Sunday, May 31, 2015

The TPP goes to the House

Obama’s Trade Deal Faces Bipartisan Peril in the House (LINK): 

The T.P.P. is the largest trade deal in a generation, linking 12 nations — including Canada and Chile in the Americas, and Japan and Australia across the Pacific — in a pact that would not just further cut generally low tariffs on goods but also put in place investment rules for roughly 40 percent of the global economy. The White House says, moreover, that the deal is an essential element in America’s strategic posture in Asia vis-à-vis the rising power of China.
WASHINGTON — The battle over President Obama’s push for the two potentially far-reaching trade pacts will shift this week to the House. Advocates of the trade bill (from both parties) say they are gaining strength since it passed the Senate just before the Memorial Day break. But that 62-to-37 vote — while bipartisan — was not the overwhelming victory House supporters had hoped for.

“Only 17 Democrats out of 188 have come out in favor of so-called fast-track authority — and many of them are being hounded by labor and environmental groups to change their minds. Representative Nancy Pelosi of California, the minority leader, who has yet to declare her position, has told House Speaker John A. Boehner of Ohio that he will have to produce 200 Republican votes to win the 217 he needs. In other words, she is not promising a single new convert.”


Most congressional Dems are skeptical of the T.P.P. “They argue that since the North American Free Trade Agreement was approved in 1993, such accords have only hastened the flow of manufacturing jobs overseas and pressured wages downward through international competition. Corporations, their executives and shareholders have prospered, but globalization has helped hollow out the middle class, many Democrats say.”


“By contrast, most Republicans conceptually side with President Obama, contending that the forces of globalization are inevitable and that trade deals like the T.P.P. will help open foreign markets to American goods and services. They support the White House’s effort to forge deals that protect intellectual property from theft and promote investor rights through strong international rules, which are seen as crucial to expanding opportunities for a wide range of American industries, including aircraft, entertainment, pharmaceuticals and insurance.”


To me, it seems very uncharacteristic like of President Obama to push so hard for a trade agreement that big corporations and republicans are lobbying for and very few democrats support. What do you think Obama finds alluring about this deal? Do you think this agreement would jumpstart our economy?  Do you think the majority of Americans would be positively influenced by the partnership? 

Government Funded Research & Development as a Factor of Inequality?

This NYT article provides an interesting discussion on if the government should receive returns on the successful R&D it funds. Would it increase or decrease innovation? How does this effect inequality?

On the one hand, the article argues: 

“’We must change the distribution of rewards to innovation,’ Professor Mazzucato told me. ‘We socialize the risks but privatize the rewards.’ This not only contributes to our persistently widening inequality, it undercuts support for scientific discovery.

Had the government received an equity share in Tesla in exchange for taxpayers’ financial support, for example, it might have paid for the government’s failed investment in Solyndra.

Had it gotten even a minute stake in Google — whose search algorithm was financed by the National Science Foundation — or in GPS, rocket development, touch-screen technology or the many drugs that flowed from its investment in basic science, the government might have a stable, richer pot to finance the next generation of scientific discovery.”

Of course, there are also concerns with governments receiving returns on investments in R&D. What if governments were to become too concerned with getting high returns? How would what R&D they invest in change? Especially if governments patented innovations resulting from their investment, there is evidence to say that related discoveries will substantially slow.

I think that at the end, the author makes a good point: “At a minimum, why not embed rules into federally funded discoveries to ensure that companies that profit from these ideas reinvest some share of their profits into additional research, rather than use it for stock buybacks?”

What do you think? Should the government be rewarded for investing in R&D that is successful  If so, how? Through direct repayment? Through agreeing to invest a certain amount of profits in R&D? Other thoughts?

Saturday, May 30, 2015

Greece's 1-2-3 Plan For Default & Recovery

May 30th
Greece's 1-2-3 Plan For Default And Amazing Recovery (LINK)
Greece, which has been stuck in a deep debt crisis for the past five years, is due to pay back 300 million euros ($410 million) to the International Monetary Fund next Friday (June 5th).

