“Prosperity: Crises, Debt & the Future of American Economic Policy”

That’s the name of the economic session at the La Follette Forum on American Power, Prosperity and Democracy. A video of this panel is available through Wisconsin Eye (registration required). Here are some recounting and thoughts on the panel discussion.

 

 

In the first session, with Catherine Rampell (Washington Post), Adam Posen (Peterson Institute), Mike Knetter (UW Foundation) and myself (UW), chaired by Mark Copelovitch (UW).

Catherine Rampell‘s presentation clearly laid out the interpretation of recent macro developments with respect to inflation and employment as a combination of policy choice and bad luck. On policy choices, there was the clear intent to avoid the mistakes of the (recent) past, especially the inadequately power fiscal stimulus of 2009-11. On bad luck, there was the unexpected (at least by some policymakers) arrival of covid variants both here and abroad,  supply chain constraints given the persistent shift towards goods consumption, and most recently the Russian incursion into the rest of Ukraine. She highlighted as an avoidable misstep the delay in nominating candidates for Fed governorships, one that could’ve prevented a more nimble response to persistent inflation.

As for policies to address both inflation — as well as growth — she tapped immigration reform and administration (highlighting the shortfall in foreign born workforce in recent years as exacerbating labor market tightness as well as inflation), and trade policy (the failure to remove the bulk of Trump’s tariffs, and continuing uncertainty in the form of investigations on circumvention of tariffs on solar panels).

Adam Posen presented a perspective taking in the broad sweep of America’s participation — or non-participation — in the process of globalization (a view explicated further in his recent Foreign Affairs article).

In particular, he points out that in terms of some standard metrics, such as the sum of exports and imports to GDP, the US stopped becoming more open by 1995. Perceptions have unfairly treated China as the main driver of changes in the economic prospects of workers (as represented by the work of Autor et al.) , when technical change could arguably be a much more decisive factor.

Hence, we (at home and abroad) are facing a corrosion of of globalization – where the corrosion denotes uneven decay, something which the covid pandemic and Russia’s assault on Ukriane have only served to accelerate. One dimension of this corrosion is the politicization of investment decisions (FDI, “friendshoring”) which feeds into declining dynamism.

In the end, Posen links economic performance to whether America becomes more divided, with a right wing swing to extremism, or manages to overcome this tendency.

Mike Knetter discussed some other aspects of the outlook. His main point was that we should look to  technological change, rather than trade or globalization, as the source of the tremendous churn in labor markets. Moreover, the way in which technological change — particularly in information technologies — proceeds (with greater concentration) will be a crucial factor in outcomes.

My presentation focused on the international role of the dollar, and how the aggressive use of sanctions is unlikely to induce a rapid move away from the dollar primacy.

My notes probably do not do justice to the panelists’ remarks and Q&A from the floor, so see the entire panel presentation here.

And here are video links to Panel 2 (The Rise of China & the Future of American Foreign Policy) and Panel 3 (Democracy: The Authoritarian Challenge & the Future of American Democracy).

 

 

 

 

 

 

19 thoughts on ““Prosperity: Crises, Debt & the Future of American Economic Policy”

  1. Steven Kopits

    “On policy choices, there was the clear intent to avoid the mistakes of the (recent) past, especially the inadequately power fiscal stimulus of 2009-11.:

    That is, policy makers could not distinguish a depression from a suppression.

    Reply
  2. Steven Kopits

    Btw, at the link below, I discuss Roe in light of the three ideology model, noting that we now again live in a conservative age with the collapse of communism:

    While we are discussing the impact of the fall of communism on the political divide, a word about the Supreme Court is also in order.

    On the graph below [see the link], we can see the ideological balance of the Supreme Court measured as the number of conservative justices less the number of liberal justices. As the graph shows, President Franklin D. Roosevelt appointed liberal judges, transforming a formerly conservative court into one with a liberal balance. His successor, Harry Truman, appointed more conservative judges, but subsequent presidents tended to appoint liberal judges, such that by 1968, liberals outnumbered conservatives by seven votes. That proved the high-water mark for liberalism, and the court has trended conservative since 1980. As with Congress, the Supreme Court turned majority conservative in 1992 after the fall of the Soviet Union and has remained conservative since. Indeed, the court has become more conservative in recent years and is now the most conservative since the Truman administration or perhaps even earlier.

    The preponderance of conservatives means that long-standing liberal rulings may come up for review, with Roe v Wade leading the way. Roe was always terrible jurisprudence, so the court has reasonable cause to reverse the ruling. For our purposes, however, abortion is not the central issue. Rather, the broader question revolves around the classification of rights as pertaining to the individual or to the group. As readers will recall, we define liberal as pertaining to the individual and conservative as pertaining to the group (and its members). In overturning Roe, the court will be reclassifying a right earlier deemed constitutional and intrinsic to the individual to one subject to public tastes and majority views. This is the central theme of evolving conservatism as we see it: greater weight put on societal norms and tastes at the expense of the freedom of the individual. It is this principle which will likely set the tone in the future.

