April 19, 2019

What the Rest of the World Can Learn From the Australian Economic Miracle

Rather than raise interest rates to try to prevent a falling currency, they viewed a falling currency as the key to navigating the peril — by making Australian exports more competitive in the United States and Europe, for example.

“The government was uncomfortable if the exchange rate went too low, because it looked like a sign of no confidence,” said Malcolm Edey, who was the central bank’s head of economic research at the time. “We had a good monetary framework in place, we stuck to it, and we didn’t panic when the exchange rate moved around along the way.”

Sure enough, New Zealand fell into recession in 1997 and 1998, while Australia endured only a period of subpar growth. Good policy, it turns out, has a way of creating good luck. And it wasn’t the only time.

If you had looked around the world circa 2006, you would have seen a number of countries where housing prices had soared into potential bubble territory, including the United States, Britain and Australia.

But two years later, while the United States and Britain were in a severe recession and financial crisis, Australia experienced only a single quarter of contraction. Why the difference?

The answer seems to be how the financial industries of those countries were structured and regulated. To understand that better, I sought out a tutor, one who turned out to have an unlikely background: David Morgan, a former child actor and professional Australian Rules Football player who later became one of the country’s leading bankers.

After a wave of deregulation in the 1980s, Australian banks took on ever-more-risky lending, especially for commercial real estate, and got into new business lines overseas in which they had no obvious competitive advantage. When that asset bubble popped and a recession arrived, the banks came near failure, and there was a wholesale firing of top bank executives.

Article source: https://www.nytimes.com/2019/04/06/upshot/australia-lessons-economic-miracle.html?partner=rss&emc=rss

Trump Says Fed Should Cut Rates and Lift Economy

“We are facing a worldwide slowdown. You know, recession, arguably,” Mr. Kudlow said. “Europe is not doing well. Germany itself may be in recession. That troubles us.”

Lawrence Summers, a former Treasury secretary under President Bill Clinton and the chairman of the National Economic Council under President Barack Obama, said Mr. Trump’s comments suggested the president’s “raw, total confusion” on monetary policy.

“The president publicly debating the Fed undermines confidence in our currency and our country,” Mr. Summers said in an interview. “Easing is probably premature. And if we were going to ease, the right way would be rate cuts, not bond buying.”

Mr. Trump’s selection of Mr. Moore and Mr. Cain for the Fed board is a marked shift from his previous nominations. The president has tended to tap largely conventional candidates for the seven-member Fed board, not loyalists or those with starkly contrarian views. His choice of Mr. Powell for chairman was seen as a vote for consistency on the Fed, given Mr. Powell’s approach was expected to be — and indeed has been — in line with his predecessor, Janet L. Yellen, who called for a moderate pace of rate hikes.

His three other Fed appointments have also been fairly unsurprising choices — Richard Clarida, whom he appointed as Fed vice chairman, was a Columbia University economist and a scholar in monetary policy. Randal K. Quarles, who oversees bank supervision, worked in the financial industry and at the Treasury Department in previous Republican administrations and Michelle W. Bowman was the state bank commissioner of Kansas.

Still, Mr. Trump has already faced some pushback on his Fed choices. Two of his original nominees failed to gain approval in the Senate. Nellie Liang, an economist and financial regulation expert, withdrew her name from consideration after Senate Republicans made clear they would not vote to confirm her. And Marvin Goodfriend, a professor at Carnegie Mellon University and a former monetary policy adviser to the Federal Reserve Bank of Richmond, Va., languished in the last Congress after lawmakers questioned his previous views on inflation.

Whether the Senate would confirm either Mr. Moore or Mr. Cain remains unclear. For now, most Senate Republicans have said they will wait for confirmation hearings before determining their vote.

Article source: https://www.nytimes.com/2019/04/05/business/economy/trump-fed-interest-rates.html?partner=rss&emc=rss

Modern Monetary Theory Finds an Embrace in an Unexpected Place: Wall Street

And Daniel Alpert, a managing partner of the investment bank Westwood Capital, credited the theory with preventing him from panicking that rates would soar when the Federal Reserve set off a brief “taper tantrum” in 2013 and announced it was easing its stimulus program.

Over the past couple of years, he said, the Fed tried everything — “it did a belly dance to get long-term interest rates up” — and it didn’t work.

M.M.T., Mr. Alpert said, “successfully debunks 40 years of misassumptions of how markets and public credit work.”

Progressive politicians like Senator Bernie Sanders of Vermont and Representative Alexandria Ocasio-Cortez of New York are among the most vocal supporters of M.M.T., but the theory’s appeal crosses political lines in part because it offers a narrative for a series of events that the established wisdom failed to anticipate or explain.

