Macro Roundup

“…As long as M2 growth in Japan remains minimal, low inflation—or outright deflation—will prevail regardless of whether the public and private sectors are running savings surpluses or deficits. As Milton Friedman counseled, “Inflation is always and everywhere a monetary phenomenon.” The same is true of deflation. Money dominates. Understanding Japan and other economies requires classical monetary theory, not MMT nostrums. From 1974-84, Japan enjoyed a golden period with generally stable broad-money growth, steady real GDP growth, and low inflation. Then monetary policy was derailed by the 1985 Plaza Accord and the 1987 Louvre Accord. The Bank of Japan dropped monetary targets and began to focus on interest-rate targets. The result was Japan’s disastrous bubble from 1987-90, followed by a so-called lost decade, which has turned into a lost generation. According to the Bank of Japan, the basic idea of interest-rate targeting is that if interest rates can be pushed low enough, sooner or later companies or households will start spending. But as Irving Fisher showed a century ago, interest rates follow inflation; they don’t precede it. That is why economies experiencing high rates of inflation, like Argentina and Turkey, have high interest rates, while Japan and the eurozone have very low or even negative rates. For Japan (and the eurozone), this circle can be broken only by increasing broad-money growth. The best way to do that would be for the central bank to purchase securities from nonbank institutions such as insurance companies and pension funds, creating new deposits. But the vast bulk of the Bank of Japan’s securities purchases currently come from banks. That’s why broad-money growth in Japan remains anemic. Recent U.S. history also demonstrates the superior explanatory power of classical monetary theory. From 1971-82, M3 money-supply growth averaged 11.6% a year, while the average level of government debt was only 40.1% of GDP. This combination of rapid monetary growth and low government debt resulted in relatively high inflation. Money dominated. Today the U.S. faces the opposite: low broad-money growth with high government debt. Since 2009, M3 growth has averaged 4.5% a year, while federal, state and local government debt today is more than 100% of GDP. This combination has resulted in relatively low inflation. This is no mystery. As always, money dominates. MMT advocates would have us believe that governments can run deficits without limit as long as they are financed by securities denominated in their own currencies—at least until inflation takes off. What they fail to understand is that budget deficits have nothing to do with inflation, unless they are financed by rapid broad-money growth. Money dominates economic trends, and classical monetary theory tells us why.Beware of those peddling MMT snake oil….”

John Greenwood and Steve Hanke, "Magical Monetary Theory,"Wall Street Journal, June 4, 2019, https://www.wsj.com/articles/magical-monetary-theory-11559687814

Magical Monetary Theory

‘Modern monetary theory” is the latest craze to circulate among the chattering classes. It is a fuzzy, post-Keynesian theory that has caught on in antiausterity circles. The MMT doctrine states that fiscal deficits don’t matter as long as countries borrow in their own currencies and inflation stays in check. This is like manna from heaven for proponents of more government spending and larger fiscal deficits.

Not surprisingly, MMT has reared its head in Japan, where debt is denominated in yen, inflation is nowhere to be found, and the ratio of government debt to gross domestic product has gone to the moon. MMT advocates claim Japan provides proof for their theory, but nothing could be further from the truth.

Separate, potent forces have given rise to two seemingly strange trends in the Japanese economy: dramatic changes in the savings-investment balances in the public and private sectors, and the failure of monetary policy. MMT doesn’t explain either one.

At the outbreak of the global financial crisis in 2008, Japan’s government deficit was only 2% of GDP, while the combined corporate and household surplus amounted to 5.1%. Within a year, a massive contraction of private investment and consumption occurred in Japan. By the fourth quarter of 2009, the private-sector surplus had surged to 12% of GDP. At the same time, the government deficit exploded to 9.9% of GDP. The resulting net savings surplus has fueled capital outflows. Today, these outflows amount to 2.1% of GDP and finance a stream of Japanese foreign investment.

This pattern of large private savings surpluses offset in part by large public deficits continues. The result has been a massive increase in the size and role of the Japanese public sector. Government debt has risen from 60% of GDP in 1990 to an astounding 235% today. But contrary to MMT, this fiscal extravagance has done nothing to boost the economy.

Separate from Japan’s overall savings surpluses, its broad-money metrics have grown at a snail’s pace. Since Japan’s bubble burst in 1990-91, broad money has grown at a paltry 2.6% a year, as measured by M2. In addition, since the 1950s money velocity has been negative, decreasing at an average rate of close to 2% a year. This is one of the most striking and consistent macroeconomic relationships on record. Japan’s slow broad-money growth mixed with a contracting money velocity has held down nominal GDP growth.

