The last post talked about currency manipulation and the renminbi, but what about the idea of the renminbi as a challenger to the dollar's role as global reserves currency. In other words, is the redback (as the renminbi is sometimes called) a threat to the greenback's global dominance.
The Economist gave the standard arguments (albeit in the kind of depth somewhat unique to the Economist) one normally hears back in 2011. Specifically, that being the issuer of the world's reserve currency was a boon to the US (often called the exorbitant privilege) and that China was fed up with relying on the dollar. However, it also discussed the traditional counter-argument that being the issuer of the reserve currency is a curse because it puts a nation in the Triffen dilemma. That is, it encourages the issuer to put more money in circulation, which in turn undermines confidence in its currency. (Of course, the Triffen dilemma applied to the Bretton Woods System in which the US had to maintain a fixed exchange rate with gold while everyone else was able to adjust the value of their currency to the dollar, but I'll let that slide.)
Barry Eichenberger laid out the in-depth argument for the demise of the dollar as the reserve currency in "Why the Dollar's Reign Is Near an End" He argues that the US dollar's role as reserve currency is founded on 3 pillars: the depth of US dollar securities in the market, the fact the dollar is the world's safe haven, and the lack of viable alternatives. However, the rise of the Euro and the Yuan will provide rivals for the dollar while economic crises and rising debt in the US will undermine the perception of dollar as a safe haven. This will lead to multiple reserve currencies being adopted instead of reliance upon the dollar alone.
Michael Pettis disagreed with the view that the RMB could play the role of reserve currency. His original blog post was lost when it was hacked by Business Insider summarized his argument. First, unless China starts running a current account deficit, there will be no way for the world to acquire renminbi. Second, people are suspicious of China's financial system which is in need of significant liberalization and reform. Third, major countries such as Russia, India, South Korea, and Vietnam are also suspicious of China for political and security reasons. Finally, Pettis argues that the international trade in RMB is overstated as most of the trade is in the form of swaps between the People's Bank of China (PBoC) and other central banks as opposed to private financial transactions.
Pettis also argued that having the dollar as reserve currency represents an Exorbitant Burden in a Foreign Policy article. He argues that having the dollar as reserve currency contributes to the US current account deficit and that the US would be better off if another reserve currency was in place. Pettis argues that developing the IMF;s Special Drawing Rights (SDRs) into a truly international currency would be the best alternative.
Sunday, February 02, 2014
The Renminbi and Charges of Currency Manipulation
However, in 2012, arguments that China was manipulating its currency and costing the US jobs were a central part of Mitt Romney's failed presidential campaign (though, perhaps, far from the cause of his failure). Here are three points of view on this, mostly circa 2012.
The Case Against China: Peter Navarro laid out the argument for China as currency manipulator in China’s Currency Manipulation: A Policy Debate in a 2012 World Affairs article. Navarro makes the claim that:
Most economists estimate the Chinese yuan is grossly undervalued by anywhere from twenty-five to forty percent—and only propagandists like the China Daily and hired guns for China profiteers like Goldman Sachs and Morgan Stanley claim otherwise.
As will be seen below, this claim may be greatly exaggerated or at least out of date by 2012. However, the rapid appreciation of the renminbi vs the dollar since China abandoned its peg in 2005 ( interrupted only by a 2-year plateau during the US recession), suggests that the currency was undervalued for much of the first decade of this century. Navarro argues that this undervaluation had a negative effect on the US economy:
China’s unfair trade practices have indeed taken a very heavy toll on the American economy. Consider that for the second half of the twentieth century, the US gross domestic product grew at a healthy rate of about 3.5 percent annually. Since China joined the WTO in 2001, however, that rate has fallen to an average of only 1.6 percent. While the loss of almost two percentage points of GDP growth a year may not seem like much, it translates into a failure to create two million jobs a year and cumulatively more than twenty million jobs lost to slow growth since 2001. Not coincidentally, that’s almost the exact number of jobs America now needs to get its people fully back to work.
Note, however, that the evidence here is based on a simplistic before and after China joined the WTO comparison and ignores the fact that the decade following China's entry into the WTO included the largest recession in the US since the Great Depression. In fact, if we actually look at the actual Federal Reserve data in the form of the below graph of the annual percent change from one year ago of US real GDP, we see a less clear cut story.
