Saturday, December 3, 2016

Europe’s green energy policy is a disaster for the environment

By Michael Le Page writing at New Scientist.
"The European Union’s proposals for revising its renewable energy policies are greenwashing and don’t solve the serious flaws, say environmental groups.

The EU gets 65 per cent of its renewable energy from biofuels – mainly wood – but it is failing to ensure this bioenergy comes from sustainable sources, and results in less emissions than burning fossil fuels. Its policies in some cases are leading to deforestation, biodiversity loss and putting more carbon dioxide in the atmosphere than burning coal.

“Burning forest biomass on an industrial scale for power and heating has proved disastrous,” says Linde Zuidema, bioenergy campaigner for forest protection group Fern. “The evidence that its growing use will increase emissions and destroy forests in Europe and elsewhere is overwhelming.”

On 30 November the European Commission unveiled a draft “clean energy” package for the period up to 2030. On the surface, these proposals address some of the issues with existing renewable energy policies.

But environmental groups who have been analysing the proposals say that the changes will make little difference.

“It’s almost worse than doing nothing,” says Sini Erajaa, the bioenergy policy officer for BirdLife Europe & Central Asia, who describes the changes as greenwashing.

Burning biomass

For instance, one proposed change is to apply the EU’s sustainability criteria to biomass used in heat and power plants whose output is 20 megawatts or more. “This means, for instance, that electricity and heat from biomass have to produce at least 80 per cent fewer greenhouse gas emissions compared to fossil fuels by 2021 and 85 per cent less by 2026,” states a memo on the revised renewable energy directive.

You might think this will ensure that burning biomass does not result in higher greenhouse gas emissions than fossil fuel use, but far from it. That statement is misleading because it does not make clear that the EU’s method for calculating emissions assumes burning biomass produces no CO2 at all. “Emissions from the fuel in use shall be taken to be zero for biofuels and bioliquids,” states a 2009 directive.

The assumption is that these emissions don’t have to be counted because the growth of plants soaks up as much CO2 as is emitted when they are burned. But this assumption is not true on the timescales that matter for limiting climate change. Burning wood can result in higher emissions than burning coal.

This fact is not controversial. Buried deep in the EU’s own impact assessment is an acknowledgement that burning forest biomass is not carbon neutral, and that using some forms of forest biomass can increase emissions.

“Biogenic emissions remain high (higher than emissions from fossil fuels) beyond a policy-relevant timeframe for sawn wood, stumps, coarse dead wood,” it states on page 106.

Carbon neutral?

But because the EU doesn’t count these emissions, it is claiming carbon reductions for activities that are sometimes increasing emissions – what New Scientist has recently revealed as “the great carbon scam”.

For instance, the EU is not just burning small bits of wood waste for energy, which can indeed reduce emissions. Whole trees are being felled for energy and often in an unsustainable way, say campaigners.
A recent report by Birdlife and other groups documents several examples of how EU subsidies are driving deforestation in Europe and beyond. Supposedly protected forests are being cut down in Slovakia and Italy, for instance.

Campaigners want the EU to abandon its drive to use ever more bioenergy, particularly forest bioenergy. “We are not saying bioenergy has no role to play,” says Erajaa. “But it will have to be smaller.”

When asked about these criticisms, a spokesperson for the European Commission said it is committed to making sure the biomass used for energy throughout the EU is sustainable.

The draft proposals now go before the European parliament for review, so there is still a chance to amend them. But countries and industries raking in profits from bioenergy subsidies are fighting to prevent meaningful reform."

Much of the U.S. trade deficit consists of funds that return to the U.S. as equity investments that promote American economic growth and job creation

See There Is No Deficit of Erroneous Thinking About Trade by Don Boudreaux.
"Here’s a letter to National Review:

Edward Conard writes that “Trade deficits occur when countries such as Germany lend the U.S. economy the proceeds from the sale of goods to Americans, rather than using them to buy goods made by American workers.  To prevent trade deficits from reducing the wages and employment of lower-skilled workers … Americans must borrow and spend these savings.  But today, savings sit unused despite near-zero interest rates, putting downward pressure on wages as they accumulate” (“A Trade Policy That Wouldn’t Leave Low-Wage Workers Behind,” December 5th).

