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Mar 19, 2019

Real Time Economics | Market Forces vs. Government Fiat

The Wall Street Journal.
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Real Time Economics
Good morning. Jeff Sparshott here to take you through key developments in the global economy. Send us your questions, comments and suggestions by replying to this email.
 

It's a Trap!

U.S. semiconductor companies want no part of any trade deal that calls for stepped-up purchases from China. Washington has pressed Beijing to buy more than $1 trillion in U.S. goods and services as part of an agreement, and China has offered to buy $30 billion of U.S. chips over six years. But U.S. chip makers have told President Trump’s administration not to include them, Bob Davis reports.
Why? Because U.S. production costs are so high, mandatory-purchase quotas would essentially force U.S. chip makers to open new factories in China and give Beijing bureaucrats more sway over the U.S. firms. That would benefit Chinese competitors and make the U.S. firms more dependent on Beijing, executives at the U.S. companies fear. “The market should determine commercial success, not government fiat,” said John Neuffer, president of the Semiconductor Industry Association.

What to Watch Today

U.S. factory orders for January are expected to rise 0.4% from the prior month. (10 a.m. ET)
President Trump meets with Brazil President Jair Bolsonaro. The two hold a joint news conference at 1:45 p.m. ET.
The Federal Reserve begins a two-day policy meeting.
The Bank of Japan releases minutes from its Jan. 22-23 meeting at 6:50 p.m. ET.

Top Stories

New Balance

Federal Reserve Chairman Jerome Powell appears ready to announce Wednesday when the central bank will end the runoff of its $4 trillion portfolio. But setting that date is just one challenge. Now, officials are turning to the sensitive task of determining the portfolio's composition. Specifically, they need to decide the right combination of Treasurys—mostly short-term bills or a mix that includes more longer-term notes and bonds, Nick Timiraos reports. The decision has implications for markets, the economy and monetary policy.
The composition “is more policy-relevant than many of the things people have discussed about the balance sheet,” says Boston Fed President Eric Rosengren.

Work It

The White House in a new report highlighted the strength of the labor-force participation rate and pushed for policies to encourage more people to work as millions of baby boomers retire. From 2015 through 2018, the share of Americans working or seeking work stabilized around 63%, defying expectations for declines as the population ages, Sarah Chaney reports. The Trump administration says government could encourage greater labor-force participation if it advanced policies that help reduce child-care costs, giving women greater incentive to work.

Gender Discrimination

Female economists say they have been discriminated against and, in some cases, sexually assaulted by their colleagues, according to a new survey by the American Economic Association. The survey comes at a moment of soul-searching for the economics profession over its treatment of women: recent research has found ingrained bias and exclusion. Women make up 58% of the nation’s undergraduate degrees but only 30% of economics majors, David Harrison reports. 

Brexit Follies

Brexit isn't happening any time soon. The speaker of the House of Commons unexpectedly blocked Prime Minister Theresa May's government from putting its departure deal—already rejected twice—to lawmakers for a third vote. The move undermines Mrs. May’s plan to crowbar lawmakers into backing her Brexit deal by threatening a monthslong extension. Her argument: The longer Brexit is delayed, the greater the chance it won’t happen at all. The U.K. will now ask the EU at a summit this week to substantially push back its departure, originally planned for March 29, Max Colchester and Jason Douglas report.

Keep Calm and Carry On

The jobless rate in the U.K. fell in January to its lowest level in more than four decades and the number of people in work hit a record high. The figures show the labor market continues to perform well despite a slowdown in growth caused by uncertainty over Brexit, Jason Douglas reports.

Skid Roe

Caviar prices are sinking as fish eggs cultivated in China are flooding the global market. The tiny, salt-cured eggs from wild female sturgeon were once at risk of extinction due to overfishing and poaching. As a result, all trade in wild caviar has been tightly controlled under a global treaty since 1998. These days, most caviar is harvested from sturgeon farmed in rivers, lakes and tanks. China has become one of the world’s largest producers, and it is driving global prices down, Lucy Craymer reports.

Head Fake

Fake and pirated goods account for a growing share of global commerce. The OECD in a new report said seizures of imported fake goods reached $509 billion in 2016, or about 3.3% of world trade. The main sources of fakes: China and Hong Kong. The countries most flooded with knock-offs: the U.S., France, Italy, Switzerland and Germany.

In Memoriam

Alan Krueger, a top economic adviser to former President Barack Obama and one of the nation’s most influential labor-market experts, died Saturday at the age of 58. The cause of death was suicide, his family said in a statement released by Princeton University, where he taught since 1987. Mr. Krueger, a labor economist who wrote papers on topics including rock ’n’ roll concerts and the roots of terrorism, was tapped by Mr. Obama in 2011 to serve as chairman of the White House Council of Economic Advisers, Paul Kiernan and Nick
Timiraos report.

What Else We're Reading: Alan Krueger

Falling labor-force participation and the opioid crisis are intertwined. "Nearly half of prime age men who are not in the labor force take pain medication on any given day; and in nearly two-thirds of these cases, they take prescription pain medication."
Raising minimum wage doesn't kill low-wage jobs. "Contrary to the central prediction of the textbook model of the minimum wage...we find no evidence that the rise in New Jersey's minimum wage reduced employment at fast-food restaurants in the state."
There's a link between concentration of wealth and economic mobility. The Great Gatsby Curve "shows that children from poor families are less likely to improve their economic status as adults in countries where income inequality was higher–meaning wealth was concentrated in fewer hands–around the time those children were growing up."
What makes a terrorist? "[T]he evidence is nearly unanimous in rejecting either material deprivation of inadequate education as an important cause of support for terrorism or of participation in terrorist activities." 

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