The Custom-House

Robert Samuelson on outsourcing Washington

Robert Samuelson on outsourcing

Washington Post economic columnist Robert Samuelson talks about services oursourcing in tomorrow's paper: "The Specter of Outsourcing".

"...Cheap foreign labor has threatened individual U.S. workers but not the economy as a whole.

The reason is that imports also create gains. Despite job losses, consumers or companies gain. Lower prices boost purchasing power or profits. That creates more demand at home. Consumers can spend more; businesses can invest more. As long as the economy responds by expanding production -- and offering new things to buy -- then most job losses, even if traumatic for individuals, are temporary. Similarly, what other countries earn abroad through exports they can also spend abroad. Their imports may not initially come from the United States, but if our products remain competitive, we'll get an adequate share of global trade..."

Coordinating economic policy

Brad DeLong is reading Ron Suskind's new book on Paul O'Neill and Bush Administration policy making (The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O'Neill) and is sharing selections from the book. This post deals with administration policy making: "Why Oh Why Can't We Have a Better Press Corps? Part CCCXXIX"

The post title is misleading. This selection deals with Lawrence Lindsey and the National Economic Council (NEC). The NEC was set up by Robert Rubin at the start of the Clinton Administration to coordinate economic policy. The point of it was to provide an honest brokerage, guaranteeing all agencies that their views would get a fair hearing by the president, and making sure that the president got a fair presentation of a wide range of viewpoints.

The quotations in DeLong's post make it very clear that Bush's first Treasury Secretary, Paul O'Neill did not feel that the NEC under Lawrence Lindsey was providing him an honest brokerage service. Rubin would have worked hard to make O'Neill feel like a client, and so get him to buy into the NEC process. Lindsey worked hard to alienate, marginalize, and otherwise undercut O'Neill.

That said, there is no necessary reason for the Bush Administration to choose the Clinton Administration NEC approach to making economic policy. Other administrations have used different processes. For example, Kennedy:

"...Relied on ad hoc coordination to formulate economic policy...Kennedy created a series of ad hoc committees and relied on personal relationships among his top advisors to promote sound policy-making. As Carl Kaysen, one of President Kennedy's top international economic aides, recently put it: "President Kennedy was not a man with an organizational chart in his head. He paid no attention t organization charts. He did have, I think, a sense of what people were good for, usually accurate, not always." Kennedy created ad hoc committees in areas including housing credit, labor-management policy, and small business. For guidance on international economic issues, Kennedy relied upon the Interdepartmental committee of Undersecretaries of Foreign Economic Policy and upon Carl Kaysen, who directed a small NSC staff. Kennedy also relied on the so-called troika - the chair of the Council of Economic Advisors, the director of the Office of Management and Budget, and the secretary of the Treasury - for guidance on economic policy issues."Orzag, Orzag, and Tyson, "The Process of Economic Policy-Making During the Clinton Administration" in Frankel and Orzag, American Economic Policy in the 1990s

The NEC was a Clinton Administration innovation, and the effectiveness of the process varied through time even in that administration. Policy making and coordination will reflect the habits of the President and of the personalities of other parties involved, even if the formal institutional structure remained the same. DeLong's selections suggest that, whatever role the NEC was slated to play in this administration, it wasn't coordination.

Stocks are not a bargain...

Stocks are not a bargain...

...argues Barry L. Ritholtz at The Big Picture: "Market Cap as a % of GDP".

U.S. wants to jump start

U.S. wants to jump start Doha Round

The "Doha Round" of trade liberalization talks ground to a halt in Cancun last September. Now U.S. Trade Representative Robert Zoellick is trying to get them moving again: "U.S. Seeks Fresh Start for Stalled WTO Trade Talks".

This Financial Times column by Guy de Jonquires and Frances Williams ("Cautious welcome for move to revive trade talks") provides commentary, as does this blog post by Peter Gallagher ("US suggests new efforts on Doha Round"). Both items point to a move by the U.S. away from E.U. positions, and toward a more radical position on elimination of farm subsidies.

Brazil's initial reaction is positive, according to Terry Wade, of Dow Jones Newswires: "Brazil Reacts Positively To Zoellick's Move At WTO".

"Brazilian (news - web sites) diplomats reacted positively Monday to a U.S. proposal to revive the stalled Doha round of World Trade Organization (news - web sites) talks by apparently heeding demands of large developing nations...

