Monday, October 31, 2016

Tyler Cowen on TPP

See TPP Is Exciting. Let's Make the Case for It. Excerpt:
"Another good argument for TPP is that it will bring 18,000 tax cuts to job-creating exporters. But that’s not how Ronald Reagan would have sold a tax cut. It’s easier to talk about one big tax cut – especially if everyone has a chance of seeing it appear on their tax form -- than about removing 18,000 obstacles to business.

­­­A Peterson Institute estimate suggests global yearly gains from TPP of $295 billion, with $78 billion of that going to the U.S. That is an abstract number to most voters; it doesn’t feel like money in their pockets and it’s hard to be sure it’s accurate anyway.

Alternatively, TPP could be viewed at the margin. The U.S. already has trade agreements with many of the 12 Pacific Rim nations in the proposed pact, so the major additional impact for the U.S. is a new free trade agreement with Japan, the world’s third-largest economy and a significant ally. That seems constructive, but it won’t get people excited about the larger vision.

Other parts of TPP are simply hard to understand. There’s a mechanism to resolve disputes that has been criticized for giving companies the upper hand in conflicts with governments; it’s a common part of trade deals that shouldn’t be a major problem, but has become one. Hardly anyone even mentions that TPP will make it harder for Asian economies to compete unfairly against U.S. companies through state-owned enterprises. The Obama administration touts the labor and environmental standards in the deal to progressives, but those provisions, appropriately or not, leave many of the traditional supporters of free trade under-enthused.

So what then is the exciting, big-picture case for TPP? I say it’s to keep North America, and especially the U.S., the world's leading economic cluster for the foreseeable future.

Think of the global economy as one where some regions do very well -- for example, Silicon Valley or Shanghai -- and other regions languish. The talent, the capital and the most ambitious immigrants want to go to the flourishing places to do business, innovate and create jobs. Overall, the U.S. is the largest and most successful agglomeration of commerce.

If the United States is to extend its economic influence, it must draw upon Asian connections, talent and markets as much as possible. After all, the Asian economies in TPP -- Japan, Malaysia, Vietnam, Singapore and Brunei, along with Australia and New Zealand -- are significant in both population and gross domestic product. South Korea, Indonesia, Thailand and the Philippines have signaled a possible intent to join, and perhaps eventually India and Bangladesh as well.

There are thus two visions of America’s economic future. In one, the U.S. is able to mobilize Asian resources to help maintain its role as world economic leader, to the mutual benefit of most other Pacific nations. In the other, the talents and resources of the TPP nations get pulled in other directions, including toward China, and U.S. economic and geopolitical leadership declines."

Texas is not a low-wage state

In yesterday's San-Antonio Express-News, O. Ricardo Pimentel called Texas a low-wage state. Here is the link

Pimentel article.

This is not true when the cost of living is factored in. Then Texas does very well. Poverty in Texas is also lower than California when cost of living is taken into account. Below is a link from a Time Magazine article from 2013 on this. It was by  economist Tyler Cowen.

Time Article.
"The lower house prices, along with a generally low cost of living--helped along by cheap labor, cheap produce and cheap gas (currently about $3 a gallon)--really matter when it comes to quality of life. For instance, the federal government calculated the Texas poverty rate as 18.4% for 2010 and that of California as about 16%. That may sound bad for Texas, but once adjustments are made for the different costs of living across the two states, as the federal government does in its Supplemental Poverty Measure, Texas' poverty rate drops to 16.5% and California's spikes to a dismal 22.4%. Not surprisingly, it is the lower-income residents who are most likely to leave California.

On the flip side, Texas has a higher per capita income than California, adjusted for cost of living, and nearly catches up with New York by the same measure. Once you factor in state and local taxes, Texas pulls ahead of New York--by a wide margin. The website MoneyRates ranks states on the basis of average income, adjusting for tax rates and cost of living; once those factors are accounted for, Texas has the third highest average income (after Virginia and Washington State), while New York ranks 36th."

Texas (4.8%) is still below the national average unemployment rate of 5.0%

Sunday, October 30, 2016

What the China Trade Warriors Get Wrong

If trade agreements are so lousy, why are our largest deficits with countries that lack a U.S. trade deal?

