Policy-making relies on narratives, and narratives often come from data. Or claim that they do. One story often told by economists—by everyone from Dani Rodrik to Erik Brynjolfsson and Andrew McAfee to James Kynge to Laurence Summers—is that China’s manufacturing sector has been shedding workers since the mid-1990s. This story leads us to believe that something like this is happening:
This argument ends up as a morality tale with serious policy implications: if even China, manufacturing powerhouse with wages developed countries cannot hope to compete with, is losing manufacturing jobs, then surely manufacturing jobs are obsolete and the U.S. is foolish to try to maintain them—let alone get them back.
Unfortunately, this story is based on a gross misreading of inaccurate evidence. There are three major problems. First, even based on a simplistic look at the data, it’s flat out wrong. Take a look at this chart that shows the actual manufacturing employment in China. (You may note that this chart only goes back to 1998, and that the peak of employment underlying most claims was in 1996—more on that in a bit.)
Strangely enough this graph looks nothing … Read the rest
Since after the Great Recession Congress has put in place temporary bonus depreciation for new capital investment. Given the current state of the economy, already high levels of corporate taxation, and the need for additional investment, Congress should renew bonus depreciation for at least another year.
As ITIF recently wrote, American companies already face the highest statutory tax rates in the developed world. Their effective tax rates also tend to be high, partially because they are taxed on their worldwide income. Bonus depreciation, which temporarily allows companies to deduct equipment purchases faster than they otherwise could, partially offsets this. But the current provision expired at the end of last year.
Faster depreciation reduces the economic cost of new equipment, thereby spurring more investment. It does not reduce the total taxes paid by a company, but it does delay them. The benefit to companies exceeds the cost to the government because the latter can borrow at much lower rates. Higher investment also benefits the broader economy by increasing productivity and creating jobs.
Bonus depreciation also helps align tax liability with actual profits. Accounting methods require companies to write off equipment … Read the rest
The Bureau of Labor Statistics (BLS) is considering cutting more of its data reports, this time weighing the elimination of Import-Export Pricing Data. Far from saving tax-payers money, the potential cut will hobble the ability for both our government and our exporters to have the information they need to innovate and compete in a changing global marketplace.
The BLS’s Import-Export Pricing is a valuable part of its Price and Cost of Living report. The report collects data on goods entering and exiting the country and the prices of those goods by polling U.S. companies. The data gives producers vital information on trends in world prices and provides the public with information on U.S. inflation, economic output, and the overall well-being and competitiveness of American business.
Unfortunately, eliminating Import-Export Pricing is not an isolated example of the government’s growing information crisis. Across the board, budget cuts and sequestration has severely reduced efforts by the BLS, the Bureau of Economic Analysis, the National Science Foundation, the Department of Labor, and the Department of Commerce to produce timely and high-quality data to assess traded sector competitiveness. The BLS has already eliminated its … Read the rest
A Paul Krugman op-ed in The New York Times today, “No Big Deal,” incorrectly argues that completing a trans-pacific trade pact would be of little consequence to the U.S. economy. Rather, successfully concluding The Trans-Pacific Partnership (TPP), which includes 12 Asia-Pacific region countries—Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the United States—is vitally important to the U.S. economy and to future global economic integration, as ITIF argues in Concluding a High-Standard, Innovation-Maximizing TPP Agreement.
Krugman argues that the “glory days” of trade deals are over, in part because previous trade pacts significantly reduced many countries’ tariff levels, such that “there just isn’t much more protectionism to eliminate.”
Unfortunately this line of thinking fails to acknowledge the pernicious and growing impact of NON-TARIFF barriers (NTBs) on innovation industries. These barriers include a range of unfair and distortionary practices, such as inadequate intellectual protections on foreign intellectual property (IP), restrictions on trade in services, barriers to digital trade and cross-border data flows, currency and standards manipulation, and localization barriers to trade—policies that mandate local production or the transfer of technology or intellectual property … Read the rest
The federal government has officially shutdown as of midnight, October 1st, 2013 due to Congress’s failure to pass a budget. The 2013 fiscal year ends on September 30th and the government required a new budget to continue operations. The government has been operating on a Continuing Resolution – a CR, or an extension of the previous years budget, since 2012.
While coverage of the shutdown will focus on the political circus that is fueling it and the thousands furloughed from their jobs, it is also important to note that it is directly impacting America’s overall energy innovation capacity. In the short-term, many of the nation’s premier energy innovation institutions will scale-down or shutdown completely, while a few will continue to operate using carryover funds. That means the longer the shutdown drags on, the less research America will produce, and the fewer next-gen energy technologies and fundamental scientific discoveries. In other words, a prolonged shutdown threatens overall U.S. international competitiveness and progress towards a low-carbon advanced energy system.