Faced with a contracting money velocity, Japan would have to increase its M2 money supply at a minimum of 5% a year, which is double its trend rate, to hit its inflation target of 2% a year and reach its potential annual growth rate of 1%. In practice, inadequate M2 growth over nearly three decades, combined with a declining money velocity, has translated into average real growth of just 0.9% a year. This has put Japan into a deflationary straitjacket, with prices decreasing by an average of 0.6% a year, as measured by the GDP deflator.

As long as M2 growth in Japan remains minimal, low inflation—or outright deflation—will prevail regardless of whether the public and private sectors are running savings surpluses or deficits. As Milton Friedman counseled, “Inflation is always and everywhere a monetary phenomenon.” The same is true of deflation. Money dominates.

Understanding Japan and other economies requires classical monetary theory, not MMT nostrums. From 1974-84, Japan enjoyed a golden period with generally stable broad-money growth, steady real GDP growth, and low inflation. Then monetary policy was derailed by the 1985 Plaza Accord and the 1987 Louvre Accord. The Bank of Japan dropped monetary targets and began to focus on interest-rate targets. The result was Japan’s disastrous bubble from 1987-90, followed by a so-called lost decade, which has turned into a lost generation.

According to the Bank of Japan, the basic idea of interest-rate targeting is that if interest rates can be pushed low enough, sooner or later companies or households will start spending. But as Irving Fisher showed a century ago, interest rates follow inflation; they don’t precede it. That is why economies experiencing high rates of inflation, like Argentina and Turkey, have high interest rates, while Japan and the eurozone have very low or even negative rates.

For Japan (and the eurozone), this circle can be broken only by increasing broad-money growth. The best way to do that would be for the central bank to purchase securities from nonbank institutions such as insurance companies and pension funds, creating new deposits. But the vast bulk of the Bank of Japan’s securities purchases currently come from banks. That’s why broad-money growth in Japan remains anemic.

Recent U.S. history also demonstrates the superior explanatory power of classical monetary theory. From 1971-82, M3 money-supply growth averaged 11.6% a year, while the average level of government debt was only 40.1% of GDP. This combination of rapid monetary growth and low government debt resulted in relatively high inflation. Money dominated.

Today the U.S. faces the opposite: low broad-money growth with high government debt. Since 2009, M3 growth has averaged 4.5% a year, while federal, state and local government debt today is more than 100% of GDP. This combination has resulted in relatively low inflation. This is no mystery. As always, money dominates.

MMT advocates would have us believe that governments can run deficits without limit as long as they are financed by securities denominated in their own currencies—at least until inflation takes off. What they fail to understand is that budget deficits have nothing to do with inflation, unless they are financed by rapid broad-money growth. Money dominates economic trends, and classical monetary theory tells us why. Beware of those peddling MMT snake oil.

"...Putting it all together, the Trump tariffs have raised consumer prices, rather than depressing foreign earnings. Some revenue has been gained, but there has also been what amounts to tax avoidance as consumers turn to other, untaxed sources of what we used to import. But this tax avoidance itself comes at a cost, so the U.S. as a whole is left poorer. Now, the numbers aren’t that big. The new paper puts the net welfare loss at $1.4 billion a month, or $17 billion a year; that’s less than 0.1 percent of U.S. GDP. But winning it isn’t. And the numbers could get a lot bigger if the trade war expands, say with a “national security” tariff on European cars...."