Big government deficits, for instance, were supposed to mop up available pools of capital and drive up interest rates, which would, in turn, elbow out private investors, damage growth and feed inflation.

But the last decade was different. When deficits soared after the recession, interest rates fell and savings rates climbed. Investors are awash in capital. The economy has been expanding, slowly, for 10 years, with unemployment and inflation rates ensconced at record-low levels.

One reason for the misjudgments may be that the economic models that confidently strode down the mainstream were hammered out in the decades after World War II, when American companies had an enormous appetite for capital investment. “We don’t live in that world anymore,” said Mr. Koo of Nomura. Today, vast fortunes shift across oceans in an instant, currencies are untethered from gold, and your local coffee shop may no longer accept cash.

Article source: https://www.nytimes.com/2019/04/05/business/economy/mmt-wall-street.html?partner=rss&emc=rss

‘Epic’ China Trade Deal Near Completion, Trump Says, but Haggling Continues

“Last week @POTUS told us he would not sign a ‘good’ trade deal with #China he would only sign a ‘great’ one,” Senator Marco Rubio, Republican of Florida, said in a Twitter post on Thursday morning. “I believe him. But to be a ‘great’ deal it must allow us to do in China what they can do in US it must have real enforcement mechanisms.”

The United States has pressed China to make commitments on purchasing American goods, opening markets to foreign business and increasing protections for foreign intellectual property in a bid to rebalance an economic relationship that Mr. Trump says is unfair for American workers. It remains to be seen how sweeping and significant any agreement will be, and whether it will achieve the lofty promises Mr. Trump has made about resetting the economic relationship with Beijing.

But the White House is also facing pressure to resolve the trade war, which has begun to hurt American farming, manufacturing and other sectors, and caused wild swings on Wall Street. Industries including automaking, technology manufacturing and farming have anxiously awaited reduced tariffs and details of a new agreement, which will have huge implications for their businesses.

The president’s tariffs have been successful at bringing the Chinese to the negotiating table, and his advisers have insisted they will not squander an opportunity to press China for substantial economic reforms that past administrations were unable to secure. Still, the Chinese have balked at making any reforms that could be viewed as infringing on their sovereignty or undercutting the Communist Party’s control of the economy.

“If you and I are making a deal, and you have to drag me kicking and screaming the whole way, what are the odds the deal is going to hold?” asked Derek Scissors, a resident scholar at the American Enterprise Institute. “I don’t find that the slightest bit convincing.”

American negotiators have pushed for an enforcement mechanism that would allow tariffs on Chinese goods to snap back if China violated the terms of the deal, and that would forbid China to retaliate. But Chinese negotiators have resisted such an idea, describing it as a potential infringement on their sovereignty.

Myron Brilliant, the executive vice president and head of international affairs at the U.S. Chamber of Commerce, said foreign stakeholders would be scrutinizing the deal to see whether it contained a strong enforcement mechanism that would hold the Chinese accountable to their obligations.

Article source: https://www.nytimes.com/2019/04/04/business/economy/trump-xi-china-trade-meeting.html?partner=rss&emc=rss

Trump Says He Wants Herman Cain, Former Pizza Executive, for Fed Board

The Fed, which raised rates for five consecutive quarters amid a roaring economy with the lowest unemployment rate in nearly two decades, has since paused its campaign. Mr. Powell has repeatedly rebuffed any suggestion that the central bank is being influenced by Mr. Trump’s broadsides, saying it is adopting a more “patient” approach to interest rates given signs of economic weakness in the United States and abroad.

With two open seats on the seven-member Fed, Mr. Trump has the ability to drastically shape the central bank for the foreseeable future. The president has already appointed four of the Fed’s current governors, who carry 14-year terms. One governor, Lael Brainard, is a holdover from the Obama administration.

The appointment and confirmation of Mr. Moore and Mr. Cain could put the Fed in uncharted territory. While the institution has strongly rooted values around technical competence and apolitical debate, Mr. Trump’s latest choices have been political actors rather than in-the-weeds experts in any of the main areas in which the Fed makes policy.

Two governors alone cannot entirely shape Fed policy, but they can have an effect on decisions. The Federal Open Market Committee, which sets interest rates, consists of 12 voting members, including the seven governors, the president of the Federal Reserve Bank of New York and four regional Federal Reserve Bank presidents, who serve one-year terms on a rotating basis. Changes to interest rates must be approved by a majority of the voting members.

Both Mr. Moore and Mr. Cain are undergoing background checks, and if nominated, must be confirmed by the Senate.

The choice of such candidates to fill two of the most powerful jobs in economic policy is raising fears among some Fed veterans that the president is installing political allies at the central bank to do his bidding.

