Uncomfortable Questions About Our Ports

Sometimes people ask questions to which they really don’t want the answers–especially when the answers might be inconvenient. A new government report that purports to look at how U.S. container ports are performing is a good example.

Container shipping, as I document in my book The Box, was an American invention. Newark and Houston were the first ports anywhere in the world to have terminals designed specifically to handle containers, and container terminals were developed in ports such as Oakland and Baltimore years before containerships reached Europe and Asia. But U.S. ports have long been laggards when it comes to efficiency. The world’s most productive ports, by most measures, are all in Asia.  No U.S. container port comes close.

In 2015, Congress directed the Department of Transportation to prepare an annual report on port capacity and throughput and to “collect port performance measures.” Unfortunately, the department’s first annual report on port performance, released in mid-January, carefully avoids saying anything about container ports’ performance. It charts the number of acres covered by each port’s container terminals, the number of cranes, the number of linear feet of berth, and the number of containers passing through. But nothing in the report allows a reader to judge whether, say, the Port of New York and New Jersey is as efficient as the Port of Savannah. The average number of container moves per hour for each vessel call; the number of containers handled per acre of terminal area; the average time an incoming container spends in the storage yard before being removed for delivery; the number of dock workers per million containers; the number of containers actually handled as a percentage of theoretical capacity: all of these statistics would shed light on ports’ performance. None of them appears in the report.

Why might that be? Let me hazard a guess. True performance measures might reveal that many U.S. container ports have built far more capacity than they need, that poor management and union rules cause some ports to take far longer to handle a large ship than other ports, and that some ports use workers and storage space much less efficiently than others. They might also show that most U.S. container terminals make far less use of automation than the best-run terminals in other countries. It doesn’t take much imagination to figure out who might not want such measures of port performance to be highlighted. If they were, the public might start asking uncomfortable questions

Economic Illusions

In my book An Extraordinary Time, I document the hubris of economists who thought they had discovered the key to economic stability during the postwar Golden Age. Esteemed experts such as Walter Heller, chairman of the President’s Council of Economic Advisers under presidents Kennedy and Johnson, and Karl Schiller, West German economy minister and then finance minister as well, believed economists knew enough to tell presidents and prime ministers how to assure strong economic growth and low unemployment. It was a seductive vision. It also proved to be an illusion: when economic crisis arrived at the end of 1973, the experts were unable to deliver the prosperity they had promised, leaving citizens frustrated and angry.

A reader recently asked whether talk of a “Great Moderation” in the late 1990s and early 2000s was a similar display of hubris. As was the case during the boom of the 1960s, those involved in economic policy in the late 1990s seemed to think they had conquered the business cycle. They had many admirers. Journalist Bob Woodward feted Alan Greenspan, then the chairman of the Federal Reserve Board, as “The Maestro” for orchestrating the economy’s smooth performance. Of course, the Great Moderation ended in the deepest economic crisis since World War II — a crisis that is long since over in the United States, but has yet to come to an end in parts of Europe.

While macroeconomists displayed no lack of hubris in boasting of the Great Moderation, I would submit that there was an important difference between the economic policies of the 1960s and early ’70s and those of the Greenspan era. Walter Heller and his contemporaries didn’t pay much attention to monetary policy. Their version of fine tuning involved manipulating instruments under direct government control, mainly taxes and government spending, to achieve a desired economic outcome. The Fed was an afterthought. This approach to fiscal policy was badly discredited by the economic failures of the 1970s and has never come back into fashion.

During Greenspan’s time at the Fed, in contrast, fiscal policy was in disarray. Deep divisions between Democrats and Republicans and between Congress and President Clinton rendered the U.S. government incapable of changing tax rates and federal spending to achieve any particular economic goal; although the federal budget went into surplus at the end of Clinton’s presidency, this was more the result of unexpectedly high tax receipts during the Internet boom than any deliberate purpose. Greenspan himself was no fan of fine tuning. Rather, he was among the very large number of economists who believed the central bank should use its control over short-term interest rates to achieve price stability, and that other important factors affecting employment, the rate of economic growth, and the prices of financial assets were beyond Fed control.

Yet this point of view involved hubris as well. Macroeconomists in the 1990s overwhelmingly believed that the prices that mattered to the economy’s performance were those paid by consumers. The Fed, they said, didn’t need to worry about certain other prices, such as those of stocks and real estate, because these would not have much effect on employment, incomes, and voters’ other economic concerns. As we learned at considerable cost, that conventional wisdom wasn’t right. The sharp drop in asset prices that began in 2008 left millions of households with depleted retirement accounts and upside-down mortgages, forcing them to pull back spending, leading in turn to a sharp rise in unemployment. By and large, economists missed this connection between the financial economy and the real economy.