The graph shows that, prior to the 1990s the US economy rode a roller coaster (albeit with a high ride in the 1960s) before enjoying fairly stable growth in the 2.5-5% range during the 90s. Since 2001, things have not been as good but the two recessions in that time have obvious effects. Indeed, the full magnitude of the Great Recession is on full display here as the graph dips lower in 2009 than at any other time.
Note, the US economy got back into the 2.5-5% growth band between the recessions, precisely when China's currency manipulation was at its peak. Unfortunately the economy has achieved growth rates comfortable within that range despite the fact the renminbi has resumed appreciating against the dollar.
The Case Against China Currency Critics: Edward Lazear argues that Chinese 'Currency Manipulation' Is Not the Problem in a 2013 WSJ Op-Ed. [If thwarted by the WSJ's paywall, summaries of Lazear's Op-ed can be found here and here.]
Lazear compares the yuan-dollar exchange rate with China's exports to the US and Europe from 1995 to 2011. He notes that Chinese exports have steadily increased throughout this period except for a downturn during the Great Recession. However, during this period, the renminbi dropped in value as it rode the US dollars depreciation until the 8 to 1 peg was removed in 2005. As noted above, the reminbi has increased in value since then but imports have continued to trend upwards.
More importantly, the trend in exports to Europe does not differ from the trend in exports to the US, indeed they are nearly identical. This holds even during the period in which the exchange rate was pegged at 8 yuan to the dollar and the renminbi was depreciating against the Euro but not against the dollar. In this period, exports to Europe increased by 35% while exports to the US increased by 32%. Lazear argues that the differences in the exchange rate might explain the difference between 35% and 32% growth but the bulk of the growth in both categories is determined by other factors.
Lazear concludes that, while China certainly was manipulating its currency, this manipulation was not the source of its export growth or disappointing job and wage growth in the US.
The Case Against Currency Manipulation, but China Not-So-Much Anymore: In 2012, Joseph Gagnon examined currency manipulation across nations in a policy brief for the Peterson Institute, Combating Widespread Currency Manipulation (PB12-19). Gagnon defines a currency manipulation as follows:
In his brief, Gagnon finds that 20 nations engage in "egregious" currency manipulation in one of four generala categories:
(1) longstanding advanced economies such as Japan and Switzerland;
(2) newly industrialized economies such as Israel, Singapore, and Taiwan;
(3) developing Asian economies such as China, Malaysia, and Thailand; and
(4) oil exporters such as Algeria, Russia, and Saudi Arabia. (Gagnon, 2012, p 2)
Most of this manipulation takes to form of purchases of foreign currency aimed at lowering the value of the home currency in order to run a current account surplus (i.e., a trade surplus). Gagnon estimates that the total effect of these 20 nations may be as larges a $1.5 trillion per year and that this may have pushed the US current account down an average of 4% of US GDP.
Gagnon provides a table showing the nations he identified as the most egregious manipulators, along with several indicators of manipulation. The list below shows these nations rank ordered by the first indicator in Gagnon's table, 2011 Foreign Reserves as % of GDP.
Nation 2011 Foreign Reserves as % of GDP
Libya 271
Hong Kong 121
Algeria 97
Saudi Arabia 94
Singapore 93
Taiwan 83
Thailand 49
Malaysia 48
China 45
Switzerland 44
Bolivia 40
Philippines 32
Israel 31
Angola 28
Korea 27
Russia 25
Denmark 24
Japan 21
Azerbaijan 17
Argentina 9
Source: Gagnon, 2012, Table 1
It is interesting to note the broad range of nations and the large number of Asian nations that show up on it. It should also be pointed out that China, in ninth position, is middle of the pack, between Malaysia and Switzerland. It should also be pointed out that foreign reserves can accumulate over time and reflect past as well as current policy.
While China is in the middle of the pack in the above list (which is scaled to GDP), it stands at the top when the absolute size of foreign reserves are measured. In a blog post, Gagnon provided this ranking of currency manipulators and China stands head and shoulders above everyone else (with only Japan coming close).
