Category: Economics Page 41 of 97

So, Trump has been renegotiating NAFTA. Not necessarily a bad thing. He’s cut a deal with Mexico, says he’ll sign it without Canada.

Canada has three main sticking points.

It wants to keep the Chapter 19 dispute resolution system so that the US can’t unilaterally impose dumping and anti-subsidy penalties. This is a big deal, because the US is prone to do this stuff due to domestic pressure from industries, and with no check, it will do them more often. Not that Chapter 19 is that great; when the US loses Chapter 19 rulings it tends to just ignore them and impose duties anyway, as it did in the 2000s on lumber. Still, even a delay is good, and that delay has likely stopped a lot of tariffs over the years.

The second issue is IP.

Other hurdles include intellectual property rights, such as the U.S.-Mexico ten-year data exclusivity for biologic drug makers and extensions of copyright protections to 75 years from 50, all higher thresholds than Canada has previously supported.

Yeah, that’s just fucking awful. No thank you. 50 years is already way too much and who wants even higher drug prices in Canada. (US pharma, yeah.)

Finally there is the Canadian milk production system, which is horribly protective and freezes American milk out of Canada. But, well, our standards are higher for milk production, and as such, no, I don’t want change.

If Trump doesn’t get this, he promised auto tariffs, which will hit Southern Ontario hard.

I’m going to say that Canada shouldn’t give in on these issues. It’s not clear that Trump has the votes in the Senate to pass his bilateral Mexico-US deal, and even if NAFTA is lost, well, whatever. Being subject to American tariffs at the whim of any sitting President is not acceptable, nor are higher drug prices and shitty milk.

Canada gave up our world-leading aviation industry in the 50s, in essence, for the right to be part of the US automobile industry. It was a shitty deal then, because it made us dependent, and we are seeing that dependency now.

We’ll see how this plays out. I don’t know if Freeland and Trudeau have the guts to walk away and there certainly would be a cost. But Trump is not certain to be forever, and anything we give up now we are unlikely to get back in the near future.

There was a possible NAFTA renegotiation which would have been a win for all three countries, dealing with issues such as the right of private investors to sue governments for doing perfectly reasonable things like banning anti-cancer additives in oil, but that’s not the renegotiation Trump has chosen to do.

As such, I hope Trudeau holds the line.

Also, there are ways for Canada to retaliate. They are counter-intuitive, but real. I would start by slapping a huge export-tax on all wood products, and watch the US housing industry fall to its knees and the US economy tremble. That would involve some pain at home, but frankly, we can tax a little higher and subsidize those who lose, it’s not a big deal.

Trump’s the sort of person who only respects hardball. Play it, or crawl on your belly.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

No, the World Isn’t Getting Better for Everyone

By Ian Welsh

On August 24, 2018

24 Comments

We read, often, today, about how wonderful the world is. It’s the best time to be alive, and it’s just getting better!

The usual way this is “proven” is by saying that dire poverty is decreasing in the world. There’s a lot of problems with that, and the biggest one is that the definition of extreme poverty is too low.

According to Peter Edwards of Newcastle University, if people are to achieve normal life expectancy, they need roughly double the current IPL, or a minimum of $2.50 per day. But adopting this higher standard would seriously undermine the poverty reduction narrative. An IPL of $2.50 shows a poverty headcount of around 3.1 billion, almost triple what the World Bank and the Millennium Campaign would have us believe. It also shows that poverty is getting worse, not better, with nearly 353 million more people impoverished today than in 1981. With China taken out of the equation, that number shoots up to 852 million.

I’ve felt for a long time that his narrative was, to put it gently, bullshit. The full article is worth reading, because it goes into the way tiny statistical changes move the number in poverty by hundreds of millions of people. But the bottom line is that earning $1.25 a day isn’t enough, and anyone with common sense knows it isn’t enough.

Meanwhile, in India, we know that over the last 20 years, despite increased is GDP per capita, the average amount of calories being eaten is going down. And it’s not as if Indians, as a group, were overfed 20 years ago.

The truth is that neoliberal policies have been very bad for the developing world. Actual poverty decreased faster from 1945 to the mid 70s than it has since, and, although it’s not as important, GDP rose faster too.

