Welcome to week 285! The articles below caught my attention this week. Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********). The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.
(29 September 2016): “More Wealth, More Jobs, but Not for Everyone: What Fuels the Backlash on Trade” (http://www.nytimes.com/2016/09/29/business/economy/more-wealth-more-jobs-but-not-for-everyone-what-fuels-the-backlash-on-trade.html)
——–“For generations, libraries full of economics textbooks have rightly promised that global trade expands national wealth by lowering the price of goods, lifting wages and amplifying growth. . . . But trade comes with no assurances that the spoils will be shared equitably. Across much of the industrialized world, an outsize share of the winnings has been harvested by people with advanced degrees, stock options and the need for accountants. Ordinary laborers have borne the costs and suffered from joblessness and deepening economic anxiety. These costs have proved overwhelming in communities that depend on industry for sustenance, vastly exceeding what economists anticipated.” Tapping “into the rage of communities reeling from factory closings,” Donald Trump has denounced “trade with China and Mexico” and Hillary Clinton has opposed a free-trade deal “she supported while secretary of state.”
********This lengthy article points clearly to some of the undesirable, possibly unforeseen, consequences of freer trade. It is true, as noted in the article, that few economists have the knowledge or take the time to develop the job-related consequences of expanded trade at a local or regional level, relying instead upon general reasoning based on highly polished general principles. As the article also points out, the disruptions in the U.S. that resulted from freer trade could have been dealt with far better than they were. The erosion of social safety nets over recent decades in the guise of a smaller federal government have ensured that those most disadvantaged by trade have not had the resources and support to adapt to the new trading environment.
********Here is a passage in the article that stood out for me: “The beneficiaries of this surge [in trade with China] include anyone who has bought practically anything touched by human hands . . . The casualties of China’s exports are far fewer, but they are concentrated.” This notion of diffuse benefits and concentrated costs is a familiar one in economics, although it is usually presented in the context of concentrated benefits and diffuse costs. In the latter case, when benefits from an action are concentrated, those who will benefit from them will be willing to spend a lot to enable it but those who will not benefit will be willing to spend little to avoid it. The difference between the two cases, though, is that things will not go back to the way they were if trade were to be reduced or cease.
(29 September 2016): “A Growth-Friendly Climate Change Proposal” [SR](http://www.wsj.com/articles/a-growth-friendly-climate-change-proposal-1475079939)
——–Polarized politics in Washington, D.C. have made it hard to “reconcile two divergent priorities: climate change and economic growth. Across the country, however, voters are being offered a plan that does just that. In November, Washington state will vote on the country’s first revenue-neutral carbon tax. By embedding the cost of carbon dioxide emissions in the price consumers and businesses pay for energy, such a tax automatically encourages conservation and makes renewable energy more appealing, without regulations and subsidies that distort investment and undercut growth. Because the revenue is use to cut other taxes, it doesn’t crimp incomes or undermine business competitiveness. In environmentally conscientious Washington state, Initiative 732, as the ballot initiative is known, ought to be a slam-dunk. It isn’t—a poll shows voters roughly split. The reasons are a window into why climate policy is so polarizing.”
———Initiative 732 “is modeled on a similar levy introduced in British Columbia in 2008.” Surprisingly, resistance to it has been coming from the left, not the right as is more common. The reasons for the resistance are multiple, “But the main reason is that I-732 sends its revenue back to taxpayers, whereas environmentalists would like the revenue for other priorities.” For example, “The Washington Environmental Council, which doesn’t support I-732, says revenue from any climate initiative should be plowed into the ‘clean energy economy . . . infrastructure for clean, abundant water and healthy forests’ and assistance for ‘the most vulnerable workers and communities.’ Rather than compromise, other climate activists have sought to oust their political opponents—usually Republican.”
********You can learn a good deal more about I-732, with background, design, and the exact text of the measure, at: https://ballotpedia.org/Washington_Carbon_Emission_Tax_and_Sales_Tax_Reduction,_Initiative_732_(2016). A simple search on “I-732” will identify a lot of interesting articles, including the names of a number of environmental groups advocating different positions on the measure. The site Ballotpedia: The Encyclopedia of American Politics (https://ballotpedia.org/Main_Page) looks like one to remember.
********This situation reminded me of the quotation “Politics is the art of the possible,” which is attributed to Otto von Bismarck. Evidently this is a fragment of the original statement (in German), which is: “Politics is the art of the possible, the attainable—the art of the next best” (https://www.quora.com/What-do-people-think-about-the-saying-politics-is-an-art-of-compromise-by-Otto-Von-Bismarck). You can learn more about Bismarck at: https://en.wikiquote.org/wiki/Otto_von_Bismarck. Bismarck was very quotable.
