The Rage Against Trade

THE RAGE AGAINST TRADE

New York Times

Credit Michael George Haddad

One of the unusual features of this very unusual election year is that both candidates have made major trade agreements an important issue in their campaigns. Donald Trump has been particularly vociferous on the matter, blaming trade for hollowing out the middle class and promising to rip up existing agreements with other countries. Though his talking points are nothing more than hot air, he has struck a chord with millions of angry voters.

Hostility to trade — even misdirected rage — should not be taken lightly. While trade is not the cause of all or even much of the wage stagnation or increased income inequality in the past several decades, there are real problems with trade agreements, as Hillary Clinton and her former rival Senator Bernie Sanders have pointed out.

Polls show that many Americans, especially Republicans, believe that trade has hurt the country. The Great Recession, from which many families have not recovered, is partly responsible for this belief, as is Mr. Trump’s rhetoric. In a March survey, the Pew Research Center found that 53 percent of Republicans said trade agreements with other countries were bad while 38 percent said they were good — a big switch from May 2015, when 53 percent of Republican voters thought trade pacts were good for the country. Democratic voters have been consistently more favorable: In March, 56 percent said trade agreements were good, a slight decrease from the previous May.

The United States trades with most countries under the rules of the World Trade Organization. It also has preferential deals with individual nations or groups of countries, like the North American Free Trade Agreement with Canada and Mexico, which go beyond tariffs and quotas and address issues like intellectual property rights.

Mr. Trump likes to blame these deals, and the World Trade Organization generally, for much of what is wrong with the economy. Mrs. Clinton has said she would review all trade deals, including Nafta. Both nominees are opposed to the Trans-Pacific Partnership, which President Obama negotiated with 11 countries including Japan, Vietnam, Australia and Peru.

Trade generally benefits the economy, though there are winners and losers. Consumers benefit from cheaper clothes, electronics and other goods, while companies like Apple can sell more of their products overseas. But trade has hurt some factories and workers in the United States because they have not been able to compete with foreign businesses that enjoy lower-cost labor as well as subsidies and other benefits from their governments.

Even so, imports — including the surge from China — are not the only or even the most important cause of the loss of manufacturing jobs in America. Many economists believe that automation has had a much bigger impact. They point out that other industrialized countries like Germany and Japan have also lost manufacturing jobs even though they, unlike the United States, export more than they import. Between 1990 and 2014, the number of manufacturing jobs fell by 34 percent in Japan, 31 percent in the United States and 25 percent in Germany, according to an April report by the Congressional Research Service.

Mr. Trump’s proposals for increasing tariffs on Chinese goods or his threat to pull the country out of the World Trade Organization is unlikely to “bring back our jobs,” a favorite phrase of his. Such a policy would very likely cause other countries to retaliate by imposing tariffs on American exports, which would hurt American businesses and workers who produce those goods.

Though Mrs. Clinton opposes the Trans-Pacific Partnership, She is not inclined to yank the United States out of the global economy. She says trade deals must meet the “high standards for creating good jobs, raising wages, and enhancing our national security.”

Mrs. Clinton has not offered details of what that would look like, but her approach would mean more assistance for workers affected by trade than Congress has been willing to offer, as well as negotiating provisions that would require other countries to improve their labor and environmental standards. She also wants other countries to agree not to depress the value of their currencies in an effort to boost their exports and says her administration would crack down on nations that engaged in such manipulation. It won’t be easy to get other world leaders to go along. And American businesses with big overseas operations might also resist her proposed changes.

Trade isn’t the main force destroying good jobs, but at the moment, it serves as an easy target for an electorate anxious about the economy and looking for answers.

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Wifi and Human Excrement in Peru: Changing the Andes Mountain

Wifi and human excrement: how tourism is changing life in Peru’s Andes Mountains

Adventure tourism is affecting Peru’s indigenous communities in dramatic ways.

Nestled in the flat space between two steep granite mountains in the Andes lies the remote community of Huallhuaray, Peru. The stone houses with mossy thatched roofs almost blend in with the hillside, as if they simply grew out of the hill to house the hardy people who came here in the 16th century fleeing the advancing Spanish armies.

 Angelyn Otteson Fairchild
Homes in Huallhuaray.

Huallhuaray is only accessible on foot — the nearest road dead-ends after winding its way down the side of a very steep cliff, two and a half hours downhill from the village. By 2018, that road should reach the village, and Huallhuaray’s residents hope that the road brings tourists.

No one in Huallhuaray is quite sure what life will be like when the road arrives and when tourists begin to trek through the valley. But experience in similar towns suggests that road access combined with adventure tourism can have an enormous impact on a town’s economy, its culture, and its environment.