However, though China tops the list because of the size of its reserves, Gagnon notes "...although China tops this list, its reserves have been relatively stable over the past 12 months [July 2011-July 2012], suggesting a marked change in its behavior." So, while China may be holding larges reserves of dollars acquired from past manipulation, it is no longer adding much to this pile, which suggests that it has changed its ways. More specifically, that the renminbi had appreciated enough by mid 2011 to approach its equilibrium value.
Indeed, in September 2012 Ganon was joined by C Fred Berstein in an Op-Ed to the Financial Times in which they argued argued for measures against nations practicing currency manipulation but noted that China "...has not been the major perpetrator of late." They identified the major culprits as follows:
Three distinct groups are now involved. First are other Asian countries, including Japan, Singapore, Taiwan, Korea, Hong Kong, Thailand, and Malaysia. Second are major oil exporters including the United Arab Emirates, Russia, Norway, Saudi Arabia, Kuwait, and Algeria. Third are rich countries near to the euro area, most notably Switzerland but also Denmark and Israel.
Note, however, that the evidence here is based on a simplistic before and after China joined the WTO comparison and ignores the fact that the decade following China's entry into the WTO included the largest recession in the US since the Great Depression. In fact, if we actually look at the actual Federal Reserve data in the form of the below graph of the annual percent change from one year ago of US real GDP, we see a less clear cut story.
The graph shows that, prior to the 1990s the US economy rode a roller coaster (albeit with a high ride in the 1960s) before enjoying fairly stable growth in the 2.5-5% range during the 90s. Since 2001, things have not been as good but the two recessions in that time have obvious effects. Indeed, the full magnitude of the Great Recession is on full display here as the graph dips lower in 2009 than at any other time.
Note, the US economy got back into the 2.5-5% growth band between the recessions, precisely when China's currency manipulation was at its peak. Unfortunately the economy has achieved growth rates comfortable within that range despite the fact the renminbi has resumed appreciating against the dollar.
The Case Against China Currency Critics: Edward Lazear argues that Chinese 'Currency Manipulation' Is Not the Problem in a 2013 WSJ Op-Ed. [If thwarted by the WSJ's paywall, summaries of Lazear's Op-ed can be found here and here.]
Lazear compares the yuan-dollar exchange rate with China's exports to the US and Europe from 1995 to 2011. He notes that Chinese exports have steadily increased throughout this period except for a downturn during the Great Recession. However, during this period, the renminbi dropped in value as it rode the US dollars depreciation until the 8 to 1 peg was removed in 2005. As noted above, the reminbi has increased in value since then but imports have continued to trend upwards.
More importantly, the trend in exports to Europe does not differ from the trend in exports to the US, indeed they are nearly identical. This holds even during the period in which the exchange rate was pegged at 8 yuan to the dollar and the renminbi was depreciating against the Euro but not against the dollar. In this period, exports to Europe increased by 35% while exports to the US increased by 32%. Lazear argues that the differences in the exchange rate might explain the difference between 35% and 32% growth but the bulk of the growth in both categories is determined by other factors.
Lazear concludes that, while China certainly was manipulating its currency, this manipulation was not the source of its export growth or disappointing job and wage growth in the US.
The Case Against Currency Manipulation, but China Not-So-Much Anymore: In 2012, Joseph Gagnon examined currency manipulation across nations in a policy brief for the Peterson Institute, Combating Widespread Currency Manipulation (PB12-19). Gagnon defines a currency manipulation as follows:
Currency manipulation occurs when a government
buys or sells foreign currency to push the exchange
rate of its currency away from its equilibrium value or
to prevent the exchange rate from moving toward its
equilibrium value. (Gagnon, 2012, p. 1)
In his brief, Gagnon finds that 20 nations engage in "egregious" currency manipulation in one of four generala categories:
(1) longstanding advanced economies such as Japan and Switzerland;
(2) newly industrialized economies such as Israel, Singapore, and Taiwan;
(3) developing Asian economies such as China, Malaysia, and Thailand; and
(4) oil exporters such as Algeria, Russia, and Saudi Arabia. (Gagnon, 2012, p 2)
Most of this manipulation takes to form of purchases of foreign currency aimed at lowering the value of the home currency in order to run a current account surplus (i.e., a trade surplus). Gagnon estimates that the total effect of these 20 nations may be as larges a $1.5 trillion per year and that this may have pushed the US current account down an average of 4% of US GDP.