"...COWEN: You have a paper with Venables from the mid ’90s in the QJE. I think it’s called “Globalization and the Inequality of Nations.” It’s really a paper about history. For some reason, it’s become somewhat neglected. The notion that, as transportation costs fall very low, that nations on the periphery come back at the expense of the nations in center — do you think that’s what’s happening to the world today? KRUGMAN: I think we don’t really know. Just around the corner, Branko Milanovic has his office, and Branko has the famous elephant curve that shows income growth around the world.There’s a clear transition after the late 1980s as globalization really takes off. You start to see twin peaks: the global one percent pulling away from the rest, but also the global middle — the Chinese middle class, really — experiencing rapid growth, with a trough in between, which is the working class in advanced countries.Is that actually because of globalization? Or are common factors driving both globalization? I don’t think we really know. It’s certainly a nice story.Tony Venables and I were having some fun. We were working on economic geography and realized that one way you could cast the model would be one that would give you this U-shaped behavior in which you start from a world of high transport costs with very little globalization.Reduce them some, and the world differentiates into an advanced region and a peripheral region. Then reduce them further, and the peripheral region, with its lower costs, makes a comeback. That’s a nice story. It’s probably too simple to capture what really went on.....COWEN: If you think of the international supply chains that spread across many countries — Richard Baldwin has written on this. You have yourself. Do you think we’re now in an era where those chains are, in essence, contracting or collapsing? And what is now done in China may end up being done in Mexico or NAFTA? And that will unravel? Was it all too utopian to begin with? KRUGMAN:It wasn’t utopian. It worked. It is true that global trade really soared from about 1990 to 2010 and then sort of leveled off. It does look as if it was a one-time thing, the combination of trade liberalization in emerging markets and reduced transportation and transaction costs — because it’s not just the shipping costs, but it’s the costs of getting things on and off the ships, and all that led to it. But it looks like it was a one-time surge in trade, this value-chain kind of trade. There’s some indication that there was a little bit of overreach, that businesses, in search of saving that last penny, built international logistics chains that were just too complex, too subject to delays, disruption, and that there wasn’t advantage in moving stuff back closer to home. So there probably would have been some retrenchment anyway.Now, you tell me what’s going to happen with our trade conflict. COWEN: It’s perpetual. Supply chains will contract and become more regional. KRUGMAN: But how big? How severe? First of all, even the regional stuff — I have to say that the trade policy guy in me is, in some ways, enjoying this. It’s been, historically, for a long time, a pretty boring subject. COWEN: That’s right. KRUGMAN: World trade was almost free; nothing was happening. Now, all of a sudden, not only is stuff happening, but it’s happening in unpredictable directions. Even after the 2016 election, if you had told me that we would be making nice with Mexico but in dire conflict with Canada... I have no idea how far this goes. I suspect that... Let’s put it this way. A good guess would be that the regional trading agreements are more robust in the end, just because business has so much of a stake in maintaining them. But who knows? COWEN: Given the trends in economic geography we see, the trends and evolving technologies, do you think the two American coasts will become increasingly economically important? Or will, at some point, that trend reverse itself? KRUGMAN: It really looks as if agglomeration economies have become more important. We really do see a migration of economic activity to the areas that are already rich, and that is a little interesting. There was a debate — it still goes on a bit — there was a debate 20 years ago: With the internet, distance shouldn’t matter. Why won’t people relocate to where land is cheap and there’s no traffic? It doesn’t seem to happen. There seem to be other factors that make it more, not less, desirable to locate where the action is. As far as we can tell, it’s still going in that direction. I’m a little reluctant to be sure that it continues. Ex ante, it wasn’t at all clear which way it was going to go. To the extent that we can model this at all, which is pretty limited, it seems to be there are countervailing factors. I don’t think anyone had enough insight to know that it was going to turn out that the big metropolitan areas were going to be winners rather than losers from this trend...."
Tyler Cowen and Paul Krugman, "Conversations with Tyler: Paul Krugman,"Medium, October 10, 2018, https://medium.com/conversations-with-tyler/tyler-cowen-paul-krugman-economics-bipartisanship-politics-254dcee15b98

"... But there’s a pretty good case that an all-out trade war could mean tariffs in the 30-60 percent range; that this would lead to a very large reduction in trade, maybe 70 percent; but that the overall cost to the world economy would be smaller than I think many people imagine, maybe a 2-3% reduction in world GDP.....So when a tariff drives up the price of imports to consumers, leading them to buy fewer imported goods, the welfare loss will be roughly Loss = fall in imports * ½ tariff rate Now, the U.S. currently spends 15 percent of GDP on imports. Suppose we end up with a trade-war tariff of 40 percent, and (as I’ve been suggesting) a 70 percent decline in trade. Then the welfare loss is 20% * 0.7*15, or 2.1% of GDP. That’s not a small number, but it’s not that huge either: at the bottom of the Great Recession, CBO estimates that we were operating 6 percent below potential GDP. Of course that loss was temporary, while a trade war might be forever. But these net welfare costs may miss the real point, which is disruption....The U.S. currently exports about 12 percent of GDP. Not all of that is domestic value added, because some components are imported. But there’s still a lot of the economy, maybe 9 or 10 percent, engaged in production for foreign markets. And if we have the kind of trade war I’ve been envisaging, something like 70 percent of that part of the economy - say, 9 or 10 million workers - will have to start doing something else. And there would be a multiplier effect on many communities now built around export industries, which would lose service jobs too. This is just the flip side of the “China shock” story: even if you believe that the rapid growth of Chinese exports didn’t cost the U.S. jobs on net, it changed the composition and location of employment, producing a lot of losers along the way. And the “Trump shock” that would come from a trade war would be an order of magnitude bigger...."
Paul Krugman, "Thinking About a Trade War (Very Wonkish),"New York Times, June 17, 2018, https://www.nytimes.com/2018/06/17/opinion/thinking-about-a-trade-war-very-wonkish.html

