October 27, 2003

Why Oh Why Are We Ruled by These Fools? Part CCCXXIII

Complete bulls*** from the Commerce Secretary:

FT.com Home US: Don Evans, the US commerce secretary, was on Tuesday to tell China it must accelerate efforts to reduce state control over its economy or face further trade disputes with the US that could result in punitive sanctions. In the strongest language yet used by a senior US official, Mr Evans said, in comments prepared in advance: "The advantages from trade only spread when countries open their economies. But when one economy is organised under principles inconsistent with that free-market model, friction and injury in the trading relationship are inevitable."

To translate: "We in the Bush administration are really scared. We used the fact of the recession to ram through tax cuts that did very, very little to boost employment. And now that we've had some bad economic luck on the employment front and are facing the possibility of being the first administration since Herbert Hoover's to see employment decline, we're scared. We're really scared.

"Let's try to blame it on the Chinese."

If the White House political staff starts turning this particular burner on any higher, it's time for some resignations-on-principle from the Bush administration.

Posted by DeLong at October 27, 2003 09:12 PM | TrackBack

Comments

Can you clarify this a bit? I agree that BushCo is in the state you express in the translation, but I don't see that as coming from the comments that were quoted.

In the FT, Evans seems to be claiming that China is not sufficiently open to the US. What is he going on besides the fact of the trade imbalance and why do you disagree?

Posted by: jerry on October 27, 2003 09:57 PM

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What's wrong with any of this rhetoric?

Oh yeah, the steel tariffs.

Posted by: Tim McGovern on October 27, 2003 10:43 PM

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He was using all sorts of good old-fashioned rhetoric in those comments, even that of the Bolshevik, or at least the Social Democrates:

http://blogofpandora.blogspot.com/2003_10_01_blogofpandora_archive.html#106732953281280106

Posted by: Mats on October 28, 2003 12:47 AM

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*winces* Okay, I'm not going to even ask why a free market economy trading with a planned economy would be harmful to the free market economy (I can see the reverse being true, though, depending on the differences between the prices the planned economy charges in for those goods relative to the market equilibrium prices: the U.S.S.R.'s disastrous sugar trade with Cuba comes to mind.). Instead, I will cynically and disillusively throw my hands up in despair and say "The Bush administration is a lost cause, and most, if not all, of the nine Democratic candidates are also opposed to free trade, if their rhetoric so far is anything to go by, so I might as well abandon any hope and live a dissolute life of drink, casual sex, illegal narcotics, and gambling." At least, I'll get around to living such a misspent life once I have enough money to squander on it.

Posted by: Julian Elson on October 28, 2003 12:51 AM

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The ironic bit here is that it was exactly the "state control over its economy" that enabled the deployment of CDMA mobile networks (the Qualcomm tax) into the Chinese market.

CDMA is like tits on a boar in the world's largest GSM market, and would have never been deployed on its own merits in a free-market economy. However the U.S. trade negotiators made it clear that China's WTO accession was going nowhere without CDMA deployment, and by state-owned fiat, it was so.

The Chinese have well-developed historical memories, and I'm certain that what goes around now, will be coming around later.

Posted by: Michael Robinson on October 28, 2003 04:26 AM

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There is a subliminal Yellow Peril play here that is undoubtedly intentional; McKinleyism for the modern age. This is a belated attempt to blame the failure of Bush economic policies on someone else.

Posted by: BobNJ on October 28, 2003 06:03 AM

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Julian Elson says "I'm not going to even ask why a free market economy trading with a planned economy would be harmful to the free market economy", so perhaps I will. That is, are Don Evans's comments based, *however loosely*, on a respectable economic argument, or are they just pulled from thin air?

Posted by: Tom Slee on October 28, 2003 06:23 AM

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"If the White House political staff starts turning this particular burner on any higher, it's time for some resignations-on-principle from the Bush administration."

Brad, I don't mean to disrespect your profession, but do you really expect any of Bush's economic advisors to do so? What (homo economicus) motivation would they have? Will Mankiw really suffer some social status decrease for being one of Bush's econ advisors?

I've noticed that, despite having lots of Luskins, Stephen Moores, Glassmans and Hassetts in the 'think tanks', this administration has had no apparent trouble drawing advisors from the ranks of elite academic institutions.