The trekking economy

Each year, hundreds of thousands of trekkers pass through Peru’s Andes Mountains. The trekking industry has created thousands of jobs, from trail guides to porters to the cashier outside the trailside toilet, and it brings millions of dollars in tourism revenue to Peru.

 J Duggan/Shutterstock
Tourists trekking along the Inca Trail in Peru.

At one time, the trekking trails were used to connect remote mountain villages like Huallhuaray with larger towns on the valley floors. Residents would walk the four hours over the mountains with a crop of potatoes in cloths on their backs, following footpaths that wind up sheer hillsides and through valleys decorated with lakes that reflect the mountains like mirrors. They would return to the village with staples like oil and salt.

Now hundreds of tourists trek through those trails each day to admire the natural beauty and to get a glimpse of what life is like in these rugged valleys. Some tour operators emphasize the opportunity to witness traditional ways of life as a key part of the trekking itinerary.

 Matyas Rehak / Shutterstock

They take time to visit farms, schools, and weaving cooperatives, and encourage trekkers to bring small gifts for the village children. For many visitors, observing indigenous cultures is just as remarkable as viewing crystalline mountain lakes or exploring trailside Incan ruins.

The presence of so many tourists brings opportunities for work that would not otherwise exist. Huacahuasi, located a few valleys away from Huallhuaray, has seen immense growth over the past 15 years, due in part to its strategic location as a major stopping point on the Lares trek route.

Modesto, age 48, was born in Huacahuasi and has worked for several years as a porter on the Inca Trail. Now he is taking a year off to transform his family’s land on the outskirts of Huacahuasi into a trekking campsite, just like the ones he frequented while working on the Inca trail. He is building tent-size terraces into the hillside, and his major selling point is the private bathrooms currently under construction.

 Angelyn Otteson Fairchild
Modesto’s campsite in Huacahuasi.

Similar opportunities exist in other trekking towns. Chaullay, for example, is carved into the granite cliffside and surrounded by cloud forests in the middle of the Salkantay Trek, not far from Machu Picchu.

Enterprising residents have built terraced campsites here as well, complete with shops that sell soft drinks and beer to the sound of American pop music. For a fee, weary trekkers can also enjoy a hot bath.

Both Chaullay and Huacahuasi are home to recently built luxury trekking lodges. Huacahuasi’s lodge, completed in 2014, employs locals to maintain the lodge and cook in the restaurant. It also includes spaces for locals to sell their handicrafts, like knit hats or traditional woven tapestries made from local alpaca hair.

And while most of the lodge’s profit goes to the owners living in larger cities, 20 percent is shared with the town. The lodge is so new that the impact of this money is still uncertain.

 Angelyn Otteson Fairchild
Huacahuasi with lodge in background.

This kind of opportunity is not available in Huallhuaray or other towns that are not on trekking routes. However, trekking has still had an impact in these towns because so many residents can find work on the trails.

Many of the men in Huallhuaray work as porters on the Inca Trail, carrying a 50-pound pack over the mountains surrounding Machu Picchu. The porters carry the camping and cooking supplies ahead of the group, climbing the ancient stone steps fast enough to arrive at each stopping point in time to set up camp and cook a four-course meal before the tourists arrive.

 AP Photo/Andrew Whalem

It is difficult and tiring work, but many people from remote high mountain communities welcome the reliable, regular pay they get from tour agencies. Traditionally, people living high in the Andes farmed potatoes and kept alpacas for textiles and meat.

Farming at 12,500 feet above sea level feet is unreliable business — pests or an unseasonal wet or dry spell can ruin a year’s worth of income in just a few days, few crops can even survive at that altitude, and the short growing season makes it difficult to grow enough to sell after feeding the family. When there is no road, it is also difficult to transport crops to market.

Roads and the life of a town

The road to Huacahuasi was completed in 2009. It winds its way up one wall of the valley, and tiny trekkers are visible making their way up the trail on the other side. The valley floor is picturesque, with little stone homes and grazing llamas, alpacas, and sheep.

But the valley does not look frozen in time the way Huallhuaray does. With the road came access to the modern world, and this access has changed daily life in town. The first thing most residents will point to is the construction. In the past few years, the town has nearly doubled in size, and new homes have been built using imported materials.

Nearly half of the buildings have visible metal roofs, while only a small handful of structures in Huallhuaray were built this way. Bridges made of rebar and cement have replaced the old wood walkways, and the roads are wider to accommodate cars. There is a brand new school, completed in 2014, and a wifi tower that came with the lodge that sits on top of a ridge. The town simply looks different because of the road.

 Spiegl/ullstein bild via Getty Images
Road in the Andes, Peru.

The road also makes it easier to get products to and from larger towns. Before the road, residents would walk three to six hours over the mountains with whatever they could carry on their backs. Now trucks arrive each week full of everything from underwear to tomatoes to natural gas canisters.