Gagnon provides a table showing the nations he identified as the most egregious manipulators, along with several indicators of manipulation. The list below shows these nations rank ordered by the first indicator in Gagnon's table, 2011 Foreign Reserves as % of GDP.
Nation 2011 Foreign Reserves as % of GDP
Libya 271
Hong Kong 121
Algeria 97
Saudi Arabia 94
Singapore 93
Taiwan 83
Thailand 49
Malaysia 48
China 45
Switzerland 44
Bolivia 40
Philippines 32
Israel 31
Angola 28
Korea 27
Russia 25
Denmark 24
Japan 21
Azerbaijan 17
Argentina 9
Source: Gagnon, 2012, Table 1
It is interesting to note the broad range of nations and the large number of Asian nations that show up on it. It should also be pointed out that China, in ninth position, is middle of the pack, between Malaysia and Switzerland. It should also be pointed out that foreign reserves can accumulate over time and reflect past as well as current policy.
While China is in the middle of the pack in the above list (which is scaled to GDP), it stands at the top when the absolute size of foreign reserves are measured. In a blog post, Gagnon provided this ranking of currency manipulators and China stands head and shoulders above everyone else (with only Japan coming close).
However, though China tops the list because of the size of its reserves, Gagnon notes "...although China tops this list, its reserves have been relatively stable over the past 12 months [July 2011-July 2012], suggesting a marked change in its behavior." So, while China may be holding larges reserves of dollars acquired from past manipulation, it is no longer adding much to this pile, which suggests that it has changed its ways. More specifically, that the renminbi had appreciated enough by mid 2011 to approach its equilibrium value.
Indeed, in September 2012 Ganon was joined by C Fred Berstein in an Op-Ed to the Financial Times in which they argued argued for measures against nations practicing currency manipulation but noted that China "...has not been the major perpetrator of late." They identified the major culprits as follows:
Three distinct groups are now involved. First are other Asian countries, including Japan, Singapore, Taiwan, Korea, Hong Kong, Thailand, and Malaysia. Second are major oil exporters including the United Arab Emirates, Russia, Norway, Saudi Arabia, Kuwait, and Algeria. Third are rich countries near to the euro area, most notably Switzerland but also Denmark and Israel.
So, if the US were to let nationality blind currency manipulation seeking missiles, they would by pass China for a mixed bag of nations, which would include many staunch allies and trading partners.
Saturday, February 01, 2014
"World Energy Outlook" Report and "Energy Outlook" on Potential US Crude Exports
- By 2035, the US will be self sufficient in energy, China will be the world's largest importer of oil and India will be the largest importer of coal.
- Though the current gaps will narrow, large regional differences in natural gas prices will remain. This will drive differing levels of economic growth.
- The innovations of ultra-deep underwater drilling and of fracking to extract Light Tight Oil (LTO) from shale has significantly increased the amount of oil that can be produced but demand is expected to grow more. IEA predicts a price (in 2012 dollars) of $128/barrel in 2035.
- Despite growth of non-OPEC oil production, oil production will remain centered in the Middle East, especially after the mid-2020s.
- Renewable energy sources will account for half the increase in power generation to 2035.
- Carbon emissions will continue to grow above international target levels.
So, while somethings are expected to change (the US becoming a net producer and China becoming the largest importer), somethings are not (the price of oil trending up and the Middle East dominating production).
BTW- If you haven't seen a graph of US oil production lately, you need to see this one provided by Mark Perry. The rise in US oil production since 2010 is startling and has reversed all the declines since 1988.
BTW- If you haven't seen a graph of US oil production lately, you need to see this one provided by Mark Perry. The rise in US oil production since 2010 is startling and has reversed all the declines since 1988.
Energy Outlook on US Export Ban: With the US now the world's largest producer of oil and expected to eventually produce more crude than it uses, the question arises of whether the US should export crude oil. This would not be much of a question (but rather one deserving a "D'uh!" response) if the US did not have a statutory ban on the export of US crude oil dating back to the days (hysteria) of the Arab Oil Embargo.
