Category: Economic Growth

Free Trade Increases Economic Growth

(p. 3) When President Trump imposed tariffs on imported solar panels and washing machines, I was reminded of a line from George Orwell: “We have now sunk to a depth at which the restatement of the obvious is the first duty of intelligent men.”
. . . , my subject is economics, and to most people in my field, the benefits of an unfettered system of world trade are obvious.
. . .
. . . , economists have emphasized how trade affects productivity. In a model pioneered by my Harvard colleague Marc Melitz, when a nation opens up to international trade, the most productive firms expand their markets, while the least productive are forced out by increased competition. As resources move from the least to the most productive firms, overall productivity rises.
. . .
A skeptic might say that all this is just theory. Where’s the evidence?
One approach to answering this question is to examine whether countries that are open to trade enjoy greater prosperity. In a 1995 paper, the economists Jeffrey D. Sachs and Andrew Warner studied a large sample of nations and found that open economies grew significantly faster than closed ones.
. . .
Trade restrictions often accompany other government policies that interfere with markets. Perhaps these other policies, rather than trade restrictions, impede growth.
To address this problem, a third approach to measuring the effects of trade, proposed by the economists Jeffrey A. Frankel of Harvard and David C. Romer of the University of California, Berkeley, focuses on geography. Some countries trade less because of geographic disadvantages.
For example, New Zealand is disadvantaged compared with Belgium because it is farther from other populous countries. Similarly, landlocked nations are disadvantaged compared with nations with their own seaports. Because these geographic characteristics are correlated with trade, but arguably uncorrelated with other determinants of prosperity, they can be used to separate the impact of trade on national income from other confounding factors.
After analyzing the data, Mr. Frankel and Mr. Romer concluded that “a rise of one percentage point in the ratio of trade to G.D.P. increases income per person by at least one-half percent.”

For the full commentary, see:
N. GREGORY MANKIW. ”Economic View; Reviewing the Tenets of Free Trade.” The New York Times, SundayBusiness Section (Sun., February 18, 2018): 3.
(Note: ellipses added.)
(Note: the online version of the commentary has the date FEB. 16, 2018, and has the title ”Economic View; Why Economists Are Worried About International Trade.”)

The Melitz article mentioned above, is:
Melitz, Marc. “The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity.” Econometrica 71, no. 6 (Nov. 2003): 1695-1725.

The Sachs and Warner article mentioned above, is:
Sachs, Jeffrey D., and Andrew Warner. “Economic Reform and the Process of Global Integration ” Brookings Papers on Economic Activity 26, no. 1 (1995 ): 1-95.

The Frankel and Romer article mentioned above, is:
Frankel, Jeffrey A., and David H. Romer. “Does Trade Cause Growth?” American Economic Review 89, no. 3 (June 1999): 379-99.

Environmentalists Deprive the Poor of Cool Comfort

(p. A1) DELHI — A thrill goes down Lane 12, C Block, Kamalpur every time another working-class family brings home its first air-conditioner. Switched on for a few hours, usually to cool a room where the whole family sleeps, it transforms life in this suffocating concrete labyrinth where the heat reached 117 degrees in May.
“You wake up totally fresh,” exulted Kaushilya Devi, a housewife, whose husband bought a unit in May. “I wouldn’t say we are middle class,” she said. “But we are closer.”
But 3,700 miles away, in Kigali, Rwanda, negotiators from more than 170 countries gathered this week to complete an accord that would phase out the use of heat-trapping hydrofluorocarbons, or HFCs, worldwide, and with them the cheapest air-conditioners that are just coming within reach of people like Ms. Devi.
. . .
(p. A8) Sandhya Chauhan and her family live in two musty, windowless subterranean rooms, which turn stifling on summer nights, leaving six sweat-soaked adults to fidget, toss and pace until morning. They have lived there for 20 years, unable to find other lodging on the household’s combined earnings of around 30,000 rupees a month, or less than $450.
But it was never as awful as this May, when temperatures crept so high that Ms. Chauhan’s friends speculated that the earth was colliding with the sun. After a doctor warned Mrs. Chauhan that heat exhaustion was affecting their oldest son’s health, her husband bought an air-conditioner on credit. Though they are hardly middle class — “we have never let this thought cross our minds,” Mrs. Chauhan said — the purchase has changed the way they see themselves.
“My children sleep in peace,” she said. “There was a sense of happiness from inside. There was a sense that father has done a great job.”
Among the changes that have come with increasing wealth, Ms. Devi said, is the confidence to spend on the family’s comfort, rather than squirreling every bit of savings away.
“Education is teaching people to take care of themselves,” she said. “Now that we are used to air-conditioners, we will never go back.”