Paul Krugman, "How Goes the Trade War?,"New York Times, March 3, 2019, https://www.nytimes.com/2019/03/03/opinion/how-goes-the-trade-war.html
"....Still, I think it’s worth noting that even if we are headed for a full-scale trade war, conventional estimates of the costs of such a war don’t come anywhere near to 10 percent of GDP, or even 6 percent. In fact, it’s one of the dirty little secrets of international economics that standard estimates of the cost of protectionism, while not trivial, aren’t usually earthshaking either.....a trade war that drastically rolled back globalization wouldn’t impose costs on the economy comparable to the kinds of movement we’ve seen in stock prices. But the costs to the economy as a whole might not be a good indicator of the costs to existing corporate assets.Since about 1990 corporate America has bet heavily on hyperglobalization - on the continuance of an open-market regime that has encouraged complex value chains that sprawl across borders. The notebook on which I’m writing this was designed in California, but probably assembled in China, with many of the components coming from South Korea and Japan. Apple could produce it entirely in North America, and probably would in the face of 30 percent tariffs. But the factories it would take to do that don’t (yet) exist. Meanwhile, the factories that do exist were built to serve globalized production - and many of them would be marginalized, maybe even made worthless, by tariffs that broke up those global value chains. That is, they would become stranded assets. Call it the anti-China shock. Of course, it wouldn’t just be factories left stranded by a trade war. A lot of people would be stranded too. The point of the famous “China shock” paper by Autor et al wasn’t that rapid trade growth made America as a whole poorer, it was that rapid changes in the location of production displaced a significant number of workers, creating personal hardship and hurting their communities. The irony is that an anti-China shock would do exactly the same thing. And I, at least, care more about the impact on workers than the impact on capital...."
Paul Krugman, "Trade Wars, Stranded Assets, and the Stock Market (Wonkish),"New York Times, April 4, 2018, https://www.nytimes.com/2018/04/04/opinion/trade-wars-stranded-assets-and-the-stock-market-wonkish.html

"... where does the intuition that the costs of trade war must be higher in today’s world come from? I think it comes from the combination of two things. First, imagining a literal cutoff of imports, as opposed to a mere rise in their price; second, imagining a short run in which it’s impossible to develop domestic production to replace key inputs. Something like that combination has occurred in the past, notably in the former Communist economies after the fall of the Soviet Union. But it doesn’t seem to be where we’re going right now. That said, a trade war in a supply-chain world would cause a lot of disruption, because it would lead over time to a major restructuring of industry. This would create a lot of losers, as well as some winners, perhaps more than a trade war would have in the past. But I don’t think the notion that the total loss in real income would be bigger than conventional analysis suggests holds up. Trump’s policy moves are destructive, based on ignorance, but we shouldn’t overstate their cost...."
Paul Krugman, "Supply Chains and Trade War (Very Wonkish),"New York Times, August 10, 2018, https://www.nytimes.com/2018/08/10/opinion/supply-chains-and-trade-war-very-wonkish.html

"...What did surprise was that those in the near-miss group who persevered and continued to apply for grants after their initial failure outperformed their counterparts who had succeeded first time, as measured by the number of citations of their research that they received over the subsequent ten years. On average, they garnered, over that period, 36% more citations and published 39% more “hit” papers (those with citations in the top 5%) than their near-win counterparts....."
Economist Staff, "In science, grit counts as well as talent,"The Economist, May 11, 2019, https://www.economist.com/science-and-technology/2019/05/11/in-science-grit-counts-as-well-as-talent

apparently Tucker Carlson’s endorsed Warren’s economic plan on his show last night, just an FYI in case it comes up at the conference. it’s sort of autarky