Geoffrey Styles discusses the pros and cons of US crude oil exports on his Energy Outlook blog (not to be confused with the Energy Outlook Report). In Styles view, the argument is dominated by considerations of crude oil quality (Light Tight Oil that the US will be producing in abundance is not ideal for US refineries) and US domestic economic considerations (particularly producing the lowest possible domestic price for oil based fuel).
As far as quality is concerned, the quality of LTO is actually too good for most US refineries which have complex machinery designed to refine lower quality oil (crude from Canada's tar sands comes to mind). LTO is much better suited to less complex refineries, such as those found in foreign countries. Therefore, producers could make $5-10 more per barrel selling it outside the US. Sending LTO overseas would encourage refineries to continue refining the lower quality crude (which appears to represent a US competitive advantage in the industry) and exporting petroleum products (which even today represent on of the US' top 10 exports).
Styles doesn't seem enthused about the con arguments which center on hopes of lowering the domestic price of oil based fuels and notions of energy security. Both arguments are undercut by the global nature of oil and petroleum products. Indeed, it seems likely that, even if export restrictions on crude oil exports lead to lower crude oil prices in the US, the export of gasoline, diesel, and heating oil would prevent a decrease in consumer fuels prices. In such a case, the crude export ban would simply lower the profits of LTO producers, and increase profits of refiners while at the same time producing less value added in the US economy than if there was no ban.
Friday, January 31, 2014
Good Read: Michael Pettis on The Great Rebalancing.
Of, course now I have this stuff in my head and it needs to go somewhere. Eventually it will find its way into my courses, but first it needs to be fleshed out and reflected on some more. So, I'm going to do some of that here.
The first book to get this treatment is Michael Pettis' The Great Rebalancing: Trade Conflict and the Perilous Road Ahead for the World Economy (2013, Princeton University Press). Pettis is a finance and economic professor at Peking University who frequently comments on China and the global economy.
The Rebalancing that he focuses on is between countries that run a surplus of savings (e.g., China and Germany) and those that run a deficit of savings (e.g., the US, Spain, Portuagl, Itay, and Greece). A surplus of savings is the amount of national savings above the amount demanded in the domestic economy at the prevailing interest rate, and a deficit is the amount of savings below what is domestically demanded. He argues that, in a global financial market (one without capital controls between nations), deficits and surpluses must add up to zero, or balance each other.
Therefore, if a nation has financial and macro-economic policies that result in a surplus of total national savings, this surplus will have to be balanced by a deficit in some other nation. The surplus nation will export savings and, in return, essentially import demand for its products, which is manifested in a capital account deficit and current account (or trade) surplus. This will lead to low consumption and high employment in the surplus country. The deficit nation will be compelled by international market conditions to import the savings and export demand, resulting in a capital account surplus and current account deficit (in short, it will attract foreign investment while running run a trade deficit). This will lead to high consumption and lower employment in the deficit country, the latter of which can be avoided only if the deficit nation incurs increasing debt or erects capital controls.
Now, of course, this can work the other way around. A savings deficit nation (or nations) can draw in savings if it (they) implement financial and macro-economic (and fiscal) policies that push down the national savings rate. This will produce exactly the same outcome and, therefore, the causal link runs both ways.
Pettis' main argument is that the global economy is plagued by an imbalance between savings surplus nations (primarily China and Germany) and savings deficit nations (primarily the US and struggling EU countries). Furthermore, he argues that the causality runs from the policies of the surplus nations rather than those of the deficit nations. Nations like China and Germany have pursued policies that prompted national (not necessarily personal) savings rates beyond any level that can be effectively utilized in their own economies and have dumped the surplus onto the global (or in Germany's case, the Euro zone) market. This produced conditions that resulted in lower savings rates and increased indebtedness in the deficit nations. Because deficit nations face a choice between increasing debt or decreasing employment, governments are often politically compelled to choose higher debt, which often leads to unsustainable levels of debt.