Residents can easily buy fresh fruits and vegetables to supplement their usual diet of alpaca, guinea pig, and potatoes, and they can cook these foods on imported gas stoves rather than the traditional open fires.

Curiously, many residents say they aren’t farming more potatoes than they used to, despite the trucks. They say that changes in weather have made harvests weaker, and many families have found that with the income from other opportunities, they don’t rely so much on selling potatoes.

There is a complicated relationship between the roads, the trekkers, and the changes in Huacahuasi. Trekkers passed by with their money, and the men left town to work as guides and porters and cooks on the tourist routes before the road came.

 Brent Stirton/Getty Images
 AP Photo/Andrew Whalem
Porters walk along a path during an Inca Trail expedition in Cuzco, Peru.

But the road brought about widespread changes in the way the valley looks and the way its people live on a daily basis, and it enabled private investments like the lodge, which in turn brought more trekkers and more jobs to Huacahuasi.

Locals don’t agree on whether the road would have come so quickly if tourism had not put the town on the map. Huacahuasi resident Ricardo Castillo, age 25, felt that the government only pays attention to Huacahuasi because of the influx of trekkers. Eder Taboada, a trail guide, believes the government builds roads based on local politics, without giving priority to tourist needs beyond basic access to trailheads.

After all, the government is building a road to Huallhuaray, a place with no history of tourism at all.

Modernization and cultural change

Not all of the changes in Huacahuasi are as visible as the new construction. The culture is changing, too. Before the wifi and the electricity, people went to sleep at 6 or 7 pm and woke up at 5 am to tend the animals. Now the young people stay up playing online video games or watching TV until 10 pm, and the community’s elders call them lazy.

The elders and many of the women only speak Quechua. But for the younger men, working in tourism means that they have to learn Spanish, and so gradually the everyday language is changing as well.

Working in tourism has also exposed people to different towns, different cultures, and new ideas for businesses that could be profitable in their hometown. The younger generation of women have also started wearing Western-style clothes instead of the traditional full pleated skirts, layered knit sweaters, and colorful stiff hats topped with flowers.

In other parts of Peru, even on trekking routes, the children will more or less ignore foreign visitors unless they are spoken to. In Huacahuasi, they approach foreigners with hands outstretched.

It has become something of an expectation that trekkers bring gifts for the children — rolls of wheat bread, little candies, or pencils. Rolando, age 10, guesses that he receives about five such gifts each day.

 Filipe Frazao / Shutterstock
A tourist feeds a local child outside a bathroom in Cuzco, Peru.
 Justin Setterfield/Getty Images

Some of these changes may be the inevitable product of time and economic development. They might have occurred without tourists, and maybe even without the road. But tourists played a role in increasing the speed of growth, and in selecting the types of opportunities that would be most profitable.

The tourists are a key part of the complex system of factors that drive the economic, social, and environmental changes that are increasingly obvious in Peru’s remote valleys. The irony here is that tourists, often motivated by a desire to connect with traditional cultures, are hastening the irreversible changes to these same cultures.

 Filipe Frazao / Shutterstock

Yet when local residents consider the rapid changes happening all around them, their first response is that the economic opportunities make all the change worthwhile.

People like Mario, another Huacahuasi resident, say they want their children to have better opportunities for education and meaningful work, even if it means their children will move away or live a life that differs from tradition. These feelings are likely familiar to parents in many other parts of the world.

Environmental impact

The most popular trekking route is the famous Inca Trail, which takes visitors up a winding set of ancient stone stairs, past Incan ruins, and into the mountaintop citadel of Machu Picchu.

 Matyas Rehak / Shutterstock
Crowds of tourists swarm the ruins at Machu Picchu.

In response to the erosion along the trail and damage to the stone steps caused by the hordes of trekkers on the trail, Peru’s government began issuing trail permits in 2001. Only 500 people, including tour staff, are allowed to pass each day, and the trail is closed in the month of February for maintenance.

This quota is one of the reasons that more tourists are trekking along alternate routes like Salkantay and Lares. However, the same types of damage that prompted regulation on the Incan Trail are now evident on these routes as well.

Along the Salkantay route, the trail is wide and crumbling where groups of mules burdened with heavy packs full of camp equipment make their daily passage. Llamas, a native species in the Andes, are much lighter and cause less erosion on mountain trails, but they are fickle and stubborn, and cannot carry as much weight as mules. So the packed mules haul equipment ahead of the tourists, then make the return journey back to their pastures.