The exception, of course, is China. But China did not implement the policies that the IMF and World Bank force on countries: The “Washington Consensus.” They did not open their markets wide, unpeg their currency, and move to cash crops and commodities. Instead, they, like all but maybe three countries larger than city states who have ever industrialized, pursued mercantile policies, managed trade, and moved steadily up the value chain.

This is the model Britain used. It is the model the US used. It is the model Japan used. It is the model South Korea used. Etc…nations only become free traders when they are mature industrially. And in most cases, when they do so, it is a mistake, though this goes profoundly against the current consensus ideology, which claims that free trade and monetary flows are virtually always a good thing.

Even before climate change, the world was getting worse for a lot of people. Not just for people in the developed world (though there is no question that Millennials in most first world countries are worse off than GenXers, who are worse off than Boomers were), but for people in most of the developed world.

You cannot wash the sins of the neoliberal consensus by adding in China’s numbers, when China didn’t follow it. And statistical games over a few cents are pathetic.

Things are bad now. They are going to get worse for more people than they get better, until we significantly change how we run our economies, and given the realities of climate change, maybe not even then.

Getting punch drunk on oil and coal for two centuries is all very nice. But all parties come to an end, and for a lot of people, this party included getting trashed by what amounted to home invaders.

It’d be nice if we figured this stuff out, and if we stopped lying to ourselves.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

Much of Western America Will Be Uninhabitable in 40 Years

By Ian Welsh

On August 21, 2018

31 Comments

Large parts of the US will be riven by permanent drought in the rather forseeable future. And fracking is making it worse… much worse.

The game-changing study from Duke University found that “from 2011 to 2016, the water use per well increased up to 770 percent.” In addition, the toxic wastewater produced in the first year of production jumped up to 1440 percent…

… first generation wells used three to five millions gallons of water, current third generation wells use ten to 30 million gallons….the federal government “forecasts a million more such wells in the next 20 years.”

Moreover, many of these wells are in western areas of the US, which are already water-stressed.

Plus, fracking tends to poison groundwater and aquifers, making those sources permanently unusable, no matter how much remains.

This is the sort of insanity which is routine today: Burning seed corn to heat the house. We know what we’re doing is insanely short-sighted. We know it will come back to burn us badly later on. We do it anyway because it makes money in the short term.

And, of course, in addition to the hydrocarbons it produces, which will increase global warming, fracking produces methane, an even more potent greenhouse gas than carbon dioxide.

What we should have done, in the 80s, is pushed hard on renewable energy, but we didn’t. What we should be doing now, oh, is the same thing, but we aren’t nearly as hard as we could be.

As an aside, the hidden truth of the solar miracle, is that it happened because of German subsidies. Solar wasn’t feasible, Germany made it feasible.

If the US had done that, it would have been feasible far, far sooner. But Americans wanted Reagan and “Morning in America” and endless suburbs full of SUVs.

And that’s what the US got. And so a large part of the US is going to become uninhabitable within the next two generations.

Meanwhile, hundreds of fires burn on the west coast of the US and Canada. This is climate change changing the ecology of local areas. This change will be permanent. The new ground cover will not be what was there before the fires.

Climate change is here. It is making itself known. It started with the great storms–more frequent and more powerful than in the past. It continues now with record high temperatures, especially in the arctic, and widespread forest fires. The arctic heat puts us in danger of massive methane releases from the permafrost and the ocean floor. If these releases happen, we can bend over and kiss our asses goodbye.

Why Free Trade Isn’t Efficient

By Ian Welsh

On June 26, 2018

15 Comments

For the past few weeks, I’ve been reading a raft of literature by lawyers, economists, and bureaucrats involved with the World Trade Organization (WTO) and other free traders. It’s been a fascinating journey into an alternate world, one in which frictionless trade and money flows, and unified regulations and laws are considered to be a good thing.

The reasoning behind this virtually unquestioned acceptance is as follows: If there are no barriers to trade, whether financial or regulatory, goods and services will be created (or done) wherever they cost the least. If they are done in the lowest-cost place, they are being done in the most efficient way, and that means more is created and consumers also pay less.

It is thus a good thing, virtually always, to reduce barriers to trade and services. If it can be done for cheaper somewhere, it should be. Some people may lose, but overall more (or the same) is created for less, and this is good.

This is basically an article of faith in everything I’ve been reading from people who make their living around the WTO.

But you may have caught the error in the thinking: It assumes the lowest cost is equivalent to the most efficient.