Posted by: Barry on October 28, 2003 06:24 AM

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Mmm. Blaming somebody else for a country's domestic problems, that reminds me of... oh well.

Posted by: Jean-Philippe Stijns on October 28, 2003 07:07 AM

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Barry,

The argument for a resignation on principle is that anti-trade hooey cannot be the real advice of a real economist. At some point, the only way to get the attention of politicos is to refuse fellow-traveller status - in public. What is the sense of a really good economist sticking around, doing the administration's bidding, if one has no influence on economic policy? The only answer that pops to mind is that one's future earnings may rise, if there is the appearance of access and influence. Of course, that future income stream would be predicated on one's lobbying ability, rather than one's excellence as an economist. Folks who had been paying attention would know that the economists have all been moved down the street, so the impression of access would only work on the suckers.

Posted by: K Harris on October 28, 2003 07:26 AM

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So Bush campaign donors in the steel industry cried to Bush and he gave them steel tariffs. Now the manufacturers hurt by the steel tariffs are crying to Bush about cheap imports made with cheaper overseas steel. What next? A tariff on goods made in China? It might make Mexico happy.

Bush economic policy is set by people from another planet. It is reactive, not proactive. Can anyone tell me what the overall economic strategy of this administration is?? and how does China bashing fit in??

The cynic in me thinks there is some big deal pending involving Bush campaign donors and China and Bush is trying to deliver in his best JR Ewing, crude, blunt, threats and intimidation manner.

Posted by: bakho on October 28, 2003 07:35 AM

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William New of Technology Daily characterizes the US trade situation as follows:

"The high-profile collapse of the WTO talks at the Cancun ministerial in September drove home for many that prospects for further liberalization have dimmed. In the weeks since, the U.S. government has touted its increased focus on bilateral and regional free trade negotiations. Working bilaterally builds supporters in the larger context.

But failure to get new movement in Geneva soon could push the end of the WTO round to 2007 or later, a long wait for the fast-paced tech industry. Sources also noted that the WTO moratorium on e-commerce taxes was set to expire by Cancun but was not addressed there, raising ambiguities about whether the ban still applies.

Industry groups appear frustrated with the lack of viable options for new markets. Many industry representatives interviewed in the past week mechanically cataloged their wish lists for trade agreements with little optimism.

To an even greater degree, the giant market of China and implementation of that country's WTO market-opening commitments is topping agendas. China also has come under more pressure to change its currency valuation to make U.S. products more competitive there. The tech industry, which is banking on China's opening, quietly supports efforts to negotiate on the issue, sources said.

Tech and telecom industry sources believe there is no substitute for progress at the WTO, which is the big fish because any agreement there nets some 145 countries at once. Last week, WTO members agreed to hold the next ministerial in Hong Kong, but did not agree on a date. "


So is the China bashing an attempt to recover from failure in Cancun?

Posted by: bakho on October 28, 2003 07:42 AM

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China the scapegoat. Makes no economic sense and everyone knows it so heads will not roll. Why should heads roll if Karl Rove is the king of the House (White House)?

Posted by: Dan on October 28, 2003 07:42 AM

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China the scapegoat. Makes no economic sense and everyone knows it so heads will not roll. Why should heads roll if Karl Rove is the king of the House (White House)?

Posted by: Dan on October 28, 2003 07:42 AM

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I have heard this "first since Hoover" point before, but I'm not sure I get it. Didn't unemployment rise in the first of Roosevelt's terms? I would also imagine there were more jobs lost than created in that period. Am I wrong?

Posted by: maciej on October 28, 2003 07:50 AM

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"resignations-on-principle"!?

Why, a 4-year-old child could see that.

Somebody run out and find me a 4-year-child.

Why-oh-why keep asking why-oh-why?

Posted by: John Thullen on October 28, 2003 08:40 AM

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Yes, but the 'think tanks' are full of people who seem to be making a nice living from econobs. And is there any evidence that being a Bush flack would reduce one's status in the economics field? What happened to that Columbia guy?

Posted by: Barry on October 28, 2003 08:41 AM

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"resignations-on-principle"!?