Of course, saying that the Fed should worry about asset prices as well as consumer prices still leaves the central bankers to determine when stock prices are reasonable and when they are soaring unjustifiably. Either way, economists must pretend to know something that cannot possibly be known until after the fact. In his masterful biography of Greenspan, Sebastian Mallaby wrote that “The delusion that statesmen can perform the impossible—that they really can qualify for the title of ‘maestro’—breeds complacency among citizens and hubris among leaders.” Unfortunately, he’s right. One of the great challenges facing modern democracies is that their citizens expect more than their governments can possibly deliver.

 

The Truth About “Pro-Growth” Economics

Like every president, Donald Trump has promised to make the economy grow faster. Good luck with that. In an article in Vox, I trace the history of the idea that we know how to make the economy grow faster. As I explain, while politicians love to talk about “pro-growth” policies, a productivity boom is not something Trump’s economic advisers, or anyone else’s, have the tools to bring about. Productivity depends mainly on private-sector decisions, and while government actions clearly influence it, the timing and extent of that influence are impossible to predict.

As I argue more fully in my new book, An Extraordinary Time, until and unless an unexpected productivity boom takes hold we’re likely to be stuck with an ordinary economy. That’s not terrible; at the moment, the United States is pretty close to full employment, and wages are on the rise. But it’s a far cry from the growth of 4 percent, 5 percent, or even 6 percent that Trump and some of his more zealous supporters have promised us. An effort to push the economy faster than underlying productivity improvements will allow is not likely to end well.

Running Hot

This morning I had a great opportunity to discuss my new book, An Extraordinary Time, live on the C-Span program Washington Journal. The host, John McArdle, was thoroughly prepared, and I found it a great relief to be able to talk about the history of the 1970s and 1980s without ending up in a conversation about Donald Trump. You can see the program here.

Viewers phoned in with a number of good questions. A key point I tried to make in responding is that the basic economic trends I write about, the slowdown in productivity growth after 1973 and the related slowdown in income growth, occurred across all the wealthy economies in Western Europe, North America, and Japan. Every day, it seems, we hear comments from politicians that they know exactly how to make our economy grow as fast as it did in the good old days. Some of the callers to Washington Journal echoed those views, blaming slow growth on something they don’t like–President Obama’s environmental policies, high CEO pay, budget deficits, tax treatment of carried interest, and so forth. I think it’s useful to point out to such people that since the end of the Golden Age in 1973 we’ve seen slower growth and higher unemployment in countries where none of those policies are in place. You may not like the low tax rate on carried interest, but it’s a considerable stretch to claim that it is causing our economy to grow at 2% a year rather than 5%.

Sometimes we get a bit carried away with our own power and insist we can make the economy roar like we think it ought to. The current lingo for this is to “run the economy hot.” What advocates of that approach seem to mean is that we should accept a higher inflation rate as a tradeoff for lower unemployment and big wage increases. As I explain in my book, this is not a new idea. We spent most of the 1970s believing that we could keep unemployment low if we were willing to accept just a little more inflation. That ended badly, and I’m not eager to repeat the experiment.

True Believers

One of the challenges of writing about economics is that many people treat it as a religion. They know what they think, and they don’t want to be bothered by facts that may not support their beliefs.

The response to my new book, An Extraordinary Time, has reminded me of the intensity of that religious fervor. The book asserts that an economy growing at one-and-a-half or two percent a year is not doing badly. While we all enjoy boom conditions like those that prevailed from the late 1940s until 1973, the extraordinary growth during those years was due to factors that are unlikely to be repeated; the slower growth we see today is not “secular stagnation,” as some would have it, but rather an ordinary economy behaving normally.

This assertion has brought outrage from all over the political spectrum. Gold bugs are convinced that if only the United States would go back on the gold standard, the economy would soar. Supply-siders blame government regulation for all ills; if only government would get out of the way, the economy would grow far faster. Ronald Reagan still has many acolytes who are convinced his policies made the U.S. economy perform far better than it actually did. Many of the mainstream macroeconomists who dispense policy advice so freely naturally disagree with the idea that their wisdom is unlikely to bring back the boom times. Self-styled socialists attack my claim that slow growth is normal because slow growth leaves many workers unable to improve their conditions; they take government’s ability to produce faster growth for granted.