But it isn’t. When manufacturing moved from the US to China, it cost less to do in China, yes, but it produced more carbon (climate change); it took more people to produce the same amount of goods, and it generally used more materials, as well.

In other words, it is less efficient in every way except the monetary cost.

The rejoinder to this might be that those people who were manufacturing those goods would be better employed elsewhere; people were being wasted. If it can be done for a few dollars an hour, rather than $20 or more (if labor was unionized), then the higher-paid workers should do something else.

But everyone knows now, and trade advocates admit, that the people who lose the jobs to offshoring and outsourcing were mostly not employed again, or never had as good a job again. People are not fungible, they don’t just fit into any spot.

Moreover, as those jobs moved away, those people earned less money, and local businesses got less money from them as consumers. Everyone’s employees are someone else’s customers: When everyone cuts wage “costs,” they’re also cutting demand.

The core problem with capitalism is that it assumes that money measures benefit: If someone is willing and able to buy something (is in “demand”), then that something is good.

But the cheapest cost and the highest profit don’t take into account actual efficiency or actual good in the world. Producing less climate change gases to produce the same stuff is more important than saving five or ten percent manufacturing cost, or making five percent or ten percent profit. Using less resources that are limited is more important than the lowest cost. And good wages are also important, because they measure good lives. (There is an argument that China’s industrialization required America’s de-industrialization. I don’t think that’s true, but that subject is too large for this piece.)

The core assumptions of capitalism are wrong. They are simply wrong. But that doesn’t mean they don’t create a very effective system, where effective means “good at sustaining itself” and “good at telling people what to do.”

Capitalism is really very simple. It’s an algorithm for directing human behavior, and it works because it makes sure that the people who obey the algorithm are the people who have power.

Until they run the world off a cliff.

More later, but for now the point is simple: Neither the lowest price nor the highest profit automatically equal the most efficient thing to do in any way except with respect to money.

And money, while it’s lovely, is not actually food, water, or a livable environment, nor will it be able to buy those things for everyone (or perhaps anyone) when there just isn’t enough of it to go around.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

The Class War: The Rich Won and the End of NeoLiberal Capitalism

By Ian Welsh

On June 22, 2018

49 Comments

Many years ago now, I wrote a post called “There Was a Class War and the Rich Won.”

Ironically, after the financial meltdown of 07/8, and thanks to Bush, Obama, Bernanke, and Geithner both bailing the rich out and immunizing them from their crimes, that victory has accelerated. This chart, from Harvard, tells the story of the last 30 years.

What this chart doesn’t show is that the those gains went primarily to the top one percent, and in the top one percent to the top 0.1 percent and in the top 0.1 percent to the top .01 percent.

What happened was a vast centralization of wealth, and therefore of power. This power was used to buy the government: the presidency (Obama acted in the interests of the rich in every important way–so has every President since Carter); congress and definitely the courts, both of which have, ruled, time and time again, in favor of capital and for large and larger concentrations of wealth and power, culminating with “Citizens United,” which classified money as speech and sharply limited government’s power to regulate money in elections. This legislation was the crowning glory of the rich’s victory in the class war.

One of the problems with capitalism is that its benefits rest largely on having competitive (free) markets. But the first thing capitalists do when they “win” the markets is take their profits and use them to buy government so that they can end free markets (our markets are nowhere near competitive or free). Free markets, to anyone who has won, are a threat.

You can see this in the march of so-called “intellectual property.” There is no such thing in anything close to a state of nature: Intellectual property is entirely the product of government. Ideas are free, in nature, and can be used by anyone, and one person using an idea doesn’t mean someone else can’t use it. There is no natural property of ideas.

But we have extended intellectual property well beyond the life, even, of creators. Walt Disney is dead, long dead, and Donald Duck and Mickey Mouse are still the intellectual property of a company.

Competitive markets require that other people be able to compete. They must be able you use your technology, your ideas, etc… to bring down the price of goods. If you want to keep charging a premium, you have to keep coming up with new ideas. But when key technologies and ideas are locked behind patents and copyrights forever, this isn’t possible. (I can’t see any argument for most patents beneficially owned by companies to last more than five years, and even that is questionable. There is an argument for longer copyrights, if they are beneficially owned by individuals, but even in such cases, not long beyond the life of the copyright owner.)