Only after a default can contracts like pensions or employment agreements be breached. Greece's “excessive government headcount, wasteful programs and overly generous compensation packages are due for major reforms." However, such reforms can only be implemented after Greece defaults on their payments. In other words, the IMF and other foreign creditors have to take the hit first before Greece's government employees, pensioners, and all who benefit from government services can

Greece’s troubles (central government debt/GDP of 192%) have gotten so far out of control that avoiding a default is unrealistic. “So, embrace it. Eventually, a debt restructuring should reduce this burden to something more manageable. Once the default has begun it should be much easier to restructure other expenditures. For one thing, the Greek government might not be able to borrow any more money. So, they will have to do with the revenue they have. A balanced budget!” 

Greece needs a healthy private economy, capable of expanding employment and rising prosperity. "Before any big reductions in government spending, they should have a major tax reform to get the near-dead economy moving again. Steve Forbes has proposed a combination of a 10% flat income and corporate tax rate; a 10% payroll tax; and a 15% VAT. This is a fine strategy, and the result would be a gigantic expansion in economic activity. It is quite possible for Greece’s nominal GDP, in euros, to expand by as much as 300% in the decade following such a tax reform. Tax revenues, which have been falling since 2008, would expand by roughly the same amount.

“The private economy would be where all the action is. Typically, after a crisis period, there are gigantic business opportunities everywhere. A middle-class life in the private sector becomes more appealing than life as a government parasite. The steps to take are now clear. First, the default. Second, tax reforms, and other regulatory reforms to make Greece a good – nay, a great – place for business. Third, eliminating all the corruption and rot inherent in the government’s present spending patterns, while preserving important services and welfare programs.”

Do you think this is a good plan for Greece? Can you come up with a better option? How do you think Greek pensioners and other citizens that benefit from these government services will react to this plan? How do you think Greece's creditors will react to this plan? Lastly, if Greece does default do you think they are putting themselves at risk of getting thrown out of the Eurozone?   

In Japan, You Get a Tax Break and a Side of Lobster and Beef

This NYT article explains an interesting system of tax cuts reminded me of the Irish Double Dutch Sandwich we discussed in class. Countries, or in this case, local governments, compete to give businesses or rich people tax breaks, while in the end, arguably, hurting more than helping the “average” or “middle-class” person.

“Taxpayers who donate money to Hirado get a nice deduction and a shipment of slipper lobsters, spiral-shelled mollusks and oysters.”

“The cost of thank-you gifts is also rising steadily as local governments compete to attract patrons — leaving less to spend on civic projects. Urban areas, where most donors live, end up bearing the cost, according to Takero Doi, a professor at Keio University, since donors’ tax write-offs subtract from other cities’ revenue. ‘Ultimately, it’s a zero-sum game.’”

Do you agree that this tax break is a zero-sum game, or do you think the forgone tax revenue is worth the gain rural cities receive from increased business and funding? Is this tax policy better or worse than models that benefit corporations like the Irish Double Dutch Sandwich? Do you think a system like this could ever work in the United States?

Contraction in the 1st Quarter of 2015 - US Economy

According to the WSJ (LINK), the US economy contracted (GDP fell at a 0.7% annual rate) during the first quarter of 2015. This is far worse than the initial estimate that showed about 0.2% growth.

Economists are blaming the shortcoming on: harsh weather, a strong dollar and a labor dispute at West Coast ports. These have weakened the demand for American goods at home and abroad.

The Fed views the first-quarter stumble largely due to “transitory factors—such as the stronger dollar—that will dissipate in coming months. The central bank is looking for signs of a rebound soon as it plots when and how quickly to raise short-term interest rates, which have been near zero since December 2008 to stir economic growth.”

Even though we saw a contraction in GDP for the first three months of 2015, “other signs point to the economy humming along at a steady, though modest, growth pace. Company layoffs are exceptionally low and hiring across the U.S. remains solid. Mortgage applications are up amid other signs of growing housing demand.”

“We’re still growing at a relatively steady pace, although one that just doesn’t feel satisfying,” said Richard Moody, chief economist at Regions Financial Corp. “Six years into the recovery, we still really haven’t absorbed all of the idle capacity in the economy. When your underlying trend of growth is so slow, it doesn’t take much to just kind of stop the train.”

Do you have any general thoughts or comments about this article?

Do you think our economy will show growth now that our brutal winter has come to an end?

It seems our economy is doing fairly well (low unemployment level and bump in the housing market) as of late. This prompted the question, is GDP the best measurement of how our economy is working or could there be another evaluating tool more accurate? (Sparked by our in class discussion about Stiglitz last week)