Semi-Daily Journal

morgan stanley's andy xie has the best explanation:

The Party Lingers
http://www.morganstanley.com/GEFdata/digests/20031029-wed.html#anchor1

"US Fed monetary policy and China’s fixed capital formation drive global economic cycles. The former inflates assets markets, which inflates demand. The latter redistributes pricing power from finished to primary goods producers. While China’s capital formation is slowing with tightening credit in the country, US liquidity is still strong enough to keep financial markets buoyant.

"A Fed rate hike would bring the party to a halt. However, a slower-than-usual recovery in the US labor market is causing the liquidity party to last longer. As job creation accelerates, which I expect to occur in the coming months, the party will come to an end. Therefore, how long the party lasts depends on how long the US labor market remains weak.

"I regard the current economic recovery as a party because demand is being created by asset inflation, i.e., the decreasing cost of capital and increasing paper wealth make people and businesses spend more. This artificial demand allows high cost producers, especially in Europe and Japan, to stay in business. The endgame is for the US to spend less, i.e., save more, and for Europe and Japan to produce less. The output gap in Europe and Japan is too high cost to remain viable. Keynesian stimulus could not close such an output gap. It only creates bubbles to alleviate the situation temporarily, while creating a bigger balance sheet problem."

Liquidity Continues to Bubble Up

"Even though the US reported money contraction last month, it still represented a US$125.2 billion increase in MZM (‘money with zero maturity’) for the quarter compared to a US$158 billion increase in the previous quarter. Further, the ratio of MZM to GDP in the US is still 50% above normal. The level of liquidity still matters more than marginal changes at present. US liquidity is 50% above normal because (1) technology and globalization keep inflation down, and (2) Asian countries buy US treasuries to keep up the dollar value despite the large US trade deficit. This artificial equilibrium keeps US bond yields down, which inflates property and stock prices.

"As US stock valuations become excessively high, money flows out of the US to buy lower-valued Asian stocks, inflating Asian stock markets. The Asian central banks then pick up the money inflow and put it back into the US bond market. Hence, this temporary equilibrium also inflates Asian stock markets. When the Fed has to increase interest rates, money from Asian stock markets will begin to be sucked into the US. The current soft US labor market means the Fed cannot raise interest rates despite strong GDP. Technology and globalization have decreased the elasticity of labor demand to GDP. Hence, deflationary forces allow liquidity to stay at an exceptionally high level for longer, which grossly inflates asset markets.

"Eventually, asset markets become high enough to create sufficient demand to reduce unemployment. The Fed reacts by raising interest rates. This has the potential to deflate asset markets quickly, which in turn deflates demand. US demand could weaken sooner than usual after the Fed increases interest rates. Another cycle could begin soon, when the Fed cuts interest rates."

[...]

The Endgame

"Cycles become shorter as central banks rely on inflated asset markets to create demand. This unstable equilibrium persists because central banks try to boost demand to use uneconomical capacity. The output gap remains large in OECD economies. The Keynesian solution is to create demand to close the output gap. However, capacity in these economies is underutilized because it is no longer cost competitive. The solution is to shut down such capacity.

"The fundamental imbalance in the world is the large US current-account deficit. It could be solved by the US exporting more via dollar devaluation, i.e., selling products to foreigners to close the US output gap. This solution is not stable as it would increase the output gap in Europe and Japan. Competitive devaluation may follow a US attempt to go for the export strategy.

"The alternative is for the US to spend less and close down uneconomical capacity. That would force China, Europe and Japan to fight for the US market, which is likely to force Europe and Japan to close some capacity in response to deflation. The world would then reach a stable equilibrium with the US spending 5% less (US$500 billion) and Europe and Japan producing less by the same amount.

"More savings in the US and less production in Europe and Japan are the equilibrium that market forces want the world to go to. However, political forces resist an equilibrium that involves shrinking major economies. The outcome is that authorities continue to stimulate excessively, causing the global economy to move from one bubble to another."

Brad Brad Brad - When we open the comments the rest of the site disappears.... Please leave the lovely format we have loved. Change is so hard with which to cope.

Anne

This is a bit off the point, but I trust this:

"Moreover, the administration's economists have told their political masters that it will be quite a while before the Chinese government will respond to pressure to allow its currency to appreciate"

is just a slip of the tongue. Economists are often called upon to act as political scientists, but only in limited ways do economists have more to contribute to assessing likely political outcomes than educated lay folk. Economists know about taxes and budgets and such, all things with significant political implications, that mean they sometimes have knowledge of politics that is not more readily available to specialists of other stripe. I have a hard time believing that John Taylor knows more about the likely direction of Chinese economic policy than the US ambassador in Beijing, or the station chief, the DCM, the head of the economic section, the head of the State Department's China desk, the head of the Commerce Department's China office, the head of the Foreign Agricultural Service's China office, a dozen or so CIA, DIA, NSA analysts, and so on. Let us hope this administration knows better than to call on people whose primary function has very little to do with China to tell them what China is going to do. Please?

Brad, this is just not true. Please name one Administration official who has said unemployment is high because of China. Go read today's Business Week article on Administration trade policy with the caption: "Bush is about to disappoint congressional critics and voters who are angry with China". What is wrong with the Administration asking the Chinese government to allow the yuan to float or trying to influence them to purchase more US products and services? Is that going to be an economic cure all? No, but there is nothing wrong with working that angle. I would expect a Democratic Administration to do the same and I am sure they would.