(29 September 2016): “Why so many of America’s sushi restaurants are owned by Chinese immigrants” (https://www.washingtonpost.com/news/wonk/wp/2016/09/29/the-fascinating-story-behind-who-opens-sushi-restaurants-and-why/)
——–“From Ames, Iowa, to Lancaster, Pa., Chinese Americans have opened many of the sushi joints that dot suburban malls and city blocks across the country. It’s the result of what experts describe as a striking convergence between U.S. ethnic-food preferences and the economic pressure facing a new wave of Chinese immigrants, whose population in the United States has tripled in the past 25 years.” According to those who have studied “the outsize role of Chinese Americans in the Japanese food business, . . . The influx of low-wage Chinese immigrants . . . has created fierce competition to provide cheap food. At the same time, Japan’s wealth and economic success helped its cuisine gain a reputation as trendy and refined. So for many entrepreneurial Chinese immigrants looking to get ahead, Japanese food has often become the better opportunity.” As noted by Krishnendu Ray, who heads NYU’s food studies program, “Chinese entrepreneurs have figured out that this is a way to make a slightly better living and get out of the . . . world of $10, $5 food at the bottom end of the market.”
********A past Japanese Ministry of Agriculture estimate found that “only about a tenth of Japanese restaurants in the States were run by people of Japanese descent.” The article provides average meal price data for a variety of cuisines, with Japanese near the top (surpassed by French) at $62.73 and Chinese near the bottom at $32.78; Thai food was at the bottom. I found interesting the point made by Krishnendu Ray, that “Foods we associate with poor immigrants tend to be cheap, and we are generally not willing to pay a higher price for it.” Also useful to see is the meal price distribution of Chinese and Japanese cuisines, which is astonishing. Although the ingredients of Japanese cuisine may be costlier than Chinese, it is easy to see why a Chinese restauranteur choosing to focus of Japanese cuisine.
(1 October 2016): “Why Deep Learning is Suddenly Changing Your Life” (http://fortune.com/ai-artificial-intelligence-deep-machine-learning/)
********This lengthy article provides something of a primer of the “deep-learning revolution” that is overtaking modern life. At the root of this revolution is “a family of artificial intelligence (AI) techniques popularly known as deep learning, though most scientists still prefer to call them by their original academic designation: deep neural networks.” Although neural nets aren’t new, “What’s changed is that today computer scientists have finally harnessed both the vast computational power and the enormous storehouses of data . . . that, it turns out, are essential to making neural nets work well.” As an example of scope of the changes underway, “Google had two deep-learning projects underway in 2012. Today it is pursuing more than 1,000, according to a spokesperson, in all its major product sectors, including search, Android Gmail, translation, maps, YouTube, and self-driving cars.”
********Self-driving cars, of course, are much in the news. I found it interesting that the 7th episode—“Driven”—of the 7th season of the TV show “The Good Wife” was devoted to the topic. In doing so, it provides a clear discussion of the deep learning involved in such cars, as well as some potential problems.
(1 October 2016): “Anti-globalists: Why they’re wrong” (http://www.economist.com/news/leaders/21707926-globalisations-critics-say-it-benefits-only-elite-fact-less-open-world-would-hurt)
——–The advocacy of free-trade has a lengthy history. “In September 1843 the Liverpool Mercury reported on a large free-trade rally in the city. . . . John Bright, a newly elected MP, spoke eloquently on the merits of abolishing duties on imported food, echoing arguments made in The Economist, a fledgling newspaper. . . . His speech in Liverpool was roundly cheered. It is hard to imagine, 173 years later, a leading Western politician being lauded for a defence of free trade. Neither candidate in America’s presidential election is a champion. Donald Trump, incoherent on so many fronts, is clear in this area: unfair competition from foreigners has destroyed jobs at home. He threatens to dismantle the North American Free Trade Agreement, withdraw from the Trans-Pacific Partnership (TPP) and start a trade war with China. To her discredit, Hillary Clinton now denounces the TPP, a pact she helped negotiate. . . . The backlash against trade is just one symptom of a pervasive anxiety about the effects of open economies. . . . But there is a world of difference between improving globalization and reversing it. The idea that globalisation is a scam that benefits only corporations and the rich could scarcely be more wrong.”
********This article is one of the leaders for the week. It provides an introduction, of sorts, for the subsequent Special Report: The World Economy, contained in the issue. You can access the various parts of the Report at: http://www.economist.com/printedition/2016-10-01. Trade is one of two elements of the modern economic world that is being increasingly challenged in recent years. The other is limited liability company, a brief discussion of which is presented in “Schumpeter: Don’t limit the revolution” (http://www.economist.com/news/business/21707938-all-its-virtues-limited-liability-continues-provoke-criticism-dont-limit-revolution). The soon-to-be-released Limited Liability: A Legal and Economic Analysis (https://www.amazon.com/Limited-Liability-Legal-Economic-Analysis/dp/1783473029), by Stephen M. Bainbridge and M. Todd Henderson, provides a “comprehensive economic analysis of the policy debate surrounding the laws governing limited liability.”
May you have a good week!