Tonight’s presidential debate will mostly focus on issues out of my wheelhouse, but there are a couple of international economic issues that will come up that people should be prepared for. This post tackles one (currency management by our trading partners, particularly China) and a subsequent post will tackle the other (alleged reliance of the U.S. on China to buy our public debt).

The primary reason why the United States ran large (and generally-growing) trade deficits over the past 15 years was that the value of the U.S. dollar was too expensive. This expensive dollar prices our exports out of too many global markets. The source of this too-expensive dollar has actually varied over that time, but over the past decade it has been clearly driven by the policy of foreign governments buying hundreds of billions of dollars of dollar-denominated assets, hence increasing the demand for dollars, which pushes up the price of dollars on world markets.

In the late 1990s and early 2000s, it was largely private investors demanding dollars to buy into the U.S. stock market, and to find a safe haven for their investments in the fallout Read more

Here’s some of the interesting content that EPI’s research team browsed through today:

• “Behavioral Hazard in Health Insurance” (National Bureau of Economic Research)
• “Congress still has time to get it right” (Politico)
• “The Choice” (New Yorker)

One year ago, on Oct. 11, 2011, the Senate passed Sherrod Brown’s  Currency Exchange Rate Oversight Reform Act of 2011. This legislation aimed to put an end to the exchange rate intervention practiced by China and other countries, which kills jobs in the United States by artificially lowering the cost of the intervening countries’ exports while making goods produced in the U.S. artificially expensive. The Senate passed the bill 63-35, on a rare bipartisan vote.

The next day, the bill was sent to the Republican-controlled House of Representatives, where it has been blocked ever since. This gridlock is especially unfortunate because a year earlier, in Sept. 2010, the House passed a somewhat tougher bill, the Currency Reform for Fair Trade Act, by an overwhelming vote of 348–79, with a majority of Republicans joining their Democratic colleagues in support.

China continues to peg its currency to the dollar at an artificially low rate, and good-paying manufacturing jobs in the U.S. continue to be lost as a result. At an event hosted by EPI, two economists who have long favored free trade, Fred Bergsten and Paul Krugman, agreed that ending China’s “staggering and unprecedented” currency intervention could create up to a million jobs in the U.S., a result that would also improve the U.S. budget deficit and add as much as $200 billion to U.S. GDP.

So why hasn’t Congress acted? What happened to change the outcome in the House from one year to the next? Most obviously, control switched from the Democrats to the Republicans in the 2010 elections, and the new Speaker of the House, John Boehner, and the new majority leader, Eric Cantor, both opposed the bill in 2010.

Penalizing imports from China that have benefited from illegal currency intervention is very popular, with public support more than 70 percent in most polls. But the U.S. Chamber of Commerce and other business groups representing the multinational corporations that benefit from China trade are dead-set against the currency bill. From their point of view, policies like China’s currency intervention that put pressure on U.S. workers to accept pay cuts and other concessions to save their jobs are just fine. Corporate lobbying and campaign contributions almost guarantee that Congress will remain deadlocked on this issue.

Republican presidential candidate Mitt Romney has been adamant that his tax plan won’t cut taxes for the rich. In the debate earlier this week, he said:

“The top 5 percent of taxpayers will continue to pay 60 percent of the income tax the nation collects… I will not reduce the share paid by high-income individuals.”

So would his plan cut taxes for high-income households? Most likely. Note that he specifies the share of federal income taxes.  Why is this important? If his plan was revenue-neutral, there would be no distinction: the same share of the same total revenue equals the same amount of taxes paid.

But it’s clear that his plan can’t be revenue neutral: According to the Tax Policy Center, the 20 percent cut would give households with income of more than $200,000 a $251 billion tax cut, but they only get $165 billion in tax breaks (excluding the tax breaks for savings, which Romney has proposed to retain). A more recent TPC analysis shows that the $25,000 cap on itemized deductions he floated in the debate would only raise $1.3 trillion, offsetting only a quarter of the $5 trillion cost of his across-the-board rate cut.

So it seems that Romney’s plan would lose revenue, and if high-income households are paying the same share of a lesser amount of overall tax revenue, that means their tax bill will fall. This conclusion is reinforced by Romney’s own choice of words.  If his plan really did ensure that the top households didn’t get a tax cut, why would he often insist on describing his plan using the clunky “I will not reduce the share of taxes paid” explanation? It’s a roundabout explanation that suggests that even Romney knows that his plan will result in high-income households paying less in taxes.

Politicians love to complain about “waste, fraud and abuse,” and to promise to root it out. But few of them ever actually take the opportunity to attack actual waste or abuse (as opposed to making fun of scientific research they don’t understand or bike path construction projects they disagree with). But soon, in the lame duck session of Congress that will begin after the election, members of Congress will have a chance to vote against actual waste and abuse, or—if they’re so inclined—to allow it to continue, at great cost to the taxpaying public. Thanks to an amendment to the Department of Defense authorization bill introduced by Sen. Joe Manchin of West Virginia, Congress has an opportunity to put an end to an egregious practice of self-dealing and self-aggrandizement by federal defense contractors that costs the government billions of dollars a year.

