Year: 2013

For a global perspective on military expenditures, my go-to source is the Stockholm International Peace Research Institute. In their recent \”Fact Sheet,\”  Sam Perlo-Freeman, Elisabeth Sköns, Carina Solmirano and Helén Wilandh review \”Trends in World Military Expenditure, 2012.\”

One theme of the report is that global military spending dropped by half of 1% or so in 2012. But at least to my eye, the recent leveling out of military spending in a time of considerable economic stress around the world catches my eye less than how global military spending sagged from the late 1980s to the late 1990s, and the rebounded over the following decade. Some of this recent rise , of course, is higher U.S. military spending in the aftermath of the terrorist attacks of September 11, 2001. But in a more global perspective, it\’s also a rise in Chinese and Russian military spending.

The U.S accounts for 39% of global military expenditures, by far the highest of any country. The list below of the top 15 countries for military spending includes about 80% of all global military spending. U.S. military spending is about as much as the next 10 countries on the list, combined. In addition, while countries around the world on average spent 2.5% of GDP on the military in 2012, the U.S. military spending in 2012 was 4.4% of GDP.

But look at some of the countries in the top 15 in military spending: China at #2, Russia at #3, Japan at #5, Saudi Arabia at #7, India at #8, Brazil at #11. The regional patterns of military spending do seem to be shifting, albeit slowly. In the last few years, military spending is down in North American and western Europe, but up in many other regions. Military spending in Asia overtook that of western and central Europe a few years ago, and the gap is widening.

As I have confessed before on this blog, I have no particular expertise in global military and geopolitical issues. When political candidates argue over whether the U.S. should strive for a capability to fight two wars at a time, one-and-a-half wars at a time, or one war at a time, and what level of spending is appropriate in each case, I am out of my depth. But I can read a trendline.
After the disintegration of the Soviet Union in the early 1990s, the U.S. Was by far the preeminent military power in the world, but as countries like China, India, and Brazil continue their rapid economic growth, this U.S. military advantage will surely diminish. Moreover, while the ability of the U.S. military to win a set battle remains largely unchallenged, the ability of the U.S. to achieve its broader geo-strategic goals through a strategy based heavily on military force is certainly in question.

I was struck some commentsw that Henry Kissinger, no shrinking violet when it came to the application of force, gave in an interview last fall. Kissinger said:

\”I have seen and been involved in four wars that we started with great enthusiasm, and which turned into a debate about the speed of withdrawal—with no other outcome. We must develop a policy where, if we engage ourselves, we prevail. This means a revision of our military strategy, which has so far been based on physically stopping aggression by overwhelming it. It got us into a position where the enemy could control the pace of operations, and the length of the war. We have to develop a peripheral strategy. When the British fought Napoleon, they did not go into the continent of Europe. The strategy in Spain drained France without putting Britain into a position where it was risking its cohesion and its capabilities. I think we need a strategic concept of that nature.\”

Something tells me that my own sense of appropriate U.S. geo-strategic goals would not necessarily align closely with those of Henry Kissinger. But the idea of \”peripheral strategy,\” in which potential conflicts are shaped and managed and defused by methods that do not require \”physically stopping aggression by overwhelming it,\” seems important to pursue. 

Not that long ago, it seemed as if there was an emerging consensus among economists and central bankers that the goal of monetary policy should be \”inflation targeting\”–that is, aiming at a low and steady inflation rate in range of about 2% per year. In the aftermath of the Great Recession, this consensus has, if not shattered, at least taken a severe hit. In an e-book  Lucrezia Reichlin and Richard Baldwin have just edited an e-book called \”Is inflation targeting dead? Central Banking After the Crisis,\” published by VoxEU, with 14 short and readable essays on the question. 

In their introduction, Reichlin and Baldwin point out that when it comes to talking about the Great Recession, \”inflation targeting is cast alternatively as perpetrator, innocent bystander, or saviour.
• Perpetrator: Inflation targeting made monetary policy too easy before the Crisis and
insufficiently so since. It helped build the Crisis in the 2000s and today hinders the
clean-up.
• Bystander: The regime was like a coastal schooner finding itself in the path of Hurricane
Sandy. Inflation targeting was developed during ‘the Great Moderation’. No
one ever claimed it was robust enough to deal with a five-year sequence of once-in-a-
lifetime crises.
• Saviour: Things would have been much worse without inflation targeting’s anchoring
of expectations.\”

They argue that while inflation targeting in a narrow sense was clearly abandoned in 2008, a broader notion of inflation targeting  has an important role to play going forward, because it offers a clear framework for limiting the temptation of politicians to print money. They write:

\”Inflation targeting is alive and well. It is needed now more than ever. Inflation expectations will need to be kept anchored while the advanced economies work the debt-laden economic malaise. The debt creates temptations for governments to bail out debtors with unexpected inflation. Inflation targets and central-bank independence are the conventional ways of keeping politicians away from the printing presses. Central banks’ balance-sheet expansion and even permanent money creation are all options that can be used and considered but if there is any chance they will succeed, the credibility
of the commitment to a medium-run inflation target should not be lost. The questions remain on the effectiveness of such policies and, given their quasi-fiscal nature, on how to deal with the challenge they represent to central bank independence.\”

The eminent Michael Woodford contributes an essay called: \”Inflation targeting: Fix it, don’t scrap it.\” He writes:

\”It is important, first of all, to recognise that proponents of inflation targeting do not actually have in mind a commitment by the central bank to base policy decisions purely on their consequences for inflation, and to act so as to keep the inflation rate as close as possible to the target rate at all times. Mervyn King (1997) memorably referred to this as the ‘inflation nutter’ position, and distinguished the ‘flexible’ inflation targeting that he advocated from it …  And the theoretical case for inflation targeting has never rested on an assertion that a single-minded focus on inflation stabilisation would achieve the best outcome … Quantitative investigations of optimal monetary policy in a variety of structural models and under varying assumptions about parameters and shocks have instead found as a much more robust conclusion that optimal monetary policies involve a low long-run average rate of inflation, and fluctuations in the inflation rate that are not too persistent …

And indeed, there are important advantages for real stabilisation objectives of maintaining confidence that the medium-run inflation outlook is not changed much when shocks occur. For example, …if changes in the rate of inflation were expected to be highly persistent, it would be much more difficult for monetary policy to have an effect on real variables as opposed to simply affecting inflation. …

I thus believe that it would be possible to avoid the problems with inflation targeting as currently practised, that have been the focus of recent criticism of inflation targeting as such, while retaining the essential features of an inflation targeting regime: not only a public commitment to a fixed numerical target for the medium-run rate of inflation, and a commitment to regularly explain how policy decisions are consistent with that commitment, but the use of a forecast-targeting procedure as the basis both for monetary-policy deliberations and for communication with the public about the bank’s decisions and their justification. And I believe that it would be desirable to retain these
features of inflation targeting as it has developed over the past two decades.\”

I can\’t do justice to the volume in a blog post, but one theme that comes up in several of the papers is that some of the arguments for  inflation-targeting seem to assume that it has slowed down and limited the responses of central banks, and that an alternative monetary framework like targeting nominal GDP would have justified an even more aggressive monetary policy with more powerful results. Several of the authors are skeptical of this claim. Adam Posen makes the point that if the nontraditional tools of monetary policy (like quantitative easing and a \”forward guidance\” policy of announcing that interest rates will remain low for several years) are not effective, then it doesn\’t matter what framework you claim to be using. Posen writes:

\”Talk about alternatives to inflation targeting is, to me, a result of frustration – the lack of recovery despite massive monetary-policy shifts. But to my mind, the frustration is misdirected. Sifting a central bank’s target from inflation to nominal GDP in no way changes the effectiveness of policy instruments. Either quantitative easing works through the channel of promoting confidence, promoting asset prices, promoting aggregate demand and reallocation of the riskier assets, like all monetary policy, or it does not. If it does not do that, then it does not do that for nominal GDP any more than it does for inflation. The fact is we could have pursued more aggressive monetary policy, achieved better goals and been totally consistent with the current inflation target. There is no need to incur all the risks, dangers, and confusion of switching regimes – especially not to a regime like nominal-GDP targeting, which lacks inflation targeting’s robustness.\”

To me, one of the biggest surprises about the policies of the Federal Reserve since 2008 or so is how little effect they have had in stimulating nominal GDP growth–whether inflationary or real.

