The 2016 Election Policy Threesome: Inequality, Trade ...dougcampbell.weebly.com/uploads/1/0/2/2/10227422/demsabroad__60... · The 2016 Election Policy Threesome: Inequality, Trade

The 2016 Election Policy Threesome: Inequality,Trade Shocks, and Monetary Policy

Douglas L. Campbell

Assistant Professor, New Economic School

Democrats Abroad SeminarMarch, 2016

Douglas L. Campbell Inequality, Trade, and Money 1 / 44

(Select) Major Election 2016 Policy Issues

Inequality. Rise of the 1%.Trade. Free trade the enemy?Monetary Policy.Other main election economic policy issues: cleanenergy/Immigration/free college education/single payer/minimumwage/infrastructure investment/Social Security – are either farfrom my specialty, or not so interesting to discuss.











The Rise of Inequality, the US

10

15

20

25

0

5top 10 - 5

top 1

*Data from Piketty/Saez World Top Incomes Database


Theories on the Rise of Inequality

Skill-Biased Technological Change. Robots.Trade Shocks. Rise of China. NAFTA.Labor Market Institutions – Especially top marginal tax rates, andthe mimimum wageOthers: Education (supply of skilled workers). Increasingrent-seeking/monopolization (Robert Reich)











Paul Krugman’s “Chart of the Year” for 2014

From Lakner and Milanovic (2013)


US, Trade vs. Inequality

510

1520

Top

1%

Inco

me

Sha

re

0.0

5.1

.15

1900 1925 1950 1975 2000

Imports/GDP Exports/GDPTop 1% Income Share


The Rise of Inequality, Anglo Countries

.05

.1.1

5.2

Top

1%

Sha

re o

f Inc

ome

1910 1930 1950 1970 1990 2010

USA UKAustralia

*Data from Piketty/Saez World Top Incomes Database


Top 1% Share of Income, Other Countries

.05

.1.1

5.2

.25

Top

1%

Sha

re o

f Inc

ome

1910 1930 1950 1970 1990 2010

France GermanyJapan


France, Trade vs. Inequality

510

1520

Top

1%

Inco

me

Sha

re

.05

.1.1

5.2

.25

1900 1925 1950 1975 2000

Imports/GDP Exports/GDPTop 1% Income Share


Skill-Biased Technological Change?

.05

.1.1

5.2

.25

Top

1%

Sha

re o

f Inc

ome

1910 1930 1950 1970 1990 2010

France GermanyJapan


Skill-Biased Technological Change? Increasing Returns to College Education?

6

8

10

12

0

2

4

1913 1923 1933 1943 1953 1963 1973 1983 1993 2003 2013

Top 1 - .1

Top .1%




US

0.2

.4.6

.81

Top

Mar

gina

l Tax

Rat

e

.05

.1.1

5.2

Top

1%

Sha

re o

f Inc

ome

1910 1930 1950 1970 1990 2010

Top 1% Share of Income Top Marginal Tax Rate


UK

0.2

.4.6

.81

Top

Mar

gina

l Tax

Rat

e

.05

.1.1

5.2

Top

1%

Sha

re o

f Inc

ome

1910 1930 1950 1970 1990 2010



Australia

0.2

.4.6

.81

Top

Mar

gina

l Tax

Rat

e

.04

.06

.08

.1.1

2.1

4T

op 1

% S

hare

of I

ncom

e

1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010



Germany

0.2

.4.6

.81

Top

Mar

gina

l Tax

Rat

e

.05

.1.1

5.2

.25

Top

1%

Sha

re o

f Inc

ome

1890 1910 1930 1950 1970 1990 2010



France

0.2

.4.6

.81

Top

Mar

gina

l Tax

Rat

e

.05

.1.1

5.2

Top

1%

Sha

re o

f Inc

ome

1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010



Japan

.2.4

.6.8

1T

op M

argi

nal T

ax R

ate

.05

.1.1

5.2

Top

1%

Sha

re o

f Inc

ome

1910 1930 1950 1970 1990 2010



Top Marginal Tax Rates and the Top 1% Share of Income: Sweden

0.2

.4.6

.8T

op M

argi

nal T

ax R

ate

.05

.1.1

5.2

.25

.3T

op 1

% S

hare

of I

ncom

e

1910 1930 1950 1970 1990 2010


Notes: 1% Share and Top MTR data from the World Top Incomes Database,supplemented with other sources