    As important a piece as I have written, from last December.

    https://www.princetonpolicy.com/ppa-blog/2021/12/18/where-do-the-moderates-belong

    Reply
      1. Steven Kopits

        If you think overturning Roe is not important, let me categorically disagree with you. It represents a seismic shift in American politics, whether you are for or against it.

        You can take the view that overturning Roe is purely a political fluke. Alternatively, you may take the view that something fundamental has changed in the US, indeed, in global society. I take the latter view, specifically that the median voter boundary has shifted, and as a result, the public’s tastes with respect to ideological preferences has changed as well.

        Among other things, the shift of the ideological fault line back to its pre-1917 borders means that Republicans will be the natural majority in the House, and often hold the Senate. If you take that view, and you believe that abortion can be legalized at the Federal level, then it stands to reason that it can also be prohibited on the national level. Therefore, the Schumer strategy of holding a vote on the matter in Congress opens the door for the Republicans, the natural majority through, let’s say, 2040, to hold counter votes.

        I personally think this is courting disaster for the Democrats. I think they would be better served to argue that, if SCOTUS reverses Roe, then abortion properly falls under the purview of the states and needs to be legislated on that basis. While this may mean that half the states have materially outlawed abortion, it also protects abortion in the liberal states. Introducing abortion legislation at a national level courts disaster as the Republican return to power, power they are likely to hold in at least one house of Congress for the next half century.

        Reply
  3. pgl

    Rampell: ‘As for policies to address both inflation — as well as growth — she tapped immigration reform and administration (highlighting the shortfall in foreign born workforce in recent years as exacerbating labor market tightness as well as inflation), and trade policy (the failure to remove the bulk of Trump’s tariffs, and continuing uncertainty in the form of investigations on circumvention of tariffs on solar panels).’

    She is not the only economist who is arguing that can both lower inflation and increase growth by allowing more immigration and by reversing those destructive Trump tariffs. Alas – the modern Republican Party is captured by the ant-immigrant Trump. When Republicans whine about inflation – they should look in the mirror and ask themselves why they adamently oppose the same policies that would help.

    Reply
  4. ltr

    “[Adam Posen] points out that in terms of some standard metrics, such as the sum of exports and imports to GDP, the US stopped becoming more open by 1995. Perceptions have unfairly treated China as the main driver of changes in the economic prospects of workers (as represented by the work of Autor et al.) , when technical change could arguably be a much more decisive factor.”

    https://krugman.blogs.nytimes.com/2015/05/19/trade-and-the-decline-of-us-manufacturing-employment/

    May 19, 2015

    Trade and the Decline of U.S. Manufacturing Employment
    By Paul Krugman

    As Matthew Yglesias notes, many people believe that US manufacturing has disappeared because it has all moved to China and Mexico — but they’re largely wrong. I’m not sure that pointing to measures of industrial production is the best way to make this point, however. A better approach, or so I’d argue, is to ask how much of the decline in manufacturing employment would have been avoided if we weren’t running big trade deficits.

    Let’s start with the US trade balance in manufactured goods. Or actually let’s use a pretty good proxy that’s easy to pull up from FRED, the nonag-nonoil balance — nonagricultural exports minus nonpetroleum imports. Here it is as a share of GDP:

    https://static01.nyt.com/images/2015/05/19/opinion/051915krugman1/051915krugman1-tmagArticle.png

    We had rough balance in this measure 40 years ago, exporting about as much in the way of manufactured goods as we imported; nowadays it’s a persistent deficit on the order of 3 percent of GDP. That 3 percent matters — it’s a pretty major obstacle in efforts to achieve full employment, because it’s a drag on the overall demand for US goods and services.

    But it’s not the main explanation, or even close, for the decline in manufacturing employment as a share of the total, which is down around 15 points since 1970:

    https://static01.nyt.com/images/2015/05/19/opinion/051915krugman2/051915krugman2-tmagArticle.png

    Reply
    1. AndrewG

      Here’s a rare example where your “China Is Awesome” posts are spot on and not 100% propaganda.

      Reply
  5. pgl

    Ted Cruz and his ilk have spent decades trying to overturn Roe as well as to strip women of all sorts of basic rights. Now that they have a Supreme Court that is going to allow this anti-woman agenda. Ted Cruz are saying this is no big deal:

    https://www.msn.com/en-us/news/politics/after-a-decades-long-anti-abortion-crusade-the-right-insists-draft-opinion-is-no-big-deal/ar-AAWZB0Q?ocid=msedgdhp&pc=U531&cvid=17ba244bc51e4d4b86d10b25ae734d32

    Cruz has a wife and 2 daughters. Is he telling them that their basic rights are not important to daddy?