The ZIP code turns 50 this year, and the U.S. Postal Service Office of Inspector General has published a research paper (RARC-WP-13-006) to tell \”The Untold Story of the ZIP Code.\”

The ZIP code greatly helped the automation and efficiency of mail delivery: before the code, a typical piece of mail needed to sorted and handled by 8-10 pairs of hands. But  in addition, the ZIP code is an open source product for organizing data by geography. The report notes:

\”The ZIP Code was established as an open use product publicly accessible from the outset. In fact, the Postal Service only filed a trademark for the “ZIP Code” name in 1973 The openness of the ZIP Code as a platform for economic activity is part of the reason for its immense success far beyond its initial conception. Unlike most commodities, the ZIP Code is not rivalrous; use by one party does not exclude its use by any other. The Post Office took no steps to make the ZIP Code exclusive but rather provided it as a public good for use by any party, free of charge. … \”

\”Other organizations and businesses soon realized the ZIP Code possessed an elegant simplicity for efficiently organizing data by geography. The U.S. Census Bureau, for example, uses the ZIP Code to organize its statistics. Other industries, like real estate and target marketing companies, redefined the way they do business by basing their informational structure on the ZIP Code. The ZIP Code is solicited or used in a variety of transactions, such as buying gas with a credit card at an automated pump. Today, a ZIP Code and physical mailing address are widely recognized attributes of an individual’s identity.\”

The study estimates an economic value on the ZIP code of about $10  billion per year. The summary chart looks like this:

 How might the ZIP code be extended in the future? The report offers two main suggestions. One is that ZIP codes could be linked with geocodes. \”Geocoding is the process of associating precise geographic latitude and longitude coordinates with physical addresses, including street addresses and ZIP Code boundaries.\” This is already done in the UK. Adding geocodes would help the Post Office to plan faster and more efficient delivery patterns–and would also help private sector firms that do lots of shipping and deliveries. In addition, detailed geocoding of zip codes could include local features of terrain, or be used to track weather or disease. The other main change would be to link ZIP codes with demographic data. The report envisions that people could opt into a system where they provide data to the post office, which would allow better targeting of advertising. But in addition, one suspects that if geocodes and demographic information were linked with ZIP codes, clever innovators would find ways to use that data in ways that are beyond our current imagination.

Finally, the report suggests in comments here and there that the development of ZIP codes might also assist economic development around the world. The report notes: \”Current estimates show as many as 4 billion people worldwide are unaddressed and approximately sixty Universal Postal Union countries have no postal code system. …  There is strong evidence that implementing addressing systems in impoverished neighborhoods can actually increase the overall quality of life by allowing basic infrastructure, such as electricity, water, communication, and government services to be delivered to the area. This was seen in the slums of Calcutta, for example, where spray-painting unique addressing numbers on houses yielded significant positive effects on overall quality of life in the city’s neighborhoods. This effort has allowed the local government to organize the delivery of water and electrical utilities to the slums and residents now have the legal identities required to apply for bank accounts and jobs.\”

Mr. Zip, who was introduced as a symbol of the postal service at the same time as the ZIP code, has also turned 50.

Back in 2008 and 2009, I believe that there was a genuine risk of an international economic meltdown that could have been far worse than the grievous recess that actually occurred. (For some graphs that vividly illustrate the financial crisis, see here and here.) The nontraditional policies of the Federal Reserve and other central banks around that time–not just the reduction in the federal funds interest rate to near-zero, but also setting up a wide array of short-term lending facilities and the \”quantitative easing\” policy of buying financial assets–may well have limited the economic crisis from getting much worse. But that said, the recession ended back in June 2009, and I have my doubts that central banks should be continuing to maintain rock-bottom interest rates and continuing to buy financial assets for years into the future.  The question \”Do Central Bank Policies Since the Crisis Carry Risks to Financial Stability?\” is investigated in the Chapter 3 of the April 2013 issue of the Global Financial Stability Report, published by the IMF. Here\’s their summary:

\”[T]he interest rate and unconventional policies conducted by the central banks of four major regions (the euro area, Japan, the United Kingdom, and the United States) appear indeed to have lessened vulnerabilities in the domestic banking sector and contributed to financial stability in the short term. Th e prolonged period of low interest rates and central bank asset purchases has improved some indicators of bank soundness. Central bank intervention mitigated dysfunction in targeted markets, and large-scale purchases of government bonds have in general not harmed market liquidity. Policymakers should be alert to the possibility, however, that financial stability risks may be shifting to other parts of the financial system, such as shadow banks, pension funds, and insurance companies. … Despite their positive short-term effects for banks, these central bank policies are associated with financial risks that are likely to increase the longer the policies are maintained. The current environment shows signs of delaying balance sheet repair in banks and could raise credit risk over the medium term. … Central banks also face challenges in eventually exiting markets in which they have intervened heavily, including the interbank market; policy missteps during an exit could affect participants’ expectations and market functioning, possibly leading to sharp price changes.\”