 Loop Images/UIG via Getty Images

Human excrement and toilet paper can be found behind any large boulder or scraggly bush, alarmingly close to streams that serve as water sources for communities downhill. While most people boil their water before drinking, the abundance of untreated human waste still carries potential to spread disease. Some tour operators carry portable toilets along the trail so that they can haul this waste out of the valley, but evidence on the trail suggests many do not.

The future for Huallhuaray

Not all towns with roads and tourists see the same changes as Huacahuasi. The Salkantay trek starts near in the windswept Soraypampa valley high above the tree line, which had once been inhabited by a handful of families who grew potatoes and kept alpacas in stone enclosures.

 Loop Images/UIG via Getty Images
Salkantay Trek in the Cuzco region of Peru.

Now the village is composed of campsites, bathrooms, geodesic dome huts (for midnight stargazing in defiance of frigid mountain wind), and a grandiose mountain lodge, all to accommodate the many thousands of tourists who trek through each year. There are no alpacas in sight, the fields are fallow, and the families who lived here have moved elsewhere.

 Brent Stirton/Getty Images

Instead of growing in the presence of a new road and an influx of tourists, the village of Soraypampa essentially disappeared.

Other farming villages along the trekking routes remain seemingly unaffected by the tourists. Many kilometers of the trail are located on private property and pass right through farms carved into the hillside, yet in most places the owners are not compensated for use of their land. They simply work the terraced fields as they usually would while thousands of visitors walk across their property admiring the orchids or the granite hills.

 Justin Setterfield/Getty Images

Why is it that some towns end up like Huacahuasi — communities that thrive and evolve with the help of public and private investments coupled with tourist dollars — while others simply die off or do not change at all?

Answering this question is critical for communities like Huallhuaray that face major changes in the near future. Eder Taboada, the trail guide, says the answer will depend on how Huallhuaray manages the transition.

In some places, the money that tourism brings in ends up concentrated in a few families, and this can breed discontent between neighbors. In other places, people eventually sell their land to tour operators and leave the town as a shell of its former self.

Other options exist that could help Huallhuaray maintain its culture while also making life easier for residents. Taboada believes that towns along the trekking routes should charge an entrance fee for the use of their land, and that the proceeds should be used to improve the town or provide resources for more efficient farming practices.

Towns in the Lake Titicaca region of Peru have done this, and they have collectively decided to continue to speak their traditional language and wear traditional clothing, sometimes requiring visitors to do the same.

 Eye Ubiquitous/UIG via Getty Images

These kinds of local reactions to the changes brought on by tourism and infrastructure investments create a complex feedback loop. If trekkers are primarily interested in observing indigenous cultures, they will begin to avoid towns that appear too modern, thus changing the character of the trekking itineraries and the local economic opportunities that arise from the tourists.

Tour operators could work to improve declining environmental conditions on the trail, provide itineraries that are respectful of local cultural norms, and ensure that tourist dollars flow toward the people and communities who bring in trekkers. Private and public investors may change their strategy in response to changes in local economic prospects and tourist activities.

The culture and environment of Peru’s most remote Andean communities will continue to evolve as towns, tourists, and local investors adapt and react to one another. If all goes well, these forces will eventually create a sustainable balance between the economic opportunities that locals seek and the culture changes they are willing to endure in order to achieve these opportunities.

It will take years for Huallhuaray to find this balance. But if neighboring communities — just a few years ahead in their transition to modernity — are any guide, tourists interested in observing indigenous cultures may soon find that what they are looking for no longer exists.

Angelyn Otteson Fairchild is an economist, writer, and avid traveler based in North Carolina.

http://www.vox.com/2016/8/4/12343226/tourism-peru-andes-trekking-machu-picchu

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Where a Suitcase Full of Cash Won’t Buy You Lunch

Where a Suitcase Full of Cash Won’t Buy You Lunch

By GLORIA DAWSON

JULY 30, 2016

Cashless Transactions

Patrons at a Sweetgreen location in Manhattan. A few of the chain’s restaurants stopped accepting cash this year with few customer complaints. Credit George Etheredge/The New York Times
Patrons of Sweetgreen are very particular about their salads. When the company recently removed bacon and sriracha from the menu, customers took to social media to complain. But after a handful of Sweetgreen restaurants stopped accepting cash in January, barely anyone noticed, according to the company’s owners.

Even Sweetgreen executives thought going cashless was “a harebrained idea” at first, said Jonathan Neman, a co-founder and co-chief executive of the company. “But we looked around and saw that airlines haven’t been taking cash for a while.” At Sweetgreen’s locations throughout the United States, cash purchases have declined to less than 10 percent today from 40 percent of all transactions when they opened their first location nine years ago, he said. Sweetgreen now has 48 locations.

Although America is far from becoming a cashless society, cash transactions are less frequent than even a few years ago and some restaurant owners are betting that customers will be comfortable doing away with cash for convenience.