You completely missed the point on this one. The best thing about this course is that China WON'T take any steps to respond. If they did that and nothing positive happened it would demonstrate that it really was a red herring and deprive the Bush administration of another bogeyman. That is the biggest problem that the Bush economic policy faces, it actually does impact the real economy and we can evaluate the results. Republican ideology is so much more persuasive when it can't be falsified.

You completely missed the point on this one. The best thing about this course is that China WON'T take any steps to respond. If they did that and nothing positive happened it would demonstrate that it really was a red herring and deprive the Bush administration of another bogeyman. That is the biggest problem that the Bush economic policy faces, it actually does impact the real economy and we can evaluate the results. Republican ideology is so much more persuasive when it can't be falsified.

So we have relatively high unemployment because among other things the tax cut "did a lot to cut taxes on the $200,000-plus-a-year crowd and to further unbalance the finances of the federal government in the long run"
Good thinking! People are rational enough to estimate the effect of federal budget deficit 10 years from now if the tax cuts are not repealed. However they are not rational enough to drive faster if they are confident the belt will save them in an accident. If we have "seatbelt Sam" should we have "selective rationality Brad"?

More China-bashing political cowardice ...

~~~~
Democratic pollster Celinda Lake said the flight overseas of not only blue-collar but also white-collar work is "a huge issue" for voters. "No candidate can be just for free trade anymore, not even the president," Lake said. "There is a lot of intensity out there about lost jobs, and candidates are hearing it at country clubs as well as union halls."

Democratic presidential candidates have made job recovery their mantra and exchanged barbs over fair trade. Representative Richard A. Gephardt of Missouri reminds audiences he voted against NAFTA, and Representative Dennis J. Kucinich of Ohio says the United States should cancel NAFTA and withdraw from the World Trade Organization.....

http://www.boston.com/news/nation/articles/2003/10/20/the_lights_are_going_off_boston_globe/
~~~~~

Lieberman: We Must Stop China

He blames nation for loss of U.S. jobs

Democratic presidential hopeful Sen. Joe Lieberman says one of America's greatest battles is over the economy, and China is the opponent.

"The Soviet Union was our most powerful, determined opponent in the Cold War ... but we are now engaged in a different, obviously more peaceful battle for our economic future, and our fiercest competitor is China," he said yesterday in a speech to about 20 employees at Diversified Optical Products, a high-technology manufacturing company.

Lieberman said although he supports good relations with China, he thinks they are violating free trade rules, costing America billions of dollars and contributing to the "hemorrhaging of manufacturing jobs"...

http://www.primarymonitor.com/news/stories2003/lieberman_china_2003.shtml
~~~~

So Democratic presidential candidates blame free trade and China for massive job losses in the US? They brag about opposing NAFTA and say the US should get out of the WTO?? And, Joe L., who's the free trader in the bunch, uses China in the same sentence as "Soviet Union"??

I think this is shocking, shocking, and some prominent Democratic economist should give them a good public talking to about what *really* causes unemployment. After all, one is responsible for what goes on in one's own house first, right? And, what if one of these guys gets elected saying this and then *acts* on it claiming he has a public mandate to do so??

One may fairly consider all this Democratic political opportunism a dreadful thing, even worse than the "cowardice" shown by those responding to it -- since, after all, those responding are responding only to the attacks of the opportunists! ISTM that a few responsible Democratic economists willing to speak up to their own candidates to take this issue off the table could do great good in reducing the dangers of looming protectionism.

OTOH, once could also consider all this just another example of the politics in politics.

And one might think the same of the strange silence of prominent Democratic economists regarding all this shameful, ignorant China bashing by their own Democratic politicians -- which is so different than their reaction to the much milder China bashing of Republican politicians.

After all, no Republican is running for President bragging about having opposed NAFTA, saying the US should withdraw from the WTO, or using "China" in the same sentence as "Soviet Union."
~~~~

"Every political-appointee economist working for the Bush administration needs to start thinking very, very carefully about what they are doing. Did they come to Washington to be a part of a project to blame U.S. unemployment on sinister manipulations by Asian governments?"

Fair enough. But what about advice for the home team...

Should Democratic presidential candidates be required to think too?

Brad

This wide page comments format is "awful." yes, I will get along, but really.... Please go back to the old format. "Sigh."

Brad

Even with the fastest computer link, this new format is slow as snails, slower.

Interesting compilation Jim. When Snow makes his currency report I expect he will not call for any trade actions against China and say that the Administration is working with China towards a floating exchange rate and to open Chinese markets for US products and services. Wonder whether that will be portrayed as political cowardice and China bashing?

What would "a real economist" (one who wasn't also an unabashed apologist for "organized money") say if someone asked him why our bilateral trade deficit with China is currently running to over $100 billion/yr, Brad?

How would "a real economist" explain the "miracle" of "free trade" to an unemployed American who had watched for more than two decades now as the US "industrial base" declined with his own prospects while the US Balance of Payments "soared" (in the negative sense) from essentially zero at the beginning of the "Reagan Revolution" to apporximately 5% of GDP now?

Never mind, Brad. I found "a real economist".

HERE'S what HE says about all that stuff you said all that stuff about:

Interim Report: Notes on the U.S. Trade and Balance of Payments Deficits

Wynne Godley

Summary

>1 The United States has a balance of payments deficit worth nearly 4 percent of GDP and negative net foreign assets (or foreign debt) worth nearly 20 percent of GDP. If U.S. growth is sustained in the medium term, it is quite likely that the balance of trade in goods and services will not improve. The United States is the only major country, or country "bloc," to have a substantial trade deficit and this is proving of great advantage to the rest of the world.