One example of these potential stresses involves the money market mutual fund industry. Rock-bottom interest rates make these funds less attractive to investors, so the funds are shrinking. As a result, some of these funds are testing the limits of what regulators will allow by trying to take greater risk. A gradual reduction in the assets in money market funds is not a macroeconomic problem, but if shrinking funds and higher risks metamorphosize into a run on these funds, it could be a problem. Here\’s the report:

\”With interest rates remaining near zero in the maturities at which MMMFs [money market mutual funds] are permitted to invest, these institutions are experiencing very low (in some cases zero or negative) returns that in many cases fail to cover the costs of fund management. As a consequence, U.S. MMMFs have raised credit risk modestly (within the confines of regulatory restrictions), engaged in more overnight securities lending, granted fee waivers, and turned away new money. The fundamental problem is that to become profitable the MMMF industry needs to shrink further, and the risk is that it may do so in a disorderly fashion. For example, another run on MMMFs may occur if downside credit risks materialize or securities lending suddenly halts, fueling investors’ fear of MMMFs “breaking the buck” (that is, failing to maintain the expected stable net asset value).\”

As investors leave money market mutual funds in a \”search for  yield,\” risks arise in other  markets.

\”Credit easing, quantitative easing, and commitments to prolonged low policy interest rates may trigger flows into other mature asset markets (corporate bonds, equities, commodities, secondary currencies, and even housing). While encouraging a certain degree of risk taking is indeed the purpose of many MP-plus [monetary policy-plus] policies, they could unintentionally lead to pockets of excessive search for yield by investors and to exuberant price developments in certain markets, with the potential  for bubbles. … The sharp rise in investor\\demand for credit products, combined with constrained supply, is supporting a substantial decline in corporate borrowing costs. In turn, investors are accommodating higher corporate leverage and weaker underwriting standards to enhance yield. Some components of the credit market, such as loans with relaxed covenants, are experiencing more robust growth than in the last credit cycle …\”

The lower interest rates have helped the banking sector in the last few years, but they also raise risks for the future. The report points out: \”There is some evidence that unconventional central bank
measures may be supporting a delay in balance sheet cleanup in some banks …  The current
environment may also be encouraging banks to evergreen loans rather than recognize them as nonperforming … The volume and efficiency of interbank lending may adjust to new, lower levels based … With many banks now relying to a significant extent on central bank liquidity and banks withdrawing resources and skills from interbank lending activities, it may be difficult to restart these markets.\”

 Finally, there is the question of how central banks will eventually unwind their very large purchases of financial securities, both in private markets and in public debt. If this unwinding is done in a gradual and preannounced way, it\’s certainly possible to draw up scenarios where it doesn\’t ruffle markets. But it\’s also possible to draw up scenarios where the unwinding of these financial positions become an undesired source of disruption in these markets and in the banks and other financial institutions that hold many of these assets.

\”During 2009 and the first half of 2010, the Federal Reserve purchased close to $1 trillion in mortgage-backed securities (MBS) to support the U.S. housing market and alleviate pressures on the balance sheets of U.S. banks. It made a new commitment to buy MBS in September 2012 in an effort to lower mortgage interest rates further and spur credit extension … In two purchase programs, the ECB [European Central Bank] bought a total nominal amount of €76.4 billion of covered bonds, and the BOE [Bank of England] bought up to £1.5 billion in corporate bonds. The BOJ [Bank of Japan] also maintains a limited program to purchase corporate bonds, real estate investment trusts (J-REITs), and exchange-traded funds (corporate stocks). …

\”Central banks have become substantial holders of government bonds, too. The increasing share of government bonds held by central banks may present risks to financial stability.The Federal Reserve and the BOJ now each hold some 10 percent of their respective governments’ debt, the BOE holds 25 percent, and the ECB holds an estimated 5 percent to 6 percent of the outstanding sovereign debt of Italy and Spain. The shares of Federal Reserve and BOE holdings of longer-dated sovereign bonds are even higher at more than 30 percent.\”

The IMF recommended policy answer to these kinds of concerns is essentially technocratic: that is, keep monetary policy very expansionary until a recovery is well-established, and use financial regulatory policies like well-constructed capital standards, liquidity requirements, and other approaches to limit negative outcomes. Announce all policy changes well in advance, so that surprises are minimized, and slowly phase in all changes to avoid disrupting markets. It\’s all very sensible and prudent at some level. But the belief that well-informed and well-intentioned regulators financial risks will perceive the risks that arising because of the long-extended extreme expansionary monetary policies, and will respond in exquisitely calibrated ways to manage these risks, seems troublesome to me. 