...The U.S. sharply criticized Brazil for obstructing Doha talks late last year in Mexico by organizing a group of 20 developing nations to demand big changes in farm policy in Europe, the U.S. and Japan.

But the Latin American country may have ultimately forced Zoellick's hand by shoring up relations with China and India, which also led the bloc of developing nations.

The dispute over Washington's agricultural policies also has slowed U.S. attempts to forge a Free Trade Area of the Americas spanning 34 countries."

In Europe, E.U. chief trade negotiator Pascal "Lamy hails fresh US initiative to re-start stalled Doha talks". Nothing in the story about what he thinks about any U.S. change re. agricultural subsidies.

The Swiss have invited about 30 ministers to a short Doha related meeting in the course of the World Economic Summit coming up later this month in Davos: "...Mini WTO [World Trade Organization - Ben] ministerial planned on sidelines of Davos economic forum".

"In a bid to push the process forwards, Switzerland's President and Economics Minister Joseph Deiss has invited about 30 ministers to meet on the sidelines of the annual World Economic Forum (news - web sites) (WEF) in the Swiss ski resort of Davos on January 23, said a spokesman for the Swiss economics ministry.

"Federal councilor Deiss simply wanted to benefit from the presence of the trade and economy ministers to take stock of the Doha process and to look to the future about how it may possibly move forwards," explained Manuel Sager.

The so-called Doha Development Agenda has been on hold since a major meeting in Mexico last September collapsed when bickering over cross-border investment and competition added to a more fundamental row about farm subsidies in richer countries and the high tariffs on agriculture imports from developing nations..."

Treasury Secretary Paul O'Neill Brad

Treasury Secretary Paul O'Neill

Brad DeLong didn't think Paul O'Neill did a good job as Treasury Secretary. Here's a useful archive of his blog posts on O'Neill from that period: "Paul O'Neill". There are links to ten earlier posts in the following extract from the archive post:

"I was never a fan of Paul O'Neill as a Treasury Security. He never figured out how to deploy or listen to his professional staff, both making himself infinitely less effective and leading to serious personnel losses that will damage the Treasury as an institution for decades to come. He did not do a good job at marshalling opposition to the steel tariff. He did nothing to raise the level of the administration's pronouncements on economics. He let himself get rolled at the start of the administration by not drawing a line in the sand and requiring a tax cut focused on improving incentives rather than getting money to the rich. He shared the Bush administration bias against even talking to our allies. He never learned that even his most thoughtless words were taken seriously--and that he should try hard to keep from using his big mouth to amplify Brazil's economic problems. He would rather spend time touring Africa with Bono than trying to nail down AIDs funding in the budget. He never seems to have bothered to learn about monetary policy. Such rhetorical gems as his attempt to trash Bob Rubin for going to Singapore and having a falling stock price."

As a bonus, the post has long extracts from Ron Suskind's new book on Bush Administration policy making, "The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O'Neill". These deal with the organization of economic policy making in the Bush Administration, and the decision to implement the steel tariffs.

Why hasn't employment bounced back?

Why hasn't employment bounced back?

Employment levels have been slow to bounce back following the 2001 recession - they also recovered slowly from the previous recession in the 1990s. Nevertheless, unemployment has been falling. This can only be because people are opting out of the labor force.

Three posts over at Angry Bear shed light on what might be going on. First, Kash looks at the data ("The Unemployment Rate Puzzle") and finds that it is (a) men, not women, who are leaving the labor force, and (b) "more poorly educated people are working, while more college educated people are dropping out of the labor force."

Second, AB ("More Unemployment") Economists for Dean post arguing that the numbers of people on disability increased dramatically following a liberalization of disability program rules in the late 1980s and early 1990s. People on disability aren't treated as members of the labor force.

Third, Kash again ("Follow-up to the Unemployment Rate Puzzle") links the changes to long run declines in male labor force participation (there has been an increase in men staying home with children, and a trend toward earlier retirement).

"...I come to the conclusion that early retirement is a major contributor to the recent fall in the LFPR [LFPR=labor force participation rate - Ben]. Men who are well-educated are leaving the work force at a younger age than they used to. Put another way, it looks like some men who had put off retiring during 1999-2002 have decided to finally do it, and have left the labor force. Together with the disability story, I think this accounts for a large portion of the unemployment puzzle..."

