Thursday, February 11, 2016

TPP Is it helpful?

Comments due by Feb. 19, 2016

Lawmakers and presidential candidates are having their say about the 12-nation Pacific Rim trade accord that is President Obama’s top economic priority in his final year in office. But lately the liveliest debate over the deal is among blue-ribbon economists.

On Monday, it was the critics’ turn: Economists from Tufts University unveiled their study concluding that the pact, called the Trans-Pacific Partnership, would cause some job losses and exacerbate income inequality in each of the dozen participating nations, but especially in the largest — the United States.

Supporting the authors at the National Press Club was Jared Bernstein, who was the top economic adviser to Vice President Joseph R. Biden Jr. during Mr. Obama’s first term.

Each side in the economists’ debate has criticized the economic model that the other used to reach its results, while opponents and supporters of the trade accord have quickly seized upon whichever analysis buttressed their own views.The conclusions of the Tufts economists contradict recent positive findings from the Peterson Institute for International Economics and the World Bank about the trade pact, which would be the largest regional accord in history and would bind nations including Canada, Chile, Australia and Japan.

Michael B. Froman, Mr. Obama’s trade representative, plans to join other trade ministers in Auckland, New Zealand, on Thursday for the formal signing of the trade deal, which they finished in October after years of negotiations.

The future of the deal, however, depends on the approval of a sharply divided Congress. The administration is believed to lack enough support for passage, though votes are not expected until after the November election. Some other nations are delaying their own ratification processes pending American action.

Election-year pressures are not helping the president’s cause, as leading candidates in both parties are opposing the trade agreement.

Donald J. Trump, the leading Republican candidate, told the conservative website Breitbart News over the weekend that as president he would stop what he called “Hillary’s Obamatrade.”

Hillary Clinton, the leading Democratic contender, has criticized the final agreement after praising it while it was being negotiated. She continues to be assailed by her main rival for the nomination, Senator Bernie Sanders of Vermont, for her early support.

Against this backdrop, the economists from prestigious universities and research institutions have been providing their takes and debating their differences just as intensely, though with more scholarly reserve.

The analysis from the Global Development and Environment Institute at Tufts was titled “Trading Down: Unemployment, Inequality and Other Risks of the Trans-Pacific Partnership Agreement,” and was written by the economists Jeronim Capaldo and Alex Izurieta, with Jomo Kwame Sundaram, a former United Nations economic development official.

The authors wrote that they used “a more realistic model” for their analysis, and that previous reports that projected economic benefits from the trade accord were “based on unrealistic assumptions such as full employment” and unchanging income distribution.

The Tufts report projected that incomes in the United States would decline by a half-percentage point compared with the change expected without the Trans-Pacific Partnership. The Peterson Institute’s report, by economists from Brandeis and Johns Hopkins universities, projected that incomes would rise by half a percentage point.

The Tufts paper also projected that the overall economies of the United States and Japan would contract slightly. Employment in the United States would decline by 448,000 jobs; total job losses in the dozen nations would be 771,000 — a small share of the nations’ total work forces, yet hardly a selling point for leaders seeking to ratify the trade agreement.

The Obama administration has acknowledged that some jobs would be lost, especially in manufacturing and in industries that employ workers with lower skills, but it has said that those losses would be offset by new jobs created in export-reliant industries that pay more on average. The Peterson Institute report offered evidence for that argument, while concluding that there would be no net change in overall employment in the United States.

The other parties to the pact are Mexico, New Zealand, Peru, Malaysia, Vietnam, Singapore and Brunei.

“Economic gains would be negligible for other participating countries — less than one percent over 10 years for developed countries, and less than three percent for developing countries,” the Tufts report said.

It also had bad news for countries, including China, that are not parties to the Trans-Pacific Partnership, whose participants account for nearly 40 percent of the world economy.

“We project negative effects on growth and employment in non-T.P.P. countries,” the report said. “This increases the risk of global instability and a race to the bottom, in which labor incomes will be under increasing pressure.”

The authors’ explicit criticism of models and data used by other economists provoked swift counter-criticism. Robert Z. Lawrence, a professor of international trade and investment at the Kennedy School of Government at Harvard, and a senior fellow of the Peterson Institute, wrote a blog pieceon Monday expounding on why the institute’s analysis was “superior on all counts” and better suited to specifically gauging the impact of megatrade agreements.