Inequality: Summing Up

Changes in the top marginal tax rate almost certainly droveincreases in the Top 1% share of income(Piketty/Saez/Stantcheva 2013, Campbell/Lusher 2016)

This operates in part via bargaining, which is why changes in thetop MTR affect the trajectory of the top 1% share. Implication:Raise top rates!Caveats – likely small impact on labor supply but possibly largerimpact on avoidance. Implication: Go after loopholes (carriedinterest).We also know that trends in CEO pay largely explained by luck(Bertrand and Mullainathan, 2001)



















No Evidence that Trade Liberalization affects the Top 1% Share ofIncome...

Trade Imbalances not correlatedImports/GDP not correlatedTrade with China/Developing Countries not correlated

A caveat: There is some evidence that the Rise of China hadcompositional effects on Workers (Autor/Dorn/Hanson/Song,2014) using Social Security dataCPS MORG data tell a slightly different story – manufacturingworkers with no college but high wages suffered the most(Campbell, 2016)Little Evidence for Skill-Biased Technological Change or Robots.No hard evidence for the Reich thesis






















How About Trade?

Progressives’ skepticism of FTAs often portrayed as idiocy orpandering to labor unions. Don’t you understand comparativeadvantage?

Anti-free trade Trump: Just zenophobic?

Bashing trade is now quite popular on the campaign trail...

In Michigan, only 30% of Democratic primary voters believe tradecreates US jobs (Clinton won these, 54-44), while 57% believe ittakes away jobs (Sanders won these 56-41).


How About Trade?






How About Trade?






How About Trade?






How About Trade?

Is there any truth to the view of voters that free trade has beenbad for them?

Yes. It may be even worse than Bernie/Trump says...

And, if so, does this mean that we should try to reverse NAFTAand pNTR with China?

No. Though I would try to “make a better deal” with China. I wouldnot touch NAFTA though. Let me explain...


How About Trade?






How About Trade?






How About Trade?






The Collapse in Manufacturing Employment

2%

4%

6%

8%

10%

12%

10

12

14

16

18

20

22

1960 1970 1980 1990 2000 2010

Millions Share

American Manufacturing Employment

employment

(left axis)

share of population

(right axis)

1960 1970 1980 1990 2000 2010

Autor, Dorn, Hanson (2013) and Campbell (2013, 2016) suggest collapse due to trade


Real Exchange Rates and Trade

.81

1.2

1.4

RE

R In

dice

s

−.0

4−

.02

0.0

2G

oods

Tra

de B

alan

ce e

x−O

il, S

hare

of G

DP

1950 1960 1970 1980 1990 2000 2010

Goods Trade Balance ex−Oil, Share of GDP WARPDivisia (CPI)

Note: WARP is a measure of the trade-weighted Real Exchange Rate for the US


The Rise of China (which has lifted millions of people out of poverty)


The Rise of China


Adverse Trade Shocks: RER Movements

11.

11.

21.

31.

41.

5W

eigh

ted

Ave

rage

Rel

ativ

e U

nit L

abor

Cos

ts

11.

52

Impo

rt P

enet

ratio

n/E

xpor

t Sha

re

1975 1980 1985 1990 1995 2000 2005 2010

Import Pen./Export Share WARULC

Notes: WARULC = Weighted Average Relative Unit Labor Costs (from Campbell, 2015), ImportPenetration = Imports/(Shipments + Imports - Exports); Export Share = Exports/Shipments


Adverse Trade Shocks: RER Movements, Impact on Employment

11.

11.

21.

31.

41.

5W

AR

ULC

8590

9510

010

511

0

1972 1976 1980 1984 1988 1992 1996

Most Open: Top 25% Least Open: Bottom 50%2 s.d. Error Bounds Rel. ULC Index

Notes: WARULC = Weighted Average Relative Unit Labor Costs, Import Penetration =Imports/(Shipments + Imports - Exports); Export Share = Exports/Shipments


Adverse Trade Shocks: RER Movements, Impact on Employment

11.

11.

21.

31.