If this is right, it has different implications for policy and Bush's reelection prospects than the alternative "discouraged workers" hypothesis.

Paul O'Neill speaks out The

Paul O'Neill speaks out

The CBS News website reports on Ron Suskind's new book on administration decision: "Bush Sought �Way� To Invade Iraq?". The book draws heavily on interviews with former Bush Administration Treasury Secretary Paul O'Neill (on on about 19,000 documents - including transcripts of important meetings - supplied by O'Neill). In an interview with CBS News, Suskind described a key November 2002 meeting at which decisions were made to adopt this year's tax cut:

"...Everything came to a head for O'Neill at a November 2002 meeting at the White House of the economic team.

�It's a huge meeting. You got Dick Cheney from the, you know, secure location on the video. The President is there,� says Suskind, who was given a nearly verbatim transcript by someone who attended the meeting.

He says everyone expected Mr. Bush to rubber stamp the plan under discussion: a big new tax cut. But, according to Suskind, the president was perhaps having second thoughts about cutting taxes again, and was uncharacteristically engaged.

�He asks, �Haven't we already given money to rich people? This second tax cut's gonna do it again,�� says Suskind.

�He says, �Didn�t we already, why are we doing it again?� Now, his advisers, they say, �Well Mr. President, the upper class, they're the entrepreneurs. That's the standard response.� And the president kind of goes, �OK.� That's their response. And then, he comes back to it again. �Well, shouldn't we be giving money to the middle, won't people be able to say, �You did it once, and then you did it twice, and what was it good for?�"

But according to the transcript, White House political advisor Karl Rove jumped in.

�Karl Rove is saying to the president, a kind of mantra. �Stick to principle. Stick to principle.� He says it over and over again,� says Suskind. �Don�t waver.�

In the end, the president didn't. And nine days after that meeting in which O'Neill made it clear he could not publicly support another tax cut, the vice president called and asked him to resign..."

Job growth slows in December

Job growth slows in December

Job growth slowed in December. Louis Uchitelle has the story in Saturday's New York Times: " Growth in Jobs Came to a Halt During December ".

"Job growth came to an unexpected halt in December, the Bureau of Labor Statistics reported yesterday, and rather than hunt for scarce work, tens of thousands of people disappeared from the labor force.

Most forecasters had said they thought December would be a breakthrough month for job creation, given the strengthening economy. But instead of the 150,000 new jobs they had expected, there were a minuscule 1,000. The unemployment rate dropped to 5.7 percent from 5.9 percent in November, but that was mainly because so many people chose not to look for work, a requirement to be counted as unemployed...

...there is little more the president can do to stimulate the economy, and the administration is not likely to get much more help from the Federal Reserve, which has already lowered short-term interest rates to just 1 percent. That leaves the White House waiting and hoping that the employment picture improves between now and the elections."

As Uchitelle notes, unemployment has dropped because people are dropping out of the labor force. Which people are dropping out? Kash at Angry Bear takes a look at some of the numbers in this post, and reaches a surprising conclusion: "The Unemployment Rate Puzzle".

Paul O'Neill's story We're apparently

Paul O'Neill's story

We're apparently going to get former Bush Administration Treasury Secretary Paul O'Neill's insider's view of policy making in the Bush Administration. Jonathan Wiseman has the story at the Washington Post: "O'Neill Depicts a Disengaged President".

"President Bush showed little interest in policy discussions in his first two years in the White House, leading Cabinet meetings "like a blind man in a roomful of deaf people," former Treasury secretary Paul H. O'Neill says in an upcoming book on the Bush White House...

The book will be released next week and was not available yesterday. The only on-the-record details to be had were selected quotes released by CBS from the book and from an interview with O'Neill to be aired Sunday on "60 Minutes."

The book is meant to be a chronicle of the first two years of the Bush administration and the process that shaped the president's policymaking, mostly seen through O'Neill's eyes.

According to the CBS material, O'Neill told Suskind that Bush was so inscrutable that administration officials had to devise White House policy on "little more than hunches about what the president might think."..."

What happened in Botswana?

Sub-Saharan Africa is an economic basketcase. Elsa Artadi and Xavier Sala-i-Martin reviewed sub-Saharan Africa's economic growth performance in the National Bureau of Economic Research working paper, "The Economic Tragedy of the XXth Century: Growth in Africa." As summarized by Les Picker in "The Economic Decline in Africa":