Restaurants like Sweetgreen are pushing credit and debit cards and mobile apps for payments. Apps enable restaurants to gather data and feedback, and allow consumers to order ahead and skip long lines.

“One of the biggest complaints at Sweetgreen is the line, so by reducing cash we’re able to serve customers a lot faster,” Mr. Neman said. At the six Sweetgreen locations where cash is not accepted, employees can perform 5 to 15 percent more transactions an hour, he said.

In a cash-free environment, employees are also safer, Mr. Neman said. There have been only a handful of thefts and robberies since Sweetgreen has been in business, but he said he believed that going cashless deterred thieves. “I don’t think anyone’s coming in to steal arugula.”

Forgoing cash is not without obstacles, though. Many Americans still use cash by choice or because they have no alternative. A 2015 study on consumer payment choice from the Federal Reserve found that although credit card use was steadily rising, slightly over 26 percent of purchases were still made in cash. Those transactions tend to be small in value. Mobile payments are expected to continue growing as well. Forrester Research forecasts in-store mobile payments will grow to nearly $34 billion in 2019 from about $4 billion in 2014. Sweetgreen has its own app, which allows customers to order and pay. The company’s in-app purchases make up one-third of the company’s transactions, Mr. Neman said.

 

Another drawback of cashless restaurants is the elimination of anonymity. Credit cards and apps leave a digital trail that can leave consumers vulnerable to security breaches, which worries consumer privacy advocates. A cashless environment also excludes the unbanked, nearly 8 percent of the population, according to a Federal Deposit Insurance Corporation survey.

Paying with cash can also help customers spend less and assign more value to their purchases, recent studies suggest.

The poor and unbanked are a concern for Sweetgreen, Mr. Neman said. Should the experiment move toward a companywide policy, Sweetgreen is considering solutions to make its products available to those without credit or debit cards. One potential answer is to install gift card machines in select stores where customers could pay cash for Sweetgreen cards, he said.

 

Jonathan Neman, a co-founder and co-chief executive of Sweetgreen, said its executives at first thought going cashless was “a harebrained idea.” Credit George Etheredge/The New York Times
Consideration for the unbanked was among the chief reasons Bozzelli’s Deli & Pizza relaxed its policy after opening a cash-free location in Washington this year, said the owner, Mike Bozzelli.

A small group of opinionated patrons led Split Bread, a sandwich chain with two locations in San Francisco, to change its cashless policy about two years after opening in 2012. “When we would get negative reactions, they were very, very strong,” said David Silverglide, co-founder and chief executive at Good Food Guys, the company that owns Split Bread. “Customer preferences are really hard to shift when it comes to something as ingrained as cash.”

“I think they were ahead of the trend,” Sam Oches, editor of the quick-service restaurant industry magazine QSR, said of Split Bread. Sweetgreen might have an easier time this year, because of increasing app use and the brand’s popularity. “Sweetgreen is very emblematic of the future of the fast-casual industry,” Mr. Oches said. “If anyone is going to make this work, it’d be them.”

Going cash-free, though, can seem to run counter to restaurant hospitality training. The hardest group to persuade of the benefits of a cashless environment might have been his employees, said Alan Bekerman, the founder and chief executive of IQ Food, a chain of healthy fast-casual restaurants in Toronto. When Mr. Bekerman started discussing his cashless plan with employees, they were aghast.

“We are bred to say ‘yes’ to everything,” said Mr. Bekerman, who opened two cash-free restaurants in February and plans to convert his three other locations by the end of the year. “But when we jumped in and did it, there really hasn’t been nearly as much chaos or hate mail or pushback or that stuff that we’re used to getting when we make changes as we expected.”

Jae Kim, owner of Chi’lantro, a Korean-Mexican fusion chain in Austin, Tex., said his company had always been “tech friendly” since starting a Twitter account so fans could find the location of his taco truck in 2010. After noticing the customers at his trucks and bricks-and-mortar locations gradually switching from cash to cards and services like Apple Pay and Google Wallet, he decided to make his establishments cash-free. “We grew with our customers,” he said.

New technologies often go hand in hand with cashless businesses. Two new locations of the London salad chain Tossed are cashless and cashier-free; customers check out using kiosks with iPads. To avoid confusion, Tossed installed extra lobby hosts, but “people don’t want help,” said Vincent McKevitt, the chain’s founder and owner. Mr. McKevitt has begun retrofitting his other 25 locations for cash-free transactions and self-service checkouts.

For Major Food Group, which owns restaurants throughout New York, going cashless is simply a business decision.

When the restaurant group opened Sadelle’s last year, reviewers raved about the bagels and griped about the prices of sandwiches, but said little about the cashless policy. “It is not an issue and is rarely ever mentioned,” Jeff Zalaznick, a co-owner and managing partner, said in an email.