4W

AR

ULC

8090

100

110

120

1989 1992 1995 1998 2001 2004 2007 2010

Most Open: Top 25% Least Open: Bottom 50%2 s.d. Error Bounds Rel. ULC Index

Notes: WARULC = Weighted Average Relative Unit Labor Costs, Import Penetration =Imports/(Shipments + Imports - Exports); Export Share = Exports/Shipments


Exposure to Import Competition and Employment Growth, by Sector

−2

−1

01

−.2 0 .2 .4 .6Change in Import Penetration, 1995−2005

Log 10 year change, Employment Fitted values

Notes: Import Penetration = Imports/Shipments + Imports - Exports


Manufacturing Jobs Exposed to Import Competition, 1979

These areas suffered declines in wages, employment, population,and increases in disability benefitsThe evidence suggests that areas worst hit by import competitionnever recover








Estimates of the Total Jobs Lost

China,

Direct

China, Add

IO Linkages

All Shocks,

Direct

All Shocks, Add

IO Linkages

All Shocks,

Add Local

Impact

Acemoglu/Autor/Dorn/Hanson, 2015 0.85 1.4 3.0

Campbell, 2016 1.6 2.7* 2.9 4.8* 10.3*

Bernie Sanders, Campaign Literature 3.0

Estimates of Total Jobs Lost Due to Trade Competition

Estimates (Millions) of Total Job Losses due to:

*Indicates that the Campbell direct estimates are combined with the AADH multipliers

Notes: Acemoglu et al. used an extremely conservative methodology tocalculate the total jobs lost.Campbell’s estimates include exchange rate movements, end of MFAquotas, and China’s accession to the WTO



China,

Direct

China, Add

IO Linkages

All Shocks,

Direct

All Shocks, Add

IO Linkages

All Shocks,

Add Local

Impact


Campbell, 2016 1.6 2.7* 2.9 4.8* 10.3*








China,

Direct

China, Add

IO Linkages

All Shocks,

Direct

All Shocks, Add

IO Linkages

All Shocks,

Add Local

Impact


Campbell, 2016 1.6 2.7* 2.9 4.8* 10.3*







The Great Employment Sag of the 2000s


Women Lost Ground in the Naughties


But, wait. It gets worse...

1 Small trade shocks probably have no aggregate jobs impact. The Feddecides aggregate employment.

2 But, rise of China, RER movements, and the Great Reserve Accumulationled to...

3 The Collapse in Manufacturing and low interest rates. Fueled the housingbubble.

4 Thanks to poor regulation, when the bubble burst, this led to the worldfinancial crisis, the Great Recession, a liquidity trap, and a slow-growthtrajectory

5 The Federal Reserve (and other central banks), have not been veryaggressive about getting the US economy back on its long-run growthpath.






























GDP Below Trend


And yet inflation below target...


In part because of ZLB, Fed has done little. Tightening without inflation


Fed Total Assets. Two years in between MP changes...


The Fed has decided the economy is sick...

2.5

3

3.5

4

4.5

Actual RGDP Growth vs. Fed's Forecasts

Actual GDP Growth

April, 2009

Forecast

April, 2010 Forecast

April, 2013



March, 2014

Forecast

March, 2015

1

1.5

2

2010 2011 2012 2013 2014 2015 2016 2017 2018

Actual GDP Growth

Dec., 2015


The recent tightening has led to another dollar appreciation...


Conclusions for Policy

1 There was massive harm from trade. But with better regulation/MP,perhaps no aggregate job losses...

2 Presidents need to intervene at times to ensure countries don’t have atrade advantage. Now the Fed is the culprit...

3 Military impact of cutting off trade with China? (Good or bad?)

4 Democratic activists need to focus on monetary policy.Need better appointees (recent choices, e.g., Lael Brainard, much betterthan early Obama-admin appointees – Dan Tarullo/Jeremy Stein/JeromePowell were disasters. How many vacant seats now?)

5 Circa 1998-2007, we should have pressured China hard to devalue. Now,China is actually propping up its own currency.

There are still plenty of issues to push China on. Mostly, these are pushingthe interests of US corporations in China – pirating, facebook in China, etc.

6 Need better trade assistance to regions which have been wrecked by tradeshocks. Create tax havens? Outmigration doesn’t “help” these areas.
























































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The 2016 Election Policy Threesome: Inequality, Trade ...dougcampbell.weebly.com/uploads/1/0/2/2/10227422/demsabroad__60... · The 2016 Election Policy Threesome: Inequality, Trade