“It’s one thing to put cronies into the executive branch, but I think the central bank is another kind of institution that it’s so critical in that it holds the reins solely to monetary policy,” said Sarah Bloom Raskin, who served on the Fed’s board of governors from 2010 to 2014. “It has the potential to undermine the credibility of monetary policy.”

Article source: https://www.nytimes.com/2019/04/04/business/herman-cain-federal-reserve.html?partner=rss&emc=rss

Trump Says ‘Epic’ China Trade Deal Is Near Completion, but Hang-Ups Remain

“Last week @POTUS told us he would not sign a ‘good’ trade deal with #China he would only sign a ‘great’ one,” Senator Marco Rubio, Republican of Florida, said in a Twitter post on Thursday morning. “I believe him. But to be a ‘great’ deal it must allow us to do in China what they can do in US it must have real enforcement mechanisms.”

The United States has pressed China to make commitments on purchasing American goods, opening markets to foreign business and increasing protections for foreign intellectual property in a bid to rebalance an economic relationship that Mr. Trump says is unfair for American workers. It remains to be seen how sweeping and significant any agreement will be, and whether it will achieve the lofty promises Mr. Trump has made about resetting the economic relationship with Beijing.

But the White House is also facing pressure to resolve the trade war, which has begun to hurt American farming, manufacturing and other sectors, and caused wild swings on Wall Street. Industries including automaking, technology manufacturing and farming have anxiously awaited reduced tariffs and details of a new agreement, which will have huge implications for their businesses.

The president’s tariffs have been successful at bringing the Chinese to the negotiating table, and his advisers have insisted they will not squander an opportunity to press China for substantial economic reforms that past administrations were unable to secure. Still, the Chinese have balked at making any reforms that could be viewed as infringing on their sovereignty or undercutting the Communist Party’s control of the economy.

“If you and I are making a deal, and you have to drag me kicking and screaming the whole way, what are the odds the deal is going to hold?” asked Derek Scissors, a resident scholar at the American Enterprise Institute. “I don’t find that the slightest bit convincing.”

American negotiators have pushed for an enforcement mechanism that would allow tariffs on Chinese goods to snap back if China violated the terms of the deal, and that would forbid China to retaliate. But Chinese negotiators have resisted such an idea, describing it as a potential infringement on their sovereignty.

Myron Brilliant, the executive vice president and head of international affairs at the U.S. Chamber of Commerce, said foreign stakeholders would be scrutinizing the deal to see whether it contained a strong enforcement mechanism that would hold the Chinese accountable to their obligations.

Article source: https://www.nytimes.com/2019/04/04/business/economy/trump-xi-china-trade-meeting.html?partner=rss&emc=rss

Short of Workers, U.S. Builders and Farmers Crave More Immigrants

Were it not for immigrants, the labor crunch would be even more intense. In 2016, immigrants accounted for one in four construction workers, according to a study by Natalia Siniavskaia of the home builders’ association, up from about one in five in 2004. In some of the least-skilled jobs — like plastering, roofing and hanging drywall, for which workers rarely have more than a high school education — the share of immigrants hovers around half.

The need for labor has set off a scramble for bodies that is spilling across industries and driving up wages. “A lot of our landscape companies are upset because their guys are coming into construction because they can earn more,” said Alan Hoffmann, who builds energy-efficient homes in Dallas.

For all the fears of robots taking over jobs, some economists are worrying about the broader economic fallout from a lack of low-skilled workers. And businesses across the economy are complaining that without immigration they will be left without a work force.

“It is good for wages to go up, but if labor is at a point where employers can’t hire, it is reducing growth,” said Pia Orrenius, an economist with the Federal Reserve Bank of Dallas. “There’s also considerable wage pressure in small towns and cities that are depopulating, but that is a sign of distress, not of rising productivity.”

The labor crunch is likely to persist for some time. The Pew Research Center projects very little growth in the working-age population over the next two decades. If the United States were to cut off the flow of new immigrants, Pew noted, its working population would shrink to 166 million in 2035 from 173 million in 2015.

Immigration has been padding the labor force for years. Over the last two decades, immigrants and their children accounted for more than half the growth of the population of 25- to 64-year-olds, according to Pew’s analysis. Over the next 20 years, they will have to plug the hole left by the retirement of the baby boom generation.

Article source: https://www.nytimes.com/2019/04/03/business/economy/immigration-labor-economy.html?partner=rss&emc=rss

America’s Biggest Economic Challenge May Be Demographic Decline

It raises the possibility that, if unchecked, these demographic trends might not merely reduce overall national growth rates in the decades ahead. They could also cause the left-behind cities to hit a point of no return that undermines the long-term economic potential of huge swaths of the United States.