However, those interested in an alternative view might check out this accessible recent speech from Ben Bernanke, in which he discusses \”Long-Term Interest Rates,\” the reasons why they are so low, and the case for keeping them low awhile longer.

Looking at trade between regions of the world reveals some intriguing patterns of the ties across the global economy. Here\’s a table based on data from the World Trade Organization, which splits the world into seven regions. The rows of the table are the regions where trade originates; the columns of the table are the regions that are destinations. CIS stands for \”Commonwealth of Independent States,\” which is loosely speaking the set of countries that used to be part of the old Soviet Union. For context, total world trade in 2011 was $17.8 trillion.

 Here are some patterns that jump out at me:

1) Trade in the global economy is still dominated by trade within regions. For example, by far the biggest entries in the table are from Europe/to Europe and from Asia/to Asia.

2) When looking at international trade within regions, remember that the amount is strongly influenced by the size of countries and how many countries are in a region. Trade between U.S. states is not counted as \”international trade\” in this table, but trade between, say, Belgium and Netherlands is counted as international trade. In this sense, the U.S. economy with its massive domestic market is much less exposed to globalization than most other countries of the world.

3) For the economy of North America, our biggest regional trading partner is still North America. But the countries of North America are a destination for almost almost as much in exports from the countries of Asia as they are from other countries in North America. but a nearly equivalent amount of exports from the region also go to Asia. Exports from North America to Asia are about double exports from North America to Europe. And the countries of North America export more to Asia than they do to Europe.

4) It\’s intriguing to wander through the table and look for patterns (and yes, that\’s the kind of person I am). Some regions of the world are nearly disconnected from each other in any direct economic sense. The countries in the Commonwealth of Independent States receive only de minimus amounts of trade that originates from North America,  South and Central America, Africa, or the Middle East. The nations of Africa send more trade to North America, to Europe, and to Asia than they do to other nations of Africa. The Middle East and Africa, although they are contiguous, barely trade.

This table is part of the process of producing a third edition of my own Principles of Economics textbook.  Of course, I encourage those looking for a well-explained and reasonably priced book to go to the Textbook Media website and check it out. Thanks to Dianna Amasino for putting together the table for this edition. The source is International Trade Statistics 2012: World trade developments: Key developments in 2011. from the World Trade Organization.  

In the lingo of government budgets, a \”tax expenditure\” is a provision of the tax code that looks like government spending: that is, it takes tax money that the government would otherwise have collected and directs it toward some social priority. Each year, the Analytical Perspectives volume that is published with the president\’s proposed budget has a chapter on tax expenditures.

Here\’s a list of the most expensive tax expenditures, although you probably need to expand the picture to read it. The provisions are ranked by the amount that they will reduce government revenues over the next five years. It includes all provisions that are projected to reduce tax revenue by at least $10 billion in 2014.

Here are some reactions:

1) The monetary amounts here are large. Any analysis of tax expenditures is always sprinkled with warnings that you can\’t just add up the revenue costs, because a number of these provisions interact with each other in different ways. With that warning duly noted, I\’ll just point out that individual and corporate income taxes are expected to collect about $1.7 trillion in 2014, and the list of items here would add up to about $1 trillion in 2014.

2) It is not a coincidence that certain areas of the economy that get enormous tax expenditures have also been trouble spots. For example, surely one reason that health costs have risen so far, so fast, relates to the top item on this list, the fact that employer contributions to health insurance and medical care costs are not taxed as income. If they were taxed as income, and the government collected an additional $212 billion in revenue, my guess is that such plans would be less lucrative. Similarly, one of the reasons that Americans spend so much on housing is the second item on the list, that mortgage interest on owner-occupied housing is deductible from taxes. Without this deductibility, the housing price bubble of the mid-2000s would have been less likely to inflate. Just for the record, I have nothing personal against either health care or home-ownership! Indeed, it\’s easy to come up with plausible justifications for many of the items on this list.  But when activities get special tax treatment, there are consequences.

3) Most of these tax expenditure provisions have their greatest effect for those with higher levels of income. For example, those with lower income levels who don\’t itemize deductions on their taxes get no benefit from the deductibility of mortgage interest or charitable contributions or state and local taxes. Those who live in more expensive houses, and occupy higher income tax brackets, get more benefit from the deductibility of mortgage interest. Those in higher tax brackets also get more benefit when employer-paid health and pension benefits are not counted as income.