>2 If the balance of trade does not improve, there is a danger that over a period of time the United States will find itself in a "debt trap," with an accelerating deterioration both in its net foreign asset position and in its overall current balance of payments (as net income paid abroad starts to explode). Such a trap would call imperatively for corrective action if it is not at some stage to unravel chaotically...

http://www.levy.org/docs/stratan/stratan.html

AND don't even TRY to give us that "Why, I'm shocked. Shocked!" crap either, Brad....

May 2000 Briefing Paper #93

U.S. INVESTMENT IN CHINA WORSENS TRADE DEFICIT:

U.S. firms build export-oriented production base in China's low-wage, low labor-protection economy

by James Burke

Despite China's disregard for basic human rights and labor standards and its unwillingness to open its markets to U.S. goods, the Clinton Administration is currently pushing Congress to grant China permanent normal trade relations (PNTR) status as part of a recently negotiated trade pact. If approved, PNTR would help pave the way for China's entry into the World Trade Organization (WTO).

But this pact is as much about making it easier for U.S. multinationals to invest and operate in China as it is about trade. A U.S. International Trade Commission report stresses that China's WTO entry would significantly increase investment by U.S. multinationals inside China (USITC 1999). If investment by U.S. multinationals increases, China's production base for exporting goods back to the United States will continue to broaden, resulting in an even greater U.S. trade deficit with China....

http://www.epinet.org/content.cfm/briefingpapers_fdi_fdi

October 2003

US: the world’s deepest debtor

By Philip S Golub

ONE of the curious features of US hegemony is that it depends on the apparently limitless willingness of US allies - and even of some future competitors, such as China - to finance the apparently limitless budget and trade deficits of the US. Over the past 20 years the US has become the world’s leading debtor, its net foreign debt rising from $250bn in 1982 to $2.2 trillion in 2001, 23% of GDP - almost equal to the $2.5 trillion owed by five billion people in the whole of the developing world...

http://mondediplo.com/2003/10/09debt

>>Should Democratic presidential candidates be required to think too? <<

Yes...

"But if you ask any senior Bush administration official these days why unemployment is high, you get a different answer: China. "

I am curious how many of the ANY SENIOR OFFICIALS have actually been asked--or volunteered unasked--and delivered the unambiguous answer "China is to blame for high unemployment in the US".

How can I add to such an excellent discussion of the economic issues? Maybe a little extension on the long-term fiscal stimulus part...backloading the fiscal stimulus has had too little of a short-run boost to consumption demand to do that much good but certainly is spooking Wall Street which hurts current investment demand. Then again, this is just the converse of the Clintonian fiscal wisdom that long-term restraint might help boost investment demand today, which Brad DeLong has mentioned in earlier comments.

"Every political-appointee economist working for the Bush administration needs to start thinking very, very carefully about what they are doing. Did they come to Washington to be a part of a project to blame U.S. unemployment on sinister manipulations by Asian governments? Is it not much, much better to be a professor teaching your courses than to be a bit player in the current remake of The Revenge of Dr. Fu Manchu?"

Perfect comment, but naive. There are all sorts of rewards for being a happy part of this Administration, and any number of economists for whom the rewards are too happy too resist.

Thinking is a function of having doubts.Having doubts is a function of improving yourself.(= endless search)

Go, go Brad go!

Has any Bush administration official actually accused China of stealing US jobs? A google search of --- china evans jobs --- turned up this piece at the very top of the list:

http://washingtontimes.com/business/20031006-101717-6429r.htm

which includes the following text:

"They've got some work to do," Mr. Evans said of China.
Music piracy, clothing knockoffs and other violations of intellectual property rights are the biggest problems, he said.
"There's just people stealing from American workers, and their hand needs to be called," Mr. Evans said.

Then there's this:

http://www.washingtonpost.com/wp-dyn/articles/A21632-2003Oct26.html

which includes this:

In an interview later Sunday, Evans said China's sustained protection of its domestic companies is causing American firms to compete on an "unlevel playing field" jeopardizing American jobs. "I'm going to drive the message home to China's leaders so they know we're serious about it," Evans said. "The job security of American workers is dependent on free and fair trade and we're going to demand that we have it."

Oh, should have tried this early. This is from searching --- china bush jobs ---

http://www.washingtonpost.com/wp-dyn/articles/A25001-2003Oct14.html

"Part of making sure that the job creation -- momentum of the job creation is viable is to make sure -- is to talk to our trading partners about fair trade," Bush said. "And there are some trade imbalances that I will be discussing."

So, yes, a Bush administration official, the top Bush administration official, has said Chinese trade practices are costing the US jobs. And it was really easy to learn that they had done it. All I had to do was look.

The Snow testimony is shaping up to be a rough couple of hours. Everybody, even Republicans, are going to want to be on record beating on Snow to beat on China. Snow cannot pledge to do something and the do nothing - too much like Rumsfeld pretending he has not heard requiests from Congress - and he can't pledge to engage China in fx-linked trade negotiations. China wouldn't like it. Dave Richardson seems to have a handle on how the game is played.

RE: "But this pact is as much about making it easier for U.S. multinationals to invest and operate in China as it is about trade."