Mr. Conard errs.  Contrary to his claim – and to popular myth – trade deficits (more accurately, current-account deficits) are not exclusively, or even chiefly, debt.  Trade deficits occur when countries (actually, foreign people) do any form of investing in the U.S. economy.  The U.S. trade deficit also consists of foreigners’ purchases or creation of equity and intellectual property in the U.S., foreigners’ purchases of real estate in the U.S., and foreigners’ holdings of U.S. dollars.  In all but the last case, the dollars that foreigners earn from their exports to America return directly to the U.S. in ways that are just as likely to contribute to economic growth and job creation as are dollars that Americans themselves spend in the U.S. on equity, intellectual property, and real estate.  (And, it should be noted, dollars held by foreigners are not debt that Americans owe to foreigners.)

There is, furthermore, a bizarre mystery lurking in Mr. Conard’s argument.  In his view, foreigners lend Americans lots of money that Americans then simply sit on.  This scenario is too implausible to take seriously.  Why are we Americans borrowing all this money if we aren’t spending or investing it?
In fact, the entity that borrows the most from foreigners is Uncle Sam, whose borrowing in the first quarter of 2016 was 29 percent of the U.S. current-account deficit.*  Surely Mr. Conard knows that Uncle Sam immediately spends all of the dollars that it borrows.  And, as alluded to above, the great bulk of the U.S. trade deficit that is not lent by foreigners to Uncle Sam consists of funds that return to the U.S. as equity investments – that is, investments that promote American economic growth and job creation.


Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030"

Friday, December 2, 2016

Three Pinocchios For Justin Trudeau’s claim that Castro made ‘significant improvements’ to Cuban health care and education

By Glenn Kessler of The Washington Post.
"“A legendary revolutionary and orator, Mr. Castro made significant improvements to the education and healthcare of his island nation.”
— Canadian Prime Minister Justin Trudeau, statement on the death of Fidel Castro, Nov. 26, 2016

In his surprisingly warm statement on the death of the Cuban dictator, the Canadian prime minister referenced what he called “significant improvements” in education and health care in Cuba under Fidel Castro. This is a commonly cited sentiment about Castro’s Cuba — that despite his iron rule, he improved the lives of the Cuban people, especially the poor.

A reader asked whether Trudeau’s assessment was really valid, so we decided to explore the issue.

The Facts

Obviously, it is impossible to go in a time machine and explore what would have happened if Castro had not overthrown the military dictatorship of Fulgencio Batista in 1959. But any measurement of Cuba now must take into account where Cuba stood at the time of the revolution — and whether it has maintained its place among Latin American nations during Castro’s rule.

We also have to acknowledge that any data from the Cuban government is naturally suspect. Experts say that official statistics must be treated gingerly and skeptically, as police states generally are not known to provide accurate numbers. In particular, Cuba’s relatively high ranking — 67 out of 188 countries — in the United Nations’ Human Development Index appears to be affected by questionable data.

A rigorous effort to establish an accurate picture of pre-revolutionary living standards in Cuba, published in the Journal of Economic History in 2012, found that Cuba significantly lagged its counterparts in the region during Castro’s rule. “Since current living standards appear to be below the levels of the late republic, it is hard to visualize any scenario where the republic would not have outperformed the revolutionary economy by a considerable margin in terms of living standards,” wrote Marianne Ward-Peradoza and John Devereux.

Prior to the revolution, Cuba was closely tied to the United States (which had once occupied it), and so roads, railroads and hotels had been built with U.S. investments. Ward and Devereux calculated that Cuba’s income per capita in 1955 was 50 to 60 percent of the top Western European levels — and about the same as Italy’s income per capita at the time. Cuba’s consumption was relatively high as a share of gross domestic product.

But after the revolution, ties with the United States were cut and Washington imposed an embargo (though Cuba still traded with much of the rest of the world). Significant aid to bolster the economy came from the Soviet Union and then, in recent years, from Venezuela.