Why, a 4-year-old child could see that.

Somebody run out and find me a 4-year-child.

Why-oh-why keep asking why-oh-why?

Posted by: John Thullen on October 28, 2003 08:43 AM

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>>I have heard this "first since Hoover" point before, but I'm not sure I get it. Didn't unemployment rise in the first of Roosevelt's terms? I would also imagine there were more jobs lost than created in that period. Am I wrong?<<

Yep. You're wrong. Lots of employment growth in Roosevelt's first term. (Big bad mistake in monetary policy in Roosevelt's second term, however: appointing Mariner Eccles was a big mistake.)

Posted by: Brad DeLong on October 28, 2003 08:57 AM

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maciej writes:
> I have heard this "first since Hoover" point before, but I'm
> not sure I get it. Didn't unemployment rise in the first of
> Roosevelt's terms? I would also imagine there were more
> jobs lost than created in that period. Am I wrong?

I believe you are wrong. Here is some historical unemployment rate data:

Year..... Rate (%)
1928......4.2
1930..... 8.7
1932... 23.6
1934... 21.7
1936... 16.9
1938... 19.0
1940... 14.6
1942.... 4.7
1944.... 1.2

1928-1932 (Hoover's term) was absolutely brutal. Frankly, I think it's grossly unfair to mention Bush and Hoover's name in the same sentence based on this factoid since, however misguided you might think the administration's economic policy is, nothing like the Great Depression has resulted...yet. The unemployment rate went down substantially in Roosevelt's first term, and while I know I haven't given you *employment* figures, I think it would be virtually impossible for that number to have gone down when the rate goes down from 23.6%; population growth was very low, and nobody was as discouraged in 1936 as they had been in 1932.

I include the WWII figures here as well to make it clear that Roosevelt's policies alone weren't anywhere near as effective at producing jobs as the massive employment stimulus of the war.

Posted by: Jonathan King on October 28, 2003 08:59 AM

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Yes, I was wrong. Thanks for the responses.

Jonathan, where can you find these numbers. (I'm assuming they are year-end data points, right?)

Posted by: maciej on October 28, 2003 09:19 AM

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Yes, I was wrong. Thanks for the responses.

Jonathan, where can you find these numbers. (I'm assuming they are year-end data points, right?)

Posted by: maciej on October 28, 2003 09:21 AM

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maciej:

In 1932 GDP in the U.S.A. had fallen 31% from its 1929 peak and the unemployment rate stood at 23%. In 1936 GDP was about 89% of its peak and the unemployment rate was about 17%.

And how come have there been no resignations in principle on the foreign policy front? (Career diplomats need not apply.)

Posted by: john c. halasz on October 28, 2003 09:24 AM

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Employment numbers from NBER:
1927 45790.0
1928 46542.0
1929 48414.0
1930 45818.0
1931 42270.0
1932 38473.0
1933 38575.0
1934 41216.0
1935 42384.0
1936 44529.0
1937 45957.0
1938 43081.0
1939 44624.0
1940 46110.0
1941 49720.0
1942 52032.0
1943 53097.0

Employment fell by 8 million in Hoover's term, rose by 6 in Roosevelt I, and another 1.5 in Roosevelt II. It didn't recover 1929 numbers until 1941 sometime. It is possible that you could define "presidential term" in a way to get Roosevelt II to have net job losses, but I'm not sure how - I don't have time to dig up monthly or quarterly data.

Posted by: rvman on October 28, 2003 09:30 AM

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This notion that free trade is best only when both nations have perfectly competitive markets strikes me as inconsistent with standard international trade theory. Imagine two nations (A and B) both with competitive markets and free trade. B decides to impose certain anti-competitive restrictions to its economy. Under standard theory, A's first best policy is still free trade. Isn't this what standard theory tells us? So what is Don Evans's alternative economic model?

Posted by: Hal McClure on October 28, 2003 09:53 AM

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On all this job-loss rhetoric, pro and con, shouldn't all you data-savvy economics types at least talk about the percentages or jobs rather than the absolute numbe? Since the work force was quite a bit smaller in the days of Hoover, isn't accusing Bush of losing "more" jobs than Hoover a completely meaningless thing to do?