As per "The Decline of Corporate Income Tax Revenues" by Joel Friedman, Center on Budget and Policy Priorities (Oct 2003), the amount of 2003 corporate income taxes forgone is $11 billion invested in tax shelters. In addition, corporate tax rates as a percentage of GDP declined 4.8% in the decade of the 1950's to the current 1.7%. So corporate tax policy - or lack thereof - in this country is facilitating the increasing trade deficit in China. Not only are manufacturing jobs being lost to low wage global labor pools but our own country is paying the multinational corporations for this privilege. Furthermore, as the domestic manufacturing sector weakens, pension funds are the first to become underfunded and dropped onto the PBGC, which is currently in a near crisis condition from assuming steel and airline pension plans. Will this nonsense ever stop? Is there no shame?

As I worked in the tech industry and live in tech-rich Austin, perhaps my own experience isn't as representative as I think. Nevertheless, *everyone* these days is complaining about those dastardly Chinese and Indians taking away "our" jobs. This cuts across all political boundaries.

Which brings me to:

"Should Democratic presidential candidates be required to think too?"

Of course. Speaking as a liberal Democrat, I'm just as disgusted by this behavior on the left as I am on the right. Actually, I find it more disgusting on the left, since it hardly seems leftist to begrudge poor, bright, skilled Chinese and Indians a decent job. But I digress.

Unless the employment situation improves by next November, Bush will lose the election. The general public's comprehension of economics extends about as far as their paychecks and bank accounts. Their reasoning is extremely simplistic and prone to finding scapegoats. Both parties, for different reasons, can get political mileage out of exploiting this issue and China-bashing. They will. People believe it.

Sure, the Republicans are nominally the free-trade party. But we already know that's not true of this administration.

http://www.nytimes.com/2003/10/29/business/worldbusiness/29evans.html

China Is Told Again to Open Markets
By CHRIS BUCKLEY

BEIJING - China's relatively unfettered access to markets in the United States may be jeopardized if it fails to move more swiftly to open its markets to American goods and services, United States Secretary of Commerce Donald L. Evans warned on Tuesday.

Speaking in Beijing during a six-day visit to China, Mr. Evans used unusually pointed language to chide China for failing to live up to its World Trade Organization commitments to open its markets, and he warned that China's exports might be threatened by hardening protectionist sentiment in the United States.

"China is moving far too slowly in its transition to an open, market-based economy," Mr. Evans told an audience of American businesspeople in Beijing. "Time is running out. We need to see results."

Mr. Evans is the latest in a stream of senior Bush administration officials to urge China to give the United States greater access to its markets and ease the growing trade imbalance between the two countries....

Given that productivity growth has broken your model, how much confidence can you place in the statement "If the Federal Reserve had had an accurate forecast of the investment-spending slowdown, it would have taken appropriate action and the labor market would be in good shape.". Are these not coupled within the model? Doesn't its failure on one dimension entail some uncertainty about its predictions elsewhere?

Alynne:

Your post assumes that the PRC is a tax shelter. I can think of a lot of low tax jurisdictions in the world but the PRC? In fairness, the combination of the PRC and Hong Kong has produced a mix of low tax and hig tax situations. But the investment boom in China is less over tax incentives and more over getting quality labor at low wages. Besides, if it were only tax wedges, why has not the exchange rate adjusted to offset these differentials? We are losing employment opportunities not because of international trade but because of ineffective aggregate demand policies.

Keith,

The WSJ today reports that Indian call centers are having a hard time attracting qualified employees. They like English speaking college graduates. India's economy is doing so well that such workers no longer find call centers all that attractive. I'd guess its because they are finding tech jobs.

I know of a fellow who owns an apartment overlooking Central Park (New Yorkers know what that means) who is in the business of out-sourcing to India. Maybe one of us needs to figure out where the next big call-center country will be and get the apartment next door.

K Harris,

Sorry, but I don't find this persuasive. You give me quotes from Evans about China being A problem. (For all we know, China may be some problem, though probably a minute one if at all.) Not about China being THE problem, which is what Brad is implying Bush officials proclaim. So I repeat my call: has any Bush official unambiguously blamed China as THE cause for US unemployment?

Alynne

Corporate tax revenue has declined significantly, but not because of corporate investment in China. Trade with China has been immensely positive for America and China. What we have needed was intelligent fiscal policy, as during the Clinton years, to spur enough demand in America to generate a wave of job creation. We cut and cut and cut taxes, with far too little demand growth to show. The problem is not with China or American investment in China.

K Harris,

Sorry, but I don't find this persuasive. You give me quotes from Evans about China being A problem. (For all we know, China may be some problem, though probably a minute one if at all.) Not about China being THE problem, which is what Brad is implying Bush officials proclaim. So I repeat my call: has any Bush official unambiguously blamed China as THE cause for US unemployment?

"You completely missed the point on this one. The best thing about this course is that China WON'T take any steps to respond."

I agree, and wouldn't it be great if China, in a miff at being painted the villain, actually went ahead and complied?

RE: comments from Harold McClure and Anne

Thank you. You both seem to be saying the same thing - failure of fiscal policy to stimuate (aggregate) domestic demand - and not international trade - as a vehicle of job creation. This tells me that supply-side economists have forgotten that, while supply may be the primary economic driver (I do not personally believe that is true but for the sake of argument), it is worth little or worthless without demand!

The second point is - if the economists fail to provide informed and competent technical direction to the White House and Congressional decision-makers - then who will? It might very well be naive but it is also a rather desparate inquiry. Somebody has to do the heavy lifting.