For the full story, see:
ELLEN BARRY and CORAL DAVENPORT. “A Climate Deal Could Push Air-Conditioning Out of India’s Reach.” The New York Times (Thurs., October 13, 2016): A1 & A8.
(Note: ellipsis added.)
(Note: the online version of the story has the date OCT. 12, 2016, and has the title “Emerging Climate Accord Could Push A/C Out of Sweltering India’s Reach.” The online version of the article says that the New York edition had the headline “Accord May Push Air-Conditioning Out of India’s Reach” and appeared on p. A12. In my paper, which is probably the midwest edition, the title was as cited in the main citation above, and appeared on pp. A1 and A8.)

Washington, D.C. Tax Rate Cuts Increased Economic Growth AND Tax Revenue

(p. B1) The capital’s financial affairs were in such disarray by the mid-1990s that they were taken over by a federal financial control board that operated until 2001. Yet in 2014 the council cut corporate and business taxes, reduced individual rates for everyone earning less than $1 million and broadened the tax base by eliminating many loopholes.
As a headline on the conservative website The Daily Caller put it, “Hell Freezes Over: DC Passes Tax Reform.”
In the ensuing years, economic growth and tax receipts have surged, enabling the city to accelerate cuts that were being phased in. The legislation was not revenue neutral, in the sense that broadening the tax base offset the reduction in rates. It was a tax cut. But in a development that would surely warm the hearts of pro-growth Republicans, the economic lift was so strong that tax receipts increased, and last (p. B3) year hit a record.

For the full commentary, see:

JAMES B. STEWART. ”For Tax Reform Lessons, Congress Needn’t Look Far Common Sense.” The New York Times (Fri., September 1, 2017): B1 & B3.
(Note: the online version of the commentary has the date AUG. 31, 2017.)

Trump Tax Plan Induces Firms to Repatriate Hundreds of Billions

(p. A23) Apple’s announcement on Wednesday [January 17, 2018] that it will repatriate most of the estimated $274 billion that it holds in offshore earnings is great news for the United States. Uncle Sam will get a one-time $38 billion tax payment. The company promises to add 20,000 jobs to its U.S. work force, a 24 percent increase, and build a new campus. Another $5 billion will go toward a fund for advanced manufacturing in America.
C’mon. What’s with the long face?
In December this column warned that hysterical opposition to the Republican tax bill was a fool’s game for Democrats that could only help Donald Trump. Yes, there were things to dislike in the legislation, from both a liberal and a conservative perspective.
But it was not the moral and fiscal apocalypse its critics claimed. And its central achievement — a dramatic cut in corporate rates to 21 percent from 35 percent — was an economic no-brainer that many Democrats, including President Obama, had supported (albeit less steeply) just a few years ago.
Apple will not be the only multinational that will soon bring back gigantic profits to take advantage of new low repatriation rates. Microsoft holds $146 billion in overseas earnings, Pfizer $178 billion, General Electric $82 billion, Alphabet $78 billion, and Cisco $71 billion, according to estimates from the Zion Research Group. The total stash is about $3 trillion — by one measure nearly three times what it was just a decade ago.
Assume that just half of that money comes home to the United States. It’s still the equivalent of Canada’s entire gross domestic product. Not too shabby, especially considering all the hyperbolic predictions of economic doom that went with Trump’s election

For the full commentary, see:

Stephens, Bret. “Clueless Versus Trump.” The New York Times (Sat., January 20, 2018): A23.
(Note: bracketed date added.)
(Note: the online version of the commentary has the date JAN. 19, 2018.)