All of this is putting aside other vast barriers to entry and laws and subsidies which benefit incumbents and which push hard towards monopolization.

So we don’t have free markets, and we do have vastly rich rich, and those rich own the government, without question (the events of 2007/2008 proved it).

Capitalism without free markets doesn’t provide most of the benefits of capitalism, and democracy which has been captured by oligarchy doesn’t provide most of the benefits of democracy.

And so both are being discredited, and fascism rises and non-market alternatives become more and more popular. You see it in Corbyn, you see it in the challenge to so-called free trade epitomized by Trump, and you see it in the fact that, for most young Americans, socialism is no longer a four-letter word.

Corbyn’s program includes a vast swathe of straight up de-privatization. It includes rent-controls and a program for the government to just build housing. It isn’t radical from a 60s point of view, but to a neoliberal capitalist, it is terror indeed. And if Corbyn was elected by just those under 40, he’d win in a landslide.

The days of our form of capitalism are nearly over. It is done, and that it is done is concealed by an overhang of older people in the developed world. What will replace it remains to be seen: there are alternatives on the right and left, and the right-wing alternatives are pretty ugly.

But that neoliberal capitalism is nearly done, that is obvious.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

Trump’s Cancellation of the Korea Meeting Is an Excellent Excuse for Europe and Asia to Break America’s Financial Power

By Ian Welsh

On May 25, 2018

12 Comments

Globe on Fire This is vastly disappointing, even though, after the appointment of Bolton to the White House, it is not all that surprising.

A peace treaty with North Korea would be, or would have been, a great accomplishment. One hopes its negotiations will resume in the future.

Even if they do not, I expect that South Korea will continue to push forward with the peace process, much as Europe has decided to ignore the US in regards to Iran. Unfortunately, as the structure of sanctions and their enforcement hinges on the US Treasury department and its ability to unilaterally sanction foreign banks and companies, the US’s participation really is necessary. At the least, the treasury needs to be willing to look the other way.

This is why allowing the US to control the payments system has always been a bad idea. China and Russia have been doing what they can to create their own system, and I would say it is time for the world as a whole, ex-US, to do so. The US can’t be trusted. This has been true for some time–it didn’t start with Trump, but if Trump is the excuse needed to end the US’s ability to choose who can move money around, then seize it.

Europe will never be a real power, in any case, so long as it allows the US to set the rules and control their implementation. And every time a Trump, a Bush, or even an Obama (whose Treasury abused this power as well) rises, well, everyone will have to bow.

The hegemonic power is the, well, hegemon, but the US is in decline and in such a situation it behooves the US to pay attention to the concerns of its satrapies (and Europe, South Korea, Japan, Australia, and Canada are all core vassals).

This is especially true when dealing with vassals like South Korea who is under vast pressure from China (the rising super power), and has reasons both to abandon the US shield and to stay under it.

Trump is an opportunity. I suggest Europe and the Asian satrapies take it to free themselves.

And while they’re at it, make peace with North Korea.

Update: and it may be back on?

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

Most “High Performers” Are Just Better Parasites

By Ian Welsh

On May 2, 2018

13 Comments

Most so-called high performers are just excellent parasites. Amazon pays no tax and many of their employees are on food stamps and welfare. Walmart encourages its workers to go on food stamps, while it guts municipal tax bases. Apple actively avoids taxes and both Apple and Microsoft built their entire business on technology they stole from Xerox. Microsoft, in particular, built their business on monopolistic practices that would have led to the breakup of the company if Bush’s administration hadn’t interfered.

The asshole “high performers” in the financial industry required a many trillion dollar bailout. They should have all gone bankrupt and most of them should have gone to jail. They threw much of the world into an economic crisis which has still not ended. They are high performance ticks (leeches have benefits, they are very close to pure negatives.) The oil industry receives massive subsidies, and so on and so forth.

Studies show that consumption of social media correlates with decreased well-being and unhappiness, and the more you consume the worse it is. The evidence for this is overwhelming. They do it with less employment than prior industries and pay less taxes. This is not the behavior of a symbiote, it is the behavior of a parasite.

The simple FACT is that during the 50s and 60s, when high earners (whom fools seem to think are the same as high performers) were massively taxed the economy did far better.

All other things held equal, it is relative equality (not absolute, do not straw man) that makes for better economies and societies.