4) These tax expenditures offer one possible mechanism to ease America\’s budget and economic woes, as I have argued on this blog before (for example,  here and here). Cut a deal to scale back on tax expenditures. Use the funds raised for some combination of lower marginal tax rates and deficit reduction. Such a deal could be beneficial for addressing the budget deficit, encouraging economic growth, raising tax revenues collected from those with high income levels, and reducing tax-induced distortions in the economy You may say I\’m a dreamer, but I\’m not the only one. After all, a bipartisan deal to broaden the tax base and cut marginal rates was passed in 1986, when the president and the Senate were led by one party while the House of Representatives was led by the other party.

Each year when the president releases a proposed federal budget, as President Obama did on Wednesday, an \”Analytical Perspectives\” volume is also released with other angles on the budget. This year, Chapter 20 of that volume is about \”Federal Investment.\” Of course, there\’s a certain tendency by those who favor a certain area–from national defense to health care to antipoverty programs–to label as \”an investment.\” But as the budget states: \”The distinction between investment spending and current outlays is a matter of judgment. The budget has historically employed a relatively broad classification of investment, encompassing physical investment, research, development, education, and training.\” In these areas, what is the accumulated value of the federal investments over time?

The total stock of physical capital from federal investment is worth $3.2 trillion in 2013, according to the budget estimates, which look both at investment and at depreciation over time. About 30% of that is defense-related. About 20% is direct federal spending on projects like water and power. The remaining half or so is capital financed by federal grants, and about two-thirds of that ($1.1 trillion) is related to transportation.

The total stock of research and development capital from federal investment is $1.6 trillion in 2013. One way to divide that up is that about 40% is related to national defense, and 60% is not. Another way to divide it up is that about half is basic research, and the other half is applied research.

The total stock of education and training from federal investment is estimated at $2.2 trillion in 2013, with about three-quarters of that being K-12 education, and the rest being higher education.

I\’m sure that the calculations behind these estimates can be critiqued on many grounds, but just taking them at face value, it\’s thought-provoking that the stock of physical capital investment is less than the sum of the education and R&D capital. In discussions of federal \”investment,\” the quick and handy references are usually to fixing roads and bridges. Here in Minnesota, where memories are still fresh of the highway bridge that collapsed in August 2007, I\’d be the last one to denigrate fixing up roads and bridges. But when it comes to long-term economic health of the country, it\’s not the 1950s any more, when the legislation for the interstate highway system was passed. Investments in technology and education, as well as in communications and energy infrastructure, seem likely to be more important drivers of 21st century growth than roads and bridges. 

When the president\’s proposed budget  is released each year, I confess that I tend to ignore the actual and projected spending numbers, and instead head right for the \”Analytical Perspectives\” and \”Historical Tables\” that  volume that always accompany the budget. The president\’s proposed budget is a wish list, which will eventually be compared with the budget proposals from the House of Representatives and from the U.S. Senate–although the Senate has failed to pass an actual budget in the last few years. While that process hashes itself out, the analysis and history are more immediately interesting to me.

For example, Chapter 6 of the \”Analytical Perpectives\” is about \”Social Indicators: \”The social indicators presented in this chapter illustrate in broad terms how the Nation is faring in selected
areas in which the Federal Government has significant responsibilities. Indicators are drawn from six selected domains: economic, demographic and civic, socioeconomic, health, security and safety, and environment and energy.\” A long table stretching over parts of three pages shows many statistics for ten-year intervals since 1960, and for the last few years. For me, tables like this offer a grounding in basic facts and patterns. Here, I\’ll just offer 21 comparisons drawn from the table over the last half-century or so, from 1960 or 1970 up to the most recent data.