With Cuts in Red Tape, Firms Invest More

(p. A1) WASHINGTON — A wave of optimism has swept over American business leaders, and it is beginning to translate into the sort of investment in new plants, equipment and factory upgrades that bolsters economic growth, spurs job creation — and may finally raise wages significantly.
While business leaders are eager for the tax cuts that take effect this year, the newfound confidence was initially inspired by the Trump administration’s regulatory pullback, not so much because deregulation is saving companies money but because the administration has instilled a faith in business executives that new regulations are not coming.
“It’s an overall sense that you’re not going to face any new regulatory fights,” said Granger MacDonald, a home builder in Kerrville, Tex. “We’re not spending more, which is the main thing. We’re not seeing any savings, but we’re not seeing any increases.”
. . .
(p. A10) Only a handful of the federal government’s reams of rules have actually been killed or slated for elimination since Mr. Trump took office. But the president has declared that rolling back regulations will be a defining theme of his presidency. On his 11th day in office, Mr. Trump signed an executive order “on reducing regulation and controlling regulatory costs,” including the stipulation that any new regulation must be offset by two regulations rolled back.
That intention and its rhetorical and regulatory follow-ons have executives at large and small companies celebrating. And with tax cuts coming and a generally improving economic outlook, both domestically and internationally, economists are revising growth forecasts upward for last year and this year.
. . .
. . . economists see a plausible connection between Mr. Trump’s determination to prune the federal rule book and the willingness of businesses to crank open their vaults. Measures of business confidence have climbed to record heights during Mr. Trump’s first year.
. . .
“We have spent the past dozen years or longer operating in environments that have had an increasing regulatory burden,” said Michael S. Burke, the chairman and chief executive of Aecom, a Los Angeles-based multinational consulting firm that specializes in infrastructure projects. “That burden has slowed down economic growth, it’s slowed down investment in infrastructure. And what we’ve seen over the last year is a big deregulatory environment.”
. . .
The White House sees its efforts as having their intended effect. Mr. Trump boasted about his deregulatory efforts last month at an event where he stood in front of a small mountain of printouts representing the nation’s regulatory burden and ceremonially cut a large piece of “red tape.”
The chairman of the White House Council of Economic Advisers, Kevin Hassett, said in an interview that the administration’s freeze on new regulations, in particular, appeared to have buoyed confidence. Though he cautioned that it could take years of research to pin down the magnitude of the effects, he said deregulation was “the most plausible story” to explain why economic growth in 2017 had outstripped most forecasts.
“Our view is, the ‘no new regulations’ piece has to be more powerful than we thought,” he said.

For the full story, see:
BINYAMIN APPELBAUM and JIM TANKERSLEY. “With Red Tape Losing Its Grip, Firms Ante Up.” The New York Times (Tues., January 2, 2018): A1 & A10.
(Note: ellipses added.)
(Note: the online version of the story has the date JAN. 1, 2018, and has the title “The Trump Effect: Business, Anticipating Less Regulation, Loosens Purse Strings.”)

Innovation Skeptics Fail to See Its Broad Benefits

(p. B11) Professor Juma died on Dec. 15 [2017] at his home in Cambridge, Mass. He was 64. His wife said the cause was cancer. At his death he was widely credited as having been an important force in ensuring that biotechnology would play a critical role in improving economic life in many developing countries, especially in sub-Saharan Africa.
“Calestous understood that people often resist the changes that come with innovation, and that overcoming this resistance can be very important in enabling societies to move ahead,” said Douglas W. Elmendorf, dean of the Kennedy School. “So he tried to understand why people resist innovation, and what can be done to make them feel comfortable with change.”
Professor Juma’s latest book, “Innovation and Its Enemies” (2016), described how technological change is often greeted with public skepticism. Beneath such opposition, he argued, is the belief that only a small segment of society will benefit from potential progress, while the much broader society bears the greatest risk.
. . .
Professor Juma could be lighthearted in the classroom or in public in order to make his points. With more than 100,000 followers on Twitter, he shared with them cartoons that teased skeptics of science and innovation. One of his last posts featured a game show called “Facts Don’t Matter.” In it, a contestant is told: “I’m sorry, Jeannie, your answer was correct, but Kevin shouted his incorrect answer over yours, so he gets the points.”

For the full obituary, see:
ADEEL HASSAN. “Calestous Juma, 64, Advocate of African Progress, Dies.” The New York Times (Tues., January 2, 2018): B11.
(Note: ellipsis, and bracketed year, added.)
(Note: the online version of the obituary has the date JAN. 1, 2018, and has the title “Calestous Juma, 64, Dies; Sought Innovation in African Agriculture.”)

The most recent book by Juma, mentioned above, is:
Juma, Calestous. Innovation and Its Enemies: Why People Resist New Technologies. New York: Oxford University Press, 2016.

Trump Argues Regulations Impede Infrastructure Investment

(p. A18) Mr. Trump is pursuing a similar shift in regulation, seeking to reverse or rewrite a host of rules intended to protect workers and consumers, under the theory that freeing companies from “red tape” will allow businesses to prosper, with wide-ranging benefits.
In remarks at the White House last week, Mr. Trump argued that regulation was impeding private investment in infrastructure. He held up a long, multicolored chart that he said reflected the permitting process for the construction of “a highway or a roadway.”
“By the time you finished, you probably gave up,” Mr. Trump said.