    Reply
      1. Steven Kopits

        I am not promoting anything, just providing what I think is a pretty good overview of Russian oil and related sanctions, particularly useful for those who do not know much about the whole Russian oil topic.

        Reply
  6. macroduck

    Knetter has offered a view that was conventional a 15 years ago and earlier. That view looks biased in light of more recent research. Here is an assessment of the literature from 2017 which shows considerable disagreement over the extent to which technology or trade is responsible for labor market results:

    https://www.piie.com/blogs/trade-and-investment-policy-watch/has-global-trade-fueled-us-wage-inequality-survey-experts

    There is no consensus in the literature. The text of the review notes that some of the papers which find a predominant role for technology relied on some pretty questionable assumptions.

    Here is what one bit of research has to say about trade and labor market churn:

    “In Trade Adjustment: Worker Level Evidence (NBER Working Paper No. 19226), David Autor, David Dorn, Gordon Hanson, and Jae Song examine the impact of exposure to rising trade competition from China on the employment and earnings trajectory of U.S. workers between 1992 and 2007. They find that workers bear substantial costs as a result of the “shock” of rising import competition.”

    “The authors find that both the degree of job churn and the way earnings and employment adjust to import shocks differ substantially across demographic groups. Earnings losses are larger for individuals with low initial wages, low initial tenure, low attachment to the labor force, and for those employed at large firms with low wage levels.”

    https://www.nber.org/digest/nov13/employment-effects-international-trade

    Knetter’s support for the conventional wisdom that technology, rather than trade, accounts for labor losses doesn’t reflect our current state of knowledge.

    Reply
    1. macroduck

      I have been unfair in singling out Knetter. Posen took the same liberties with out present state of understanding regarding the relative impact of trade and technology on labor.

      Reply
    2. AndrewG

      I just don’t read all this literature that way. I see the effects due to trade with China growing quickly since WTO accession, but still accounting for a relatively small fraction of the decline in manufacturing (automation taking the lion’s share).

      It’s even more true before China’s WTO accession. The vast, vast majority of manufacturing jobs and other blue-collar jobs lost appear to be due to automation and increases in product quality (i.e., less repairs).

      And if the plants were in America rather than China, they’d be far less labor-intensive anyway. Look at Tesla’s Gigafactory (realizing of course that that’s with the latest technology).

      I think the rendering that the lion’s share of the effect is technological change is at worst reasonable.

      Reply
  7. macroduck

    Here’s the picture, labor’s share of GDP vs the trade gap:

    https://fred.stlouisfed.org/graph/?g=OZZE

    When the evidence from research is mixed and the simple picture of the data is so clear, coming down on the side of conventional wisdom looks to contradict that picture won’t wash.

    I understand – populist trade nostrums are not helpful. Productivity gains outside the previously developed economies has raised living standards for billions of people. But repeating a conventional view that was never accepted by much of the public and which isn’t all that credible in academia doesn’t help.

    Want to know how this debate is heard in lunch rooms and coffee shop?

    “Why am I living less well than my parents did, trade or technology?”

    “Well, the smart people in suits blame technology. So either technology is hurting us or smart people in suits are lying.”

    Staussian les have a Chicken Little quality to them. Problem is, we need people to believe smart people in suits. Like for vaccination and stuff.

    Reply
    1. macroduck

      OK, more like The Boy Who Cried Wolf than Chicken Little.

      Census doesn’t have Gini data back far enough to compare it with the trade gap before and after the U.S. began running large deficits. Still, the Gini ratio has been rising (income distribution becoming less equal) throughout the period of rising trade deficits*:

      https://fred.stlouisfed.org/graph/?g=P0fg

      Now, here too, technology is a big part of the story. But technology didn’t make union busting easier.

      *Net exports/GDP inverted in the chart to make the point clearer.

      Reply
    2. Andrew

      As you know, a lot of other things are happening in these graphs. Finance grew very quickly. Manufacturing productivity kept growing (of course this isn’t independent of trade) and so did output. Other technologies increased the value of a college degree for a large fraction of degree holders, and even moreso for those with graduate/professional education. They also enhanced and spread the superstar effect.

      None of this is independent of trade, but a) China doesn’t look like a big part of the picture here, b) we’d see these things happening even if the US were an autarky (because the US is so big) and c) lots of what’s happening is the rapid rise of the top (the top 1/3 for one set of reasons, and the top 0.1% for another), not the fall of the bottom half or bottom third.

      And I disagree with you about technology not making union busting easier. The changing composition of workplaces is largely due to technology, and fewer shop floors (for example) mean organizing is harder and attempts to thwart it are easier. Perhaps Amazon warehouses are a move in the other direction (hence what happened in Staten Island).

      Reply

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