The authors of the E.I.G. report suggest a potential solution: an immigration policy that would stop the vicious cycle. They propose that visas could be made available to skilled immigrants on the condition they go to one of the areas struggling with demographic decline. The idea would be to create growth in the working-age population in those places, increasing the tax base and the demand for housing, and giving businesses reason to invest.

“The real power of this is that it would start to change how investors, businesses and entrepreneurs view locational decisions,” said Mr. Lettieri, the president of the group. “They would know that there is this new pipeline for talent.”

Given hostility to immigration in large segments of the country, he said, places should be able to elect whether to make visas available to immigrants as part of an economic development strategy. It would have to be a “dual opt-in” approach in which both the community decides it wants more immigration, and individual immigrants elect to move there.

Dayton is the kind of place where that approach may just have some appeal. Ms. Whaley, the mayor, said a program called “Welcome Dayton,” intended to help immigrants move to the city, has been helpful in holding the population steady after a long pattern of losses.

Programs like that, she said, combined with a low cost of living and investment in community colleges to create qualified workers, can give smaller cities like Dayton the means to break out of demographic ruts.

Regardless of what one thinks about using immigration policy to try to arrest demographic decline, there’s a more basic point that everyone who cares about the United States’ economic future must wrestle with.

Demography may be the most powerful economic force of them all, and for much of the United States, the trend lines, for now, are pointing in the wrong direction.

Article source: https://www.nytimes.com/2019/04/03/upshot/americas-biggest-economic-challenge-may-be-demographic-decline.html?partner=rss&emc=rss

Trump Fed Pick’s Divorce Records Are Put Under Temporary Seal

Since Mr. Trump took office, Mr. Moore has pushed for lower rates. In December, angered by the fourth rate increase of the year, he called for the Fed’s chairman, Jerome H. Powell, to step down or be fired.

Mr. Trump has lauded Mr. Moore’s views on the Fed, but it is unclear whether he could win Senate confirmation.

Last year, the I.R.S. filed a lien against Mr. Moore related to the $75,000 in back taxes. Mr. Moore, in an interview last week with The New York Times, described that lien as a “huge miscalculation” by the agency.

It is unclear whether the $75,000 tax lien relates to the child- and spousal-support-payment delinquencies laid out by The Guardian.

Mr. Moore said in an interview on Thursday that, for a single tax year, he had claimed both the value of his alimony, which at the time was deductible for all divorces, and the value of his child support payments, which are not. He said the child support amounted to about $18,000, which, given his tax bracket, worked out to about $6,000 in taxes that he owed but did not pay. He blamed the error on his accountant.

But Mr. Moore said he was not simply hit with a back-tax bill. After an audit, he said, the I.R.S. deemed his return for that year “fraudulent” and disallowed other deductions. With penalties and fees, the amount came to more than $75,000, he said.

Mr. Moore said he and his current wife had tried for years to resolve the issue with the I.R.S., including dispute resolution, but had not heard from the agency in nearly two years.

Article source: https://www.nytimes.com/2019/04/01/business/economy/stephen-moore-divorce.html?partner=rss&emc=rss

U.S. Moves to Limit Wage Claims Against Chains Like McDonald’s

“This proposal will reduce uncertainty over joint employer status and clarify for workers who is responsible for their employment protections,” the labor secretary, Alexander Acosta, said in a statement.

The proposal is a sharp departure from the joint-employer criteria that the Labor Department laid out in 2016 under the Obama administration. Under those guidelines, a company like McDonald’s could be held liable for minimum-wage violations committed by a franchisee even if it did not directly supervise workers or hire and fire them. Exerting some forms of indirect control — like providing software or developing policies on which a franchisee relies — could make the larger corporation liable.

The Obama Labor Department also argued that corporations could be joint employers even without exercising control over a franchisee or contractor, simply because the smaller companies were economically dependent on them — for example, because the “upstream” company at the top of the supply chain provided facilities and handled payroll for a contractor.

The new proposal substantially restricts the situations in which a franchiser like McDonald’s would be considered liable. In an example laid out by the Labor Department, a global hotel brand would not be held liable for minimum-wage and overtime violations that a local franchisee committed, even if the franchisee relied on a variety of material provided by the hotel chain, such as sample employment applications and sample employee handbooks.

“Through this proposal, the Department of Labor has the chance to undo one of the most harmful regulatory actions from the past administration and replace it with a rule that creates certainty for America’s 733,000 franchise businesses,” Matthew Haller, a senior vice president at the International Franchise Association, said in a statement.

Article source: https://www.nytimes.com/2019/04/01/business/economy/labor-department-joint-employer.html?partner=rss&emc=rss