For the full story, see:
BINYAMIN APPELBAUM and ANA SWANSON. “Trump Bets on Business to Lift Workers.” The New York Times (Thurs., December 21, 2017): A18.
(Note: the online version of the story has the date DEC. 20, 2017, and has the title “Republican Economic Policies Put Business First.” The online version says that the page number for the print New York edition was A19. My print paper was probably the midwest edition.)

Is a Michelin Star the Best Metric of Good Food?

(p. A4) MONTCEAU-LES-MINES, France — It is like giving up your Nobel, rejecting your Oscar, pushing back on your Pulitzer: Jérôme Brochot, a renowned and refined chef, decided to turn in his Michelin star.
He is renouncing the uniquely French distinction that separates his restaurant from thousands of others, the lifetime dream of hundreds. But Mr. Brochot’s decision was not a rash one, born of arrogance, ingratitude or spite. Rather, it was for a prosaic, but still important, reason: he could no longer afford it.
. . .
Even in a region famed for its culinary traditions, this declining old mining town deep in lower Burgundy could not sustain a one-star Michelin restaurant. Mr. Brochot, a youthful-looking 46, had gambled on high-end cuisine in a working-class town and lost.
. . .
Already Mr. Brochot’s strategy appears to be working. He has cut his prices and is offering a more down-to-earth cuisine of stews, including the classic blanquette de veau, and serving cod instead of the more expensive sea bass.
It had depressed him deeply, he said, to have to throw away costly bass and turbot, like gold even in France’s street markets, at the end of every sitting because his customers couldn’t afford it. “There was a lot of waste,” he said.
“Since we changed the formula, we’ve gotten a lot more people,” Mr. Brochot said. Above all, the effect has been psychological. “In the heads of people, a one-star, it’s the price,” he said.
On a recent Friday afternoon, most of the tables had diners, including Didier Mathus, the longtime former mayor, a Socialist.
. . .
“Maybe the star scared people,” Mr. Mathus said. “I understand. He’s saying, ‘Don’t be scared to come here.’ Here, it’s simple people, with modest incomes.”

For the full story, see:
ADAM NOSSITER. “Rejected Honor Reflects Hardships of ‘the Other France’.” The New York Times (Thurs., December 28, 2017): A4.
(Note: ellipses added.)
(Note: the online version of the story has the date DEC. 27, 2017, and has the title “Chef Gives Up a Star, Reflecting Hardship of ‘the Other France’.”)

“Please Do Not Forget the Poor”

(p. A1) Last week, Peter Mattaliano, 66, an acting coach and screenwriter, put up Christmas decorations in his Hell’s Kitchen apartment and laid out presents for the children: Mary and Alfred.
These are not Mr. Mattaliano’s children, and they are no longer living. But a century ago they lived in what is now Mr. Mattaliano’s home.
He has honored Mary and Alfred every December for the past 15 years, ever since he learned of their existence when he renovated his fireplace. It had been sealed with brick for more than 60 years.
“My brother does construction, and I had him open up the fireplace,” he said. “We were joking that we might find Al Capone’s money. Then my brother yelled to me and said, ‘You’re not going to believe this.’ ”
In the rubble and dust, Mr. Mattaliano’s brother found a delicate piece of paper with faint children’s scrawl bearing a request to Santa from a century earlier.
“I want a drum and a hook and ladder,” read the letter, adding that the fire truck should be one with an “extentionisting” ladder. (p. A22) It was dated 1905 and signed “Alfred McGann,” who included the building’s address.
There was another item in the rubble: a small envelope addressed to Santa in “Raindeerland.” Inside was a second letter, this one dated 1907 and written by Alfred’s older sister, Mary, who had drawn a reindeer stamp as postage.
“The letters were written in this room, and for 100 years, they were just sitting there, waiting,” said Mr. Mattaliano.
He learned through online genealogical research that the siblings were the children of Patrick and Esther McGann, Irish immigrants who married in 1896. Mary was born in 1897 and Alfred in 1900.
. . .
Patrick McGann died in 1904, so by the time the children wrote the letters left in the chimney, they were being raised by Ms. McGann, a dressmaker.
Mary’s letter is as poignant as Alfred’s is endearing.
“Dear Santa Claus: I am very glad that you are coming around tonight,” it reads, the paper partly charred. “My little brother would like you to bring him a wagon which I know you cannot afford. I will ask you to bring him whatever you think best. Please bring me something nice what you think best.”
She signed it Mary McGann and added, “P.S. Please do not forget the poor.”
Mr. Mattaliano, who has read the letter countless times, still shakes his head at the implied poverty, the stoicism and the selflessness of the last line, all from a girl who requests a wagon for her brother first and nothing specific for herself.
“This is a family that couldn’t afford a wagon, and she’s writing, ‘Don’t forget the poor,’ ” he said. “That just shot an arrow through me. What did she think poor was?”