• Real GDP per person has roughly tripled in the last half-century, rising from $15,648 in 1960 to 43,352 in 2012 (as measured in constant 2005 dollars).
• Inflation has reduced the buying power of the dollar over time such that $1 in 2011 had about the same buying power as 15 cents back in 1960, according to the Consumer Price Index. 
• The employment/population ratio rose from 56.1% in 1960 to 64.4% by 2000, but since then has sagged back to 58.6% in 2012–roughly the same level as the late 1970s. 
• The share of the population receiving Social Security disabled worker benefits was 0.9% in 1960 and is now 5.8%. 
• The real stock of fixed assets and consumer durable goods has more than quadrupled in the last half-century, rising from $11.5 trillion in 1960 to $51.1 trillion in 2011 (as measured in real 2010 dollars).
• The net national savings rate was 10.3% of GDP in 1960, 8.1% in 1970, 6.2% in 2000–compared with negative 0.7% in 2010 and negative 0.6% in 2011.
• Research and development spending has barely budged over time: it was 2.6% of GDP in 1960 and 2.7% of GDP in 2011, and hasn\’t varied much in between.
• In 1960, 78% of the over-15 population had ever been married; in 2012, it was 68.8%
• Average family size was 3.7 people in 1960, and 3.1 people in 2012. 
• Single parent households were 4.4% of households in 1960, and 9.3% of all households in 2012. 
• In 1960, 11% of those in the 25-34 age bracket were college graduates; in 2011, the corresponding number was 31.5%.
• The average math achievement score for a 17 year-old on the National Assessment of Educational Progress was 304 in 1970, and 306 in 2010. The average reading achievement score for a 17 year-old was 285 in 1970 and 286 in 2010.
• Real disposable per capita income has roughly tripled in the last half-century, rising from $12,457 in 1960 to $37,646 in 2012 (measured in constant 2011 dollars).
• Life expectancy at birth was 69.7 years in 1960, and 78.7 years in 2011.
• Infant mortality was 26 per 1,000 births in 1960, and 6.1 per 1,000 births in 2011. 
• In 1960, 13.3% of the population age 20-74 was obese (as measured by having a Body Mass Index above 30). In 2010, 35.3% of the population was obese. 
• In 1970, 39.2% of those age 18 and older were cigarette smokers. By 2011, this has fallen by half to 19%.
• Total national health expenditures were 5.2% of GDP in 1960, and 17.9% of GDP in 2012. 
• Energy consumption per capita was 250 million BTUs in 1960, and 312 million BTUs  in 2011. 
• Energy consumption per dollar of real GDP (measured in constant 2005 dollars) was 15,900 in 1960 vs. 7,300 in 2011. 
• Electricity net generation from renewable sources was 19.7% of the total in 1960, and 12.7% of the total in 2011.  

 I read these sorts of figures as evidence of substantial and genuine progress in the standard of living–broadly understood–for Americans. But of course, it\’s also easy to see some dangers and warning signs.

The U.S. unemployment rate remains disturbingly high. It first rose above 7.5% in January 2009, and 50 months later in March 2013 remains above 7.5%. For comparison, in the aftermath of the 2001 recession, the unemployment rate peaked at 6.3% and in the aftermath of the 1990-91 recession it peaked at 7.8%. Since the Great Depression, only the \”double-dip\” recessions of the early 1980s offer a comparably sustained rate of high unemployment: unemployment rates reached 7.5% or higher for 7 months in 1980, and then after a mini-recovery,went back above 7.5% for 31 months from September 1981 through April 1984.  After the deep recession of 1974-74, the unemployment rate exceeded 7.5% for 26 months. Here\’s a figure from the ever-useful FRED website run by the Federal Reserve Bank of St. Louis showing the unemployment rate since 1970.

But although the figure shows that the unemployment rate remains high, it also shows that the U.S. labor market is slowly healing itself. For evidence on the internal functioning of U.S. labor markets, beyond the headline unemployment rate, I now and then check the JOLTS report–that is, Job Openings and Labor Turnover Survey–also published by the Bureau of Labor Statistics. The data for February 2013 was just released, and here are a few figures that caught my eye.

The number of actual jobs has been rising fairly steadily since the end of the recession in mid-2009, along with the number of job openings. 

One of the detailed job market indicators I find most intuitively revealing is the ratio of unemployed people to job openings. When the labor market is fairly healthy, like in the early 2000s, this ratio is maybe 2: 1 or 3:1. During the unsustainable bubble economy just before the Great Recession, the ratio fell to about 1.5:1. During the worst of the recession, it exceeded 6:1. It has now dropped back to a bit above 3:1–still uncomfortably high, but not as comprehensively awful as a few years back.

Another intuitively revealing measure looks at how people leave jobs. Do they leave by quitting, which can be viewed as a voluntary departure? Or do they leave by layoffs or discharges, which is surely more of an involuntary departure? In a healthy U.S., labor market, quits exceed layoffs/discharges: that is, more people are changing jobs by choice than by necessity. During the recession, this pattern flip-flopped for a time. But layoffs and discharges have now dropped to lower levels than before the recession, and quits are on the rise.

When it comes to the U.S. labor market picture, it feels uncomfortable to say anything positive. I\’m sure to get emails pointing out that the share of adults no longer in the labor force, and thus not counted as unemployed, is rising, as well as less savory notes accusing me of ignorance and heartlessness and being out of touch with the problem of unemployment. But of course, my point here is not to make the clearly incorrect claim that the U.S. labor market is already bathed in a ruddy glow of good health–only that it has been slowly improving along multiple interrelated dimensions for the last few years.

