Romney on Free Trade and the Trade Adjustment Assistance Program

The Trade Policy section of Mitt Romney’s Believe in America argues that:

Open markets have helped make America powerful and prosperous. Indeed, they have been one of the keys to our economic success since the country was founded … Every president beginning with Ronald Reagan has recognized this and acted upon it. President Reagan signed America’s first Free Trade Agreement (FTA), with Israel in 1985. George H. W. Bush and Bill Clinton both worked to negotiate and implement the North American Free Trade Agreement (NAFTA), which went into effect in 1994. George W. Bush successfully negotiated eleven FTAs, encompassing sixteen countries … Of course, opening markets must be a two-way street. For America truly to benefit in global commerce, we need to ensure there is access for our entrepreneurs to sell their high-quality products and services. This means that agreements must protect intellectual property from those who would violate the rules of free enterprise. Too often, trade agreements do not adequately address these concerns. Even when they do, actual enforcement lags.

Romney then accuses President Obama of stalling to put forth Free Trade Agreements with 3 nations. Let’s step back from his rhetoric to correct the record on several matters. President Reagan’s track record on free trade was not as great as Mr. Romney pretends. Neither was the free trade track record of George W. Bush.

As far as the delays in putting forth the most recent Free Trade Agreements, Ron Kirk notes:

We have also been insisting that Congress include the other element of our trade package – the Trade Adjustment Assistance program, which is a safety net for workers who, through no fault of their own, may be displaced from their jobs [because of increased imports]. Congress allowed that program to expire in February, and we've been working with them on a way to get it renewed. Democrats would prefer to move on the Trade Adjustment Assistance program first. The Republicans have insisted that we move on the [free trade agreements] first and do Trade Adjustment Assistance later. We've been trying to find a way to move everything forward at the same time. That's been the holdup.

Mr. Romney notes that this may be the holdup but then criticizes the program as if it were some sort of government dole to labor unions. Protection for corporations (they are people too) but not for workers – go figure!

But let’s recall that it was President Kennedy that first proposed this program as part of the “Kennedy Round”, which proposed to sharply curtail tariffs. When Mr. Romney claims that the White House recognized the benefits of open markets in the 1980’s, he was only off by 20 years.

Believe in America Is Not Going to Create 11 Million New Jobs by 2016

Did I really hear Mitt Romney say his economic plan will create 11 million new jobs in 4 years and witness 4 percent growth per year during this period? This story confirms as much:

Republican presidential candidate Mitt Romney announced his agenda for job creation Tuesday with a bold goal at its core: 11 million new jobs during the first four years of a Romney administration ... Specifically, Romney sketched his vision that the economy would grow at 4 percent a year under his watch, if elected in 2012. That would be significantly faster growth than the 3.6 percent pace predicted recently by the Congressional Budget Office for the years 2013 to 2016 (essentially the years of the next presidential term). And many economists say that even 3.6 percent growth may be an optimistic forecast.

This may sound very ambitious to some but even if the U.S. economy witnessed this type of GDP and employment rebound, we would still be far from full employment. During each of Clinton’s two years in the White House, we saw employment grow by more than 9 million per term as real GDP growth did average about 3.6 percent per year. When Clinton became President, the employment to population ratio was 61.4 percent. It is only 58.2 percent now. Romney’s goal seems to be to get this back to around 61 percent by the end of 2016. Not exactly believing in America!

Here is the plan. Besides a lot of Obama bashing, it has the usual GOP talking points about balancing the budget as we cuts taxes, regulations, and trade barriers. Glenn Hubbard wrote the Forward, which includes this:

America needs to get its growth groove back. And getting it back is about not just incomes, but jobs as well. To bring the unemployment rate back to its pre-financial-crisis level by the end of the next president’s first term would require real GDP growth averaging 4 percent per year over that period. That is an aggressive goal, but great progress can be made.

Growth groove? Of course, he notes that the 4 percent is an “aggressive goal” without predicting that any of these 59 proposals will actually achieve this goal.

Gold and Oil

Paul Krugman has a post on gold prices.  The basic idea is that if you have Hotelling pricing of gold (price rising at the rate of interest so that it reaches a backstop level at the moment the existing supply is exhausted), a fall in interest rates implies a higher initial price (initial effect) and a flatter price path (subsequent effect).  Since interest rates are in fact falling, the expectation is that gold prices should rise in the current period but remain a lousy investment for the future, since the downside potential for interest rates is itself being depleted.  One would have to flesh out this model with some parameters to see how well it performs for gold, but what about other commodities?  In particular, what about oil?


If Hotelling pricing matters for oil, we should be seeing the same dynamic: price appreciation in the present and the prospect of slower price growth in the future.  (Or price declines if interest rates rise.)

Of course, the oil-watching community is not exactly enthusiastic about Hotelling.  For one thing, oil royalties are largely under the control of sovereign resource owners, and their motives have almost nothing to do with long run present value rent maximization.  Indeed, they may well be motivated primarily by the fragility of their control over these rents: if you are the Saudi royal family, your primary thought about oil pricing is, at what price do I maximize my family’s future control over this rent extraction machine?  In addition, uncertainties over stock and production constraints, and unforeseen fluctuations in these factors, defeat any possibility of Hotelling-type calculation.  The result is that short run supply and demand are far more important than the pure theory of exhaustible resources would suggest.

And other scarce minerals?  Is there any sign of a Hotelling price bump?

My interpretation is that Hotelling prices, like Western Civilization, falls into the category of nice ideas.