“… Some people blame “globalization” for flat wages and American jobs shipped overseas. But globalization isn’t some mysterious force whose effects are inevitable and beyond our control. No — America chose to pursue a trade policy that prioritized the interests of capital over the interests of American workers. Germany, for example, chose a different path and participated in international trade while at the same time robustly — and successfully — supporting its domestic industries and its workers. Others blame “automation” for American job losses, especially in manufacturing. It’s a good story — robots and other new technologies made American manufacturing workers more productive, so companies needed to hire far fewer actual human beings. A good story, except it’s not really true. Recent research finds this story is based on a widely-held misunderstanding of the data on American manufacturing output, and a statistical quirk about how productivity is measured in our computer industry. There is actually no “evidence that productivity caused manufacturing’s relative and absolute employment decline” in America since the 1980s. Meanwhile, Germany has nearly five times as many robots per worker as we do and has not lost jobs overall as a result.And a lot of people blamed a supposed “skills gap” for job losses — that American workers lacked the skills or credentials they needed to fill the jobs available. Except that wasn’t true either. It was just a symptom of high unemployment rates. Companies felt comfortable demanding more skills from workers as an excuse to be more selective about which workers to hire. The truth is that Washington policies — not unstoppable market forces — are a key driver of the problems American workers face. From our trade agreements to our tax code, we have encouraged companies to invest abroad, ship jobs overseas, and keep wages low. All in the interest of serving multinational companies and international capital with no particular loyalty to the United States….”
Elizabeth Warren, “A Plan For Economic Patriotism,”Medium, June 4, 2019, https://medium.com/@teamwarren/a-plan-for-economic-patriotism-13b879f4cfc7
A Plan For Economic Patriotism

I come from a patriotic family. All three of my brothers joined the military. And I’m deeply grateful for the opportunities America has given me. But the giant “American” corporations who control our economy don’t seem to feel the same way. They certainly don’t act like it.

Sure, these companies wave the flag — but they have no loyalty or allegiance to America. Levi’s is an iconic American brand, but the company operates only 2% of its factories here. Dixon Ticonderoga — maker of the famous №2 pencil — has “moved almost all of its pencil production to Mexico and China.” And General Electric recently shut down an industrial engine factory in Wisconsin and shipped the jobs to Canada. The list goes on and on.

These “American” companies show only one real loyalty: to the short-term interests of their shareholders, a third of whom are foreign investors. If they can close up an American factory and ship jobs overseas to save a nickel, that’s exactly what they will do — abandoning loyal American workers and hollowing out American cities along the way.

Politicians love to say they care about American jobs. But for decades, those same politicians have cited “free market principles” and refused to intervene in markets on behalf of American workers. And of course, they ignore those same supposed principles and intervene regularly to protect the interests of multinational corporations and international capital.

The result? Millions of good jobs lost overseas and a generation of stagnant wages, growing inequality, and sluggish economic growth.

If Washington wants to put a stop to this, it can. If we want faster growth, stronger American industry, and more good American jobs, then our government should do what other leading nations do and act aggressively to achieve those goals instead of catering to the financial interests of companies with no particular allegiance to America.

It’s not a question of more government or less government. It’s about who government works for.

That’s why today I’m announcing that, as President, I would pursue an agenda of economic patriotism, using new and existing tools to defend and create quality American jobs and promote American industry.

My Administration will pursue fundamental, structural changes in our government’s approach to the economy, finally putting American workers and middle-class prosperity ahead of multinational profits and Wall Street bonuses.

In the weeks ahead, I’ll be releasing longer individual plans on how economic patriotism should shape our approach to specific parts of the American economy, from trade policy to Wall Street. All of these proposals will share this common vision for economic policymaking in America. Today I’m also releasing the first specific example — a plan for American manufacturing.

But first, let me explain how economic patriotism works.

An End to the Excuses

It’s time to reject the excuses we’ve heard for decades about why we can’t do more to help American workers.

Some people blame “globalization” for flat wages and American jobs shipped overseas. But globalization isn’t some mysterious force whose effects are inevitable and beyond our control. No — America chose to pursue a trade policy that prioritized the interests of capital over the interests of American workers. Germany, for example, chose a different path and participated in international trade while at the same time robustly — and successfully — supporting its domestic industries and its workers.