Monday, February 1, 2016

Extreme Weather and Global growth

Comments due by Feb 12, 2016

Until recently, the usual thinking among macroeconomists has been that short-term weather fluctuations don’t matter much for economic activity. Construction hiring may be stronger than usual in a March when the weather is unseasonably mild, but there will be payback in April and May. If heavy rains discourage people from shopping in August, they will just spend more in September.

But recent economic research, bolstered by an exceptionally strong El Niño – a complex global climactic event marked by exceptionally warm Pacific Ocean water off the coast of Ecuador and Peru – has prompted a rethink of this view.

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Extreme weather certainly throws a ringer into key short-term macroeconomic statistics. It can add or subtract 100,000 jobs to monthly US employment, the single most-watched economic statistic in the world, and generally thought to be one of the most accurate. The impact of El Niño-related weather events like the one this year (known more precisely as “El Niño Southern Oscillation” events) can be especially large because of their global reach.

Recent research from the International Monetary Fund suggests that countries such as Australia, India, Indonesia, Japan, and South Africa suffer adversely in El Niño years (often due to droughts), whereas some regions, including the United States, Canada, and Europe, can benefit. California, for example, which has been experiencing years of severe drought, is finally getting rain. Generally, but not always, El Niño events tend to be inflationary, in part because low crop yields lead to higher prices.

After two crazy winters in Boston, where I live, it would be hard to convince people that weather doesn’t matter. Last year, the city experienced the largest snow accumulation on record. Eventually, there was no longer any place to put it: four-lane highways narrowed to two lanes, and two-lane roads to one. Roofs collapsed and “ice dams” building up from gutters caused severe flooding. Public transport closed, and many people couldn’t get to their jobs. It was a slow-motion natural catastrophe that lasted for months.

The US as a whole did not have a winter as extreme as New England’s in the first part of 2015, and the effects of the weather on the country’s overall economy were subdued. True, New York City had some significant snowfalls; but no one would have paid much attention had the mayor been more competent in getting the streets plowed. Eastern Canada suffered much more, with severe winter weather playing a role (along with lower commodity prices) in the country’s mini-recession in the first half of the year.

This year’s winter is the polar opposite of last year’s. It was 68º Fahrenheit (20º Celsius) at Boston’s Logan Airport the day before Christmas, and the first speck of snow didn’t come until just before New Year’s Day. Trees and plants, sensing spring, started to blossom; birds were just as confused.

Last winter Boston was something of an anomaly. This year, thanks in part to El Niño, weird weather is the new normal. From Russia to Switzerland, temperatures have been elevated by 4-5º Celsius, and the weather patterns look set to remain highly unusual in 2016.

The effect on developing countries is of particular concern, because many are already reeling from the negative impact of China’s slowdown on commodity prices, and because drought conditions could lead to severe crop shortfalls. The last severe El Niño, in 1997-1998, which some called the “El Niño of the Century,” represented a huge setback for many developing countries.

The economic effects of El Niño events are almost as complex as the underlying weather phenomenon itself and therefore are difficult to predict. When we look back on 2016, however, it is quite possible that El Niño will be regarded as one of the major drivers of economic performance in many key countries, with Zimbabwe and South Africa facing drought and food crises, and Indonesia struggling with forest fires. In the American Midwest, there has lately been massive flooding.

There is a long history of weather having a profound impact on civil strife as well. Economist Emily Oster has argued that the biggest spikes in witch burnings in the Middle Ages, in which hundreds of thousands (mostly women) were killed, came during periods of economic deprivation and apparently weather-related food shortages. Some have traced the roots of the civil war in Syria to droughts that led to severe crop failure and forced a mass inflow of farmers to the cities.

On a more mundane level (but highly consequential economically), the warm weather in the US may very well cloud the job numbers the Federal Reserve uses in deciding when to raise interest rates. It is true that employment data are already seasonally adjusted to allow for normal weather differences in temperate zones; construction is always higher during spring than winter. But standard seasonal adjustments do not account for major weather deviations.

Overall, the evidence from past El Niños suggests that the current massive one is likely to leave a significant footprint on global growth, helping support economic recovery in the US and Europe, while putting even more pressure on already weak emerging markets. It is not yet global warming, but it is already a very significant event economically – and perhaps just a taste of what is to come.(Project Syndicate)

Sunday, January 24, 2016

Doha Is Dead,Whats next?

