Globalization Initiative

Everyone knows that unemployment is high today and unlikely to fall by much soon. Yet, a longer view of the official jobs data would startle most people, including virtually everyone in the media. Nearly three years into Barack Obama’s presidency, his record on private job creation has actually been much stronger than George W. Bush’s at the same point in his first term. Whatever the public perception, the real record provides strong evidence for both the relative success of Obama’s economic program and how hard it now is for American businesses to create large numbers of new jobs — as they did once so effortlessly, and without political prodding.

Let’s go to the numbers reported by the Bureau of Labor Statistics (BLS). In the first 33 months of George W. Bush’s presidency, from February 2001 to October 2003, the number of Americans with private jobs fell by 3,054,000 or 2.74 percent. Perhaps Americans were too distracted by Osama bin Laden to pay attention, or everyone was lulled by the dependably strong job creation of the 1980s and 1990s.  Whatever the reason back then, Americans are certainly paying attention to jobs now. Yet, few seem to have noticed that Barack Obama’s jobs record has unquestionably been much better. In the first 33 months of his presidency, from February 2009 to October 2011, private sector employment fell by 723,000 jobs or 0.66 percent. That means that over the first 33 months of the two presidents’ terms, jobs were lost at more than four times the rate under Bush as under Obama. 

To be fair, new presidents shouldn’t be held responsible for job losses or job gains in the first five or six months of their administrations.  Bush’s signature tax cuts, for example, weren’t enacted until June 2001; and while Congress passed Obama’s signature stimulus program earlier in his term, it didn’t take effect for several more months. But the story is the same when we start counting up jobs without the first five months of each president’s term. The BLS reports that from July 2001 to October 2003 under Bush’s program, U.S. businesses shed 2,167,000 jobs, or about 2 percent of the workforce. Over the comparable period under Obama’s policies, from July 2009 to October 2011, American businesses added 1,890,000 jobs, expanding the workforce by 1.75 percent. In fact, private employment in Bush’s first term didn’t begin to turn around in a sustained way until March 2004, 38 months into his term. By contrast, private employment under Obama started to score gains by April and May of 2010, 14 to 15 months into his term.

The same dynamics have played out with manufacturing workers. While they have taken a beating under both presidents, they suffered much harder blows under Bush than Obama. Setting aside, once again, the first five months of each president’s term, the data show that under Bush, 2,141,000 Americans employed in producing goods lost their jobs by October 2003, a 9 percent decline. Under Obama, job losses in goods production totaled 183,000 over the comparable period, a 1.0 percent decline.

Public perceptions, especially of Obama’s record, may be skewed by the collapse of the jobs market in the months before he took office. In the final, dismal year of Bush’s second term, from February 2008 through January 2009, American businesses laid off an astonishing 5,220,000 workers, 4.5 percent of the entire private-sector workforce. Obama and the Fed managed to staunch the hemorrhaging. But the huge job losses in the year before he took office have become a political hurdle which Obama must overcome before he can take credit for putting Americans back to work.

Apart from the obvious disconnect between conventional wisdom and what actually has happened with jobs, the data also speak to certain features of the labor market and the policies we use to affect it. For example, both presidents began their terms with large fiscal stimulus programs, backed up by more stimulus from the Federal Reserve. So, the record now shows clearly that when the economy is depressed, spending stimulus has a more powerful effect on jobs than personal tax cuts.

Beyond that, why couldn’t either president restore the much stronger job creation rates of the 1990s and 1980s? Obama’s economic team can point to the long-term effects of the 2008 housing collapse and financial crisis, especially the impact of four years of falling home values on middle-class consumption. But another factor also has been at work here, one which contributed mightily to the slow job creation under both presidents, and will similarly affect the next president.

The tectonic change from strong job creation of the 1980s and 1990s to the current times is, in a word, globalization. From 1990 to 2008, the share of worldwide GDP traded across national borders jumped from 18 percent to more than 30 percent, the highest level ever recorded. Intense, new competition from all of that additional trade has made it harder for American businesses to raise their prices, as competition usually does. That’s why inflation has remained tame for more than decade, here and nearly everywhere else in the world. The problem that American employers have faced — and still do — is that certain costs have risen sharply over the same years, especially health care and energy costs. Businesses that cannot pass along higher costs in higher prices have to cut back elsewhere, and they started with jobs and wages.