Using comparisons with data for Costa Rica and Argentina, the pair calculated that Cuban consumption levels in 2000 were 52 percent of 1955 levels. At the time, Cuba was still suffering the aftereffects of the collapse of the Soviet Union. In 2007, they estimated, Cuba’s per capita consumption was 72 percent of the 1955 level.

Other studies confirm that Cubans generally suffered a loss of living standards. Data from the mid-1950s indicate that per capita consumption of calories in Cuba was 2,730 in the mid-1950s — and 2,357 in 1996. Meanwhile, other countries in the region saw an improvement; for example, Mexico went from 2,420 to 3,137 calories. In other words, Cuba declined about 13 percent, while Mexico gained almost 30 percent.

As for health care and education, Cuba was already near the top of the heap before the revolution. Cuba’s low infant mortality rate is often lauded, but it already led the region on this key measure in 1953-1958, according to data collected by Carmelo Mesa-Lago, a Cuba specialist and professor emeritus at the University of Pittsburgh. In terms of life expectancy, Cuba was in fourth place in the mid-1950s — and advanced to third in 2005-2007. Literacy was also high — fourth place in 1950s — and Cuba advanced to second place in 2005-2007.

“We suspect that overall healthcare outcomes would not have been much different given the remarkably low levels of infant mortality in Republican Cuba,” Ward-Peradoza and Devereux said. But they said the revolution probably improved education.

In particular, gaps between the rich and poor were narrowed after the revolution. Free national public education was expanded, as was the free public health system. The number of rural hospitals increased from one to 62, for instance. The Cuban health-care system in particular places strong emphasis on preventive medicine, making it easy for Cubans to get checkups.

But in terms of GDP, capital formation, industrial production and key measures such as cars per person, Cuba plummeted from the top ranks to as low as 20th place. That came at a cost, even though Cubans are well educated.

“Cuba probably has the best-educated population in the region, but the considerable investment in human resources is partly lost due to the low wages paid and lack of incentives that force professionals to emigrate or stay but abandon their state work and shift to private nonprofessional activities that allow them to survive,” Mesa-Lago said.

Andrew Wolfe, who traveled to Cuba three times in the mid-2000s when he was senior manager of the Western Hemisphere department at the International Monetary Fund, said that primary health care has probably improved under Castro but that doctors and teachers in Cuba earn less than hotel workers. He said it was noteworthy that when Castro became ill in 2006, a specialist arrived from Spain to treat him, suggesting that Cuban doctors lag in treating more complex cases.

Mesa-Lago said many gains were lost after the Soviet Union collapsed and ended its support for the regime. He said that Trudeau’s remarks thus were out of date. “This was true by the end of the 1980s, as I have proved in my books and articles, but not after the huge economic crisis of the 1990s when the economy sank by 35 percent in three years; after that, health and education indicators badly deteriorated and, despite some recovery in 2000-2003, still several of them are below 1989 levels,” he said.

Data collected by Mesa-Lago show that from 1989 to 2014, the number of hospital beds declined 29 percent, hospitals fell 37 percent and family doctors plummeted 61 percent.

Reporters have also documented that Cuban hospitals are ill-equipped. A 2004 series on Cuba’s health-care system in Canada’s National Post said pharmacies stock very little and antibiotics are available only on the black market. “One of the myths Canadians harbor about Cuba is that its people may be poor and living under a repressive government, but they have access to quality health and education facilities,” the Post said. “It’s a portrait encouraged by the government, but the reality is sharply different.”

Trudeau’s office declined to provide evidence that would support Trudeau’s assertion on Cuban education and health care. “With regard to your question, I will let the PM’s statement speak for itself,” said Cameron Ahmad, press secretary for Trudeau. “We of course recognize that Fidel Castro was a controversial figure. But Canadians have had an unwavering commitment to the Cuban people for decades, and that includes past governments.”

The Pinocchio Test

Trudeau appears to accept outdated Cuban government spin as current fact. The reality is that education and health care were already relatively vibrant in Cuba before the revolution, compared with other Latin American countries. While the Castro regime has not let that slip — and given greater access to the poor — it is a stretch to claim Castro was responsible for “significant improvements,” especially more recently.

