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Does Manufacturing Have the Largest Employment "Multiplier" for the Domestic Economy?

A common argument in favor of promoting manufacturing is that jobs in that sector are among the most valuable to American economic health—certainly more valuable than jobs in the service sector because they are associated with more jobs elsewhere. For example, Peter Navarro, head of the Trump administration’s National Trade Council, argues that manufacturing has a high employment multiplier—i.e., manufacturing generates a large amount of ancillary employment in other fields. Reports from the...

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Why US Growth of 2 Percent Is Plausible—And Unlikely to Get Much Higher

The US economy will likely grow at a rate of around 2 percent a year over the next decade. While this estimate seems low relative to the average annual growth rate of 3.5 percent from 1950 to 2000, it is not reflective of some newly found pessimism. Instead, it is largely based on two demographic facts: aging baby boomers entering retirement and the end of the influx of women into the workforce. In fact, without the cyclical boost in recent years from the falling unemployment rate, achieving...

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Is Italy Europe’s Next Big Worry?

Despite the prospects of a good year economically and politically for the euro area in 2017, uncertainty hangs on the horizon over Italy. Once the French election in May is over, investors' attention will likely turn to Italy, where an election is due no later than May 2018. But the country may not be capable of forming a new viable government in an uncertain economic environment: With a recovering euro area economy, the European Central Bank (ECB) may reduce its asset purchases to zero in...

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The Fed Raises a Rate—But Faster Tightening Depends on Congress

The US Federal Reserve raised its target interest rate today by one-quarter of a percentage point to just under 1 percent. The rise indicates that the Fed feels confident that the US economic recovery will continue. However, the forecasts of meeting participants do not show any increase in the median projection of the federal funds rate at year-end 2017 or 2018. In other words, the Fed is not signaling any intention to pick up the pace of policy tightening relative to the three rate hikes in...

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Fears of Right-Wing Populism May Be Overblown in Europe

Europe faces a series of crucial elections this year, kicking off with the Netherlands on March 15 and followed by France, Germany, and potentially Italy and the United Kingdom if Brexit negotiations break down. The widely assumed risk of success by populist parties could prove overstated, however. The Netherlands In the Dutch elections, the populist Freedom Party, led by Geert Wilders, has surged in public attention. But opinion polls paint a different picture. The strictly proportional...

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The New Trump Immigration Policy Is Bad for US Health

The Trump administration has produced a revised executive order that would put a temporary moratorium on refugee resettlement and suspend new visas for residents of six Muslim-majority countries: Iran, Libya, Somalia, Sudan, Syria, and Yemen. In a step to avoid the confusion of the administration’s earlier immigration order, nationals of those countries already holding visas may travel to the United States. Many analysts say the new order will still create confusion without making America...

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To Make the Best of Brexit, the European Union Needs to Beef Up ESMA

Given London’s current central role in the European financial system, Brexit will generate significant risks and opportunities for the financial system of the remaining members of the European Union (EU-27). With Britain’s departure from the EU single market nearly certain to occur before mid-2019, the EU-27 should not wait to adapt its financial regulatory structure to successfully manage the resulting shifts. The main risks relate to the supervision of wholesale activities of financial...

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Brazilian Misery: A Cautionary Tale for the US?

Former President Luiz Inácio Lula da Silva of Brazil has been rising steadily in the polls for Brazil’s 2018 presidential elections, despite facing several corruption charges. Why? Because some Brazilians perceive increasingly that he can make Brazil great again. After all, it was under his stewardship that Brazil experienced the rise of the middle class, falling inequality, substantial job creation, and the shrinkage of the informal economy between 2003 and 2010. Of course, Lula’s record of...

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PIIE Debates Border Adjustment Tax

The proposal for a “border adjustment tax,” sponsored by House Speaker Paul Ryan and other House Republicans, has divided the business community and economic professionals alike, as a recent conference at the Peterson Institute for International Economics (PIIE) made clear. About the only point on which conference participants could agree is that the current corporation tax system is flawed and that a lower corporate tax rate and a value-added tax (VAT) to make up for the lost revenues would...

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The Truth about Mexico

As depicted by the Trump administration, the Mexican economy has flourished under the North American Free Trade Agreement (NAFTA) at the expense of its neighbors, particularly the United States. The trade deficit between the United States and Mexico is often cited by President Donald Trump and his economic advisers as the reason why “jobs have been destroyed” and “factories have been stolen.” Economists generally argue that trade deficits alone do not spur or impede a country’s economic...

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