One irony here is that the Obama health care reform should relieve some of the pressure on jobs, by slowing medical cost increases. The administration’s energy program, still stalled in Congress, also might slow fuel cost increases, at least over time. So, if he does win reelection in the face of high unemployment, there is a reasonable prospect of stronger job creation in his second term than in his first one — or in either of George W. Bush’s terms.

There is plenty of blame to go around for the recent debt and deficit shenanigans, but who should get the credit? I nominate George W. Bush.  Not only did his administration’s negligence secure the foundations for the financial upheavals which ultimately created much of the short-term deficit.  The role of his tax cuts in driving much of the medium term deficits is also certainly well-known.  But the last month’s budget warfare also highlights the significance of his distinctive innovation in fiscal policy:  Unlike FDR and LBJ, W established a major new entitlement – Medicare Part D prescription drug benefits for seniors – without a revenue stream to pay for it.  This unhappy innovation also helped shape the austerity plan the President signed this week.

Consider the following.  The only certain budget cuts in the deal are $915 billion in discretionary program reductions over ten years.  In fact, those cuts very nearly match the $815 billion in unfunded costs for Medicare Part D over the same period.  And Bush’s dogged resistance to paying for those benefits has now revealed the priorities of those in both parties who think we do have to pay for them.  Since those priorities dictate no new revenues for Republicans and no cuts in Part D benefits for Democrats, that leaves only the large-scale cuts in discretionary programs in this week’s deal.

But this also creates a quandary that is certain to become very prominent, very soon.   The plan says clearly that avoiding entitlements and taxes trumps everything else in the budget.  Yet, the arithmetic, both budgetary and political, says that Congress and the President cannot deal with the long-term deficits and debt without venturing deeply into both areas. So far, the Tea Party’s acolytes in both houses have vetoed any new revenues, which in turn has locked in the progressives’ veto on entitlement changes.  Yet, this week’s deal also sets up a choice down the road that will very likely isolate the Tea Party’s denizens in Congress.

The President and Harry Reid in the Senate have already vowed that unless revenues are part of the next, $1.5 trillion tranche of fiscal changes, they’re prepared to let across-the-board cuts go forward – and blame the other side.   And when that tranche of deficit reductions comes due, the Tea Party won’t have the leverage of an expiring debt limit.  Instead, progressives will have more leverage, because the across-the-board cuts would slice through the fat at the Pentagon and well into the muscle.  If history is any guide, conservative Republicans hate deep cuts in defense spending even more than they abhor tax increases.

George W. Bush never had to choose between defense and taxes, because Bill Clinton left a big budget surplus to spend.   When it ran out, W. opted for his legacy of large, structural deficits.  Ronald Reagan started out the same way, but the deep recession of 1981-1982 brought on his big deficits quickly.  And when that happened, Reagan opted repeatedly for new revenues to protect his defense spending.   Today’s Tea Party Republicans are no Reaganites:  As John Boehner discovered when he tried to cut a deal with Barack Obama that included higher revenues and limited defense cuts, Tea Party House members have been determined to avoid new revenues even if it means much less for defense.

Limited defense cuts – $350 billon over ten years – are already part of the initial round of cutbacks.  When the additional $1.5 trillion comes due, defense’s share of across-the-board cuts will draw dire predictions and protests – all with the administration’s tactical blessing.  When that happens, what can conservatives like John Boehner and Mitch McConnell do but follow Ronald Reagan’s example.  So, whatever the rightwing flank of the GOP says today, next time out Republicans will be forced to accept revenue increases.  And since Medicare is on the line with defense, Democrats will also be forced to accept some changes in entitlements.  The combination will leave the Tea Party with no choice but to howl and take their case into the 2012 elections.