Many other Latin American countries made far more dramatic strides in the past six decades, without the need for a communist dictatorship; Cuba simply had a head start when Castro seized power.
Moreover, the focus on health care and education should not detract from the fact that overall living standards, as measured by gross domestic product, calorie consumption and other measures, have declined significantly under communist rule. Without big handouts from first the Soviet Union and then Venezuela, the economic picture would be even worse."

Data from BLS report on women’s earnings suggest that raw gender pay gap is explained by age, marriage, hours worked

From Mark Perry.

"The Bureau of Labor Statistics (BLS) releases an annual report every November on the “Highlights of Women’s Earnings” (since the BLS report actually analyzes equally both men’s and women’s earnings, one might ask why the report isn’t simply titled more accurately “Highlights of Earnings in America”?).


Here’s the opening paragraph from the most recent BLS report “Highlights of Women’s Earnings in 2015” that was just released:
In 2015, women who were full-time wage and salary workers had median usual weekly earnings that were 81 percent of those of male full-time wage and salary workers. In 1979, the first year for which comparable earnings data are available, women’s earnings were 62 percent of men’s. Since 2004, the women’s-to-men’s earnings ratio has ranged from 80 to 83 percent.
How do we explain the fact that women working full-time last year earned only 81 cents for every dollar men earned according to the BLS? Here’s how the National Committee on Pay Equity explains it:
The wage gap exists, in part, because many women and people of color are still segregated into a few low-paying occupations. Part of the wage gap results from differences in education, experience or time in the workforce. But a significant portion cannot be explained by any of those factors; it is attributable to discrimination. In other words, certain jobs pay less because they are held by women and people of color.
Let’s investigate the claim that the gender pay gap is a result of discrimination by looking at some of the wage data by gender in the BLS report for 2015:

1. Among full-time workers (those working 35 hours or more per week), men were more likely than women to work a greater number of hours (see Table 5). For example, 25.8% of men working full-time worked 41 or more hours per week in 2015, compared to only 14.5% of women who worked those hours, meaning that men working full-time last year were nearly twice as likely as women to work 41 hours per work or more. Further, men working full-time were also 2.5 times more likely than women to work 60+ hour weeks: 6.2% of men worked 60 hours per week or more in 2015 compared to only 2.5% of women who worked those hours. Also, women working full-time were about 2.5 times more likely than men to work shorter workweeks of 35 to 39 hours per week: 11.3% of full-time women worked those hours in 2015, compared to only 4.7% of men who did so. What’s especially interesting is that women working 35-39 hours per week last year earned nearly 10% more than men who worked those hours, i.e. there was a 9.1% gender wage gap in favor of female workers for that cohort. Using the standard political and gender rhetoric, couldn’t that wage premium for women only be explained by gender discrimination against men in the labor market for employees working 35-39 hours per week?

2. Although not reported by the BLS, I can estimate using its data that the average workweek for full-time workers last year was 41.4 hours for women and 43.3 hours for men. Therefore, the average man employed full-time worked nearly 2 more hours per week (1.90 hours) in 2015 compared to the average woman, which totals to an average of an additional 95 male work hours per year.

Comment: Because men work more hours on average than women, some of the raw wage gap naturally disappears just by simply controlling for the number of hours worked per week, an important factor not even mentioned by groups like the National Committee on Pay Equity. For example, women earned 81.1% of median male earnings for all workers working 35 hours per week or more, for a raw, unadjusted pay gap of 18.9% for full-time workers. But for those workers with a 40-hour workweek, women earned 88% of median male earnings, for a pay gap of only 12%. Therefore, once we control only for one variable – hours worked – and compare men and women both working 40-hours per week in 2015, more than one-third (36.5%) of the raw 18.9% pay gap reported by the BLS disappears.

3. The BLS reports that for full-time single workers who have never married, women earned 91.2% of men’s earnings in 2015, which is a wage gap of only 8.8% (see Table 1 and chart above), compared to an overall unadjusted pay gap of 18.9% for workers in that group. When controlling for marital status and comparing the earnings of unmarried men and unmarried women, more than half (53.4%) of the raw 18.9% wage gap is explained by just one variable (among many): marital status.