Top federal contract employees are treated very differently (and much better) than equivalent employees on the federal civil service payroll. Current law permits federal contractors to charge the government up to $763,029 a year for their employees, while even federal cabinet secretaries are paid no more than $200,000 a year, and the president is paid only $400,000 a year. Read more

Today is the 40th anniversary of the Clean Water Act, federal legislation that has improved quality of life for millions of Americans, increasing recreational opportunities, improving public health, adding to our aesthetic enjoyment of nature and our environment, and providing business opportunities to manufacturers of boats and fishing equipment, rafting outfitters, and retailers of outdoor equipment. The Act is proof of the power and benefits of federal regulation; it transformed our world in so many visible ways and did more to protect our precious water resources than any other action, public or private, in the nation’s history.

It’s hard for young people to imagine just how polluted and threatened our waters were in 1972, when the Act was passed and signed into law by President Richard Nixon. I grew up near Detroit, on the shores of Lake St. Clair, the lake that, along with the Detroit River, connects Lake Erie and Lake Huron. After heavy rains, tides of human sewage and fecal matter would flow out into the lake, and continuous discharges of mercury and other toxins from industrial plants killed all but the hardiest and least appetizing fish. I swam in that lake Read more

Here’s some of the thought-provoking content that EPI’s research team enjoyed reading today:

• “Income Inequality May Take Toll on Growth” (New York Times)
• “Economic Health? It’s Relative” (New York Times)
• “Leading by Example: Minneapolis Acts on Employment Equity” (PolicyLink)
• “How a High-Speed Rail Disaster Exposed China’s Corruption” (The New Yorker)
• And finally, in case you missed it over the weekend, here’s a great Saturday Night Live skit on Apple’s iPhone 5 and the Chinese workers toiling away in Foxconn’s factories—something EPI has covered extensively:

Republican presidential nominee Mitt Romney’s budget proposal is short by nearly $9 trillion worth of specifics—the tax increases and spending cuts needed to meet promises of revenue-neutral tax changes and capping government spending at 20 percent of GDP. In this context, the Washington Post editorial board’s recent “pox on both houses” indictment of President Obama for a lack of second-term policy specifics, particularly with regard to fiscal sustainability, was entirely off the mark. Though too often lost on the punditry, the president has produced four comprehensive, independently analyzed and scored budgets—largely consistent and all fiscally sound—offering guidance to what a second Obama administration would imply for economic recovery and fiscal sustainability.

Economy: The president’s fiscal 2013 budget request included an adaptation of the American Jobs Act (AJA), originally a $447 billion package of stimulus spending and tax cuts proposed in Sept. 2011. I recently estimated that full passage of the AJA, relative to the scaled-back payroll tax cut and Emergency Unemployment Compensation extension Congress enacted, would have boosted real GDP growth by 1.4 percentage points and employment by more than 1.6 million by the end of 2012. Read more

Here’s some of the thought-provoking content that EPI’s research team enjoyed reading today:

• “The judicial jihad against the regulatory state” (Washington Post)
• “Social Security Keeps 21 Million Americans Out of Poverty: A State-by-State Analysis” (Center on Budget and Policy Priorities)
• “Transforming Medicare into a Premium Support System: Implications for Beneficiary Premiums” (Kaiser Family Foundation)
• “The Presidential Debate Commission is Chaired by Corporate Lobbyists, Funded by Corporations” (BoldProgressives.org)
• “A Risky Lifeline for the Elderly Is Costing Some Their Homes” (New York Times)

Despite a massive and endless campaign by business lobbyists and associations to vilify government regulation, 50 percent of Americans in a recent Gallup poll think there is too little regulation or just the right amount, while a minority (46 percent) think there is too much. According to the poll, Democrats tend to think regulation is too lax (42 percent think there is too little regulation while 32 percent think the balance is about right), and more Independents think the balance is right or that there is too little regulation (50 percent) than think there is too much (46 percent).

In one sense, this is good news, showing that anti-government cynicism is substantial but still a minority position. Yet it is disturbing to know that 77 percent of Republicans are so opposed to additional regulation when

• an estimated 100,000 people a year die needlessly from preventable hospital acquired infections;
• thousands die, more than 100,000 are hospitalized, and millions are sickened by contaminated food while the rate of infections linked to foodborne salmonella has been rising and food safety rules are stalled in Washington;
• air pollution that can be controlled for less than $3 billion a year causes between 13,000 and 34,000 preventable, premature deaths, 15,000 preventable, non-fatal heart attacks, 19,000 hospital and emergency room visits and 1.8 million days of missed work or school each year. As Steven Pearlstein points out in a recent column, the projected annual compliance cost of EPA’s final cross-state air pollution rule is $2.4 billion, compared with annual health benefits ranging from $120 billion to $280 billion. But the EPA rule was recently struck down by two Republican judges.

It is perfectly clear to me that more regulation would make millions of us both safer and freer—free from the fear that a random bite of spinach or a routine surgery will kill us or a loved one. And when I look back over the past 40 years and consider how much cleaner our lakes and rivers are now, how much more dangerous our workplaces were, and how unsafe the mines, factories, pharmaceuticals, and even the bridges and railways are in less advanced and less regulated countries like China, the last feeling I have about regulation is that we have too much, rather than too little.