In making this argument, Pettis rejects what he views as moralistic commentary that lauds the surplus nations and their cultures as hardworking and thrifty, while condemning deficit nations and their cultures as lazy and spendthrift. He notes that it wasn't that long ago that Chinese intellectuals lamented the laziness and lack of savings among their peasants. Also, he points out that there is a big difference between personal savings rates, which might be analyzed in terms of individuals and cultures, and gross domestic savings rates, which are better understood in terms of economic policies.
He also argues that the policies that produce the surpluses run deep in the surplus nations' economies and may not, on the face of them, appear directly related to trade. In the case of China, currency manipulation is only the tip of a policy iceberg that extends to repressive financial polices and a bloated public sector that have shrunk the household sectors share of GDP (albeit while allowing absolute household income to increase in absolute terms due to the high rate of growth in GDP).
What is interesting about Pettis' argument is that it redirects our attention away from the deficit nations (particularly in the case of the Euro crisis) and, also, away from the typical trade related policies (as in claims of currency manipulation in China). Instead, he focuses attention on the surplus nations and the policies that overstimulate the nations' savings and understimulate their consumption. Thus, the level of household consumption in China, and steps that can be taken to increase it, become a central focus in analyzing the nation's economic prospects( as well as those of other nations like the US). Similarly, the impact of the Euro on German exports becomes a central part of the explanation for Spain's difficulties.
He also argues that the deficit nations are not the only ones at long term risk from the imbalance. When the debt they must incur to avoid lower employment becomes unsustainable, the deficit nations will have to either default or impose austerity and capital controls (or all three) that will produce the previously avoided unemployment. At this point they will no longer be able to export demand to the savings surplus country and this will make the surplus counties' policies unsustainable. Surplus countries will find themselves with excess productive capacity and a host of investments that can not pay for themseleves. Thus, they face the prospect of a so called "lost decade" of stagnant economic growth. Indeed, Pettis argues that the surplus countries face greater losses in the long run that then deficit ones.
I'll leave the summary there, but I expect to take a deeper look at a number of issues Pettis raises in the future.
Wednesday, January 29, 2014
Some Info on Income Inequality
The President's State of the Union has kicked off the Democrat's income inequality offensive for this elections year. Here are some interesting arguments and research findings related to the subject.
Daniel Smith's Op-ed The Myth of Wage Stagnation Smith, a colleague at Troy University, lays out the argument that the oft-quoted data on earnings, which shows that average real wages only increased 5.58% since 1964, does not reflect increases in benefits and purchasing power. He points out that total compensation, which includes benefits, has increased 45% since 1964. He goes on to refer to Mark Perry's argument that purchasing power has increased when one considers the hours people need to work to earn enough money to buy consumer goods (see next link). Of course, not only do people have to work less hours to afford, say a TV, but the quality of the product purchased (which is not factored into inflation estimates) has increased dramatically in the past decades.
Fly in the ointment: While most of Smith's article is fact driven, he ends on an ideological note by arguing that the myth of wage stagnation is being used to do away with economic freedoms that increase incomes. While I have great sympathy for any argument in favor of economic freedom, it is more tenuous than the empirical case made in the first three quarters of the essay.
Mark Perry's Data on Hours Needed to Work to Purchase Goods Speaking of Mark Perry, he often posts information on the increasing quality and decreasing real cost of consumer products. In this post, Perry has a table that shows the cost of 11 household appliances in 1959, 1973 and 2013. He also uses the average hourly manufacturing wage from each of those years to calculate the hours a factory worker would have to work to purchase them. Even though the price of these products increased from $1,851 in 1959 to $3,289 in 2013, the hours a worker need to work to purchase them dropped from 885.6 to 170.4.
Of course, Perry used the average manufacturing wage and much of the discussion has been about minimum wage workers who generally make much less. Perry did a comparison of what a college student could purchase with the earnings from a minimum wage summer job (40 hours/week for 12 weeks) in 1973 versus 2013. Someone working for minimum wage in 1973 would earn $768 ($1.60/hour x 480 hours) and someone working for minimum wage in 2013 would earn $3,480 ($7.25/ hour x 480 hours).