Photos from yesterday's panel discussion on global and US economies with Senator Coons, Rep. Adam Smith and Shadow Foreign Secretary Douglas Alexander. Opening remarks made by Dr. Rob Shapiro, Chair of NDN's Globalization Initiative. Panel moderated by Nelson Cunningham, Chair of NDN's Latin America Policy Initiative.

Sen. Chris Coons, Rep. Adam Smith and Dr. Rob Shapiro

Nelson Cunningham, Chair of NDN's Latin America Policy Initiative moderating the panel

Rep. Adam Smith

NDN President Simon Rosenberg and Shadow Foreign Secretary Douglas Alexander

Senator Chris Coons

Foreign Shadow Secretary Douglas Alexander and Rep. Adam Smith during the panel discussion

NDN President Simon Rosenberg

Shadow Foreign Secretary Douglas Alexander

The G20 Summit for Agricultural Ministers is meeting in Paris today.  Luckily, on the East coast of the U.S. we are six hours behind Paris so there is already plenty of news.  Below are some highlights and key issues:

• FOOD SECURITY.  The main reason for this meeting is to discuss ways to combat volatile food prices and rising levels of hunger.  According to recent U.N. statistics:

  "...although the world would need to produce 70 per cent more food by 2050 to feed its population, agricultural production was expected to slow to 1.7 per cent a year in the decade to 2020."

• Increased regulation or increased production?  The main argument on how to fix the situation.

• The continued debate over using farmland for biofuels or crops; is it exacerbating rising food prices and thereby world hunger?  Or is it a necessary component of combating global warming that will actually stimulate food production by boosting agricultural investment?  This blog by Caroline Henshaw for the Wall Street Journal details the arguments on both sides.
  • (U.S. Agriculture Secretary, Tom Vilsack will be defending biofuels.)

 Some U.S. Industries on the 3FTAs:

The three free trade agreements with South Korea, Panama and Colombia are being vigorously opposed by the United Steelworkers.  Their letter to Congress can be found here.  Their position is:

"These three FTA’s will undermine our economic recovery, further decimate American manufacturing and jobs and deepen the economic insecurity and devastation faced by workers across the country."

On the other hand, major dairy groups support the measures.  The CEO of the National Corn Growers Association, Mr. Rick Tolman also spoke out in support of the FTAs, saying:

"Developing new markets for our country’s agricultural products will help our sector lead the nation in economic growth and international competitiveness.”

On globalization and health:

• Yanzhong Huang recently published an article for the Council on Foreign Relations on the globalization of food safety issues, especially as it relates to China.  Continuing on the theme, the FDA fears that spending cuts will threaten its ability to ensure food safety.

Globalization, human rights, and business:

• Ulrike Mast-Kirschning with Deutsche Welle interviewed John Ruggie, professor of international affairs at Harvard Law School and the UN secretary general’s special representative for business and human rights on his "guiding principles" for protecting human rights in a globalized economy, which the UN Human Rights Council recently endorsed.  The interview can be found here and the full text of Ruggie's guiding principles here.

According to Edward Glaeser's Bloomberg article, even in today's globalized internet age spatial proximity still matters, as evidenced by many companies moving back to the big cities despite all their electronic innovations that allow them to do so much remotely.  Glaeser's article explains why.

And finally, even baseball, long considered to be America's pastime is becoming more globalized as well.

The latest on "the rise of the rest": curbing inflation in India and China, the effort to keep IMF leadership in European hands, business ventures courting Latin American online audiences and Indonesia's globalization vision

There have recently been troublesome indications in some of the world's fastest-growing economies: rising inflation coupled with slowing growth in India and the central bank in China raising the reserve ratio for the 6th time this year to counter its own inflation problems...if there are two stories about it in the New York Times on the same day (the links to which are embedded above) it's probably worth keeping an eye on.

A new development in the race to suceed Dominique Strauss-Kahn as managing director of the IMF has further exemplified the European countries' willingness to try every tool at their disposal to keep management out of the hands of non-Europeans.  With the Bank of Israel governor and India's candidate now both removed from the running and the Mexican candidate as a self-described "long-shot candidate" behind the French favorite, it is likely that their efforts will be successful.

