I would have thought that a indirect job multiplier for most activities would 
be greater than one and not 4.2 m direct and 2.1 (which is 0.5, nice round 
number) as stated below.

Anthony P. D'Costa
Chair and Professor in Contemporary Indian Studies
Australia India Institute and School of Social & Political Sciences
University of Melbourne
147-149 Barry Street, Carlton VIC 3053
Ph: +61 3 9035 6161
Visit the Australia India Institute Website http://www.aii.unimelb.edu.au/ 

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> On Dec 23, 2013, at 21:53, Eugene Coyle <[email protected]> wrote:
> 
> Larry Summers and Dean Baker agree, but seem to miss the implications.
> 
> 
> Baker writes in his useful "Beat the Press Weekly Roundup" for December 23, 
> 2013:
> 
>> Unfortunately, Summers still only has part of the story. He notes the 
>> possibility that investment demand may have shifted downward because of 
>> slower population growth. He also notes that upward redistribution of income 
>> may have reduced consumption, since the rich tend to save a larger share of 
>> their income than the poor and middle class. It is great to see these points 
>> being made by a distinguished economist, however Summers continues to miss 
>> the most obvious drain on demand: the trade deficit.
> 
> [full item from Baker is pasted below.]
> 
> It is puzzling to hear that consumption might be reduced by the upward 
> redistribution of income.  Granted the rich might save a larger share of 
> their income than the poor and middle class.  But what the rich get is spent 
> anyway, all of it and more.  Or do Summers and Baker believe it is kept in 
> greenbacks under the mattresses?  It gets spent -- call it "investment" and 
> then, to keep the investment working and profitable, -- somebody -- has to 
> buy the output, i.e. "consume it."  How does that happen if the rich aren't 
> buying it?  Well, cheap mortgages to induce the middle class to buy houses 
> was one possibility, and cash-out mortgages enabled buying boats and cars, so 
> many people can spend more than 100% of their income.  (Including the rich.)  
> Mainly the profits of the rich and the value of their assests go up and they 
> can spend out of the higher income and wealth.
>    It seems to miss the flows when one speaks of consumption being reduced 
> because the rich are getting more of the gross.
> 
> Gene
> 
> 
> 
>> Larry Summers Hasn't Heard About the Trade Deficit
>> 
>> Many of us are happy to see that Larry Summers, who served as President 
>> Clinton's Treasury Secretary and head of President Obama's National Economic 
>> Council, had a column talking about secular stagnation in the Washington 
>> Post. As they say here in Washington, if you repeat something that is true 
>> long enough, Larry Summers will eventually write about it in the Washington 
>> Post.
>> 
>> Unfortunately, Summers still only has part of the story. He notes the 
>> possibility that investment demand may have shifted downward because of 
>> slower population growth. He also notes that upward redistribution of income 
>> may have reduced consumption, since the rich tend to save a larger share of 
>> their income than the poor and middle class. It is great to see these points 
>> being made by a distinguished economist, however Summers continues to miss 
>> the most obvious drain on demand: the trade deficit.
>> 
>> The trade deficit is running at a $500 billion annual pace, more than 3.0 
>> percent of GDP. This is demand that is going to other countries, not the 
>> United States. If we snapped our fingers and made the trade deficit zero 
>> tomorrow it would translate into roughly 4.2 million jobs directly and 
>> another 2.1 million indirectly through multiplier effects for a total of 6.3 
>> million jobs. In other words, this is a big deal.
>> 
>> By comparison, the shift in income from everyone else to the one percent was 
>> equal to roughly 10 percentage points of personal income. If we assume that 
>> the rich spend 75 percent of this increment and everyone else would have 
>> spent roughly 95 percent, then the difference is 2 percentage points of 
>> personal income or around 1.6 percentage points of GDP. That is a bit more 
>> than half as much as the contribution of the trade deficit.
>> 
>> Summers should know about the trade deficit since he is one of the people 
>> most responsible for the deficits we face today. It was his engineering of 
>> the IMF bailout of countries from the East Asian financial crisis (with Alan 
>> Greenspan and Robert Rubin as accomplices, and Stanley Fisher at the IMF 
>> playing a supporting role) that led to the sharp over-valuation of the 
>> dollar that gave us large trade deficits.
>> 
>> In standard textbook economics, capital is supposed to flow from rich 
>> countries like the United States to poor countries in the developing world 
>> which can better use the capital. This implies that rich countries would 
>> have trade surpluses, not deficits. This actually was more or less happening 
>> in the years prior to the crisis in 1997. Developing countries were on net 
>> borrowers.
>> 
>> However the terms of the bailout were viewed as so onerous that countries 
>> throughout the developing world decided that they had to accumulate as many 
>> reserves as possible in order to avoid ever being in the same situation with 
>> the IMF. This meant deliberately keeping the value of their currencies down 
>> against the dollar and running large trade surpluses. This corresponds to 
>> the large trade deficit run by the United States.
>> 
>> In short, Larry Summers certainly should know about the trade deficit, he 
>> helped give it to us. If we want to reverse secular stagnation a very good 
>> place to look would be a smaller trade deficit brought about by a lower 
>> valued dollar. (We can also cope with a chronic shortfall in aggregate 
>> demand by shortening work hours, as Germany has done. Summers apparently 
>> opposes this route because he has decided that this is not the American Way.)
> 
> 
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