(The data on this is not even slightly ambiguous, read “The Spirit Level” to see it nailed in place in tedious but apparently necessary detail.)

If this economy is what the “high performers” produce, I’ll go back to one run by the mediocre people, thanks.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

The Unemployment Rate Isn’t Used to Keep Unemployment Low (with Graph)

By Ian Welsh

On April 13, 2018

14 Comments

Years ago, I complained to my friend Stirling Newberry that the unemployment rate didn’t seem to track how good the economy felt, or how many people were in desperate need of employment.

The unemployment rate was, then, and is now, taken as a proxy for the health of the economy for ordinary people. However, I could see and feel that the economy was getting worse for ordinary people, and that fact was showing up in other statistics. Plus, unemployment rates that were considered a crisis when I was young in the 70s, were now considered acceptable.

(See: The Economy Has Not Recovered, With Graphs)

Stirling said, “You need to know who an economic statistic is designed for, and what they use it for.”

A little history is necessary here, about inflation. In the 70s, due to the oil crisis and other mishandled economic problems, inflation got out of control in the West. Very high interest rates were used to bring it down, by Chairman Volcker at the Fed. Western policy makers became obsessed with inflation. It was considered Enemy Number One. They decided that the worst cause of inflation was wage increases and called this “wage push inflation.”

To track this, they turned to a statistic called the non-accelerating inflation rate of unemployment (NAIRU). NAIRU was the rate below which the unemployment rate was assumed to cause inflation.

The unemployment figure measures the number of people actively looking for jobs, compared to those who have jobs, remember. Thus it measures the active demand, in the market, for a job. Therefore, theoretically, if there are too few people looking for jobs, employers are expected to have to raise wages to attract workers.

(This is, to be clear, when wages rise the most, which is something non-economists and non-oligarchs want to happen.)

If you are old enough, you will remember that during the 80s and 90s, and even into the 00s, when the unemployment rate would drop, the stock market would take losses. This is because stock investors expected the Federal Reserve to raise interest rates, which is bad for the economy and bad for stocks.

So, the unemployment rate from late 70s and on, has been used to determine if wages should cause inflation, and to then raise interest rates to make sure they don’t.

Not incidentally, the result is also to crush wages, because, essentially, wages that improve are nothing more than wages that increase faster than non-wage inflation.

The unemployment rate not only doesn’t measure how good the economy feels for ordinary people, it was actually used, with purposeful action, to crush wages.

You’ve all been waiting patiently for your pretty graph, so here it is.

NAIRU (Civilian Unemployment Rate) vs Unemployment (Natural Rate of Unemployment) vs Effective Federal Funds Rate

You’ll notice that while effective federal funds rates (the green line) increase during low unemployment periods (the red line) before Volcker, it is after Volcker that they correlate strongly to whether the unemployment rate is approaching or below NAIRU. Before Volcker, the unemployment rate is often below NAIRU and people get a lot of raises.

Note, in particular, and with amusement, that the flat, blue line rate (the natural rate of unemployment) in recent years shows a period where unemployment has stayed above NAIRU. Note that Yellen started talking about increasing rates as the unemployment rate came closer to NAIRU.

Your wages were crushed, deliberately, supposedly to crush wage inflation.

And this is why unemployment doesn’t have very much to do with how the economy feels for ordinary people, especially not now (it effects how the economy feels some, but not much). Unemployment has to get below NAIRU and stay there for you to get real wages.

I will point out, for completeness, that the idea that wages are the most important source of inflation is questionable, but I’ll deal with that at a later date.

(Read: A More Detailed Look at the End of the Post-war Liberal Era)

Originally published Feb 17, 2006. Back to the top because it is an actually important post. We just recently had another case of the stock market declining due to low unemployment rate figures. This is why.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

The horizon is not so far as we can see, but as far as we can imagine

Category: Economics Page 41 of 97

Should Canada Concede to Trump in NAFTA Renegotiations?

No, the World Isn’t Getting Better for Everyone

Much of Western America Will Be Uninhabitable in 40 Years

Why Free Trade Isn’t Efficient

The Class War: The Rich Won and the End of NeoLiberal Capitalism

Trump’s Cancellation of the Korea Meeting Is an Excellent Excuse for Europe and Asia to Break America’s Financial Power

Most “High Performers” Are Just Better Parasites

The Unemployment Rate Isn’t Used to Keep Unemployment Low (with Graph)