Portada, a leading source for Hispanic marketing and advertising news and resources, published an interesting analysis article on whether it makes sense to invest in ventures targeting global Latin American audiences. (Hint: their short answer is yes.)  For example, the rationale behind many companies' decisions to invest in such firms:

“the Hispanic and Latin American audience online has gotten to critical mass and continues to grow rapidly. It has substantial buying power but is underserved..."- Greg Sands, Managing Director of Sutter Hill Ventures, 2006

And:

...Spain’s Grupo Prisa’s Paul Westhorpe, Managing Director Global Digital Sales & Strategy, assert[ed] that by 2015 Prisa expects 70% of its digital revenues to come from the U.S Hispanic market and Latin America.

The Jakarta Globe wrote a very blunt article on Monday on why the globalization genie can't be put back in the bottle.  Below is the President of Indonesia's statement on how countries should be responding:

...the solution is for business leaders to work with government to  drive growth through innovation and push for greater economic openness.

He also expresses a need for Asian governments not to revert to short-term thinking and protectionist policies.

On modernizing policies to keep up with globalization: women's empowerment, ending protectionism, skill-building and worker protection programs

Arnab Chakraborty with India Blooms reports on U.S. Consul General Elizabeth A. Payne's belief that efforts towards women's empowerment are imperative to keep up with globalization and the challenges it brings.  Below is an excerpt from the article on the main areas of women's empowerment that she believes must be focused on:

...three prime areas demanding immediate attention as they are necessary requisites for empowering women in all spheres of society, namely – education, economic self-sufficiency and political voice.

Continuing the fight against protectionism: a new statement from India's Minister of Labour and Employment on why labor standards are no excuse for enacting protectionist trade policies (as well as India's plans for instituting programs on skill building and protection for workers)

I spent last week in Rio attending a meeting of the IMF’s advisory board for the Western Hemisphere — and returned this week to Washington for the latest round of threats and charges over raising the U.S. debt limit. The contrast was, at once, disturbing and farcical. At the IMF meeting, former finance ministers, prime ministers and other ex-economic policy officials tried to unravel the grim implications for all of us if (when) Greece, Portugal or, in the worst case, Spain is forced to default on their sovereign debts. Back in Washington, congressional Republicans laid out their terms for not driving the United States into a voluntary default on its sovereign debt. Perhaps holding onto a child-like faith that bad things don’t happen to the United States, under God, they spelled out terms which everyone knows will never be accepted by President Obama and a Democratic Senate. The irony is that the GOP gambit of holding out a potential debt default if they don’t get their way could, in itself, make long-term control over deficits much harder.

The reason lies in the powerful influence of worldwide investors on our interest rates. Thankfully, global capital markets still have confidence that our two political parties can settle this dispute on reasonable terms, and that in time the United States will regain control over its deficits and debt. We know that confidence is still there, because the interest rates and yields on U.S. Treasury bills, notes and bonds all remain near historic lows. If there were real doubts about our capacity to control long-term deficits, those interest rates would be rising as investors demanded higher returns to offset the risk that we’ll fail. This confidence makes sense, because we succeeded at the same task twice before, in the 1980s and again in the 1990s. It took several years of squabbling and compromise, but President Reagan and a Democratic House agreed to raise taxes, cut defense and reduce Medicare and Medicaid spending in the 1980s — and the same pattern played out again a decade later with President Clinton and, first, a Democratic House and then a GOP one. That combination of revenues, defense and health care was, and remains today, inevitable, since those are the only pieces of fiscal policy big enough for cuts and reforms that can make a significant difference for deficits.

But neither Reagan nor Clinton faced opponents prepared to hold the full faith and credit of the United States hostage to their own partisan approach to the deficit. To make this gambit appear respectable, House Majority Leader Cantor even claimed last week that major players on Wall Street had assured him that a U.S. default would be a matter of economic indifference. The only explanation is that Mr. Cantor, without realizing it, was talking to short-sellers getting ready to bet billions that U.S. stocks and bonds might crash — as they will if we actually do default.

Happily, worldwide investors are probably correct that the likelihood of a U.S. debt default is still very, very small. If it ever came close to that, the real players on Wall Street would face down the U.S. Congress. But cutting it close may turn out to be very expensive, too.