Final point: I do not oppose international trade and I certainly do not oppose the international community being able to benefit from employment. I do object to the consistent implementation of 'asymmetrical' economic policies that retard the potential growth available from free global markets and I do object to the lack of nationalist spirit - call it citizenship - that takes a cold, hard look at our position relative to the rest of the world and does not hesitate to do what is right for this country as a first order response. The 200,000 to 2,000,000 higher paying ("good") jobs that NAFTA was supposed to create in the U.S. never materialized and that leaves me very skeptical of the ability of the economic community to prescribe policies that will stimulate demand leading to jobs - especially since the business community never for one minute thought those jobs would ever see the light of day.

Brad, you make a number of criticisms of Bush's economic policies and the manner in which he has responded to the job recession. You also say that the Fed played a significant role in this, but it's not really their fault. However, you neglect to mention what your own answer to the problem would be. What would you have them do?

An aside: Although most talk about the bad job market refers to unemployment, the real problem (IMO) is actually more subtle: underemployment. Almost anyone who wants to can get a job at a fast food joint or Wal-Mart. What is is short supply are *good* jobs. And the labor surplus is driving down pay on the few that remain. A sysadmin who was laid off and got a job as a Wal-Mart greeter to cover the mortgage may not be listed in the unemployment statistics, but he is still being screwed over. It was easy to tell people who lost manufacturing jobs when they were shipped overseas that the new economy would require them to learn a skilled trade or enter a white-collar profession. But what do you tell highly-educated IT professionals, accountants, financial analysts, and myriad others who have been laid off in favor of H-1Bs or offshoring? To me this is a qualitative difference from the last round of factory offshoring in that the people affected this time have poured huge amounts of time (and often money) into their career path and are now SOL. How do you intend to convince these individuals that India and China did not cause their plight?

RE: comments from Harold McClure and Anne

Thank you. You both seem to be saying the same thing - failure of fiscal policy to stimuate (aggregate) domestic demand - and not international trade - as a vehicle of job creation. This tells me that supply-side economists have forgotten that, while supply may be the primary economic driver (I do not personally believe that is true but for the sake of argument), it is worth little or worthless without demand!

The second point is - if the economists fail to provide informed and competent technical direction to the White House and Congressional decision-makers - then who will? It might very well be naive but it is also a rather desparate inquiry. Somebody has to do the heavy lifting.

Final point: I do not oppose international trade and I certainly do not oppose the international community being able to benefit from employment. I do object to the consistent implementation of 'asymmetrical' economic policies that retard the potential growth available from free global markets and I do object to the lack of nationalist spirit - call it citizenship - that takes a cold, hard look at our position relative to the rest of the world and does not hesitate to do what is right for this country as a first order response. The 200,000 to 2,000,000 higher paying ("good") jobs that NAFTA was supposed to create in the U.S. never materialized and that leaves me very skeptical of the ability of the economic community to prescribe policies that will stimulate demand leading to jobs - especially since the business community never for one minute thought those jobs would ever see the light of day.

Brad, you make a number of criticisms of Bush's economic policies and the manner in which he has responded to the job recession. You also say that the Fed played a significant role in this, but it's not really their fault. However, you neglect to mention what your own answer to the problem would be. What would you have them do?

An aside: Although most talk about the bad job market refers to unemployment, the real problem (IMO) is actually more subtle: underemployment. Almost anyone who wants to can get a job at a fast food joint or Wal-Mart. What is is short supply are *good* jobs. And the labor surplus is driving down pay on the few that remain. A sysadmin who was laid off and got a job as a Wal-Mart greeter to cover the mortgage may not be listed in the unemployment statistics, but he is still being screwed over. It was easy to tell people who lost manufacturing jobs when they were shipped overseas that the new economy would require them to learn a skilled trade or enter a white-collar profession. But what do you tell highly-educated IT professionals, accountants, financial analysts, and myriad others who have been laid off in favor of H-1Bs or offshoring? To me this is a qualitative difference from the last round of factory offshoring in that the people affected this time have poured huge amounts of time (and often money) into their career path and are now SOL. How do you intend to convince these individuals that India and China did not cause their plight?

I agree, the old format for comments was easier to use. Maybe though you will get rid of my worst comments by this little entry barrier ;)

RE: comments from Harold McClure and Anne

Thank you. You both seem to be saying the same thing - failure of fiscal policy to stimuate (aggregate) domestic demand - and not international trade - as a vehicle of job creation. This tells me that supply-side economists have forgotten that, while supply may be the primary economic driver (I do not personally believe that is true but for the sake of argument), it is worth little or worthless without demand!

The second point is - if the economists fail to provide informed and competent technical direction to the White House and Congressional decision-makers - then who will? It might very well be naive but it is also a rather desparate inquiry. Somebody has to do the heavy lifting.

Final point: I do not oppose international trade and I certainly do not oppose the international community being able to benefit from employment. I do object to the consistent implementation of 'asymmetrical' economic policies that retard the potential growth available from free global markets and I do object to the lack of nationalist spirit - call it citizenship - that takes a cold, hard look at our position relative to the rest of the world and does not hesitate to do what is right for this country as a first order response. The 200,000 to 2,000,000 higher paying ("good") jobs that NAFTA was supposed to create in the U.S. never materialized and that leaves me very skeptical of the ability of the economic community to prescribe policies that will stimulate demand leading to jobs - especially since the business community never for one minute thought those jobs would ever see the light of day.

Brad, you make a number of criticisms of Bush's economic policies and the manner in which he has responded to the job recession. You also say that the Fed played a significant role in this, but it's not really their fault. However, you neglect to mention what your own answer to the problem would be. What would you have them do?