“I believe very strongly in the cash-free movement,” Mr. Zalaznick said. “There is an immense amount of work, process and error that goes into taking, processing, monitoring and depositing cash. The amount of time and money that this costs is not worth the amount of business that is done in cash. The fees that you pay on the additional credit card sales are far less than the money you spend internally to take the cash.” Less than 8 percent of sales across his restaurant group are in cash, Mr. Zalaznick said.

Sadelle’s isn’t Major Food Group’s first foray into the cash-free movement. ZZ’s Clam Bar, which opened three years ago, is also cash-free.

“It is the way of the future,” Mr. Zalaznick said. “We are just embracing it.”

 

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How a Currency Intended to Unite Europe Wound Up Dividing It

How a Currency Intended to Unite Europe Wound Up Dividing It

It was started in the name of forging a greater sense of union among the disparate nations of Europe. It was supposed to enhance commercial ties, erode borders and foster a spirit of collective interest, furthering the evolution of former wartime combatants into fellow nations of a united Europe.

But the euro, in the 17 years since the common currency came into existence, has instead reinvigorated conflicts, yielding new crises, fresh grievances and a spirit of distrust. So argues the Nobel laureate economist Joseph E. Stiglitz in a timely new book, “The Euro: How a Common Currency Threatens the Future of Europe.”

Italy’s banks teeter on the brink of crisis while the euro has become the subject of ceaseless bickering over economic policy. By Mr. Stiglitz’s reckoning, the common currency has made economic inequality worse while dividing Europe into two adversarial camps — debtor and creditor.

In his first interview about the book, Mr. Stiglitz described the euro as a tragic mistake, a currency begun without the necessary political integration or clear thinking about its fundamental flaws. The euro was compromised from inception by an ill-conceived structure, and its troubles have been amplified by wrongheaded economic policies imposed by the most powerful countries as conditions for bailing out those worst ensnared by crisis.

What follows is an edited and condensed version of our conversation.

It is difficult to overstate the economic trauma Europe has suffered in recent years — veritable depressions in Greece and Spain, alarming levels of unemployment across much of the continent. You place much of the blame on the euro. What happened?

The euro was an attempt to advance the economic integration of Europe by having the countries of the eurozone share a common currency. They looked across the Atlantic and they said: “The United States, big economy, very successful, single currency. We should imitate.”

But they didn’t have the political integration. They didn’t have the conditions that would make a single currency work. The creation of the euro is the single most important explanation for the extraordinarily poor performance of the eurozone economies since the crisis of 2008.
Were there warnings when the euro was begun that maybe it wasn’t such a wonderful idea?

Yes, but it was mostly Americans, and that may have colored the reaction to it: “Oh, you don’t understand the value of the European project.” But the criticism was not that we don’t agree with the European project, but that you were undertaking something that will undermine the European project, because it’s not going to work. Their answer was, “We will create institutions as we go along.” A lot of people pushing for this were not economists.

You blame the euro for widening economic inequality. How has this played out?

The idea was that for the euro to work, the countries had to converge, and they formulated these ideas called the convergence criteria. They put enormous pressure on the countries to keep their deficits and debts relative to G.D.P. down. That was viewed as the necessary and almost sufficient conditions for making the euro work.

Several of the countries that went into crisis, Spain and Ireland among them, actually had a surplus before the crisis, and a very low debt-to-G.D.P. ratio. But they still had a crisis. That tells us an important lesson: What the people who were behind the creation of the euro thought was going to be a critical condition was not.

The disappointing thing was that after the crisis, they didn’t learn a lesson. What they did was double down on that same recipe — austerity. The structure of the euro was at fault, and the policies they enacted amplified the structural deficiencies. The result was that the countries diverged.

In your telling, Germany has imposed austerity across Europe out of faith in a discredited economic idea, the notion that if policy makers concentrate solely on preventing budget deficits and inflation, the markets can be counted on to deliver prosperity. A lot of your book is devoted to demolishing this idea. Does the German elite still really believe in this philosophy, or is something else at play?

I’ve visited Germany often, and I’m shocked about how strong the belief is in this view that has been totally discredited elsewhere.

But the policies are mixed together with interests. When the Greek crisis broke out in 2010, what was really at risk were German and to some extent French banks. And there was an enormous bailout that was called a bailout of Greece but was really a bailout of German and French banks. Most of the money went to Greece and then right away went back to Germany and France.

When you look at other aspects of the program, you see that it is also helping special interests within Europe.

How so?

Let me give you an example of one of the really absurd things they did. They demanded that Greece scrap a rule that fresh milk is no more than four days old. If milk was older than four days, it needed to be labeled.