Now, if you use the CPI to adjust these wages for inflation, it would appear that the 2013 worker earned 14% less in real wages than the worker in 1973. However, if you look at what the two workers could buy with their earnings, you get a very different conclusion. The 1973 worker's $768 would purchase a typewriter, a calculator, a portable TV, a Radio-Tape player, and a compact refrigerator. The 2013 worker's $3,289 would buy a laptop and printer, an iPod, an iPad, an iPhone, a GPS, a digital camera, flatscreen TV, a blu-ray player, a home theater system, a Playstation, a Kindle Paperwhite, Sonicare toothbrush, a clock radio/iPod docking station, a TiVo, a satellite receiver for a car, an espresso machine. and a calculator.
The difference between these bundles of goods is even more remarkable when you consider that a billionaire could not have purchased many of the things at any price in 1973. This leads Perry to argue that today's kids are the luckiest generation (at least until the next one).
Fly in the Ointment: In both cases, Perry looked at manufactured consumer goods, which have seen both increases in quality and decreases (or relatively small increases) in price. In comparison many things like , houses, gasoline and beef, have not increased much in quality but have increased in price. More importantly, healthcare, which has increased in quality, has gotten much more expensive. Of course, this is why the CPI, which looks at broad range of goods, says the $768 in 1973 is worth more than the $3,480 in 2013.
The Equality of Opportunity Project: Harvard's Equality of Opportunity project reports two interesting sets of findings regarding individual income mobility, i.e., the changes in income that individuals experience in their lifetimes. This is not income inequality, per se, but mobility relates directly to individual prospects in our economy.
First, they find that the prospect for upward mobility among children who grow up in below median income families varies a great deal across different geographic regions of the US. While you really need to look at the map they posted, the areas of lower upward mobility are heavily concentrated in the southeast while the areas of highest mobility run through the plains states.
Second, they report that income mobility was very stable from 1971 to 1992. They measure this mobility in terms of the difference in the average income percentile of children born to low income families versus children born in high income families. As they sum it up, "On average, children from the poorest families grow up to be 30 percentiles lower in the income distribution than children from the richest families, a gap that has been stable over time."
Fly in the Ointment: There really isn't one here, besides the difference between income inequality and mobility previously noted.
Friday, March 09, 2007
An Unfortunate Debate
I wrote this as a comment on another blog on Feb 18th. It addresses the debate over the non-binding resolutions. Since posting it, I have frequently referred back to things I wrote at the time, so I am including it as a post here. Taking adavantage of a couple weeks of hindsight, I have highlighted the most relevant points:
"Currently both sides of the debate are based on gross oversimplifications and laced with platitudes. While there is little public support for the hard-line opposition position, hard-line support for the president's position is doing more harm than good especially when it leaves the onus of devising an alternate plan to the other side.
"By leaving it to the war opponents to develop an alternative, war supporters are essentially embracing a policy that has been thoroughly discredited and in which few of them actually have much faith. Thus, the pro-war side does not hold out any promise of victory but just plays up the consequences of defeat. By not pushing their own alternative, the pro-war side implicitly equates support for the war with support for how the president has been and is fighting it.
"Unfortunately, Iraq has been a disaster for the war on terror. It has produced a breeding ground for terrorists and materially aided Al-Qiada in achieving its objectives. It has alienated the publics of the middle east and the world. It has divided the American public and reduced support for the war in Afghanistan. It has worn down the military and wrecked havoc on Iraqi society. It has severely damaged the credibility of the United States and our western institutions.
"Quite frankly, challenging the Democrats to come up with a better alternative sets the bar pretty low. In a situation where the public thinks the president's plan won't work, withdrawal may look like the lesser of two evils. Daring the Democrats to cut funding if they don't like it only legitimizes funding cuts as the logical alternative to the president's strategy and increases the likelihood of people supporting it if events in Iraq don't turn around. The administration (especially Cheney) bears a lot of responsibility not only for painting themselves into a corner but also for pushing Democrats into another corner. Unfortunately, the line of debate between these two corners does not promise to produce a strategy for success, but rather a compromise between two strategies for failure.
"What we need is an evolved position that is less pro-war and more pro-success. There are already several out there from both Republicans and Democrats. When you give these plans fair consideration (that is when you separate them form the surge, no surge debate), they have lots of merit. Just the other day Pat Buchanon was praising Joe Biden for taking the threat of terroism seriously and offering sensible options. We need to stake out some ground for people to say 'I support the war on terror but I want it done right.' "
"Currently both sides of the debate are based on gross oversimplifications and laced with platitudes. While there is little public support for the hard-line opposition position, hard-line support for the president's position is doing more harm than good especially when it leaves the onus of devising an alternate plan to the other side.