I admit the idea that slow growth is ordinary growth is not enthralling. Who wouldn’t like full employment, big wage increases year after year, and a steadily improving standard of living?  But while it’s natural for politicians to promise such things, they have far less ability than they believe to improve productivity, which is the key to long-run economic growth. The fact that we might like the economy to soar doesn’t mean we have the tools to make that happen, at least for an extended period of time. Sometimes faith can overwhelm common sense.

 

Globalization in a Pickle

This morning, a crisp and lovely morning in Washington, I hopped on my bicycle and pedaled over to a farmers’ market a mile from my home. My modest goal was to buy a quart of half-dills from Number One Brothers, who turn cucumbers into terrific pickles.

The stand was open for business, stocked with pickled beets, pickled kale, and cauliflower and carrots pickled with ginger. There was not a half-dill in sight. The woman in charge told me that the last cucumber pickles of the season were sold in mid-October. Number One Brothers won’t have any more until June.

As I pondered this annoyance on the way home, I realized that it’s yet more evidence of what the shipping container has wrought. I, like most people, have come to expect the food I want when I want it. I don’t see why the end of cucumber season in the mid-Atlantic states should give rise to a pickle shortage. Aren’t farmers somewhere in the world now harvesting fresh cucumbers that can be piled in a container, shipped my way, and dumped into brine?

The answer, of course, is yes. Pickles from some far-off place may not be quite as good as the Number One Brothers half-dills, but I don’t need to wait until June to get my pickle fix. Some pickle factory somewhere is making cucumber pickles right this minute, and the container brings those pickles to me at an extremely modest cost. While buying them at Costco may not be as virtuous as buying directly from the maker at a neighborhood market, Costco never runs out of pickles.

My New Book

Donald Trump’s presidential candidacy was not remotely on my mind when I began writing my latest book. Nor do I claim to be a political scientist. But the perspective I offer in An Extraordinary Time, which was published on election day, may be useful in understanding the deep discontent that has manifested itself in Trump’s election, Brexit, the rise of fringe parties across Europe, and many other ways.

an-extraordinary-time

The book examines what I consider to be a turning point in the history of the second half of the twentieth century–the sudden change in the trajectory of economic growth across much of the world at the end of 1973. Until that point, people in all the advanced industrial economies, and in many of the less developed economies, had enjoyed a quarter-century of nearly uninterrupted prosperity. Living standards had improved in remarkable ways. At the start of this period, around 1948, millions of people in Europe, North America, and Japan still plowed farm fields behind horses or mules and lived in houses lacking electricity and indoor plumbing. Most adults never had a chance to finish high school, and employment usually meant unrelenting physical toil. By 1973, most families could afford cars, color televisions, and summer vacations, and an expanding welfare state provided unprecedented security in the event of on-the-job injury, widowhood, and old age. Unemployment rates were low, wage increases frequent. People could feel that their living conditions were getting better year by year, and they heard constantly that wise government stewardship of the economy made this advance possible.

All of this changed dramatically after 1973. Average incomes would grow less than half as fast through the end of the twentieth century as they did during the Golden Age between 1948 and 1973. As full employment vanished and wage gains slowed, the welfare state came to be seen as a burden, not just a boon. The economic experts who had touted their ability to deliver permanent prosperity had no effective way to fix the underlying problem: much slower growth of productivity. Voters turned right, to leaders such as Margaret Thatcher and Ronald Reagan, but it turned out that free-market policies such as firm rules for monetary policy, deregulation, and lower tax rates were no more successful at restoring robust economic growth than the statist policies they replaced.

The reality, I suggest, is that the supercharged growth of the Golden Age was an extraordinary event that cannot be repeated by government directive. My subtitle, The End of Postwar Boom and the Return of the Ordinary Economy, highlights the fact that at most times and places economies grow slowly, not explosively. Voters, recalling the post-war experience, expect more. Politicians have no way to deliver it. That is a recipe for discontent, of which Brexit and Trump’s election are only the latest examples.

What Happens After the Container Shipping Crisis?

Until 1978, dozens of airlines flew the U.S. skies. Then, with the passage of the Airline Deregulation Act, competition increased and profits became scarce. Decades of consolidation followed, as Allegheny, Eastern, Frontier, Ozark, Pan Am, and many other venerable names were merged out of existence or went bust. When the turbulence finally subsided, four giant carriers—American, Delta, Southwest, and United—controlled 70 percent of U.S. domestic passenger traffic and, through agreements with foreign carriers to share services, dominated international routes as well. Such measures have enabled the airline industry to rake in profits as never before.