For the full story, see:
COREY KILGANNON. “Poignant Notes to Santa, Lost for a Century.” The New York Times (Tues., DEC. 22, 2015): A1 & A22.
(Note: ellipsis added.)
(Note: the online version of the article has the date DEC. 21, 2015, and has the title “A Chimney’s Poignant Surprise: Letters Santa Missed, Long Ago.”)

Reinvesting Profits Enables the Scaling Up of Success

(p. A17) Muhammad Yunus has big goals: zero world poverty, zero unemployment and zero net carbon emissions.
. . .
Mr. Yunus has long been a hero of mine for his innovative faith in the resourcefulness of low-income people.
. . .
If you want to motivate support for social enterprise, a utopian promise of “A World of Three Zeros” makes for a better book title than “Helping 60 Albanian Farmers Grow Herbs.” And Mr. Yunus’s paean to entrepreneurship does indeed deliver inspiration about the power of human creativity. But problematic arguments remain, especially his imprecise criticisms of the current economic system and the implausibility of replacing the whole system with social entrepreneurship.
A major problem is one of scale. Mr. Yunus’s many social-enterprise examples are all on the same micro level as the 60 Albanian herb farmers. And while there’s nothing wrong with making a large number of small-scale efforts to help a great many people, it doesn’t qualify as a whole new system for the $76 trillion global economy. Mr. Yunus doesn’t confront the scaling problem. He could have noted, for instance, that successful social entrepreneurs, unlike successful private entrepreneurs, by definition don’t get the high profits to reinvest in scaling up successes.

For the full review, see:
William Easterly. “BOOKSHELF; How to Solve Global Poverty.” The Wall Street Journal (Sat., Oct. 3, 2017): A17.
(Note: ellipses added.)
(Note: the online version of the review has the date Oct. 2, 2017.)

The book under review, is:
Yunus, Muhammad. A World of Three Zeros: The New Economics of Zero Poverty, Zero Unemployment, and Zero Net Carbon Emissions. New York: PublicAffairs, 2017.

“The Tabula Rasa of the American Dream”

(p. 22) The four Keats siblings, John and George, sister Fanny, and a third brother, “star crossed” Tom, dead of tuberculosis at 19, were all well schooled in the World of Pains. The orphaned children of a shiftless stable hand, they survived on the miserly dole of a tea merchant appointed their guardian. “The lives of these orphans,” Gigante remarks, “do have the makings of fairy tale.” John trained in medicine before taking up the far riskier profession of poetry; reviews of his ambitious long poem “Endymion” were so harsh that Byron cruelly joked he was “snuffed out by an article.” George limped along as a clerk in various mercantile firms, dreaming of something more ­adventurous.
Gigante has had the clever idea of telling the stories of John and George as parallel lives, a dual biography of brothers.
. . .
In her view, George’s departure to America with his young wife, Georgiana, was “an imaginative leap across 4,000 miles onto the tabula rasa of the American dream.” And yet, nothing — nothing, that is, beyond his famous brother — distinguishes George from thousands of other immigrants who joined in the Western migration during the tough years following the French Revolution, when it became painfully clear that possibilities for advancement in class-stratified Great Britain were severely curtailed.
. . .
The land of opportunity was also the land of crushing disappointment. On his second trip to America, after blowing his inheritance on a dubious investment with his elegant friend and neighbor Audubon, and retreating from the bleak prairies to more civilized Louisville, George finally completed his sawmill. (He would have been wiser to invest in Audubon’s pictures of otters and buzzards than a crackpot steamboat scheme.) After a few years of profit, when he built a columned mansion equipped with slaves near the center of town, George lost it all again in the Panic of 1837.

For the full review, see:
CHRISTOPHER BENFEY. “Ode to Siblings.” The New York Times Book Review (Sunday, October 16, 2011): 22.
(Note: ellipses added.)
(Note: the online version of the review has the date OCT. 14, 2011, and has the title “A Keats Brother on the American Frontier.”)

The book under review, is:
Gigante, Denise. The Keats Brothers: The Life of John and George. Cambridge, MA: The Belknap Press of Harvard University Press, 2011.