Trump’s magical economic thinking – Simon Johnson

MIT Sloan Professor Simon Johnson

MIT Sloan Professor Simon Johnson

From Project Syndicate

Donald Trump has finally put out a detailed economic plan. Authored by Peter Navarro (an economist at the University of California-Irvine) and Wilbur Ross (an investor), the plan claims that a President Trump would boost growth and reduce the national debt. But its projections are based on assumptions so unrealistic that they seem to have come from a different planet. If the United States really did adopt Trump’s plan, the result would be an immediate and unmitigated disaster.

At the heart of the plan is a very large tax cut. The authors claim this would boost economic growth, despite the fact that similar cuts in the past (for example, under President George W. Bush) had no such effect. There is a lot of sensible evidence available on precisely this point, all of which is completely ignored.

The Trump plan concedes that the tax cut per se would reduce revenue by at least $2.6 trillion over ten years – and its authors are willing to cite the non-partisan Tax Foundation on this point. But the Trump team claims this would be offset by a growth miracle spurred by deregulation.

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Fed’s focus on ‘too big to fail’ won’t save taxpayers from next bank bailout – Oz Shy

MIT Sloan Senior Lecturer Oz Shy

MIT Sloan Senior Lecturer Oz Shy

From The Conversation

Last month, the Federal Reserve announced that 31 out of 33 U.S. banks had passed its latest “stress test,” designed to ensure that the largest financial institutions have enough capital to withstand a severe economic shock.

Passing the test amounts to being given a clean bill of health by the Fed. So are taxpayers – who were on the hook for the initial US$700 billion TARP bill to bail out the banks in 2008 – now safe?

Yes, but only until the next crisis.

Skeptics of these tests (myself included) argue that passing them will not prevent any bank (large or small) from failing, in part because they’re not stressful enough and the proposed capital requirements are not high enough.

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Resurrecting Glass-Steagall — Simon Johnson

MIT Sloan Prof. Simon Johnson

MIT Sloan Prof. Simon Johnson

From The New Times

A major shift in American politics has taken place. All three of the remaining mainstream Democratic presidential candidates now agree that the existing state of the financial sector is not satisfactory and that more change is needed. President Barack Obama has long regarded the 2010 Dodd-Frank financial-reform legislation as bringing about sufficient change. Former Secretary of State Hillary Clinton, Senator Bernie Sanders, and former Governor Martin O’Malley want to do even more.

The three leading Democratic candidates disagree, however, on whether there should be legislation to re-erect a wall between the rather dull business of ordinary commercial banking and other kinds of finance (such as issuing and trading securities, commonly known as investment banking).

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What does nuclear power cost? Old plants dispel easy answers — John Parsons

ParsonsjpegFrom The Conversation

What is the economic cost of nuclear power? That turns out to be a very difficult question to answer.

The United States and other countries have plentiful experience building and operating nuclear power plants. Currently 438 nuclear reactors with a combined capacity of 379,000 megawatts generate more than 10% of the total electricity used worldwide.

The US has the largest fleet, with 99 reactors generating almost 20% of US electricity. France has the second-largest, with 58 reactors producing 77% of its electricity. The Chinese fleet of 27 reactors generates under 3% of its electricity.

Nevertheless, there is great uncertainty about the cost of building new plants. The existing fleet in the US and most developed countries is very old, dating back to a period of intense growth in the 1960s and 1970s. In the US, the most recent construction permit for an operating reactor was issued in 1978, although completion work on a couple of stalled projects and “uprates” – capital refurbishment that increases capacity – have occurred at a number of units.

New construction fell off in other developed countries, too. The few additions made since 1990 were mostly in Japan, Korea, Eastern Europe, Russia and China.

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Trade in the real world — Jared Bernstein and Simon Johnson

MIT Sloan Prof. Simon Johnson

MIT Sloan Prof. Simon Johnson

From The Washington Post

Supporters of the Trans-Pacific Partnership (TPP), a trade agreement under negotiation between the United States and 11 other countries, make this case: Trade between countries is always good, and more trade with more countries is even better. Harvard economist Greg Mankiw goes further in a recent New York Times piece, arguing that anyone opposed to trade deals does not understand elementary economics.

The arguments made by these advocates do not match the reality of the modern world and are not helpful for thinking about what is at stake in the TPP. It’s not a question of understanding economics. It’s a question of knowing precisely what we’re agreeing to when we sign the TPP.

In the simple models of introductory textbooks, countries improve their respective economic outcomes by specializing in their “comparative advantage” — the goods they produce more efficiently than their trade partners — thereby increasing the supply of goods and lowering prices. No government subsidy is involved, nobody cheats, everyone is well-informed about the nature of the deal, and pretty much all parties come out ahead. If anyone loses their job, in those models either they get another good job or they can be fairly compensated by the people who gain extra income.

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