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Over the past few days, trade ministers from scores of countries have spent hours flogging the long-dead horse that is the Doha round of global trade talks in Nairobi – and hardly anyone noticed. The World Trade Organisation, which convened last week’s conference, was once regularly targeted by protesters as the secretive, all-powerful puppet master of global capitalism.

Back in 1999, in the innocent days before the sub-prime crisis laid bare the sinister power of international finance, WTO talks in Seattle broke down amid clouds of tear gas, as anti-capitalist protesters expressed their fury at the rigged rules of the global marketplace, which, as they saw it, entrenched the wealth of the rich and excluded the poor. Yet last week’s gathering, attended by Britain’s Lord (Francis) Maude, barely registered with the world’s angry young radicals, who have turned their attention to bashing bankers – through the Occupy movement, for example.

As it became clearer in recent years that the Doha round was dying, the anti-poverty campaigners who once spent hours poring over the intricate details of cotton subsidies and sugar tariffs have moved on too.

Launched in late 2001, in the wake of the 9/11 attacks in New York, the Doha round was meant to open up new opportunities for developing countries to trade their way out of poverty and drive the next stage of what then seemed the unstoppable progress of globalisation.

But 14 years of talks have failed to yield an achievable deal; indeed, the issues dividing the main protagonists have barely shifted since negotiations collapsedacrimoniously in Geneva in July 2008. Back then, I watched US trade representative Susan Schwab lambast her Indian and Chinese counterparts for wanting to protect their farmers from cut-price imports. This issue of “special safeguards” was still being scrapped over in Nairobi.

The one-country-one-vote constitution that makes the WTO a more democratic institution than, for example, the International Monetary Fund, also makes negotiations cumbersome and decision-making clunky.Doha failed for many reasons, some more worrisome than others. It was probably always far too ambitious to try to tie up simultaneous deals across agriculture, manufacturing and services. The hope was that countries would give ground in some areas in return for concessions elsewhere, but this unwieldy, triple-track approach meant deadlock in one area led to comprehensive failure.

Political capital was another key challenge: lowering barriers to foreign competition is a tough domestic sell, especially in hard times when workers feel their jobs may be vulnerable. Optimists at the WTO’s Geneva headquarters hoped President Obama would swing his weight behind their efforts to improve the global trading system, but other priorities – not least the fraught passing of his healthcare reforms – have always seemed more pressing in Washington, where suspicion of unfettered free trade runs deep on both sides of Congress.

And most recently, a flowering of “plurilateral” deals, such as the Trans-Pacific Partnership between the US and Japan, has seen groups of like-minded countries – economic coalitions of the willing – sign up to liberalisation on their own terms.

Meanwhile, the nature of contemporary capitalism means the hot political issues are no longer import tariffs or agricultural subsidies but international taxation, financialisation and freedom of movement for migrant workers.

If Doha is dead, some noble aspirations will be buried with it. It was conceived as a “development round” – offering poor countries a stake in the global trading system to tackle poverty and prevent them from becoming recruiting grounds for terrorism. It became increasingly clear, though, that rich countries were unwilling, or politically unable, to offer much without a quid pro quo – and developing countries don’t have much to give.

Afghanistan became the WTO’s latest fully signed-up member in Nairobi last week. (This was one of the few concrete announcements to come out of the summit.) But it is joining a train that has been stuck in the station for more than a decade.So what began as an expression of the spirit of internationalism quickly descended into a series of cross-cutting mercantilist spats. And while trade liberalisation continues apace through plurilateral deals between powerful trading blocs, these rarely include the poorest countries.

The WTO still has a crucial role to play, as the policeman of the world’s trading system. But after 14 years of deadlock, the ideal of deepening economic relationships between rich and poor, north and south, in a way that would be mutually beneficial and to which all member countries could sign up has been extinguished.

Even protesters who once saw the WTO as the evil headquarters of capitalism red in tooth and claw might spare a moment to lament the fading of one-country-one-vote multilateralism it represented. (The Paris climate talks provided a heartening counter-example – albeit with few details as to how new emissions targets will be met.)

But for those on the left who dream of collective global solutions to the other pressing ills of modern capitalism, from tax avoidance to reckless financiers, 14 years of failure ought to give pause for thought.

International Trade