased at 2 ½ % per year, and workers received their share of those gains: real compensation per hour rose 2.2% per year.  The unemployment rate fell below 4.0% by the end of 2000, as low as it goes.

A stronger trade balance in the late 1990s would not have added to output growth or job creation, which were running at full throttle.  Further increases in net export demand would only have been met by pulling workers away from the production of something else. That is precisely why the gains from trade took the form of bidding up real wages, rather than further increasing the number of jobs.

Admittedly it is harder to make the case for trade (particularly for unilateral trade liberalization) when unemployment is high and output is below potential, as it was in the aftermath of the big financial crisis and recession of 2007-09.  Under such circumstances, there is a kernel of truth to mercantilist logic: trade surpluses contribute to GDP and employment, coming at the expense of the trade deficit countries.  Of course if one country puts up import barriers, its trading partners are likely to retaliate with “beggar-thy-neighbor” policies of their own, which leaves everyone worse off.   The Smoot-Hawley tariff of 1930, and retaliation and emulation by other countries, helped put the “great” in the Great Depression.   Thus the case in favor of multilaterally agreed renunciation of protectionism is as strong in recessionary conditions as ever.   In response to the 2008-09 global recession, for example, G20 leaders agreed to refrain from any new trade barriers.  Contrary to many cynical predictions, President Obama and his counterparts successfully fulfilled this commitment, avoiding a repeat of the 1930s debacle. The record also compares favorably even with the milder recessions of 1981 and 2001.

In any case, mercantilist logic is once again no longer relevant as of 2015.  The American unemployment rate has fallen below 5 ½ %, the same as it was 20 years ago, not quite full employment, but getting close.  If output and employment were rising this year as rapidly as they did in 2014, the Federal Reserve would probably have felt the need to start raising interest rates as early as this June, to begin restoring normal monetary/financial conditions and to forestall overheating of the economy in coming years.   As it is, the Fed will almost certainly delay raising interest rates as a result of the drag on the economy created by a slowdown in net exports.   (There are two reasons to expect deterioration in the non-oil trade balance this year: slowed growth among our trading partners and the stronger dollar.)  The Fed does not have to put a brake on the economy because the loss in net exports is doing it already.

If the US can negotiate the facilitation of auto exports to Malaysia, agricultural exports to Japan and service exports to Vietnam, it will show up by the bidding up of real wages more than by the creation of additional jobs.  Thus the best reason to pass TPA and TPP is pretty much the same as it ever was:  to help put real median incomes on a rising trend.

 

[This post is an extended version of a column at Project Syndicate, May 7. Comments can be posted there.]

 

 

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Why Has the US Economy Picked Up? Congressional Republicans

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What a difference two months make.   As recently as November, when Republicans scored strong gains in the US congressional elections, the universally accepted explanation was economic performance that was perceived as disappointingly weak.  (As always, “it is the economy, stupid.”)   A substantial share of the American public thought that economic conditions were actually deteriorating last year; many held President Barack Obama responsible and voted against the incumbent party.

Now suddenly everybody has discovered that the US economy is doing well after all.  So much so that Republican leader Mitch McConnell, newly elevated to Senate Majority Leader, has switched from a position that the economy is bad and Obama is to blame, to a position that the economy is good and the Republicans should get the credit.  On January 7, he suggested that recent good economic data could be attributable to “the expectation of a Republican congress.”

But (as many have now pointed out) the improvement in performance began well before the November election.   The brightening also began well before September, the date when polls began to indicate that the opposition party was likely to do unusually well in the vote.

The fact is, job growth was vigorous throughout 2014, averaging 246,000 per month for a year total of three million.  It was enough to bring the unemployment rate down to 5.6% in December 2014 (from 6.7 % in December 2013).   This employment growth represented an acceleration relative to the 185 thousand monthly average of the last three years, 2011-2013.  It looks even better compared to the preceding economic expansion of 2002-2007, when job creation averaged 102 thousand per month, let alone compared to the recession years 2001 or 2008-2009.   It was even as good as the Clinton years!

Similarly, GDP growth began to pick up steam in the spring of 2014, running above the rate of the preceding three years.   It even reached 4.8% in the 2nd and 3rd quarters together, though that is almost certainly temporary.   Europe, in stark contrast, remains in the dumps.  Partly as a result of income growth, the US budget deficit came in better than forecast last year:  2.8 %.  This represents a record improvement relative to 2009, when the budget deficit registered almost 10 per cent of GDP.

Just yesterday, the mystery was why growth was so weak, averaging only 2.1 per cent during the years 2011-13.  There were four kinds of explanations.

The first explanation was the Reinhart-Rogoff principle that recovery from a recession takes longer if the origin was a crash in housing and financial markets.  But there is another principle that the deeper the initial recession, the more rapid the rate of growth per year in the recovery phase.  The point about financial crashes being worse than other recessions is more a statement about the magnitude of the initial decline and the corresponding length of time subsequently necessary to get back to normal, than a prediction about the annual rate of growth during the recovery phase.

The second theory was that the slow recovery was part of a longer-term trend, attributable to secular stagnation or a dearth of new important technological innovations.  It is true that productivity growth and labor force growth have slowed since 1975 and perhaps even since 2000.  But it does not seem wise to explain away three years of weak recovery by means of downward revisions in estimates of the long-run trend in potential GDP.

The third interpretation is that the deep recession of 2008-09 had long-lasting effects via long-term unemployment and depressed investment, and hence on the capital stock and the size and skills of labor force.

The fourth explanation for slow growth during 2011-13, however, seems the simplest: dysfunctional fiscal politics.  These years featured the “fiscal cliff,” debt-ceiling standoffs, flirtation with federal default, a government shutdown, and budget sequesters.  One does not need to assume big Keynesian “multiplier effects” to conclude that the combined effects shaved at least one percentage point from growth each year – especially if one believes that the risk created by such unpredictable behavior discourages firms from hiring workers or undertaking investment.  According to the Economic Policy Uncertainty Index, the debt ceiling crisis of 2011 and government shutdown of 2013 each spiked uncertainty to levels as high as had the terror attacks of 2001 or the Lehman failure of 2008.

Then why stronger performance over the past year?  2014 was the first year, since the Republicans achieved a majority in the House of Representatives in November 2010, that dysfunctional fiscal policy did not actively impede the economic recovery.

The government shutdown of October 2013 was perceived to have turned out politically damaging to Republicans, including by the Republican leadership themselves.  Thus they determined to refrain from such dead-end show-downs in 2014, even though doing so meant over-ruling certain noisy “Tea Party” members.   One could have predicted that a year in which Congress refrained from actively impeding economic growth would be a year when the pace of expansion in output and employment would pick up.  If the new Congress in 2015 refrains from standoffs, sequesters and shutdowns, there is no reason why the economy cannot continue to do well in the new year.

Of course the US economy retains some shortcomings.  Wage growth is still slow.  Median household income has barely begun to recover and remains well below its level of 2000.  The explanation is that most of the income gains have gone to people at the top of the income distribution.   Indeed, of the various possible reasons why the electorate in 2014 did not perceive the economic recovery, the most natural is that the typical American had not shared in the gains.  The irony is that rising inequality is usually thought to play to the Democrats’ electoral advantage.

[A version of this post appeared at Project Syndicate.  Comments can be posted there.]

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