Dean Baker's Blog, page 75

Andrew Ross Sorkin Says China May Stop Manipulating Its Currency to Retaliate Against Trump's Tariffs

The story is that in a desperate move, since it doesn't have more imports to tax, China could dump $1 trillion in U.S. treasuries to screw the United States. No part of this makes any sense.

China bought up massive amounts of U.S. treasury bonds and other foreign assets to keep down the value of its currency against the dollar. This helped its competitive position, allowing it to continue to run a large trade surplus, a major anomaly for a fast-growing country. These purchases of treasury bon...

The Washington Post's Economic Superstitions

The Washington Post used some bizarre economics to tell people that Trump's tax cuts and military spending are bad (they are) because:

"The federal debt is also rising in the United States. That means there will be less money to spend in a downturn, ..."

Ummm, why? The limit on federal spending is the risk that it will lead to too much demand in the economy, thereby causing inflation. If the economy is in a downturn, we don't have to worry about too much demand by definition.

So we get that t...

How Badly Is Trump's Trade War Hurting China?

I know it's considered bad manners to bring data into an economic debate, but after seeing numerous stories telling us how bad China's economy has been hit by Trumps tariffs (e.g. this NYT piece), I thought it was worth looking at the numbers. In the first eight months of 2018 China's exports to the U.S. were $344.7 billion. This is up by $25.4 billion from $319.3 billion in the first eight months of 2017.

I'm afraid I have a hard time seeing how China's economy could be hurt all that much fr...

Trump Tax Cuts: A Little Good Old-Fashioned Crowding Out

(Note: This piece first appeared as a post on my Patreon page.)

The textbook story of what happens if the government runs a budget deficit when the economy is near its potential is that interest rates rise. Higher interest rates then reduce demand in interest sensitive sectors like residential construction, investment, and car purchases.

Higher rates also lead to a higher valued dollar. This makes U.S. goods and services less competitive internationally, which means a larger trade deficit. Th...

No One Told Greg Mankiw About the Great Recession

We all know how difficult it is for elite economists at places like Harvard to get information about the economy, so perhaps we should excuse him for this little mess up. Of course if he had heard of the Great Recession he would not be writing a piece in the New York Times telling us that trade deficits really don't matter:

"Nations run trade deficits when their spending on consumption and investment, both private and public, exceeds the value of goods and services they produce. If you really...

NYT Says Macron's Reforms Were Intended to Weaken Workers' Bargaining Power

Of course the NYT would never do this sort of mind reading on the intentions of the French president. Instead it told readers about changes to the labor code that were "intended to stoke hiring." It would be nice if the NYT could limit itself to reporting what politicians say and do instead of telling us what their intentions are.

The piece also refers to tax breaks of 6 billion euros targeted to workers and and 18.8 billion euro reduction in payroll and other business taxes. It is unlikely t...

Still Waiting for that Tax Cut Induced Investment Boom?

Yeah, you know, that big boom in investment that was supposed to lead to a surge in productivity growth. Higher productivity was then going to give us all a big pay increase — 10 percent above baseline after four years.

Anyhow, for those keeping score, the investment boom seems to still be hiding. The Commerce Department's latest report shows that new orders for capital goods (excluding aircraft) are up just 6.3 percent in August from the year-ago level. Comparing the first eight months...

The Trade Deficit Has Risen by $49 Billion Since Donald Trump Took Office

Just thought people may be interested since Trump has made the trade deficit such a central issue in his campaign and his presidency. The deficit for the first seven months of 2018 was $337.9 billion, that is an increase of 17.1 percent from the trade deficit of $288.5 billion in the same months of 2016. The trade deficit has been running at an annual rate of $579.3 billion so far this year, or just under 2.9 percent of GDP.

There are many factors that affect the deficit, including more rapid...

Stronger Drug Patents in New NAFTA To Cost U.S. Manufacturing Workers Jobs

The new trade agreement with Canada that the Trump administration announced yesterday has rules on drugs patents and related protections which are likely to cost the jobs of US manufacturing workers. The deal includes a number of provisions that are explicitly designed to raise drug prices in Canada.

These provisions include a requirement of a period of ten years of marketing exclusivity for biotech drugs before a biosimilar is allowed to enter the market. The deal also requires Canada to gra...

How Does the NYT Know that the New Trade Pact with Canada is a "Win" for Donald Trump?

I'm just asking. It seems more than a bit bizarre that a news article would be declaring winners and losers from a major trade pact, the details of which have not yet been made public. Usually news articles focus on reporting the news.