An aside: Although most talk about the bad job market refers to unemployment, the real problem (IMO) is actually more subtle: underemployment. Almost anyone who wants to can get a job at a fast food joint or Wal-Mart. What is is short supply are *good* jobs. And the labor surplus is driving down pay on the few that remain. A sysadmin who was laid off and got a job as a Wal-Mart greeter to cover the mortgage may not be listed in the unemployment statistics, but he is still being screwed over. It was easy to tell people who lost manufacturing jobs when they were shipped overseas that the new economy would require them to learn a skilled trade or enter a white-collar profession. But what do you tell highly-educated IT professionals, accountants, financial analysts, and myriad others who have been laid off in favor of H-1Bs or offshoring? To me this is a qualitative difference from the last round of factory offshoring in that the people affected this time have poured huge amounts of time (and often money) into their career path and are now SOL. How do you intend to convince these individuals that India and China did not cause their plight?

RE: comments from Harold McClure and Anne

Thank you. You both seem to be saying the same thing - failure of fiscal policy to stimuate (aggregate) domestic demand - and not international trade - as a vehicle of job creation. This tells me that supply-side economists have forgotten that, while supply may be the primary economic driver (I do not personally believe that is true but for the sake of argument), it is worth little or worthless without demand!

The second point is - if the economists fail to provide informed and competent technical direction to the White House and Congressional decision-makers - then who will? It might very well be naive but it is also a rather desparate inquiry. Somebody has to do the heavy lifting.

Final point: I do not oppose international trade and I certainly do not oppose the international community being able to benefit from employment. I do object to the consistent implementation of 'asymmetrical' economic policies that retard the potential growth available from free global markets and I do object to the lack of nationalist spirit - call it citizenship - that takes a cold, hard look at our position relative to the rest of the world and does not hesitate to do what is right for this country as a first order response. The 200,000 to 2,000,000 higher paying ("good") jobs that NAFTA was supposed to create in the U.S. never materialized and that leaves me very skeptical of the ability of the economic community to prescribe policies that will stimulate demand leading to jobs - especially since the business community never for one minute thought those jobs would ever see the light of day.

Brad, you make a number of criticisms of Bush's economic policies and the manner in which he has responded to the job recession. You also say that the Fed played a significant role in this, but it's not really their fault. However, you neglect to mention what your own answer to the problem would be. What would you have them do?

An aside: Although most talk about the bad job market refers to unemployment, the real problem (IMO) is actually more subtle: underemployment. Almost anyone who wants to can get a job at a fast food joint or Wal-Mart. What is is short supply are *good* jobs. And the labor surplus is driving down pay on the few that remain. A sysadmin who was laid off and got a job as a Wal-Mart greeter to cover the mortgage may not be listed in the unemployment statistics, but he is still being screwed over. It was easy to tell people who lost manufacturing jobs when they were shipped overseas that the new economy would require them to learn a skilled trade or enter a white-collar profession. But what do you tell highly-educated IT professionals, accountants, financial analysts, and myriad others who have been laid off in favor of H-1Bs or offshoring? To me this is a qualitative difference from the last round of factory offshoring in that the people affected this time have poured huge amounts of time (and often money) into their career path and are now SOL. How do you intend to convince these individuals that India and China did not cause their plight?

RE: comments from Harold McClure and Anne

Thank you. You both seem to be saying the same thing - failure of fiscal policy to stimuate (aggregate) domestic demand - and not international trade - as a vehicle of job creation. This tells me that supply-side economists have forgotten that, while supply may be the primary economic driver (I do not personally believe that is true but for the sake of argument), it is worth little or worthless without demand!

The second point is - if the economists fail to provide informed and competent technical direction to the White House and Congressional decision-makers - then who will? It might very well be naive but it is also a rather desparate inquiry. Somebody has to do the heavy lifting.

Final point: I do not oppose international trade and I certainly do not oppose the international community being able to benefit from employment. I do object to the consistent implementation of 'asymmetrical' economic policies that retard the potential growth available from free global markets and I do object to the lack of nationalist spirit - call it citizenship - that takes a cold, hard look at our position relative to the rest of the world and does not hesitate to do what is right for this country as a first order response. The 200,000 to 2,000,000 higher paying ("good") jobs that NAFTA was supposed to create in the U.S. never materialized and that leaves me very skeptical of the ability of the economic community to prescribe policies that will stimulate demand leading to jobs - especially since the business community never for one minute thought those jobs would ever see the light of day.

RE: comments from Harold McClure and Anne

Thank you. You both seem to be saying the same thing - failure of fiscal policy to stimuate (aggregate) domestic demand - and not international trade - as a vehicle of job creation. This tells me that supply-side economists have forgotten that, while supply may be the primary economic driver (I do not personally believe that is true but for the sake of argument), it is worth little or worthless without demand!

The second point is - if the economists fail to provide informed and competent technical direction to the White House and Congressional decision-makers - then who will? It might very well be naive but it is also a rather desparate inquiry. Somebody has to do the heavy lifting.

Final point: I do not oppose international trade and I certainly do not oppose the international community being able to benefit from employment. I do object to the consistent implementation of 'asymmetrical' economic policies that retard the potential growth available from free global markets and I do object to the lack of nationalist spirit - call it citizenship - that takes a cold, hard look at our position relative to the rest of the world and does not hesitate to do what is right for this country as a first order response. The 200,000 to 2,000,000 higher paying ("good") jobs that NAFTA was supposed to create in the U.S. never materialized and that leaves me very skeptical of the ability of the economic community to prescribe policies that will stimulate demand leading to jobs - especially since the business community never for one minute thought those jobs would ever see the light of day.