Others blame “automation” for American job losses, especially in manufacturing. It’s a good story — robots and other new technologies made American manufacturing workers more productive, so companies needed to hire far fewer actual human beings. A good story, except it’s not really true. Recent research finds this story is based on a widely-held misunderstanding of the data on American manufacturing output, and a statistical quirk about how productivity is measured in our computer industry. There is actually no “evidence that productivity caused manufacturing’s relative and absolute employment decline” in America since the 1980s. Meanwhile, Germany has nearly five times as many robots per worker as we do and has not lost jobsoverall as a result.

And a lot of people blamed a supposed “skills gap” for job losses — that American workers lacked the skills or credentials they needed to fill the jobs available. Except that wasn’t true either. It was just a symptom of high unemployment rates. Companies felt comfortable demanding more skills from workers as an excuse to be more selective about which workers to hire.

The truth is that Washington policies — not unstoppable market forces — are a key driver of the problems American workers face. From our trade agreements to our tax code, we have encouraged companies to invest abroad, ship jobs overseas, and keep wages low. All in the interest of serving multinational companies and international capital with no particular loyalty to the United States.

In my administration, we will stop making excuses. We will pursue aggressive new government policies to support American workers. And we will start with two major changes:

• Aggressively using all of our tools to defend and create American jobs. The prevailing view in Washington — from both political parties — has been that our government should not aggressively intervene in the markets to boost American workers. (This “rule” goes out the window when it comes to subsidizing Wall Street and multinational corporations.) We have tried that approach, and it has failed spectacularly. From our own experience and the experience of other countries, we know what types of government actions actually work to promote sustainable job growth and industrial development. It’s time to have the courage to pick up the tools we have and use them.
• Consolidating existing government programs that affect job creation into a new agency with the sole responsibility to create and defend quality, sustainable American jobs. The new Department — the Department of Economic Development — will replace the Commerce Department, subsume other agencies like the Small Business Administration and the Patent and Trademark Office, and include research and development programs, worker training programs, and export and trade authorities like the Office of the U.S. Trade Representative. The new Department will have a single goal: creating and defending good American jobs.

  Aggressive Intervention on Behalf of American Workers

  If we can aggressively intervene in markets to protect the interests of the wealthy and well-connected — as we have for decades with bailouts and subsidies — then we can damn well use all the tools at our disposal to protect the interests of American workers. That’s why we should use a variety of more aggressive tactics, including:

  • More actively managing our currency value to promote exports and domestic manufacturing. One of the most important factors in our trade deficit and our weak export levels is the value of our currency. Othercountries have actively managed the value of their currency to boost exports and develop their domestic industries. And foreign investors and central banks have driven up the value of our currency for their own benefit. We should consider a number of tools and work with other countries harmed by currency misalignment to produce a currency value that’s better for our workers and our industries.
  • Leveraging federal R&D to create domestic jobs and sustainable investments in the future. We spend only half as much as we did in the 1980s on federal research and development. Meanwhile, when American taxpayers do invest in R&D, we often see American companies take that research and use it to manufacture products overseas, like Apple did with the iPhone. The companies get rich, and American taxpayers have subsidized the creation of low-wage foreign jobs. Other countries have adopted different approaches to public R&D funding that have produced strong outcomes for the economy and for taxpayers. Learning from these approaches, my administration will substantially increase our investments in R&D, but with three critical new conditions:
  • Production stemming from federally funded research should take place in the United States. If taxpayer investments in R&D lead to new ideas and products, those products should be made here. The federal government already includes this requirement in some of its programs, but it should be a standard requirement, absent truly extraordinary circumstances.
  • Taxpayers should be able to capture the upside of their research investments if they result in profitable enterprises. Like any investor, taxpayers should get a return on the risky investments they are making in R&D. That can take various forms. Taxpayers can: get an equity stake in any company that relies on intellectual property these investments create; retain royalties on publicly funded innovation or a golden-share of the patent revenue; or require the companies benefitting from publicly funded R&D to reinvest profits back into domestic production, R&D, and worker training programs, rather than into stock buybacks.
  • R&D investments must be spread across every region of the country, not focused on only a few coastal cities. There are talented Americans in every part of the country, but too often cities and towns experience brain drain and shrink because corporations move jobs and opportunities overseas or to a small handful of American cities. We must allocate R&D funding across the country, to ensure that there are economic opportunities in every region and that funding is targeted at solving regional problems.
  • Increasing export promotion to match the efforts of our competitors.In 2017, our main export promotion agency, the Export-Import Bank, provided $200 million in total medium- and long-term financing to support American exports. China’s equivalent agency provided more than a hundred times as much support, while Germany’s agency provided more than thirty times as much support. We must spend more to boost American exports so we can level the playing field for American workers. And while historically a large chunk of the Export-Import Bank’s support has gone to a handful of big companies, our export promotion should focus more on smaller and medium-sized businesses.
  • Deploying the massive purchasing power of the federal government to create markets for American-made products. The federal government spends hundreds of billions of dollars each year to purchase goods and services. We should require whenever possible for the government to purchase American-made products, and use large federal procurement commitments as a tool to create demand for new American-made goods and to develop particular domestic industries.
  • Restructuring worker training programs to deliver real results for American workers and American companies. Nearly half of the German workforce has graduated from a post-secondary apprenticeship program, which gives people access to good jobs without a four-year college education and provides German companies with a steady stream of capable workers. We should take aggressive steps to overhaul our worker training programs so they produce better results for American workers and companies.
  • Dramatically scale up apprenticeship programs. We currently invest $200 million annually in apprenticeship programs. We should increase that tenfold and make a $20 billion commitment to apprenticeship programs for the next ten years. These efforts should bring together community colleges, technical schools, unions, and companies.
  • Institute new sectoral training programs. We should also create sectoral training programs — a model that has been successful in Wisconsin. These local or regional sector training partnerships would help align training with the local job market, leverage the community college system, and, by designing training based on an entire sector, ensure that workers gain skills that are transferable across employers.