Let’s perform a small thought experiment. A Tea-Party infused GOP takes us to the edge of default and then pulls back. A really close call, however, would almost certainly make worldwide investors nervous. They would begin to question whether our politics truly are up to the task of dealing with our deficits, so they add a small risk premium to our interest rates. Let’s say — and this would be optimistic in this scenario — that short-term rates on Treasury bills go up one-half of a percentage-point; medium-term rates on Treasury notes rise three-quarters of a percentage-point, and long-term rates on U.S. bonds increase by 1.25 percentage-points.

Now, let’s be optimistic again and assume that Congress and the President eventually agree to cut the 2012 deficit by 10 percent — $108 billion off of the current projection of $1.081 trillion. That will leave a 2012 deficit of $973 billion to be financed. The small increases to interest rates would add about $7 billion just to the first-year interest costs of the 2012 deficit. And that’s just the beginning: All publicly-held Treasury bills also have to be refinanced in 2012 — nearly $2 trillion worth at last count. The tiny 0.50 percentage-point increase in those rates would add another $10 billion to next year’s interest costs. That comes to $17 billion in extra interest costs in just the first year, and just on publically-held debt. Those premiums would become embedded in those interest rates, adding much more to our interest costs, year after year, as additional deficits have to be financed and some $7 trillion in publicly-held Treasury notes and bonds come due for refinancing. A single refinancing of that current stock of publicly-held Treasury notes and bonds, with the new risk premiums, would add more than $50 billion, per-year, to interest costs. And the actual risk premiums demanded by global investors could be significantly higher than we assume here, and so that much more expensive.

These incremental increases in interest rates also wouldn’t be confined to U.S. Treasury rates; they would be transmitted immediately to other interest rates, from mortgages to credit cards. That means the expansion would further slow, American incomes and the government’s revenues would grow less, and, lo and behold, the deficits would be even bigger.

That’s the math. Even if congressional Republicans don’t mean it, the political games they’re playing today with a U.S. debt default, purportedly in the name of fiscal responsibility, could make U.S. deficits and debt even more unmanageable, and U.S. prosperity more problematic.

As the damage to Japan and its economy from the recent natural disasters deepens, we can begin to see serious potential aftershocks for our own economy. In certain respects, the United States relies on our broad and intricate financial and trading relationships with Japan. China has surpassed Japan as the world’s largest buyer of U.S. Treasury securities. But Japan remains the world’s largest, diversified investor in the United States, counting its large holdings of U.S. stocks, corporate debt, real estate, and plants and factories, as well as government securities. Now, in an unanticipated downside to globalization, the aftereffects of the natural disasters are beginning to disrupt the two countries’ normal financial and trading relationships. And that will create new upward pressures on U.S. interest rates, put new downward pressures on U.S. stock prices, and cause unexpected losses for many U.S. companies.

These concerns reflect the prospect that the terrible earthquake and tsunami will prove to be unusually destructive for the Japanese economy. The damage to the country’s power grid may extend the economic costs far beyond the communities directly devastated by the disasters, slowing agriculture and industrial activity across up to one-third of the country. And with the frightening news that Tokyo’s water supply contain radioactive iodine dangerous to infants, the radiation from crippled nuclear power facilities could bring economic activity to a halt in much more of the country, and for some time to come.

If this comes to pass, the aftershocks for the U.S. economy could be quite serious. The disaster and its disruptions for the Japanese economy have already begun to cut into the earnings and incomes of Japanese companies and citizens. To cover rising debts and other unexpected expenses, Japanese investors have been converting some of their foreign assets to yen, and then bringing those yen back home. Most of these liquidations involve American assets: Japanese investors hold some $211 billion in U.S. stocks and another $134 billion in U.S. corporate debt. Moreover, if the earnings of Japanese companies and the incomes of Japanese investors continue to shrink with the crisis, private saving in Japan will fall — and that’s just as Japan’s budget deficit soars. The result will be that most of the savings that Japanese companies and individuals manage to accumulate will go to finance their own government’s deficits, not to buy our assets. And if the crisis deepens and persists, rising outflows of Japanese holdings will depress U.S. stock prices and raise the interest costs for U.S. corporate borrowers.