RE: comments from Harold McClure and Anne

Thank you. You both seem to be saying the same thing - failure of fiscal policy to stimuate (aggregate) domestic demand - and not international trade - as a vehicle of job creation. This tells me that supply-side economists have forgotten that, while supply may be the primary economic driver (I do not personally believe that is true but for the sake of argument), it is worth little or worthless without demand!

The second point is - if the economists fail to provide informed and competent technical direction to the White House and Congressional decision-makers - then who will? It might very well be naive but it is also a rather desparate inquiry. Somebody has to do the heavy lifting.

Final point: I do not oppose international trade and I certainly do not oppose the international community being able to benefit from employment. I do object to the consistent implementation of 'asymmetrical' economic policies that retard the potential growth available from free global markets and I do object to the lack of nationalist spirit - call it citizenship - that takes a cold, hard look at our position relative to the rest of the world and does not hesitate to do what is right for this country as a first order response. The 200,000 to 2,000,000 higher paying ("good") jobs that NAFTA was supposed to create in the U.S. never materialized and that leaves me very skeptical of the ability of the economic community to prescribe policies that will stimulate demand leading to jobs - especially since the business community never for one minute thought those jobs would ever see the light of day.

RE: comments from Harold McClure and Anne

Thank you. You both seem to be saying the same thing - failure of fiscal policy to stimuate (aggregate) domestic demand - and not international trade - as a vehicle of job creation. This tells me that supply-side economists have forgotten that, while supply may be the primary economic driver (I do not personally believe that is true but for the sake of argument), it is worth little or worthless without demand!

The second point is - if the economists fail to provide informed and competent technical direction to the White House and Congressional decision-makers - then who will? It might very well be naive but it is also a rather desparate inquiry. Somebody has to do the heavy lifting.

Final point: I do not oppose international trade and I certainly do not oppose the international community being able to benefit from employment. I do object to the consistent implementation of 'asymmetrical' economic policies that retard the potential growth available from free global markets and I do object to the lack of nationalist spirit - call it citizenship - that takes a cold, hard look at our position relative to the rest of the world and does not hesitate to do what is right for this country as a first order response. The 200,000 to 2,000,000 higher paying ("good") jobs that NAFTA was supposed to create in the U.S. never materialized and that leaves me very skeptical of the ability of the economic community to prescribe policies that will stimulate demand leading to jobs - especially since the business community never for one minute thought those jobs would ever see the light of day.

Alynne, Firebug:

Enter your comments, then highlight the text, and copy it (in case the posting fails). Then hit 'post', and a few seconds. Then use the link at the top of the page to go to another post (forward or backwards). Wait a few seconds, and use the forward or backwards link to return to the original post. See if your post has gone through.

It's not good, but it's the best that can be done.
With the small pop-up comments windows, you could just kill the window, a few seconds after hitting 'post'. This new system seems not to work as well.

Alynne, Firebug:

Enter your comments, then highlight the text, and copy it (in case the posting fails). Then hit 'post', and a few seconds. Then use the link at the top of the page to go to another post (forward or backwards). Wait a few seconds, and use the forward or backwards link to return to the original post. See if your post has gone through.

It's not good, but it's the best that can be done.
With the small pop-up comments windows, you could just kill the window, a few seconds after hitting 'post'. This new system seems not to work as well.

RE: comments from Harold McClure and Anne

You both seem to be saying that the problem is failure of appropriate fiscal policy to stimuate (aggregate) domestic demand - and not international trade - as a vehicle of job creation. This tells me that supply-side economists have forgotten that, while supply may be the primary economic driver (I do not personally believe that is true but for the sake of argument), it is worth little or worthless without demand. (a case of too much gravy (train) and too little bread?)

The second point is - if the economists fail to provide informed and competent technical direction to the White House and Congressional decision-makers - then who will? It might very well be naive but it is also a rather desparate inquiry. Somebody has to do the heavy lifting.

Final point: I do not oppose international trade and I certainly do not oppose the international community being able to benefit from employment. I do object to the consistent implementation of 'asymmetrical' economic policies that retard the potential growth available from free global markets and I do object to the lack of nationalist spirit - call it citizenship - that takes a cold, hard look at our position relative to the rest of the world and does not hesitate to do what is right for this country as a first order response. The 200,000 to 2,000,000 higher paying ("good") jobs that NAFTA was supposed to create in the U.S. never materialized and that leaves me very skeptical of the ability of the economic community to prescribe policies that will stimulate demand leading to jobs - especially since the business community never for one minute thought those jobs would ever see the light of day. Truly job creation was used as a political tool to sell NAFTA just as the jobs deficit is being used as a political tool to leverage public opinion and divert attention away from messy domestic policies. Right or wrong (and I will take the easy shot and add, right or left) jobs will continue to be linked - as a political issue/agenda - with international trade despite the insistence of the economics profession that the correlations are insignificant relative to domestic fiscal policy. If you don't like what you are hearing now, blame it on the way NAFTA was sold. There is apparently some repair work that needs to be done.

My deepest apologies to all - I don't have any idea how the multiple postings occurred. A digital exclamation point??

One of the most distressing things about this is from a completely different angle. We need China's help in dealing with North Korea. Hmm that was strong enough. We absolutely will not be able to deal with North Korea unless China is willing to take action in concert with us. Bashing it now doesn't help that at all.