    Economic patriotism is about using all the tools we have to boost American workers and American industries so they have the best opportunity to compete internationally. While those tools can include certain things like tariffs, our principal goal should be investing in American workers rather than diminishing our competitors. If our workers are on a level playing field, I know they can take on any challenger and win.

    The Department of Economic Development

    Our international competitors like China, Germany, and Japan develop concrete plans for promoting domestic industry and then make serious investments to achieve their goals. China’s Made in China 2025 plan aims to dominate advanced manufacturing in the coming decades using various incentives and “hundreds of billions of euros” in subsidies. Germany and Japan have also developed plans that identify long-term goals for domestic production and put real money behind achieving them.

    This is a pretty straightforward idea. But outside of the defense context, the United States has nothing remotely like it.

    Government programs that affect job creation are an afterthought, uncoordinated and scattered across the government, and submerged in larger agencies with different primary missions:

    • There are 58 programs in 11 federal agencies that provide support to American manufacturing — all of them tacked on to the primary missions at those agencies.
    • There are at least nine offices in five different agencies primarily responsible for trade policy and export promotion.
    • And there are 47 different employment and training programs spread across nine different federal agencies.

      Even worse, there are some government agencies that undermine sustainable American jobs. For example, the Office of the United States Trade Representative — whose mission is to negotiate trade deals on behalf of America — is captured by the interests of corporate executives and lobbyists. Its actions across Administrations demonstrate a deep ideological opposition to anything that might put the interests of American workers above the interests of multinational corporations or Wall Street.

      We should put all of these offices and programs in the same place, get rid of the ones that are redundant or don’t work, and bring the rogue ones to heel — to make it clear that the unified mission of the federal government is to promote sustainable, middle-class American jobs.

      That’s why I’m proposing the creation of a new agency — the Department of Economic Development — that will have the single goal of defending good-paying American jobs and creating new ones.

      The Department will be responsible for creating a National Jobs Strategy (NJS) every four years, just as countries like Germany and China produce regular strategic plans. The NJS will be a long-term plan that examines the worldwide economic environment and identifies new risks and opportunities. It will focus not just on the overall American economy, but on regional economies. It will examine trends that have disproportionate effects on rural communities and smaller cities. And it will establish clear goals for American jobs and American industry that will guide how the Department of Economic Development prioritizes its investments and direct its programs.

      Critically, all of our trade-related programs will fall within the new Department. By placing our trade programs within this new Department, we will make clear that trade policy must defend and create American jobs.

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      It’s becoming easier and easier to shift capital and jobs from one country to another. That’s why our government has to care more about defending and creating American jobs than ever before — not less. We can navigate the changes ahead if we embrace economic patriotism and make American workers our highest priority, rather than continuing to cater to the interests of companies and people with no allegiance to America.