4. In Table 7, the BLS reports that for full-time single workers with no children under 18 years old at home (includes never married, divorced, separated, and widowed), women’s median weekly earnings of $679 were 93.4% of the weekly earnings of $727 for their male counterparts in that cohort (see chart above). For this group, once you control for marital status and children at home, we can explain about two-thirds of the unadjusted gender earnings gap.

5. Also from Table 1 in the BLS report, we find that for married workers with a spouse present, women working full-time earned only 78.1% of what married men with a spouse present earned working full-time in 2015 (see chart). Therefore, BLS data show that marriage has a significant and negative effect on women’s earnings relative to men’s, but we can realistically assume that marriage is a voluntary lifestyle choice, and it’s that personal decision, not necessarily labor market discrimination, that contributes to at least some of the gender wage gap for married full-time workers with a spouse present.

6. Also in Table 1, the BLS reports that for young workers ages 20-24 years, women earned 89.7% of the median earnings of male full-time workers reflecting a 10.3% gender wage gap for that age cohort in 2015. Once again, controlling for just a single important variable – age – we find that nearly half of the overall unadjusted raw wage gap for all workers (18.9%) disappears for young workers.

7. Also from Table 7, married women (with spouse present) working full-time with children under 18 years at home earned 80.4% of what married men (spouse present) earned working full-time with children under 18 years (see chart). Once again, we find that marriage and motherhood have a significantly negative effect on women’s earnings; but those lower earnings don’t necessarily result from labor market discrimination, they more likely result from personal family choices about careers, workplace flexibility, child care, and the number of hours worked, etc.

Bottom Line: When the BLS reports that women working full-time in 2015 earned 81.1% of what men earned working full-time, that is very much different than saying that women earned 81.1% of what men earned for doing exactly the same work while working the exact same number of hours in the same occupation, with exactly the same educational background and exactly the same years of continuous, uninterrupted work experience. As shown above, once we start controlling individually for the many relevant factors that affect earnings, e.g. hours worked, age, marital status, and having children, most of the raw earnings differential disappears. In a more comprehensive study that controlled for all of the relevant variables simultaneously, we would likely find that those variables would account for nearly 100% of the unadjusted, raw earnings differential of 19% lower earnings for women reported by the BLS. Discrimination, to the extent that it does exist, would likely account for a very small portion of the raw gender pay gap.

For example, in a 2005 NBER working paper “What Do Wage Differentials Tell Us about Labor Market Discrimination?” by June O’Neill (Professor of economics at Baruch College CUNY, and former Director of the Congressional Budget Office), she conducts an empirical investigation using Census data and concludes that:
There is no gender gap in wages among men and women with similar family roles. Comparing the wage gap between women and men ages 35-43 who have never married and never had a child, we find a small observed gap in favor of women, which becomes insignificant after accounting for differences in skills and job and workplace characteristics.
This observation is an important one because it suggests that the factors underlying the gender gap in pay primarily reflect choices made by men and women given their different societal roles, rather than labor market discrimination against women due to their sex.
To claim that a significant portion of the raw wage gap can only be explained by discrimination is intellectually dishonest and completely unsupported by the empirical evidence. And yet we hear the false claims all the time from groups like the National Committee on Pay Equity, the American Association of University Women, the Institute for Women’s Policy Research, and politicians like President Obama, President Jimmy Carter and Virginia governor Terry McAuliffe that “women are paid 77 cents on the dollar for doing the same work as men.” Last year, Hillary Clinton made the completely false claim that “On average, women need to work an extra two hours each day to earn the same paycheck as their male co-workers.”

When those false claims are made, there is never any attention paid to the reality that almost all of the raw, unadjusted pay differentials can be explained by everything except discrimination – hours worked, age, marital status, number of children, years of continuous work experience, workplace conditions, career choices, education, etc. In other words, once you impose the important ceteris paribus condition that “all other things are equal or held constant,” the gender pay gap that we hear so much about probably doesn’t really exist at all.