Posted by: Maiden Lane on October 28, 2003 10:00 AM

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Forget the numbers. Forget the percentages. What is Mr. Bush doing about unemployment?

Answer. He is pursuing a totally ineffective policy of tax cuts for the wealthy and MASSIVE deficit spending.

Where are the job training programs?? Where are the infrastructure programs? Workers want work not unemployment benefits.

It is entirely fair to blame Mr. Bush for not doing the obvious things to correct the increase in unemployment. By not doing the obvious now and running MASSIVE deficits, Mr. Bush is making it difficult for his replacement to enact a jobs producing fiscal stimulus that actually works. The comparison to Hoover comes about because neither Hoover nor Bush understood the need for sound fiscal measure that addressed unemployment. Fortunately for the US, FDR did understand.

Posted by: bakho on October 28, 2003 11:38 AM

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So the argument goes like this:

A: We have numbers to prove our case.

B: Your numbers are misleading, if not meaningless.

A: Forget the numbers. We're right for other reasons.

Posted by: Maiden Lane on October 28, 2003 12:01 PM

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Maiden Lane: The number we care about is zero, which no matter how you scale still remains pretty much... zero. Every president since Hoover has seen a positive number of jobs created during his term. Except for Bush.

Posted by: Walt Pohl on October 28, 2003 12:22 PM

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ML,

If it you want to talk about magnitude, then yes, shares of the labor force or some such measure would be a reasonable place to start. The first question that needs to be addressed, however, is not about magnitude, but about direction. It is an issue of up or down. What makes the Bush term so far special is that he is the first president since Hoover to post a "down". As to the magnitude question, data-savvy Jonathan King made just the point you make.

Posted by: K Harris on October 28, 2003 12:23 PM

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Maiden Lane:

The factoid rhetoric is that Bush is the first since Hoover to have actually presided over a decline in absolute numbers of employed persons, without specifying the relative magnitude of the loss. And surely comparing Bush's policies with the tragedy of the Great Depression is a bit excessive. With Bush's fabulous luck, it may well be his successor who presides over the depressive consequences.

FDR did de facto apply fiscal stimulus during his first term to good effect, a roughly 30% gain in GDP, but, according to Keynes, not nearly enough. And then, having originally run on a balanced budget pledge, he was scared by the rising deficit and cut back, precipitating a recession in his second term.

As to China, there is a post on the Bonoboland website to the effect that China has actually lost manufacturing jobs, though a good deal of the loss no doubt comes from the declining state sector, and that manufacturing employment is, in fact, declining world-wide.

Posted by: john c. halasz on October 28, 2003 12:39 PM

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I think that what the back-and-forth about the Hoover line reveals is that for many a Bush critic--including some present company--having a good slogan is more important than having an analytical point.

A question for a more fruitful debate: Given that unemployment was at it's lowest point since 1960-something when Bush took over, and that the Internet bubble had burst, the stock market was crashing, etc., etc., what would have been the path of employment since then if the most enlightened economic policy imaginable had been put in place? Would minus 250,000 jobs over the four years qualify as a success? Plus 250,000?

Posted by: Maiden Lane on October 28, 2003 01:04 PM

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Maiden Lane, it's not that more jobs were lost under one president or the other, or a higher percentage was lost. It's that the last president who had a net decrease in the number of jobs was Hoover, with Bush heading for that category.

If (when) this happens it would mean that Bush has done a worse job on the economy than the preceeding eleven presidents. The fact that Bush's policies deserve a large amount of blame is covered on this website, and in Paul Krugman's columns.

Posted by: Barry on October 28, 2003 01:27 PM

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Barry, and others who's posted reasonable responses: I get the point. I just don't think it's a very interesting point, by itself. I read the stuff on this site, and find some of it interesting, some of it less so. I rarely find Krugman's columns very persuasive, although they're fun as polemics.

The question that I think needs to be addressed to do anything with the "Hoover" analogy is: How responsible is a president for job creation during his own term (since it seems obvious that other factors are important, and we all know there are long lags in policy)? Make it a scale of one to ten, with zero being that a president has absolutely no control, and 10 being that a president's policies determine, precisely, number of jobs. I'm no expert, but it's less that 10, and it wouldn't surprise me if it's less than three.