"By leaving it to the war opponents to develop an alternative, war supporters are essentially embracing a policy that has been thoroughly discredited and in which few of them actually have much faith. Thus, the pro-war side does not hold out any promise of victory but just plays up the consequences of defeat. By not pushing their own alternative, the pro-war side implicitly equates support for the war with support for how the president has been and is fighting it.
"Unfortunately, Iraq has been a disaster for the war on terror. It has produced a breeding ground for terrorists and materially aided Al-Qiada in achieving its objectives. It has alienated the publics of the middle east and the world. It has divided the American public and reduced support for the war in Afghanistan. It has worn down the military and wrecked havoc on Iraqi society. It has severely damaged the credibility of the United States and our western institutions.
"Quite frankly, challenging the Democrats to come up with a better alternative sets the bar pretty low. In a situation where the public thinks the president's plan won't work, withdrawal may look like the lesser of two evils. Daring the Democrats to cut funding if they don't like it only legitimizes funding cuts as the logical alternative to the president's strategy and increases the likelihood of people supporting it if events in Iraq don't turn around. The administration (especially Cheney) bears a lot of responsibility not only for painting themselves into a corner but also for pushing Democrats into another corner. Unfortunately, the line of debate between these two corners does not promise to produce a strategy for success, but rather a compromise between two strategies for failure.
"What we need is an evolved position that is less pro-war and more pro-success. There are already several out there from both Republicans and Democrats. When you give these plans fair consideration (that is when you separate them form the surge, no surge debate), they have lots of merit. Just the other day Pat Buchanon was praising Joe Biden for taking the threat of terroism seriously and offering sensible options. We need to stake out some ground for people to say 'I support the war on terror but I want it done right.' "
Monday, February 05, 2007
It's the Diplomacy Stupid
I have been biding my time before commenting on the Surge. There has been more than enough commentary on it and I didn't have anything useful to add to the debate as it was framed. While I was very interested to see the Senate take up the debate and heartened to see Republicans coming out with their own positions.
The problem is that most of the focus has been on opposing the surge (with the question for most Senators being how much to oppose it). There have been plenty of strong arguments that the surge won't work, but little in the way of explaining why the surge would actually make the US worse off. Now we are beginning to see that the surge really isn't more than a gradual increase of one brigade a month (see "Iraq 'surge' little more than a trickle so far" ).
The critics are quite right in saying that an increase in troops won't make a difference, but they are misdirected in their opposition to the so-called "surge". Rather than putting their opposition to military deployments at the fore, Senators need to start jumping up and down about the lack of diplomacy. Perhaps those who are not running for president will move in this direction.
There is increased reason to think that diplomacy is not a dead end road. Syria is calling on the US to engage in negotiations (see "Syria can help quell Iraq violence, Assad tells ABC News") and Saudi Arabia is holding talks with Iran (see "Rivals Saudi Arabia and Iran now talking"). The doors of international diplomacy are rarely opened wider than this.
The problem is that most of the focus has been on opposing the surge (with the question for most Senators being how much to oppose it). There have been plenty of strong arguments that the surge won't work, but little in the way of explaining why the surge would actually make the US worse off. Now we are beginning to see that the surge really isn't more than a gradual increase of one brigade a month (see "Iraq 'surge' little more than a trickle so far" ).
The critics are quite right in saying that an increase in troops won't make a difference, but they are misdirected in their opposition to the so-called "surge". Rather than putting their opposition to military deployments at the fore, Senators need to start jumping up and down about the lack of diplomacy. Perhaps those who are not running for president will move in this direction.
There is increased reason to think that diplomacy is not a dead end road. Syria is calling on the US to engage in negotiations (see "Syria can help quell Iraq violence, Assad tells ABC News") and Saudi Arabia is holding talks with Iran (see "Rivals Saudi Arabia and Iran now talking"). The doors of international diplomacy are rarely opened wider than this.
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