But we know by now that logic, economic theory, and empirical evidence won’t matter to gender activists, progressives, President Obama and most Democrats, and all we’ll hear regarding the new BLS report will be that women earned only 81 cents for every dollar earned by men last year…. for doing the same work, and how unfair that is…… And we’ll hear all about their plans to address and correct the raw gender pay gap with additional legislation, even though a comprehensive 2009 study from the Department of Labor came to the following conclusion (emphasis added):
This study leads to the unambiguous conclusion that the differences in the compensation of men and women are the result of a multitude of factors and that the raw wage gap should not be used as the basis to justify corrective action. Indeed, there may be nothing to correct. The differences in raw wages may be almost entirely the result of the individual choices being made by both male and female workers."

Thursday, December 1, 2016

New Zealand to Compensate Organ Donors

From Marginal Revolution.
"New Zealand will now compensate live organ donors for all lost income:
Today’s unanimous cross-party support for the Compensation for Live Organ Donors Bill represents a critical step in reducing the burgeoning waiting list for kidney donations, according to Kidney Health New Zealand chief executive Max Reid.
“The Bill effectively removes what is known to be one of the single greatest barriers to live organ donation in NZ,” Mr Reid says. “Until now the level of financial assistance (based on the sickness benefit) has been insufficient to cover even an average mortgage repayment, and the process required to access that support both cumbersome and demeaning. The two major changes that this legislation introduces – increasing compensation to 100% of lost income, and transferring responsibility for the management of that financial assistance being moved from WINZ to the Ministry of Health – will unquestionably remove two major disincentives that exist within the current regime.”
Eric Crampton (former GMU student, now NZ economist who supported the bill) notes that a key move in generating political support was that New Zealand MP Chris Bishop framed the bill as compensating donors for lost wages rather than paying them. A decrease in the disincentive to donate–an increase in the incentive to donate. To an economist, potato, potato. But for people whose kidneys fail in New Zealand, the right framing may have been the difference between life and death.
This is also a good time to remind readers of Held, McCormick, Ojo and Roberts, A Cost-Benefit Analysis of Government Compensation of Kidney Donors published in the American Journal of Transplantation.
From 5000 to 10 000 kidney patients die prematurely in the United States each year, and about 100 000 more suffer the debilitating effects of dialysis, because of a shortage of transplant kidneys. To reduce this shortage, many advocate having the government compensate kidney donors. This paper presents a comprehensive cost-benefit analysis of such a change. It considers not only the substantial savings to society because kidney recipients would no longer need expensive dialysis treatments—$1.45 million per kidney recipient—but also estimates the monetary value of the longer and healthier lives that kidney recipients enjoy—about $1.3 million per recipient. These numbers dwarf the proposed $45 000-per-kidney compensation that might be needed to end the kidney shortage and eliminate the kidney transplant waiting list. From the viewpoint of society, the net benefit from saving thousands of lives each year and reducing the suffering of 100 000 more receiving dialysis would be about $46 billion per year, with the benefits exceeding the costs by a factor of 3. In addition, it would save taxpayers about $12 billion each year."