Brad selective rationality De Long happens to be one of the 2 or 3 economists who has contributed the most to understanding when it makes sense to assume things will happen as if people were rational and when they won't. Oddly he tends to argue that the standard arguments that financial markets function as if everyone was rational aren't so solid. Still they aren't chopped liver. The ideas are 2. Even if most people don't figure out what, say, a tax plan will do to short term interest rates in the future, the relatively few who understand such issues are disproportionally involved in financial markets and trade constantly. Second other things equal, dodos lose their money and stop mattering (the other things equal qualifier has a lot to do with Brad and some other guys).

Back to seat belts. Race car drivers all wear seat belts. There are probably kids who want to race cars and won't wear seat belts. They don't live long enough to become well known. Trading long term bonds and taking what Bush says on faith is like trying to be a race car driver who won't wear a seat belt. Sure there are people who do that sort of stuff. They don't last long enough to have more than one impact.

Believe me Brad has thought about the issue.

Hmm so no one in the Bush administration says that China is THE problem. Well they are sharp enough to avoid definite words like THE. Do they (I ask for information) present other reasons for the slack US job market. If "unfair" trade is the only issue that matters, they are trying to convince people it is THE problem.

I hope I am not posting this 2 or 3 times, especially since I gave a hostage to fortune and humiliate myself.

I think my effort to post the challenge failed so I am being admirably honest to show what a fool I am.

Brad selective rationality De Long happens to be one of the 2 or 3 economists who has contributed the most to understanding when it makes sense to assume things will happen as if people were rational and when they won't. Oddly he tends to argue that the standard arguments that financial markets function as if everyone was rational aren't so solid. Still they aren't chopped liver. The ideas are 2. Even if most people don't figure out what, say, a tax plan will do to short term interest rates in the future, the relatively few who understand such issues are disproportionally involved in financial markets and trade constantly. Second other things equal, dodos lose their money and stop mattering (the other things equal qualifier has a lot to do with Brad and some other guys).

Back to seat belts. Race car drivers all wear seat belts. There are probably kids who want to race cars and won't wear seat belts. They don't live long enough to become well known. Trading long term bonds and taking what Bush says on faith is like trying to be a race car driver who won't wear a seat belt. Sure there are people who do that sort of stuff. They don't last long enough to have more than one impact.

Believe me Brad has thought about the issue.

Hmm so no one in the Bush administration says that China is THE problem. Well they are sharp enough to avoid definite words like THE. Do they (I ask for information) present other reasons for the slack US job market. If "unfair" trade is the only issue that matters, they are trying to convince people it is THE problem.

My that was quick. Having challenged maciej to find a Bush admin official blaming something other than China I tried “Bush blames jobs” at google and got first hit

The Victoria Advocate - [ Traduci questa pagina ]
Bush blames better productivity for job losses President also ... INDIANAPOLIS - President
Bush on Friday confronted ... a disappointing new government jobs report by ...
www.thevictoriaadvocate.com/business/ local/story/1321556p-1557896c.html - 60k

I feel like I just tried to win the Indianapolis 500 without a seatbelt on. Ouch.

As K Harris said all I had to do was look.

You live by Google, you die by Google.

Shall we then conclude that Brad has, umm, overstated the case somewhat?

maciej,

You're taking yourself out of the game. When the real point of the discussion is whether the Bush administration is using dishonest, insupportable accusations about a standard electoral boogyman to smooth over an election year problem, insisting that a Bush administration official identify China as "the" cause of US job loss takes you out of the game. The big game, anyhow, the one that matters - discussing policy issues in a reasonable way. Did Brad overstate the point? I don't really care. He isn't the one who is running the country, so a bit of hyperbole from his corner isn't going to change much. What I have identified, with a very few minutes effort, are typical political wiggles, avoiding saying anything you can be called on later ("mission accomplished") while giving a particular constituency the sort of red meat it wants. Bush and company were blaming China. That, broadly, was what I thought you were doubting he did. If you were merely doubting that he made a specific kind of statement, one no politician in his right mind would make, well, I concede.

Brad,

I find it difficult for you to have been proven more wrong in only the course of a day. First, the GDP soars, and several economists cite the Bush tax cuts as part of the reason.

Second, the Bush administration announces that China is not considered a currency manipulator, and that no trade action will be forthcoming. Charles Schumer blasts this announcement as a "whitewash".

There are racial overtones to this too that Republicans have been only too happy to exploit in the past as with Wen Ho Lee and the Clinton/Gore fundraising scandals.

This is a test...

Mankiw has found his way back to the true path:

From Reuters:
"When one decomposes the recent decline in manufacturing employment, it's hard to see trade with China having a major role," Greg Mankiw told a House of Representatives Ways and Means Committee hearing on China trade, noting that the five industries that had contributed most to heavy manufacturing job losses were all export-intensive with small China imports.

The chairman of the White House Council of Economic Advisers said this "suggests that U.S. job losses are more closely related to declines in domestic investment and weak exports than to import competition."

K Harris,

It's a matter of proportion. It's one thing to say this administration engages in some shenanigans, and cite China bashing. Fair point. It's another thing to say that what they primarily do is blame China for US unemployment, which is not true.

Barry,

24 hours later, the light bulb fiiiiinnnaally comes on. Those of us who are, well, uhm, windy need to compose off line to avoid jamming the mail conduit. Got it. Thanks for the advice.

Make sure you still have something worth wishing for.

I believe that all government is evil, and that trying to improve it is largely a waste of time.