Something similar is now going on in the world of container shipping. Excess capacity and slow-growing demand are forcing down the price of shipping, driving companies deeply into the red and bringing a wave of bankruptcies, mergers, and joint ventures. The August bankruptcy of South Korea’s Hanjin Shipping, the world’s seventh-largest container carrier, and the announcement, in September, of the restructuring of A.P. Moeller-Maersk, by far the world’s largest, are signs of a consolidation process that still has far to go. And although the industry is likely to remain troubled in the short term, in the long term, today’s troubles will lead to less competition among those carriers adept enough to survive. That in turn will mean higher rates for shippers, increasing the cost of moving goods around the world.

I’ve recently written an article laying out why I think this will occur. You can find the full text over at ForeignAffairs.com.

Strawberries in Winter

In our globalized world, many people hold firmly to the belief that local is better. That conviction is particularly strong when it comes to food. In Washington, where I live, farmers markets are crowded with shoppers (including myself) who are prepared to pay outrageous prices for a basket of apples or a pound of cheese if it originated at a nearby farm. We convince ourselves that what we eat is fresher, purer, or more environmentally virtuous because it was grown or manufactured on a family farm close by.

I recently had the chance to participate in an unusual radio program, produced by the BBC, that takes a look at the booming international trade in food. Called The Food Chain, the program asks why long-distance shipments of food are growing so quickly. Part of the answer, it will not surprise you to hear, is that low transport costs and high reliability make it feasible to import goods that would not be traded if freight rates were higher, a story I tell in my book The Box. But an even more important cause of increased trade in food, I suspect, is changed consumer preferences. We expect to eat the foods of our choice when we want to eat them, and if that means importing strawberries from Mexico or Chile when local berries are out of season, so be it.
Those of a certain age can remember when life was otherwise. In the town where I grew up, in the U.S. Midwest, having fish for dinner meant popping a box of frozen fish sticks in the oven. Fresh fish was something our supermarket simply did not carry, because it had no means of bringing it in. Now, the town boasts several sushi bars. Thank modern logistics, including refrigerated containers and air freight, for providing diners with an option that previously did not exist.

One current line of attack on such variety in our food supply is that long-distance shipments of food are “unsustainable.” By this, the critics usually are taking aim at the large amounts of greenhouse gases supposedly produced while transporting food internationally. Part of my contribution to the BBC program was to point out that “local” is not at all the same as “sustainable.” International trade in food often involves huge economies of scale, which means food produced on another continent may be transported far more efficiently than food produced nearby. Moving 40-foot containers of fruit great distances in a large containership can result in much lower emissions per ton than carrying smaller quantities a hundred miles in a diesel truck.
The BBC has taken an unusually sophisticated look at the food trade. I hope you’ll have a chance to listen.

Making It Hard to Save

Americans are famously unable to save money. The personal saving rate is a scant 5% of disposable income, and while two in three adults told Federal Reserve researchers last year they were “living comfortably” or “doing okay,” many of those same people apparently have no savings: 46% of respondents to the Fed survey said they did not have the cash to cover an emergency expense costing $400. Among people with household incomes below $40,000, only one in three said they could come up with $400 in cash.

Last month, I got an unexpected taste of why it’s so hard for people to save. My District of Columbia income tax return had an error. Rather than refunding my overpayment by check, the DC finance department sent me a Citibank debit card. I’d never used a prepaid card before, and the experience was educational. Moving the money from the card into my bank account, which is not at Citibank, turned out to be a major ordeal.

In theory, according to Citibank, it’s possible to set up a password on the Internet to transfer money from card to bank account. I followed those instructions, to no avail. The only way to get my money, it seemed, was to go to the bank.

But not to my bank, which wanted a fee to turn Citi’s debit card into cash. To avoid the fee, I had to take the card to a Citibank branch. I did so–to be told that the amount on the card exceeded Citibank’s daily cash withdrawal limit. I took what Citi would give me, cautiously walked the cash down the street to my bank, and deposited it. The following day, I repeated the process. All told, between my attempt to set up an Internet password and my five visits to bank branches, it took two hours of my time to gain access to money that was already mine. Had the two branches not been close together, the transactions would have taken far longer, and I would have had to stroll through Washington carrying uncomfortably large amounts of cash.

This is the situation facing the millions of American workers, mainly in low-wage jobs, who now get their pay on a debit card rather than having it deposited into a bank account. Yes, I understand that paying wages via debit card may be useful to people who don’t have bank accounts, and I imagine debit cards are cheaper for employers or they wouldn’t use them. But as my experience showed, when you receive your pay on a debit card, you may well have a difficult time saving money in the bank. Which could leave you in a tough spot the next time you need $400.