How Trump’s tactics for saving US jobs could kill them instead

From Mark Perry.
"Rick Newman has an article on Yahoo! Finance that exposes some of the flaws in president-elect’s naive views on trade, and explains how Trump’s attempts to “bring jobs back to the US” or “keep jobs from leaving the US” will likely backfire and kill US jobs in the long run:
Donald Trump may very well be able to persuade companies like Carrier to keep jobs in the United States instead of moving them to lower-cost countries such as Mexico. But pressuring companies to accept higher production costs, which Trump is essentially doing, could easily backfire and destroy more jobs than if Trump were to do nothing.
If companies like Carrier only sold their products in the United States and competed only against other US firms, the case for keeping the jobs here would be simpler and stronger. But no country’s economy works like that anymore, and inefficiencies at any one company give competitors a pricing or quality edge. “Carrier must worry about competition from other producers, some of whom may produce all their products in low-cost overseas plants,” says economist Gary Burtless of the Brookings Institution. “If Carrier loses US and overseas business and profits because its manufacturing costs are higher than those of its competitors, the US plants may ultimately shrink or close.”
Carrier’s competitors include Trane and American Standard, both owned by Ingersoll-Rand, which is based in Dublin, Ireland; Rheem, headquartered in Atlanta; and Goodman, owned by Daikin, a Japanese conglomerate. Each has manufacturing operations all over the world. If any one company has higher costs than another—whether labor, components or anything else—its products will be more expensive than the competition and sales will most likely decline. If you can’t cut costs, the only choice often is to skimp on quality, which erodes profits even more. This is true for all appliances and just about every other sort of manufactured good.
If Trump’s corporate arm-twisting were to prevail, a company like Carrier probably would keep more jobs in the United States, at least for a while. But its sales would decline compared with competitors able to undercut it on price. Trump could pursue aggressive tariffs on imports, to force competing prices up as well. But higher prices usually lead to lower sales across the board, while hurting consumers who must purchase those products. Businesses bear those higher costs as well, and they’ll have less money to hire people if other costs go up.
If profitability at any given company were poor enough, some producers would get out of the business altogether. And none of this accounts for the possibility of retaliatory tariffs on US exports to other countries, a likely tit-for-tat outcome that would further cut into American production.
MP: Trump seems to not understand that a private company like Carrier is not in business to maximize US jobs. Carrier’s main responsibility is to produce products for consumers (both domestically and globally) at the lowest possible cost and with the highest possible quality. Carrier also has a responsibility to its shareholders to provide them with the highest possible rate of return. As Newman correctly points out, multi-national firms like Carrier operate now in an intensely competitive global marketplace, where operational efficiency is the key to profitability, market share, and sustained existence. Persuading Carrier to bear the burden of higher labor and production costs in the US, instead of relocating production and jobs to a lower-cost country, may save some US jobs in the short-run. But that strategy is forcing Carrier to operate less efficiently with high labor costs, and will have serious negative long-run consequences for Carrier, its employees, its shareholders and its customers."

Wednesday, November 30, 2016

The U.S. trade deficit is not a significant drag on growth and manufacturing jobs

See Open Letter to Jared Bernstein by Donald J. Boudreaux.
"Mr. Jared Bernstein
Center on Budget and Policy Priorities

Mr. Bernstein:

In your Washington Post essay “A proposal to the incoming administration to lower the trade deficit” (Nov. 28) you simply assert that the U.S. trade deficit is “a significant drag on growth and manufacturing jobs.”  Because you devote not a single word to explain why you believe this assertion to be correct, you clearly suppose that it is too obvious for words that the U.S. trade deficit harms the American economy.  Yet as you must know, for America to run a trade deficit with non-Americans is for America to receive a net inflow of capital from non-Americans.  In light of this reality, I’ve a few questions for you about a number of transactions, each of which causes the U.S. trade deficit to swell:
– Does the building of stores throughout America by Ikea, Sony, and other non-American companies impose “a significant drag on growth” in the U.S.?  If so, how?

– Did the $7.1 billion spent by Shuanghui International to buy Smithfield Foods impose “a significant drag on growth” in the U.S.?  If so, how?

– Was the $15.6 billion that the British-Swedish firm AstraZeneca paid a decade ago for Maryland-based MedImmune “a significant drag on growth” in the U.S.?  If so, how?

– When Japan-based Softbank bought the ailing Kansas-based Sprint for $21.6 billion, was there a resulting “significant drag on growth” in the U.S.?  If so, why?

– According to a June 2014 report from Brookings, “Jobs in FOE’s [foreign-owned enterprises in America] are relatively concentrated in manufacturing and advanced industries.”  How do you square this fact with your implication that such investments are “a significant drag on growth and manufacturing jobs” in the U.S.?

Some final questions: If non-Americans come to be led, as you wish, by U.S. Government policy to invest less in America, do you believe that the resulting decline in the value of U.S. corporate shares, the decline in the value of American real estate, and the decreased sharing by non-Americans of the burden of financing Uncle Sam’s budget deficits will enrich Americans and cause American economic growth to accelerate?  If so, why?

Unless and until you can plausibly answer questions such as these – questions the significance of which, frankly, you seem to be unaware – you should stop offering advice about trade policy.


Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030"