For years, I\’ve thought about international trade agreements mainly in terms of how high-income countries relate to lower-income countries: for example, would the high-income countries be willing to reduce their support for domestic farmers in exchange for greater intellectual property protection for for their exports? Such issues seem to have stalled the World Trade Organization \”Doha round\” talks, which started back in 2001 and have not yet found a way to reorient themselves toward an agreement. In the meantime, countries around the world have been moving ahead with regional trade agreements.

Nonetheless, I was surprised when President Obama and representatives of the European Union announced in February that they planned to start negotiations on a Transatlantic Trade and Investment Partnership.\”  My presumption was that such talks wouldn\’t offer much in the way of gains, because trade barriers were already low between these economies. Jeffrey J. Schott and Cathleen Cimino offer a useful overview of the issues in \”Crafting a Transatlantic Trade and Investment Partnership: What Can Be Done,\” written as Policy Brief PB13-8 for the Peterson Institute for International Economics.  My own reading of their argument is that the gains from reducing trade barriers between the U.S. and the EU are likely to be perceptible, but low. However, the talks may behave a greater effect if they can kick-start the Doha round of trade talks. And the outcome may ultimately turn on trade agreements already in place with South Korea!

Basic facts first: In recent years, the U.S. has sent 21-25% of its exports to the EU, and received 19-21% of its imports from the EU. The U.S. runs trade deficits with the EU, but they are relatively small is size: for example, just $20 billion in 2009, and up to about $70 billion in 2012. About half of the stock of all U.S. foreign direct investment is in the EU; just over 60% of the stock of all EU foreign direct investment is in the United States. Given this fairly high level of economic interconnectedness, how much more is possible?

Many of the remaining issues seem important to those in certain industries, but not important overall.
For example, in the last couple of years there have been ongoing negotiations between the U.S. and the EU in which the U.S. had three main requests: \”approving lactic acid as a pathogen reduction treatment for processing beef,\”  \”amending regulations for determining the disease status of US hogs exported for breeding,\” and \”conditions for the use of tallow or animal fat in the production of EU biofuels.\”  \”On the European side, the main demands involved regulations designed to (1) open the US market for European beef cleared of “mad cow” disease, (2) facilitate the import of apples and
pears, which are currently prohibited due to the lack of official pest-free status, and (3) apply “regionalization” to animal and plant disease determinations, which would allow the continuation
of overall EU agricultural exports to the United States in the event exports from a certain region were restricted due to disease outbreak.\”

Perhaps fortunately, if these negotiations are to matter, larger issues are on the table, too. The starting point would be to phase out remaining tariffs. But other steps would include: rules for international investment; freeing up international bidding for government contracts; harmonizing a wide range of regulatory issues across finance, insurance, telecommunications, and other industries;  environmental protections; labor rules; customs procedures; competition  policy; and intellectual \”property rights.\”

Schott and Cimino\’s discussion has a lot to say on all the details of a Transatlantic Trade and Investment Partnership in all of these areas, but it barely pauses to mention a few estimates of how such an agreement would affect the U.S. economy. The general tone of these estimates is that removing tariff and nontariff barriers might increase trade flows between the regions by 10% or so, with a lot of that change occuring in service industries. Like most economists, I have a knee-jerk reflexive support of lower barriers to trade, but even for me, this sort of change does not elevate my pulse rate.

More intriguing is this suggestion from Schott and Cimino: \”A successful effort to resolve disagreements across the Atlantic could become a template for the stalled global trade talks in several difficult areas, from agriculture to cross-border rules on services, investment, and regulations.\” For example, if the U.S. and the EU can free up trade in their agricultural sectors, this might create some movement in the Doha round trade talks. If the U.S. and EU can agree on how to address regulatory and environmental and intellectual property issues with each other,  perhaps it will create some flexibility for them to make agreements in these areas in the multilateral trade talks. This approach certainly has enough plausibility to be worth exploring. At a minimum, if the U.S. and the EU can\’t agree with each other on these sorts of issues, it certainly doesn\’t bode well for worldwide trade agreements.

 Oddly enough, the proposed Transatlantic Trade and Investment Partnership between the U.S. and the EU could turn on trade agreements with South Korea. Both the U.S. and the EU have detailed and extensive free trade agreements with South Korea that address many of these issues. Thus, Schott and Cimino explain that U.S. and the EU could essentially work on consolidating their already-approved trade agreements with South Korea–and use the result as a bridge toward their own agreement. When the U.S. and EU are negotiating trade agreements based on pre-existing agreements with South Korea, we have clearly entered the 21st century globalized world economy!