By Alan Reynolds in the WSJ. Excerpts:
"Mr. Navarro is wrong too. China joining the WTO had zero effect on U.S. tariffs against Chinese imports. But it did force China to cut weighted-average tariffs to 19.8% in 1996, down from 32.2% in 1992, according to World Bank estimates. They shrunk further to 14.6% in 2000 and 3.2% by 2014. Yet U.S. tariffs remained unchanged by China’s entry into WTO, staying between 2% and 3% on a weighted average.

To be accepted by WTO members, China also had to shut down state industries after 1995. In a 2005 article for the China Economic Review, John Giles of Michigan State and Albert Park of the University of Michigan, with Juwei Zhang of the Chinese Academy of Social Sciences, investigated China’s true unemployment rate. They found that China’s “aggressive restructuring led to the layoffs of 45 million workers between 1995 and 2002, including 36 million from the state sector.” If China’s entrance to the WTO was about “stealing jobs,” it certainly got off to a bad start. Even in the world’s most populous country, those tens of millions of lost jobs had a big effect.

In an August 2015 paper for the National Bureau of Economic Research, Johns Hopkins economists Robert Moffitt and Yingyao Hu, with Shuaizhang Feng of Shanghai University, estimate that the unemployment rate in China stood at around 3.9% between 1988 and 1995, “when the labor market was highly regulated and dominated by state-owned enterprises.” It then rose greatly between 1995 and 2002 and hit an average of 10.9% between 2002 and 2009.

A frequently misquoted source of the assumption that China’s industrial gains were due to WTO membership is a paper called “The China Shock” by MIT economist David Autor and his colleagues David Dorn and Gordon Hanson. A Wall Street Journal article about this China shock said, “Imports from China as a percentage of U.S. economic output doubled within four years of China joining the World Trade Organization in 2001. . . . By last year, imports from China equaled 2.7% of U.S. gross domestic product.”

Those numbers might appear to suggest U.S. imports surged after 2001, but it was actually Chinese imports that exploded. China’s global imports jumped to 29.2% of GDP in 2005, according to the World Bank, up from 18.3% in 2001. Meantime, U.S. exports of goods to China quickly rose from $19.2 billion in 2001 to $69.7 billion in 2008, according to the Bureau of Economic Analysis. With services added, the U.S. exported $169.2 billion worth of goods and services to China by 2014.

U.S. global imports recovered modestly from 13.1% of GDP in the recession of 2001 to 15.5% in 2005, according to the Bureau of Economic Analysis. A decade later, U.S. imports were still 15.5% of GDP—the same as 2005. The fact that China’s share of U.S. imports was up and Japan’s down did not mean the U.S. was importing more.

Despite the popularity of their research among free-trade opponents, Messrs. Autor, Dorn and Hanson don’t attribute China’s export growth to joining the WTO. Rather, they explain that China’s export growth came from the proliferation of market-friendly special economic zones, including free-trade zones. Before joining the WTO, China’s exports had already risen 14.2% a year from 1994 to 1999. In a recent interview with the Minneapolis Fed, Mr. Autor said the research “strongly confirmed” that China’s success was driven by “falling costs and rising quality.”"

The cumulative effect of regulations has made small firms less competitive

See Sputtering Startups Weigh on U.S. Economic Growth by Jeffrey Sparshott of the WSJ. Excerpts:
"government data shows a decadeslong slowdown in entrepreneurship. The share of private firms less than a year old has dropped from more than 12% during much of the 1980s to only about 8% since 2010. In 2014, the most recent year of data, the startup rate was the second-lowest on record, after 2010, according to Census Bureau figures released last month, so there’s little sign of a postrecession rebound."

 "The startup slowdown may have a number of causes. Perhaps some companies need more time than backers are willing to provide. Demographics may also explain some of the shift—baby boomers are retiring and millennials are just entering the age bracket that is most common for entrepreneurs.

Rules and regulations also could be at play. Goldman Sachs economists in part blame the cumulative effect of regulations enacted since the Great Recession for reducing the availability of credit and raising the cost of doing business for small firms, making them less competitive."