Maybe this is really a question for some other thread.

Posted by: Maiden Lane on October 28, 2003 01:55 PM

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Maiden Lane, it is no doubt true that the president has little effect on the business cycle. Still, you ask "what would qualify as a success?"

Let us suppose, that, instead of Bush as president, we had a red brick.

President Brick would have no economic policies, would never veto bills (it would sign them by having a pen attached to its side or something, lets suppose). It would not pressure congress toward legislative priorities of its own.

That would mean no steel tariffs, no tax cuts, no war in Iraq, probably increased spending on domestic security measure for nuclear planets, ports, etc, along the lines of Joe Lieberman's plan. Some of these policies have been mildly stimulative in the short run, some have resulted in net employment losses, but do you agree that steel tariffs, tax cuts, and the War in Iraq are signiture policies of the Bush administration?

If Bush does better than the counterfactual brick, then we'll say his presidency is a success (albeit at a huge long-term cost), employment-wise (setting the bar low).

So, anyone have an analysis of the job-creation or job-destruction effects of Bush's unique policies?

Posted by: Julian Elson on October 28, 2003 06:55 PM

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Maiden Lane, it is no doubt true that the president has little effect on the business cycle. Still, you ask "what would qualify as a success?"

Let us suppose, that, instead of Bush as president, we had a red brick.

President Brick would have no economic policies, would never veto bills (it would sign them by having a pen attached to its side or something, lets suppose). It would not pressure congress toward legislative priorities of its own.

That would mean no steel tariffs, no tax cuts, no war in Iraq, probably increased spending on domestic security measure for nuclear planets, ports, etc, along the lines of Joe Lieberman's plan. Some of these policies have been mildly stimulative in the short run, some have resulted in net employment losses, but do you agree that steel tariffs, tax cuts, and the War in Iraq are signiture policies of the Bush administration?

If Bush does better than the counterfactual brick, then we'll say his presidency is a success (albeit at a huge long-term cost), employment-wise (setting the bar low).

So, anyone have an analysis of the job-creation or job-destruction effects of Bush's unique policies?

Posted by: Julian Elson on October 28, 2003 06:58 PM

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Julian,

I like the brick idea. Perhaps one could improve on it, and take the base comparison to be not against a president who does nothing, but a president who takes decisions he's expected to take randomly (flip a coin on Afganisthan, Iraq, health-care, education, tax cuts, tariffs, sign this or that bill from Congress or not, and so on). Call him president monkey. On average, the achievement of president monkey would probably be the same as that of president brick, but the variance of possible outcomes would be much greater with the former. You could then gauge if an actual president performs significantly (in a statistical sense) better.

Posted by: maciej on October 28, 2003 07:50 PM

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My previous post is so correct, it is almost scary. China bashing is about to pay off.

My previous post, "The cynic in me thinks there is some big deal pending involving Bush campaign donors and China and Bush is trying to deliver in his best JR Ewing, crude, blunt, threats and intimidation manner."

From Today's WaPo:
China Plans to Purchase U.S. Goods in a Big Way

http://www.washingtonpost.com/wp-dyn/articles/A31987-2003Oct28.html

To understand Bush adminstration policy ask,
"What would JR Ewing do?"

Posted by: bakho on October 29, 2003 07:44 AM

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My previous post is so right on, it is almost scary-

"The cynic in me thinks there is some big deal pending involving Bush campaign donors and China and Bush is trying to deliver in his best JR Ewing, crude, blunt, threats and intimidation manner."

What do I find in today's WaPo?

China plans to purchase US goods in a big way

http://www.washingtonpost.com/wp-dyn/articles/A31987-2003Oct28.html

To understand the Bush administration, ask,
"What would JR Ewing do?"

Posted by: bakho on October 29, 2003 07:49 AM

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Unusual ideas can make enemies.

Posted by: EllisonGladstone Jeremy on December 9, 2003 10:56 PM

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We are never truly sure of our beliefs.

Posted by: Morneweck Amy on December 20, 2003 03:04 PM

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The superior man loves his soul, the inferior man loves his property.

Posted by: Allen David on January 9, 2004 02:38 AM

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