Of all the things that were going on, why would you have a debate about that?

The German and the Dutch dairy industries wanted to ship their factory-farmed milk across Europe and sell it to Greek consumers. That would devastate the small Greek producers. Here was something that could only be seen as benefiting special interests in the eurozone and actually weakening the Greek economy.

You argue that some European leaders secretly welcomed mass unemployment as a means of adjusting to the crisis because this was the only way they could see to spur investment — lowering wages. The strictures of the euro took other options off the table: Crisis countries could not let their currency fall or lower interest rates or expand government spending. Was unemployment really embraced as a fix?

They wanted to break the back of workers. Their view was that workers needed to accept a wage cut and we are going to change the bargaining rules to make it more difficult for them to resist. And if we need to add on a little dose of unemployment, well, that’s unfortunate.

Doesn’t that goal predate the crisis?

It’s very clear that the euro was a neo-liberal project in its construction. Employers like low wages. They have broken the back of the unions in many of the countries of Europe. They would view that as a great achievement.

The whole point of the European project has been to get past the hostilities of World War II and build a sustainable community. Yet, in your telling, the euro and the policies delivered to preserve it left much of Europe nursing fresh grievances. How are these grievances coloring politics?

The most important divergence is between creditor, Germany, and debtor, the rest. The criticisms that you hear in Greece of the Germans, they are reliving the horrors of World War II; the criticism in Germany of the Greeks, saying that they are lazy even though the number of hours that they work per week is higher than the Germans’. The flinging of accusations, whether true or not, has been enormous and the divisiveness has been enormous.

We just saw Britain vote to exit the European Union — in part, a reaction to the sense that the European Union is a place of weak economic growth and poor leadership. In Italy, the so-called Five Star political movement is gaining support with calls to abandon the euro — in part, a backlash against German-led austerity. Is there any evidence that these sorts of events are leading to a re-examination of the economic philosophy guiding Europe?

I wish that were happening. Unfortunately, what I’ve seen is almost the reverse. It’s doubling down on a failed experiment. It’s a hard-line approach in which the European leaders in response to Brexit, people like Jean-Claude Juncker, who is the head of the European Commission, have said, “We’re going to be very, very tough on the U.K. because we want to make sure that no other country leaves.”

To me that was shocking. You hope that people want to stay in the E.U. because it’s delivering benefits, because there’s a belief in European solidarity, the belief that it’s bringing prosperity. He’s saying the only way we are going to keep the E.U. together is by the threat of what happens if you think about leaving.

You conclude that the best-case scenario from here is to reform and save the euro. But absent that, you contend that it is better to just scrap it as a failed experiment. What needs to happen to make the euro viable?

A banking union with deposit insurance. Something like a euro bond. An E.C.B. that doesn’t just focus on inflation — you want it to focus on employment. A tax policy that deals with the inequalities. And you have to get rid of limits on government deficits.

What’s your sense of what will actually happen?

It is hard to believe that the muddling-through can continue for another five years. Greece is still in depression, no better than it was a year ago. The likelihood is there that in one country or another there will be enough support for another referendum, and an exit will occur. That will begin the process of a real unraveling of the eurozone.

 

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The Trans-Pacific Partnership Trade Accord Explained

The Trans-Pacific Partnership Trade Accord Explained

By KEVIN GRANVILLE

JULY 26, 2016

 

Trans Pacific Trade

The Trans-Pacific Partnership, the largest regional trade accord in history, would set new terms for trade and business investment among the United States and 11 other Pacific Rim nations — a far-flung group with an annual gross domestic product of nearly $28 trillion that represents roughly 40 percent of global G.D.P. and one-third of world trade.

But the agreement, which requires the approval of Congress, has become a flashpoint in the United States presidential campaign, opposed by the nominees of both major parties as a symbol of failed globalism and the loss of United States jobs overseas.

The product of years of negotiations that culminated last fall with the endorsement of the 12 nations’ trade chiefs, the Trans-Pacific Partnership was a hallmark victory for President Obama, who has pushed for a foreign policy “pivot” to the Pacific rim. It seeks to bind Pacific nations closer through lower tariffs while also serving as a buttress against China’s growing regional influence. An independent study said that it would raise incomes and exports in the United States, but not jobs over all.

Many Democrats in Congress have voiced skepticism over the benefits. And opposition to the pact became a popular rallying cry in stump speeches by both Donald J. Trump, the Republican nominee, who has promised to tear up the deal, and Bernie Sanders, who argued during the Democratic presidential primaries that it would lead to a loss of jobs and competitive wages.

Hillary Clinton, the Democratic nominee, supported the emerging Trans-Pacific Partnership as secretary of state, but during the primary race, soon after the accord was concluded, she said it did not sufficiently protect American jobs.