The largest Japanese investor in the United States, of course, is the government in Tokyo, which holds some $1 trillion in U.S. government securities. As a long crisis drives up government spending in Japan and drives down revenues, a budget deficit already equal to over 8 percent of the country’s GDP will rise sharply. At a minimum, Japanese government purchases of U.S. Treasury securities will dry up. And if the crisis worsens, Japan may become a major seller of U.S. government securities. This will put considerable pressure on U.S. interest rates, potentially increasing our own deficit (through higher interest costs), and almost certainly slowing our economy.

The potential problems are not limited to finance. Japan accounts for about 5 percent of U.S. exports; and major exporters will feel the pinch. Those likely to feel it first include makers of aircraft and their parts, medical equipment, pharmaceuticals, and computers. It’s not all bad news for U.S. exporters, because the current strong yen tied to Japanese investors cashing out some of their foreign financial assets will leave Japanese producers less competitive in other markets. More grimly, while U.S. exports of foodstuffs also are taking an early hit; U.S. food producers will step into the breach if more of Japan’s domestic food supply becomes contaminated.

The potential costs for the U.S. economy also include disruptions in U.S. supply chains that involve Japan. With holdings of $260 billion in U.S. industrial and commercial operations, Japan is the second largest foreign direct investor in the U.S. economy, just behind Britain. Sony, Toyota, Honda and other large Japanese enterprises operate here to serve the American market; but they still produce most of their most sophisticated parts in Japan. Japanese production of many of those parts already is disrupted. If conditions worsen, it will cost U.S. jobs as Japanese production and assembly here slows or even stops. And by the way, American companies are also the largest foreign direct investor in Japan, so a deepening crisis in Japan also will reduce the earnings of U.S. businesses operating there.

The United States is not the only economy exposed to economic aftershocks from the Japanese earthquake and tsunami. Japan is the largest foreign direct investor in China, having transferred a good part of its manufacturing base there over the last decade. Unlike U.S. companies which have invested in China mainly to serve the Chinese and third-country markets in Asia, Japanese enterprises in China produce mainly for the home, Japanese market. The sharp downturn already beginning to unfold in Japan, then, will cost China jobs and growth, especially in southern China.

In the end, it’s the American economy that is most interconnected with Japan’s, so the United States is most exposed to collateral economic damage from the recent, terrible natural disasters.

The Arizona Daily Star has an article up on new Census data which shows a huge growth in the Hispanic Population in Arizona over the last ten years. The full post can be seen here:

Census figures show Arizona's Hispanic population grew by more than 46 percent between 2000 and 2010.

Hispanics now make up nearly 30 percent of the state's residents, up from slightly more than 25 percent during the 2000 census. That's slightly below earlier estimates.

The state's white population fell to less than 60 percent, down from 65 percent in 2000.

The U.S. Census Bureau counted 6.39 million Arizonans last year, up from 5.13 million in 2000.

Hispanics made up 1.89 million of the population, up from 1.29 million a decade earlier. The state's white population grew from 3.38 million to 3.75 million, but its 14 percent growth rate failed to keep up with the

The census does not tally citizenship.

On Monday, March 14th, at 12:30pm ET, NDN and the New Policy Institute will host a speech by the Colombian Ambassador to the United States, Gabriel Silva.  Mr. Silva, who first served as Ambassador to the United States from 1993-94, will discuss U.S.-Colombia relations and how Colombia is changing under President Santos.

Under the administration of President Santos, Colombia is forging a new path to prosperity, with policies promoting economic growth, national unity and social development. President Santos has also enacted reforms to protect human rights and provide relief to victims of violence.  Ambassador Silva will address topics such as the importance the importance of the extension of The Andean Trade Preferences, the U.S.-Colombia free trade agreement, Colombia’s role in sharing lessons in security, and new areas of cooperation such as energy and the environment.

The Latin America Policy Initiative (LAPI) is excited about this event and we hope that you will be able to join us.  Please be sure to RSVP now.