Specifically, the following energy-related institutions and programs are being directly impacted by the government shutdown:
Impacts on Existing Fossil Fuel … Read the rest
No one disputes the benefits of innovative technology. It has resulted in IT, medical, and energy advancements that have revolutionized the way we live our lives. What often goes unappreciated, however, is the time and resources invested that ultimately yields this progress. As I discussed on Friday as part of a panel at the Global Intellectual Property Center’s IP Summit, failing to acknowledge and respect intellectual property puts future innovation in jeopardy, and it is critically important that we educate developing countries on the benefits of protecting IP before it has lasting effects on not just the global innovation economy, but their own individual innovation economies
At a time when developing countries are not only trying to recover from the Great Recession, but also working toward building more prosperous economies, access to innovation is increasingly important. Unfortunately, all too often developing countries believe that to achieve their economic and social goals, they must focus on getting access to technologies (including pharmaceutical products, sometimes through issuing compulsory licenses) in the near-term, instead of setting up an environment of strong IP protection where innovation can flourish over the long-term. These actions are … Read the rest
Global competition in export credit financing remains increasingly formidable, with foreign competitors enjoying substantial support from their countries’ export credit agencies, as ITIF originally wrote in Understanding the Importance of Export Credit Financing to U.S. Competitiveness. The United States’ Export-Import Bank (Ex-Im Bank) fills an important role in leveling the playing field for U.S. exporters by matching credit support that other nations provide to their exporters, thus preventing foreign exporters from enjoying undue advantage. This ensures that U.S. exporters are able to compete against foreign competitors based on the quality and price of their products and services, and not loose sales because a foreign government has helped a foreign competitor by providing superior financing terms to a potential buyer.
Unfortunately, the 2012 Report to the U.S. Congress on Export Credit Competition and the Export-Import Bank of the United States underscores just how much more other countries—and principally America’s top economic competitors in Europe and Asia—are investing in export credit financing, both as a share of GDP and—in China’s and Korea’s case—even current dollars.
In fact, in 2012, Korea, India, China, France, Germany, and Italy all invested more in new … Read the rest
The current issue of the New York Review of Books features an article by Harvard economist Benjamin Friedman, “Brave New Capitalists’ Paradise’: The Jobs?” which is yet another reminder why we should not let economists make economic policy.
Freidman starts off by rightly pointing to the period from after WWII to the early 1970s as a golden era of low unemployment and high median income growth. He then rightly points to slower income growth over the last 20 years. His solution: less technology and lower productivity.
For Freidman has joined the ever growing neo-Luddite movement in America that mistakenly attributes our economic problems to too much technology and automation. He writes, “New technology that enhances the productivity of labor… means less labor input is needed to produce what was made before.” So far so good. But he goes on to write that “increasingly over the last quarter century, the balance [of less labor for existing goods plus more labor for new goods] indeed appears to have shifted [toward less labor].”
Why? Because “the pace of labor saving technological change has accelerated.” Okay, let’s stop here. First, of all productivity growth … Read the rest
With the government shutdown now in its second week, its effect is now being felt across much of the broader U.S. economy, especially in trade. The Department of Commerce (DOC) says nearly 10 million American jobs are supported by exports. Last year, U.S. exports rose 4.4 percent to $2.196 trillion and imports grew 2.7 percent to $2.736 trillion.
Unfortunately, the shutdown is destroying much of this daily commerce. Several government agencies—including DOC, the Environmental Protection Agency (EPA) and the Department of Agriculture (DOA)—are involved in trade shipments. While Customs and Border Protection (CBP) is still staffed throughout the shutdown, most of these agencies have the authority to “release and hold” imports and exports before CBP even enters the process, meaning that many imports and exports are stranded and unable to enter/exit the United States.
For example, the EPA halted all pesticide imports to the United States, because, with more than 90 percent of its staff furloughed, it cannot approve them. Steel imports are stranded at customs-clearance warehouses awaiting paperwork. And many U.S. technology companies are slowing down or stopping overseas orders because they cannot obtain DOC authorization to export. The … Read the rest
It’s an interesting phenomenon—issues we thought were long settled in American politics are being re-litigated, including tax policy, food stamps, and even the role of the federal government in general. Therefore it’s perhaps not surprising that the issue of copyright has come under question. Historically, conservatives have been supporters of strong copyright protection because for them a key function of government was the protection of property rights. These conservatives have long accepted and even embraced the role of the state to grant and enforce copyright status.
However, there is one strain of conservative thinking that actually favors limited or even no copyright enforcement. With their overarching focus on freedom, some libertarians now argue that copyright, as the grant of monopoly by government, impinges on the freedom of individuals. Because for these libertarians, liberty trumps property rights, individuals should be free to use digital content in ways they want and content holders, not others such as digital intermediaries or governments, should be responsible for policing its use.
We see this in the recent writings of libertarians such as Simon Lester, a prominent trade policy analyst for the Cato Institute, economists Michele … Read the rest