Supporters of the deal in the administration and the Republican-controlled Congress, realizing that prospects for passage would dim whoever wins the presidency, are holding out hope for a vote during the lame-duck session after the election.

Why Has the Pact Been So Divisive?

Supporters say that it would be a boon for all the nations involved, that it would “unlock opportunities” and “address vital 21st-century issues within the global economy,” and that it is written in a way to encourage more countries, possibly even China, to sign on.
There are also traditional trade issues involved. The United States is eager to establish formal trade agreements with five of the nations involved — Japan, Malaysia, Brunei, New Zealand and Vietnam — and to strengthen Nafta, its current agreement with Canada and Mexico.

Moreover, as efforts at global trade deals have faltered (such as the World Trade Organization’s Doha round), the Trans-Pacific Partnership is billed as an “open architecture” document written to ease adoption by additional Asian nations, and to provide a potential template to other initiatives underway, like the Transatlantic Trade and Investment Partnership.

What Are Some of the Issues Addressed by the Pact?

Tariffs and Quotas Long used to protect domestic industries from cheaper goods from overseas, tariffs on imports were once a standard, robust feature of trade policy, and generated much of the revenue for the United States Treasury in the 19th century. After the Depression and World War II, the United States led a movement toward freer trade.
Today, the United States and most developed countries have few tariffs, but some remain. The United States, for example, protects the domestic sugar market from lower-priced global suppliers and imposes tariffs on imported shoes, while Japan has steep surcharges on agricultural products including rice, beef and dairy. The pact is an effort to create a Pacific Rim free-trade zone.

Environmental, Labor and Intellectual Property Standards United States negotiators stress that the Pacific agreement seeks to level the playing field by imposing rigorous labor and environmental standards on trading partners, and supervision of intellectual property rights.

Data Flows The Pacific trade pact aims to address a number of issues that have arisen since previous agreements were negotiated. One is that countries agree not to block cross-border transfers of data over the internet, and not require that servers be located in the country in order to conduct business in that country. This proposal has drawn concern from some countries, Australia among them, that it could conflict with privacy laws and regulations against personal data stored offshore.

Services A big aim of the Pacific pact is enhancing opportunities for service industries, which account for most of the private jobs in the American economy. The United States has a competitive advantage in a range of services, including finance, engineering, software, education, legal and information technology. Although services are not subject to tariffs, nationality requirements and restrictions on investing are used by many developing countries to protect local businesses.

State-Operated Businesses United States negotiators have discussed the need to address favoritism often granted to state-owned business — those directly or indirectly owned by the government. Although Vietnam and Malaysia have many such corporations, the United States has some too (the Postal Service and Fannie Mae, for example). The final agreement may include terms that seek to insure some competitive neutrality while keeping the door open to China’s future acceptance of the pact.

Why Hasn’t China Been In on the Talks?

China has viewed the pact with concern, seeing a potential threat as the United States tries to tighten its relationship with Asian trading partners. But senior Chinese officials have hinted that they might want to take part at some point. At the same time, the deal provides China some cover as it pursues its own trade agreements in the region, such as the Silk Road initiative in Central Asia.

United States officials, while making clear that they see the pact as part of an effort to counter China’s influence in the region, say they are hopeful that the pact’s “open architecture” eventually prompts China to join, along with other important economic powers like South Korea.

The Shadow of Nafta, and the Debate in Washington

Nafta, signed by President Bill Clinton in 1993, helped lead to a boom in trade among the United States, Mexico and Canada. All three countries exported more goods and services to the other two, cross-border investments grew, and the United States economy has added millions of jobs since then. But of course not all those trends were attributable to Nafta, and the benefits were not equal: The United States had a small trade surplus with Mexico when the pact was signed, but that quickly became a trade deficit that has widened to more than $50 billion a year.

Critics of Nafta also point out that job growth in the United States does not account for the loss of jobs to Mexico or Canada; the A.F.L.-C.I.O. contends about 700,000 United States jobs have been lost or displaced because of Nafta.

Nafta was a significant victory for President Clinton after a difficult congressional battle, where he won support from just enough fellow Democrats to ensure passage. The votes were 234 to 200 in the House, and 61 to 38 in the Senate.

President Obama may yet win that kind of outcome. Working with Republican leadership in the House and Senate, he gained final approval for trade promotion authority, a critical step that allows the White House to present the trade package to Congress for a straight up-or-down vote, without amendments.

But the tortuous legislative process further soured relations with many fellow Democrats, as well as unions and progressive groups, who vehemently oppose the Trans-Pacific Partnership.

http://www.nytimes.com/2016/07/27/business/international/the-trans-pacific-partnership-trade-accord-explained.html

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